Erratic Strategic Decisions

Strategic Management Journal
Strat. Mgmt. J., 32: 683704 (2011)

Published online EarlyView in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/smj.905
Received 1 December 2008; Final revision received 6 November 2010
ERRATIC STRATEGIC DECISIONS: WHEN AND WHY
MANAGERS ARE INCONSISTENT IN STRATEGIC
DECISION MAKING
J. ROBERT MITCHELL,
1
* DEAN A. SHEPHERD,
2
and MARK P. SHARFMAN
3
1
Richard Ivey School of Business, University of Western Ontario, London, Ontario,
Canada
2
Kelley School of Business, Indiana University, Bloomington, Indiana, U.S.A.
3
Price College of Business, The University of Oklahoma, Norman, Oklahoma, U.S.A.
While decision makers in organizations frequently make good decisions rooted in stable and
consistent preferences, such consistency in outcomes is not always the case. In this study,
we adopt a psychological perspective of judgment to investigate managers erratic strategic
decisions, which we dene as a managers inconsistent judgments that can shape the direction
of the rm. In a study of 2,048 decisions made by 64 CEOs of technology rms, we examine
how both metacognitive experience and perceptions of the external environment (hostility and
dynamism) could affect the extent to which managers make erratic strategic decisions. The
results indicate that managers with greater metacognitive experience make less erratic strategic
decisions. The results also indicate that in hostile environments managers make more erratic
strategic decisions. But contrary to our expectations, in dynamic environments managers make
less erratic strategic decisions. Similarly, hostility and dynamism interact in their effect on erratic
strategic decisions in that the positive relationship between environmental hostility and erratic
strategic decisions will be less positive for managers experiencing high environmental dynamism
than those experiencing low environmental dynamism. These results have important implications
for strategic decision-making research. Copyright 2010 John Wiley & Sons, Ltd.
INTRODUCTION
Strategic decisions are those choices made by
managers that commit important resources, set
important precedents, and/or direct important rm-
level actions (Mintzberg, Raisinghani, and Th eor et,
1976). They are the decisions that shape a rms
general direction (Dean and Sharfman, 1996). The
processes that underlie effective strategic deci-
sion making matter for organizational outcomes
Keywords: strategic decisions; entrepreneurship; psychol-
ogy and metacognition; hostility and dynamism; conjoint
analysis; eld experiment
Correspondence to: J. Robert Mitchell, Richard Ivey School of

Business, University of Western Ontario, 1151 Richmond Street
North, London, Ontario N6A 3K7, Canada.
E-mail: rmitchell@ivey.ca
(Rajagopalan, Rasheed, and Datta, 1993), lead-
ing to both organizational effectiveness (Dean
and Sharfman, 1996) and organizational efciency
(Eisenhardt, 1989). These processes are inuenced
by the managers prior knowledge and experi-
ences (Barr, Stimpert, and Huff, 1992; Kiesler and
Sproull, 1982; Walsh, 1995), the organizational
context in which they are embedded (Kaplan,
2008; Ocasio, 1997; Simon, 1957), and the nature
of the environment itself (Nadkarni and Barr,
2008). Effective decision-making outcomes have
been characterized in terms of reliability (Einhorn,
1974; Shepherd, Zacharakis, and Baron, 2003),
adaptability (Gigerenzer, 2001; Payne, Bettman,
and Johnson, 1997), and performance (Camerer
and Johnson, 1991; Einhorn, Hogarth, and Klemp-
ner, 1977; Shepherd et al., 2003).
Copyright 2010 John Wiley & Sons, Ltd.
684 J. Robert Mitchell, D. A. Shepherd, and M. P. Sharfman
Although previous research acknowledges the
expectation that high quality managerial decision-
making processes are rooted in stable and con-
sistent preferences (March, 1982; Shanteau, 1992;
Shepherd et al., 2003), such consistency is not
always the case (Cohen, March, and Olsen, 1972;
March, 1982; Masuch and LaPotin, 1989). At
times strategic decision making is inconsistent
(Eisenhardt and Zbaracki, 1992; March, 1994).
This lack of consistency can reect attempts to
adapt to changing environmental conditions
(Chakravarthy, 1982; Hogarth and Makridakis,
1981). However, there is also evidence that deci-
sions can be inconsistent absent changes in the
decision context; that is, decisions simply can be
erratic (Kunreuther, 1969; Remus and Kottemann,
1987; Remus, 1978). The notion that decisions can
be erratic has been discussed in economics (e.g.,
Benhabib and Day, 1981), management informa-
tion systems (e.g., Remus and Kottemann, 1987),
operations management (e.g., Kunreuther, 1969),
and psychology (e.g., Wood and Bandura, 1989).
Erratic decisions have been linked to economic
inefciency (Bowman, 1963; Remus, 1978), and
reduced performance (Bandura, 1989).
However, there has been little research on the
sources of erratic decisions (a notable exception
is Wood and Bandura [1989], which pointed to
low perceived self-efcacy as a source of erratic
decisions). While we acknowledge that decision
making in general can be unpredictable in rapidly
changing environments, where new information
is common (Eisenhardt and Martin, 2000; Miller,
1992), we propose that strategic decisions can be
erratic even with limited new information. In this
paper, we investigate the psychological founda-
tions underlying erratic strategic decisions. Speci-
cally, we use a eld experiment (Harrison and List,
2004) to investigate cognitive and environmental
factors (cf. Elsbach, Barr, and Hargadon, 2005)
that lead managers to make more or less erratic
strategic decisions.
In doing so, we make four primary contribu-
tions. First, previous research has acknowledged
the importance of strategic decision making to
rm performance. This research has focused on
the systematic nature of those strategic decisions
in terms of content (Fahey and Christensen, 1986)
(e.g., strategies and goals) and process (Hutzschen-
reuter and Kleindienst, 2006) (e.g., speed [e.g.,
Eisenhardt, 1989], biases [e.g., Hodgkinson et al.,
1999], and comprehensiveness [e.g., Atuahene-
Gima and Li, 2004]). Herein, we explain how
variance in experience- and context-based
decision-making processes can result in variance in
the extent to which strategic decisions are erratic,
specically providing a deeper understanding of
when and why managers decisions are likely to
be more erratic (Bowman, 1963; Remus, 1996).
Second, by investigating how strategic decision-
making processes (which can be messy and ill-
structured) lead to specic decision-making out-
comes, we extend prior studies that focus on erratic
decisions that had utilized more structured set-
tings (Kunreuther, 1969; Remus and Kottemann,
1987; Remus, 1978). Moreover, we move beyond
a focal emphasis on the development of boot-
strapping models that exclude the erratic com-
ponent of the decision-making process (Bowman,
1963; Camerer, 1981; Shepherd et al., 2003) to an
emphasis on capturing and explaining the process-
based sources of erratic strategic decisions as out-
comes.
Third, environmental conditions are an impor-
tant consideration in making effective strategic
decisions (Bourgeois and Eisenhardt, 1988; Hough
and White, 2003). We theorize and nd that envi-
ronmental conditions also inuence the extent to
which managers make erratic strategic decisions.
That is, when it comes to strategic decision mak-
ing, we nd that perceptions of the environ-
ment appear to inuence both the systematic
and the erratic. Furthermore, individual differ-
ences in strategic decision-making processes have
often been attributed to experience (Forbes, 2005;
Judge and Miller, 1991). We extend this research
by focusing on the processes that lead one type
of experience (metacognitive experience: which
refers to a persons conscious experiences that are
cognitive and affective in nature [Flavell, 1987])
to produce less erratic decision outcomes.
Finally, while this study is not a study of
strategic change, the results nonetheless comple-
ment research that has emphasized the importance
of managers strategic decisions in organizational
adaptation (Lant, Milliken, and Batra, 1992; Sharf-
man and Dean, 1997). For example, studies have
investigated why some decision makers are more
effective at deciding to change (or not) and oth-
ers are less effective (Bourgeois and Eisenhardt,
1988; Huy, 2001; Lant and Mezias, 1990). Regard-
less of whether the decision is to change or stay
the course, we explain why such a decision might
Copyright 2010 John Wiley & Sons, Ltd. Strat. Mgmt. J., 32: 683704 (2011)
DOI: 10.1002/smj
Erratic Strategic Decisions 685
be more or less erratic. This is particularly impor-
tant given the ndings that erratic decisions tend to
be associated with less optimal results (e.g., Bow-
man, 1963; Hogarth and Makridakis, 1981; Remus,
1978).
1
In this paper, we rst use a psychological per-
spective of judgment to build a model explaining
variation in the extent to which managers strate-
gic decisions are erratic. We then test a series
of hypotheses using a sample of chief executive
ofcers (CEOs) of technology rms. Finally, we
discuss the implications of our results from the per-
spective of research on strategic decision making.
A MODEL OF ERRATIC STRATEGIC
DECISIONS
Erratic strategic decisions refer to a managers
inconsistent judgments that can shape the direc-
tion of the rm. Previous research in judgment
and decision making (e.g., Brunswik, 1952; Hog-
arth and Karelaia, 2007; Karelaia and Hogarth,
2008) has highlighted that judgment quality is
a function of the matching index, environmental
predictability, and response consistency. In judg-
ment terms, the matching index refers to how well
the weights and function forms that describe the
cues of the environment model are represented by
the model of the decision maker (Karelaia and
Hogarth, 2008: 406). Environmental predictability
reects the extent to which the environment model
explains variance in the environment. Response
consistency reects the consistency with which
the judge executes [his/her] decision rule in deci-
sion making (Karelaia and Hogarth, 2008: 406).
To the extent that a strategic decision is erratic,
response consistency is diminished, thereby low-
ering judgment quality. Removing this response
inconsistency is the basis for bootstrapping mod-
els that have been created directly from an experts
decision-making process. By applying that
decision-making process consistently, the model
provides judgment superior to the expert from
which the bootstrapping model was created
(Camerer, 1981). These ndings have been
replicated in a variety of judgment tasks: for
1
Hogarth and Makridakis (1981) also introduced the possibil-
ity that inconsistent decision-making outcomes can sometimes
serve a strategic purpose (e.g., it might be more difcult for
competitors to predict future outcomes).
example, predicting violent behavior of newly
admitted inmates (Cooper and Werner, 1990),
clinical judgments of human health and behavior
(Dawes, Faust, and Meehl, 1989), and judgments
of venture capital portfolio company performance
(Zacharakis and Meyer, 2000). In sum, judgment
quality appears to be enhanced when the response
inconsistency associated with erratic decisions is
eliminated (for a meta-analysis see Karelaia and
Hogarth, 2008).
In our investigation of erratic strategic decisions,
we adopt a psychological perspective of judgment
(e.g., Goldstein and Hogarth, 1997; Walsh, 1995)
to view managers decisions as the result of indi-
vidual thinking that is embedded in the broader
environmental context (Elsbach et al., 2005). Thus
we focus on two important elements of the
manager-environment interaction: (1) managers
ability to understand their thinking and (2) man-
agers perception of the external environment as it
affects their thinking.
Erratic strategic decisions and managers
thinking
We seek to understand managers abilities related
to understanding their own decision making. To
do so, we utilize the concept of metacognition,
which refers to conscious reection about ones
own thinking. Such thinking about thinking (Jost,
Kruglanski, and Nelson, 1998) is particularly rel-
evant to strategic decision making due to the cen-
trality of metacognition in learning effectiveness
and in goal planning, adaptation, and implemen-
tation (Ford et al., 1998). Metacognition generally
refers to a higher-order concept (Weinert, 1987)
that involves knowledge and cognition about cog-
nitive phenomena (Flavell, 1979: 906) and has
been dened as an ability to reect upon, under-
stand, and control cognitive processes relating to
a concrete goal or objective (Flavell, 1976: 232;
Schraw and Dennison, 1994: 460).
2
The idea of metacognition is useful in our inves-
tigation because metacognition-based processes
which are instrumental in understanding the details
2
The concept of metacognition is not without controversy, from
criticisms that the distinction between cognition and metacogni-
tion is vague and arbitrary (Weinert, 1987) to criticisms of the
multiplicity of uses of the concept (Brown, 1987; Reder, 1996).
For our purposes, however, the notion of metacognition as sec-
ond order cognitions (Weinert, 1987) is useful in that it describes
general processes that relate to knowledge of and control over
cognition (Ford et al., 1998: 220, italics added).
DOI: 10.1002/smj
of a given situation vis-` a-vis ones own cog-
nitions (Haynie et al., 2010)may mitigate the
conditions that give rise to erratic strategic deci-
sions. That is, like other errors in thinking (Wil-
son and Brekke, 1994), erratic decisions can result
from erroneous beliefs about cognition and inad-
equate awareness of ones decision-making pro-
cesses. Importantly, metacognitive processes can
allow individuals to exert cognitive control by
enabling them to generate multiple, alternative
decision frameworks focused on interpreting, plan-
ning, and implementing goals (Haynie and Shep-
herd, 2009: 697).
Because of the role of past experience in deci-
sion making (Forbes, 2005; Judge and Miller,
1991), we focus on metacognitive experience,
3
which refers to a persons conscious experiences
that are cognitive and affective in nature (Flavell,
1987). These experiences relate to believing that
one knows how to think about a task in order to
successfully accomplish that task. The duration of
these experiences can be either brief or lengthy
and their content either simple or complex (Flavell,
1979). At the core of metacognitive experience is
the idea that previous experience can be used to
make sense of present situations (Flavell, 1987)
and can trigger a belief that one knows how best
to approach the current situation. As an example:
A person has a metacognitive experience if he
or she has the feeling that a particular task is
difcult to comprehend, and then draws on past
experience with such difcult-to-comprehend
problems to inform the generation of a deci-
sion framework for approaching this new, but
related, task (Haynie and Shepherd, 2009: 699,
italics in original).
Evident in this example, metacognitive experi-
ences are often recognized as feelings/thoughts
(Flavell, 1979) that relate relevant past experience
to current cognitive processes (Flavell, 1987). In
decision-making terms, those with greater
metacognitive experience are likely to recognize
how the current decision-making process is
informed by previous decision-making processes,
3
We acknowledge that metacognitive knowledgea persons
understanding about the cognitive strategies they use to think
about a specic task (Flavell, 1987)may also be important.
And while we include only metacognitive experience, our results
did not differ substantially when metacognitive knowledge was
used as a control variable.
which can then be applied in a way that best
addresses the decision task at hand (Haynie and
Shepherd, 2009: 697).
A critical element of metacognitive experience
is the accompanying self-awareness of ones own
experiences with mental processes. Prior research
suggests that metacognitive experience affects the
processes used to make decisions (Schwarz, 2004)
by facilitating understanding of a given situa-
tion (Haynie et al., 2010). This contextual element
is important in that metacognitive experiences
are especially likely to occur in situations that
require careful and conscious consideration, which
then increases the extent to which they engen-
der increased cognitive control (Flavell, 1979). In
this way, metacognitive experience can allow man-
agers to verify the usefulness of their decision-
making processes, thus representing a type of cog-
nitive quality control (Flavell, 1979: 908). Just
as metacognitive experience can enable adjust-
ments in thinking processes (Ford et al., 1998)
through the creation, adaptation, and abandonment
of knowledge and goals (Flavell, 1979), it can
also allow decision makers to preserve impor-
tant knowledge and goals (Flavell, 1979). Previous
experience in decision making that is metacogni-
tive in nature will accordingly allow managers to
exert control in current decision-making processes.
The expected result of this metacognitive experi-
ence is that decisions become less erratic. Thus,
Hypothesis 1: Managers with higher metacogni-
tive experience will make less erratic strategic
decisions than managers with lower metacogni-
tive experience.
Erratic strategic decisions and managers
external environment
In our approach to understanding how the environ-
ment affects the extent to which managers make
erratic strategic decisions, we focus on the impact
of managers perceived experience in their envi-
ronmental context (Duncan, 1972; Milliken, 1987).
Specically, we seek to understand the effect of
environmental contexts that are perceived as hos-
tile and dynamic. This focus on the experience of
cognition is anchored in the role of experience in
interpretation of and response to changes in the
environment (Anderson and Paine, 1975; Milliken,
1990).
DOI: 10.1002/smj
Hostile environmental context
By denition, hostile environments are danger-
ous and threatening (Dean and Sharfman, 1993;
Miller and Friesen, 1983). There has been consid-
erable debate about whether threatening environ-
mental conditions induce threat-rigidity (DAunno
and Sutton, 1992; DAveni and MacMillan, 1990;
Staw, Sandelands, and Dutton, 1981) or change
(Cyert and March, 1963; Kiesler and Sproull,
1982; March and Simon, 1958; Tushman and
Romanelli, 1985). There have been numerous stud-
ies that reconcile these perspectives (Chattopad-
hyay, Glick, and Huber, 2001; Ocasio, 1995;
Thomas, Clark, and Gioia, 1993) nding, for
example, that the nature of threat-induced decision-
making outcomes are contingent on the dimension-
ality of the threat (Chattopadhyay et al., 2001), the
attention given to the environment and the direc-
tion of problemistic search (Ocasio, 1995), and
the interpretation of potentially threatening issues
(Thomas et al., 1993).
In these studies, the emphasis is on reconciling
differences in decision-making outcomes: threat-
rigidity versus failure-induced change (i.e., when
might we expect failures to alter response in the
face of environmental change and when might we
not [Staw et al., 1981: 501]?). Like these studies,
our research also addresses threatening environ-
ments. It does not, however, address radical or
incremental environmental change (although we
control for this); nor does it address rigidity- or
change-based decision-making outcomes (although
we control for this as well). Instead, our research
addresses strategic decisions that are inconsistent
absent changes in the environmental context.
To illustrate the impact of environmental hos-
tility on decision-making processes, we draw on
strategy process research (cf. Hutzschenreuter and
Kleindienst, 2006), which indicates that hostile
environmental contexts decrease decision-making
speed (Baum and Wally, 2003), reduce the effec-
tiveness of strategic decision-making processes
(Goll and Rasheed, 1997), decrease rationality
in strategic decision-making processes (Dean and
Sharfman, 1993), and result in negative perfor-
mance consequences in terms of both prot and
growth (Baum and Wally, 2003). A hostile envi-
ronmental context can, thus, negatively affect man-
agers strategic decision-making processes (Dean
and Sharfman, 1993; Miller and Friesen, 1983;
Nicholls-Nixon, Cooper, and Woo, 2000).
Decision making in the face of a threatening
environment can lead to a process that is man-
ifest as feverish desperation and panic (Miller
and Friesen, 1983; Nicholls-Nixon et al., 2000;
Staal et al., 2008). Such decision making reects
the disorganized and haphazard cognitive process-
ing in response to a threat (Janis and Mann,
1977; Staal et al., 2008: 271), which can lead
to a degradation of judgment (Staal et al., 2008),
disrupted and simplistic information processing
(Janis and Mann, 1977), failure to consider alter-
natives (Baradell and Klein, 1993), frantic search
(Baradell and Klein, 1993; Staal et al., 2008), and
poor cognitive performance (Baradell and Klein,
1993; Keinan, 1987). As Janis described, such
responses to threats reect a defective coping pat-
tern wherein decision makers fail to carry out
adequately the cognitive tasks that are essential
for arriving at stable decisions (1982: 73, ital-
ics in original). In the decision-making process,
restricted information processing results in a fran-
tic search for hastily contrived solutions among
few alternatives (Janis and Mann, 1977: 51).
Our theorizing focuses on the extent to which,
in the face of a threatening environment, decision
makers information processing degrades such that
it leads to inconsistent decisions (Janis, 1982; Staal
et al., 2008). Our expectation is that managers who
experience a hostile environment will be more
susceptible to disrupted information processing in
their decision making (Baradell and Klein, 1993;
Janis, 1982; Janis and Mann, 1977), leading to a
failure to fully consider past, present, and future
decision alternatives (Baradell and Klein, 1993).
Our expectation is that these deciencies (Keinan,
1987) will lead to decisions that are increasingly
erratic. Thus,
Hypothesis 2: Managers experiencing greater
hostility in their environmental context will make
more erratic strategic decisions than managers
experiencing less hostility.
Dynamic environmental context
An environmental context that is dynamic is one
with a highly unpredictable and unstable rate of
change (Aldrich, 1979; Dess and Beard, 1984;
Duncan, 1972; Keats and Hitt, 1988; Miller and
Friesen, 1983) and high levels of uncertainty
(Achrol and Stern, 1988; Baum and Wally, 2003;
Duncan, 1972) about the state of the context, the
DOI: 10.1002/smj
means-ends relationships, and/or the outcomes of
actions (e.g., Milliken, 1987). To illustrate the
impact of environmental dynamism on decision-
making processes, we draw on strategy process
research (cf. Hutzschenreuter and Kleindienst,
2006), which indicates that dynamic environmen-
tal contexts lead to increased competitive aggres-
siveness (Brouthers, Brouthers, and Werner, 2000),
require more effort on the part of managers
(Elenkov, 1997; Yasai-Ardekani and Nystrom,
1996), necessitate the strategic reorientation of the
rm (Lant et al., 1992), and can result in dimin-
ished performance if the rm is unable (or slow)
to respond to the changed environment (Baum and
Wally, 2003; Bryson and Bromiley, 1993).
Managers in dynamic environments must also
grapple with the difculties of understanding the
critical elements of the many, uncertain decision-
making options they face (Baum and Wally, 2003;
Hough and White, 2003). As a result, managers are
required to engage in multiple cognitive activities
at a given time (Gilbert and Osborne, 1989), which
decreases cognitive functioning (Gilbert, Giesler,
and Morris, 1995) and is manifest as a failure of
more effortful cognitive processing (Gilbert and
Osborne, 1989), diminished use of available infor-
mation (Gilbert, Pelham, and Krull, 1988), a nar-
rowing of attention (Ward and Mann, 2000), and
a more pronounced susceptibility to distractions
(Lavie et al., 2004). This challenging decision con-
text is compounded by an increased difculty to
detect ones own inconsistencies (Bargh and Thein,
1985).
As Lavie (2005: 75) described: the ability to
remain focused on goal-relevant stimuli in the
presence of potentially interfering distractors is
crucial for any coherent cognitive function. This
same logic likely applies to the strategic decision-
making process. That is, managers who experi-
ence a dynamic context will be more suscepti-
ble to distractor interference (Engle, 2002; Lavie,
2005; Lavie et al., 2004), which will split man-
agers attention (Kahneman, 1973; Ocasio, 1997;
Simon, 1957) such that they will pay less atten-
tion to their previously established preferences in
decision making (March, 1982; Ocasio, 1997). As
a result, current preferences will likely differ from
previously established preferences (e.g., Cho and
Hambrick, 2006), and the decision maker will be
less aware of the inconsistencies in these pref-
erences (Bargh and Thein, 1985). The expected
impact of environmental dynamism on strategic
decisions is that they become more erratic. Thus,
Hypothesis 3: Managers experiencing greater
dynamism in their environmental context will
make more erratic strategic decisions than man-
agers experiencing less dynamism.
Hostile and dynamic environmental context
Up to this point, we have focused on the hostile
and dynamic aspects of the environmental context
in terms of their separate effects. And while hostile
and dynamic environments are not always coupled,
the combination of both is likely to be a potent
one for strategic decision-making processes. In an
environment that is experienced as hostile (i.e.,
threatening [e.g., Dean and Sharfman, 1993; Miller
and Friesen, 1983]) and dynamic (i.e., uncertain
and frequently changing [e.g., Achrol and Stern,
1988; Miller and Friesen, 1983]), a manager will
anticipate hostile action (based on past experience)
but will be unsure of its form and extent due to
the unpredictability of such environments as the
result of high levels of state, effect, and response
uncertainties (Milliken, 1987).
In a hostile and dynamic environment, there will
be a higher perceived risk of failure (due to hos-
tility [Baum and Wally, 2003]) and greater uncer-
tainty about the likely sources of such failure (due
to dynamism [Achrol and Stern, 1988]). Whereas
hostility alone is expected to make managers more
susceptible to disrupted information processing (in
response to threats); and whereas dynamism alone
is expected to make managers more susceptible to
distractor interference (in response to uncertainty
and change); the combination of both hostility and
dynamism results in a kind of anxiety that feeds
on uncertainty about threats, which in turn leads
managers to perceive danger in perhaps innocu-
ous situations (cf. Freeman and Freeman, 2008;
Freeman et al., 2008a; Freeman et al., 2008b). As
a result, managers who experience such anxiety
about uncertain threats are more likely to make
judgements on the basis of minimal data (Free-
man and Freeman, 2008: 117) precisely because
the data about environmental threats are missing.
Complicating matters, the rapid pace of change
in dynamic environments may lead to numerous
decision-making options (Baum and Wally, 2003;
Hough and White, 2003) that are likely unrealistic
in a hostile environment (Castrogiovanni, 1991).
DOI: 10.1002/smj
Combined with managers anxiety about uncertain
threats, environments that are both hostile and
dynamic can thus lead to an inability on the part of
managers to make thoughtful and reasoned choices
(even in contexts that are innocuous), which results
in strategic decisions that are more erratic. Thus,
Hypothesis 4: Environmental hostility and envi-
ronmental dynamism will interact in their effect
on erratic strategic decisions, such that the posi-
tive relationship between environmental hostility
and erratic strategic decisions will be more pos-
itive for managers experiencing high environ-
mental dynamism than for those experiencing
low environmental dynamism.
METHODS
Research participants
We identied a sample of CEOs using the
CorpTech database of technology rms. Our expec-
tation was that CEOs at rms in this database faced
a frequent need to make strategic decisions due
to the changing nature of technology (Eisenhardt,
1989; Hughes, 1990), but also faced a diverse set
of operating environments, allowing for variance
in our independent variables. From this database,
we selected 459 companies based on three criteria.
First, geographic location was important because
the research required face-to-face interaction with
CEOs. Thus, we only contacted companies in the
surrounding three area codes of a large Midwest-
ern city (i.e., within a three hour drive). Sec-
ond, because our focus was on the strategic deci-
sion making of top managers, we only included
rms for which information about the CEO of
the company was provided. This meant that we
excluded rms that only provided contact informa-
tion for a chairman of the board, a plant manager,
a vice president, and so forth. Lastly, and related
to the previous point, rm size was an impor-
tant consideration in the research because, practi-
cally speaking, we anticipated that CEOs in small
to medium-sized companies (10500 employees)
would be more open and available to discuss strate-
gic decision making than CEOs of large companies
(500+ employees). Therefore, we excluded rms
that reported fewer than 10 and more than 500
employees.
To arrive at the nal sample and to ensure
that it was representative of the larger popula-
tion, we randomly selected a subsample of the
CEOs at these companies to contact (240 in total).
So as to produce a constant but manageable ow
of interviews, letters requesting participation were
mailed in groups of approximately 25 (based on
geographical proximity to facilitate efciency in
data collection). Within a week of the mailing, a
follow-up phone call was made to the letter recip-
ients in order to set up a meeting time. Data were
collected over a ve month period. Of the 240
contacted, 127 CEOs agreed to participate in our
research
4
and because of the nature of the design,
64 of these were randomly assigned to partici-
pate in this study. We used a logistic regression of
CEOs participation on rm age, rm size, and rm
type to test for differences between participants
and nonparticipants. None of the factors in the
regression were signicant, providing no signi-
cant evidence of participation bias. The mean age
of the CEOs rms was 33 years (median rm age
was 24 years) and the mean size was 88 employ-
ees with $21 million in sales (median size was 30
employees with $5 million in sales). The majority
of CEOs in the sample were men (94 percent), with
a mean age of 51 years. Additionally, 55 percent
were rm founders.
Research task
Conjoint analysis
Capturing erratic strategic decisions is challeng-
ing because variation in the decision weights in
responses to changes in the environment (inter-
nal or external to the rm) must be distinguished
from changes in decision weights when there has
been no change in the environment. Conjoint anal-
ysis provides the opportunity to focus on the
CEOs decision-making processes while ensuring
that the decision context remains constant. As
we have described, strategic decisions are those
choices made by managers that commit important
resources, set important precedents, and/or direct
important rm-level actions (Mintzberg et al.,
1976). Because of the importance of resource allo-
cation to strategy (Bower, Doz, and Gilbert, 2005;
Ghemawat, 1991; Noda and Bower, 1996), and the
4
All but four of the participants were the CEO of the rm (the
four who were not participated at the request of the CEO, once
the purpose of the study was made clear).
DOI: 10.1002/smj
substantial commitment of resources often required
for the pursuit of new opportunities (Burgelman,
1983), our eld experiment required CEOs to
engage in a decision-making task in which they
evaluated a series of hypothetical opportunities
and decided whether or not to allocate resources
to the full-scale exploitation of each opportunity.
Through use of a eld experiment design, we con-
trol for changes in the environmental context (radi-
cal or incremental) by ensuring that there are none.
In metric conjoint analysis, respondents make
a series of decisions based on a set of theoreti-
cally relevant attributes from which the underlying
structure of their strategic decision policies can
be investigated (Shepherd and Zacharakis, 1997:
211). In other words, metric conjoint analysis
allowed us to better understand CEOs strategic
decisions (Priem, 1992; Priem and Harrison, 1994)
such that we can investigate the factors that lead
these decisions to be more or less erratic.
Decision attributes and decision
The hypothetical opportunity proles that partici-
pants evaluated consisted of four theoretically rel-
evant attributes (Mitchell and Shepherd, 2010).
Because we cannot capture all attributes relevant
to a decision, we based our choice of attributes on
a model of entrepreneurial action that elaborates
on the thinking processes underlying the decision
to allocate resources to the exploitation of oppor-
tunities (McMullen and Shepherd, 2006). Consis-
tent with other opportunity-focused research (e.g.,
Baron, 2006; Krueger, 1993; Krueger, Reilly, and
Carsrud, 2000), McMullen and Shepherd (2006)
suggest that the allocation of resources for the
exploitation of an opportunity involves an assess-
ment of the extent to which the decision maker
is motivated and knowledgeable to pursue the
opportunity in an uncertain environment. The
motivation element of opportunity evaluation was
conceptualized as the potential value of an oppor-
tunity, which reects the prot predicted to result
from the decision to allocate resources to the full-
scale exploitation of the opportunity (Venkatara-
man, 1997). The knowledge element of opportu-
nity evaluation was conceptualized as knowledge
relatedness, which reects the extent to which the
CEO believes he or she has the knowledge nec-
essary to exploit the opportunity (Krueger and
Brazeal, 1994). The environmental elements of
opportunity evaluation were conceptualized as the
window of opportunity and the number of poten-
tial opportunities. These elements were selected
because they reect the broader, uncertain environ-
ment within which decision making about oppor-
tunities takes place (Bourgeois and Eisenhardt,
1988; McGrath and Nerkar, 2004). While theoret-
ically grounded, these attributes were nonetheless
pretested with CEOs of rms like those in our sam-
ple. In these interviews, the CEOs were asked if
the attributes were relevant to their strategic deci-
sion making. Additionally, while we could have
included environmental hostility and environmen-
tal dynamism as attributes in the conjoint exper-
iment, doing so would have precluded us from
testing the inuence of these factors on erratic
strategic decisions, which are our focus.
Decisions
After viewing a structured combination of these
four attributes, the CEOs decided their likelihood
of allocating resources to that opportunity, which
was captured using a nine-point Likert-type scale
anchored by very unlikely to invest in this oppor-
tunity (1) and very likely to invest in this oppor-
tunity (9). When making these decisions, CEOs
were asked to assume that: other than the infor-
mation provided in the proles, the hypothetical
opportunities presented are similar to other oppor-
tunities they have seen in all respects; they have
the resources (or access to the resources) to invest
in the opportunity, if they choose to do so; they
are making decisions about these opportunities for
their current rm; and they are making decisions
about these opportunities in their rms current
industry and economic environment.
Orthogonal fractional factorial design
Each of the four opportunity attributes was var-
ied at two levels (e.g., high and low knowledge
relatedness of an opportunity). Because a conjoint
experiment with a fully crossed factorial design
involving four attributes at two levels require 16
(2
4
) proles, a fractional factorial design was used
to make the decision-making task more manage-
able and shorter (see Green and Srinivasan, 1990).
This resulted in eight proles (Hahn and Shapiro,
1966). Each of the eight proles was fully repli-
cated, permitting estimates of individual reliability
for use in subsequent analysis (Shepherd et al.,
2003). The design was also orthogonal (i.e., no
DOI: 10.1002/smj
correlation between attributes), which is consistent
with studies using metric conjoint analysis (Lou-
viere, 1988). To test for order effects, four versions
of the proles were created that varied the order of
the attributes and the order of the proles. There
is no signicant difference between the versions in
the level of erratic strategic decisions. Participants
were familiarized with the task with a practice pro-
le that was not used in the analyses.
Measures and analysis
Erratic strategic decisions
To capture erratic strategic decisions, we asked the
CEOs to engage in the same decision-making task
at two times (T1 and T2), separated by a distractor
task that provided no new information to CEOs.
In the distractor task, CEOs described how their
decision making was similar to decisions that they
made in other areas of their life and discussed the
decision-making hierarchy at their rm (the mean
duration of the distractor task was eight minutes).
Because CEOs were making the same decisions
after the distractor task as before the distractor task
and there was no ex ante reason for them to change
their decisions, we represent any change in strate-
gic decisions as erratic. One of the key benets of
metric conjoint analysis is that it allows researchers
to calculate separate regression equations for each
set of decisions for each individual (both at T1 and
T2). Each regression equation reects an individ-
uals strategic decision policy decomposed into its
various partsthe regression coefcients reect
the weight given to a particular attribute in making
decisions (Priem and Harrison, 1994). The regres-
sion equation for each participant consisted of four
main effects and three interaction effects (consis-
tent with theory and empirical evidence [Mitchell
and Shepherd, 2010]), which reected each partic-
ipants strategic decisions. Erratic strategic deci-
sions were measured by calculating the extent to
which an individuals T2 regression equations dif-
fered from those at T1.
To determine a score to reect erratic strate-
gic decisions, we followed a three-step process.
First, we began by subtracting each signicant
(p < 0.05) T2 beta weight from the corresponding
signicant (p < 0.05) T1 beta weight (we included
only the signicant attributes so as to reduce error,
but saw similar patterns in the results when non-
signicant beta weights were also used in the
calculation and included in the model although
with reduced explanatory power). Second, we took
the absolute value of each difference for each
beta weight for each individual, resulting in up
to seven separate scores reecting the variance in
the signicant beta weights underlying the strate-
gic decisions. Third, we summed the scores for
each individual to result in our dependent variable
that describes the variance in strategic decisions.
In the Appendix, we include an example of how
we calculated the erratic strategic decision scores.
While this variable is intended to reect a kind
of change in decision outcomes, we suggest that
our variable does not suffer from the same prob-
lems as the simple difference score as described
by Bergh and Fairbank (2002). Instead, our mea-
sure captures what could be classied as the true
variance (at the p < 0.05 level) in CEOs actual
decisions (Bergh and Fairbank, 2002), which is the
focus of this study.
Metacognitive experience
To capture metacognitive experience, we used a
reduced version of the scale developed by Haynie
and Shepherd (2009). The items that make up this
scale are contained in the Appendix. Specically,
we measured metacognitive experience by ask-
ing CEOs to indicate on a six-item, seven-point
Likert-type scale the extent to which they strongly
disagree (1) to strongly agree (7) with a series of
statements regarding their experience with cogni-
tion ( = 0.74). These items were designed to cap-
ture the extent of the belief that one knows how to
think about a task in order to successfully accom-
plish that task, such as, I think about what I really
need to accomplish before I begin a task, I orga-
nize my time to best accomplish my goals, and I
know what kind of information is most important
to consider when faced with a problem.
Hostility and dynamism
To measure the hostility and dynamism of the
environment experienced by managers, we asked
participants to answer a series of questions about
their principal industry (the industry that accounts
for the largest percentage of sales) in a way that
best approximates the actual conditions in it. We
included the items that make up these scales in the
Appendix. To measure hostility, we used Slevin
and Covins (1997) six-item hostility scale, which
DOI: 10.1002/smj
required CEOs to indicate on a seven-point Likert-
type scale the extent to which they strongly dis-
agree (1) to strongly agree (7) with a series of
statements regarding the hostile nature of their
environmental context. The reliability of the hos-
tility scale ( = 0.65) was similar to that of previ-
ous research using this scale (e.g., Green, Covin,
and Slevin, 2008 [ = 0.71]; Slevin and Covin,
1997 [ = 0.70]). Moreover, consistent with other
research looking at environmental factors (e.g.,
Ang and Cummings, 1997; Powell, 1996), environ-
mental hostility can be categorized as a moderately
broad construct (i.e., it contains a number of dis-
tinct theoretical elements), the suggested range for
which is alpha between 0.55 and 0.70 (Van de Ven
and Ferry, 1980). To measure dynamism, we used a
variant of the Miller and Friesen (1982) dynamism
scalesimilar to that used by Green et al. (2008).
This six-item measure required CEOs to indi-
cate on a seven-point Likert-type scale the extent
to which they strongly disagree (1) to strongly
agree (7) with a series of statements regarding the
stability/dynamism of their environmental context
( = 0.83). Responses were coded so that higher
dynamism had higher scores.
Control variables
We include a number of controls in our anal-
ysis. First, because the threat-rigidity thesis (cf.
Staw, 1981) suggests that decision making will
be more rigid for individuals who are in threat-
ening environments compared to those who are
not, we controlled for participants rigidity- versus
change-based decision-making outcomes. To do
so, we utilized the constant from each individuals
initial regression equation (T1), which reects a
CEOs overall propensity to allocate resources to
new opportunities.
5
Individuals who were more
rigid in their decision-making outcomes would be
less likely to allocate resources to new opportuni-
ties. Thus, lower scores reected greater rigidity in
decision-making outcomes.
Second, we expected that the level of effort
given to the strategic decision-making task might
have an effect on erratic strategic decisions (e.g.,
Bargh and Chartrand, 2000). Thus, using a seven-
point Likert-type scale, we asked participants how
much effort did you put in making decisions
5
A model controlling for the mean T1 and T2 regression
constant did not change the results.
about hypothetical opportunities, anchored by
(1) minimal and (7) considerable.
Third, because we expected decision makers
who were less reliable in their decision making
at either T1 or T2 to also make more erratic
strategic decisions, we controlled for reliability of
decisions within the task at T1 and within the task
at T2 (a test-retest reliability assessment of the
original eight proles vis-` a-vis the replicated eight
proles).
Fourth, to rule out the possibility that CEOs
with complex decision policies make more erratic
decisions (because their decision policies are more
complex, leaving more opportunity for inconsis-
tencies) we also controlled for complexity of
strategic decision policies, which reected the
number of criteria used in the decision (Nutt,
1998). This was measured as the maximum num-
ber of signicant attributes for each CEO at T1
or T2, which ranged from one to seven. As an
example, the CEO in the Appendix would have a
fairly complex decision policy with six signicant
attributes in the strategic decision policy.
Fifth, because experience can affect decision
making (e.g., Ashby and Maddox, 1992; Forbes,
2005; Judge and Miller, 1991) we controlled for
years of industry experience (both in the primary
industry and in similar industries) and CEO age.
Sixth, because perceived self-efcacy has been
linked to erratic thinking (Bandura, 1989; Wood
and Bandura, 1989), we also include a measure of
general self-efcacy as a control. This was mea-
sured using the eight-item scale ( = 0.81) devel-
oped by Chen, Gully, and Eden (2001) measured
on a Likert-type scale anchored by strongly agree
(1) and strongly disagree (7).
Lastly, because it has been suggested that rm
characteristics affect strategic decision making
(Hutzschenreuter and Kleindienst, 2006;
Rajagopalan et al., 1993), we included rm age
and rm size (number of employees) as controls
in our investigation.
RESULTS
Table 1 shows the summary statistics and correla-
tions of the variables in the model. All independent
variables were mean-centered. We examined the
variance ination factors to check for multicol-
inearity. All of the variables in the models were
DOI: 10.1002/smj
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DOI: 10.1002/smj
Table 2. Results of regression analysis for erratic strate-
gic decisions
Variables Model 1 Model 2 Model 3
Rigidity v. change in
outcomes
0.08 0.01 0.02
Task effort 0.25
0.38
0.34
Reliability at time 1 0.41
0.39
0.33
Reliability at time 2 0.00 0.04 0.11

Complexity of
strategic decision
policies
0.33
0.44
0.48
Work experience:
same industry
0.01 0.36
0.23
Work experience:
similar industries
0.08 0.02 0.02
CEO age 0.09 0.28 0.15
General self-efcacy 0.02 0.03 0.05
Firm age 0.00 0.02 0.01
Firm size (employees) 0.35
0.30
0.30
Metacognitive
experience
0.25
0.32
Environmental
hostility
0.44
0.34
Environmental
dynamism
0.31
0.34
Environmental
hostility

environmental
dynamism
0.29
R
2
0.14 0.05
R
2
0.49 0.63 0.68
F 4.52
5.98
6.89
n 64 64 64
p < 0.05

p < 0.01

p < 0.001.
considerably lower than the recommended value
of 10 (Neter et al., 1996). Table 2 provides the
regression results. Of the controls listed in Model
1, task effort ( = 0.25, p < 0.05) and the com-
plexity of strategic decision policies ( = 0.33,
p < 0.01) are positively related to erratic strate-
gic decisions; and reliability of decisions at T1
( = 0.41, p < 0.01) and rm size ( = 0.35,
p < 0.01) are negatively related to erratic strategic
decisions.
As evident in Model 2, the coefcient for
metacognitive experience is signicant and neg-
ative ( = 0.25, p < 0.05). This result indicates
that greater metacognitive experience is associated
with less erratic strategic decisions, supporting
Hypothesis 1. Model 2 also indicates that the coef-
cient for hostility of the environmental context
is signicant and positive ( = 0.44, p < 0.001).
This result indicates that greater environmental
hostility is associated with more erratic strategic
decisions, supporting Hypothesis 2. The coef-
cient for dynamism of the environmental context
is signicant and negative ( = 0.31, p < 0.01).
This result suggests that those managers experi-
encing a more dynamic environment make less
erratic strategic decisions. This result runs con-
trary to Hypothesis 3. Thus, Hypothesis 3 is not
supported.
Model 3 includes the interaction term for envi-
ronmental hostility environmental dynamism.
The coefcient for the interaction between hos-
tility and dynamism is signicant and negative
( = 0.29, p < 0.01). To interpret this interac-
tion, we plotted the nature of the relationships
in Figure 1, consistent with the techniques rec-
ommended by Cohen et al. (2003). The extent
to which managers make erratic strategic deci-
sions is plotted on the Y-axis, environmental hos-
tility is plotted on the X-axis, and the plotted
lines represent one standard deviation above and
below the mean for environmental dynamism.
Figure 1 illustrates how erratic strategic deci-
sions increase with environmental hostility, but do
so more when environmental dynamism is low
than when it is high. This nding is contrary to
our expectation in Hypothesis 4 that the positive
relationship between environmental hostility and
erratic strategic decisions will be more positive
for managers who experience high environmen-
tal dynamism than for those who experience low
environmental dynamism. Thus, Hypothesis 4 is
not supported.
Low High
E
r
r
a
t
i
c

s
t
r
a
t
e
g
i
c

d
e
c
i
s
i
o
n
s
Low env. dynamism High env. dynamism
Environmental hostility
Figure 1. Interaction effect
DOI: 10.1002/smj
DISCUSSION
In this study, we investigated the processes under-
lying managers erratic strategic decisions. Speci-
cally, we examined whether metacognitive
experience and/or the environmental context
explains the extent to which managers make erratic
strategic decisions in allocating resources to oppor-
tunity exploitation.
Theoretical implications
Prior research has demonstrated that strategic deci-
sion making is important to performance (Dean
and Sharfman, 1996). The ndings that we report
extend this line of inquiry by highlighting how
strategic decisions themselves can be erratic.
Specically, our ndings illustrate the conditions
under which the order that underlies success-
ful strategic decision making is diminished (cf.
Mintzberg, 1987; Mintzberg et al., 1976).
By explaining variance in erratic strategic deci-
sions, we further contribute to decision-making
research by investigating the antecedents of erratic
decisions. Because we investigate the sources of
strategic decision making (which can be messy
and ill-structured [e.g., Mintzberg et al., 1976]),
we extend previous research that has investigated
erratic decisions in more structured (less strate-
gic) settings (Kunreuther, 1969; Remus and Kot-
temann, 1987; Remus, 1978). In this way, we
broaden the applicability of erratic decisions as a
research construct in the study of organizations.
Our results also contribute to extant decision-
making research in that they further highlight
the importance of environmental conditions in
effective strategic decision making (Bourgeois and
Eisenhardt, 1988; Hough and White, 2003). Specif-
ically, we hypothesize and nd that environ-
mental hostility increases the degree to which
managers strategic decisions are erratic. We also
nd that, contrary to our expectations, environmen-
tal dynamism is negatively related to erratic strate-
gic decisions and that environmental dynamism
tempers the positive relationship between environ-
mental hostility and erratic strategic decisions. To
us, these contingent results underscore the nuanced
importance of the environment in strategic decision
making (Hutzschenreuter and Kleindienst, 2006).
Therefore, not only does the environment moder-
ate the relationships between decision-level factors
highlighted in numerous studies (e.g., Dean and
Sharfman, 1996; Hough and White, 2003; Judge
and Miller, 1991), we found that it also impacts
the consistency of the decisions themselves.
Individual differences in strategic decision mak-
ing have often been attributed to past experience
(Forbes, 2005; Judge and Miller, 1991). We extend
this research by focusing on the role of metacog-
nitive experience in producing less erratic deci-
sion outcomes. While consistent with our expec-
tations, the nding that metacognitive experience
decreases the extent to which managers make
erratic strategic decisions warrants further dis-
cussion. Prior research in the area of judgment
and decision making (e.g., Brunswik, 1952; Hog-
arth and Karelaia, 2007; Karelaia and Hogarth,
2008) illustrates how bootstrapping models (cre-
ated directly from an experts decision-making
process) can result in better decisions (Camerer,
1981; Karelaia and Hogarth, 2008). The results of
Hypothesis 1 suggest that metacognitive experi-
ence also has a positive impact on decision out-
comes. Given these results, and considering the
learned nature of metacognition (Nelson, 1996),
future research should further investigate the pro-
cesses managers can utilize to invoke thinking
about strategic thinking as a way to develop such
metacognitive experience, which can result in less
erratic strategic decisions.
Although this study is not a study of strategic
change, our ndings regarding dynamic environ-
ments are nevertheless relevant to the strategic
adaptation literature, which suggests that strategy
involves both adapting to environmental changes
and threats and enabling pursuit of new oppor-
tunities (Ginsberg, 1988; Gioia and Chittipeddi,
1991; Smith and Grimm, 1987). According to this
perspective, adaptive strategic decision making is
based in a belief that change can somehow improve
the performance of the organization (de Rond and
Thietart, 2007). Because of a focus on organiza-
tional outcomes in change research (Rajagopalan
and Spreitzer, 1996) and because of results that
seem to positively support change-driven perfor-
mance effects (e.g., Haveman, 1992; Smith and
Grimm, 1987; Zajac and Kraatz, 1993), change
is often viewed to be necessary and even desir-
able (e.g., Kotter, 1996; Teece, Pisano, and Shuen,
1997; Zhou, Tse, and Li, 2006). Our results on
strategic decisions help further clarify a boundary
condition on the desirability of change.
Change is more likely to be maladaptive if it
results from strategic decisions that are themselves
DOI: 10.1002/smj
erratic. This is particularly important given nd-
ings that erratic decisions can lead to less desirable
decision outcomes (e.g., Bowman, 1963; Hoga-
rth and Makridakis, 1981; Remus, 1978). Thus,
it may be that in dynamic environments maladap-
tive change would be less likely, but in hostile
environments it would be more likely. In this
way, our ndings related to environmental hostil-
ity and dynamism may both inform research that
has sought to understand why maladaptive change
occurs and what might be done to effect adap-
tive change (e.g., Rajagopalan and Spreitzer, 1996;
Sastry, 1997) as well as provide opportunities for
future research.
Implications of unexpected ndings
As we note in our results section, we were sur-
prised with ndings that dynamism actually leads
to less erratic strategic decisions (Hypothesis 3 and
Hypothesis 4). In speculating about a theoretical
explanation for the unexpected results concerning
dynamism, we wonder whether managers operat-
ing in highly dynamic environments are less erratic
in their decisions because of accumulated expe-
rience in that environment (Nelson and Winter,
1982; Zollo and Winter, 2002). While our expec-
tation was that experience in an uncertain and
frequently changing environment would make
managers more susceptible to distractor interfer-
ence (e.g., Achrol and Stern, 1988; Miller and
Friesen, 1983), it may be that managers in such an
environment instead develop the ability to tune
out distractions and thus reduce the extent to
which they make erratic strategic decisions. In
light of the results for Hypothesis 4, it may also be
that environmental hostility complicates learning,
hence reducing the likelihood that such capabili-
ties are accumulated through experience (Nicholls-
Nixon et al., 2000).
As potential responses to a dynamic environ-
ment, capabilities that reduce the extent to which
managers make erratic strategic decisions might
be similar to the higher-level patterns of behavior
discussed by Winter (2003) that increase effec-
tiveness, are learned, and are akin to routines
(Eisenhardt and Martin, 2000; Winter, 2003). But
instead of being focused on change, as is the case
for dynamic capabilities (Eisenhardt and Martin,
2000; Helfat et al., 2007; Teece et al., 1997; Win-
ter, 2003), the learned capabilities that lead to less
erratic strategic decisions may form a foundation
for the purposeful action that underlies all capabil-
ities (Helfat et al., 2007).
The unexpected results regarding dynamism may
also have implications for the strategic process
literature in that they contribute to the ongoing
conversation that explores the role of environ-
mental context in strategic decision making (see,
e.g., Brouthers et al., 2000; Bryson and Bromiley,
1993; Dean and Sharfman, 1993, 1996; Eisen-
hardt and Zbaracki, 1992; Elenkov, 1997; Goll and
Rasheed, 1997; Hutzschenreuter and Kleindienst,
2006; Papadakis, Lioukas, and Chambers, 1998;
Rajagopalan et al., 1993). Whereas prior research
has related a changing and dynamic environment
to higher levels of uncertainty (Achrol and Stern,
1988; Baum and Wally, 2003; Duncan, 1972),
increased competitive aggressiveness (Brouthers
et al., 2000), a requirement of greater effort on the
part of managers (Elenkov, 1997; Yasai-Ardekani
and Nystrom, 1996), a need for strategic reorien-
tation (Lant et al., 1992), and diminished perfor-
mance if the rm is unable (or slow) to respond to
the changed environment (Baum and Wally, 2003;
Bryson and Bromiley, 1993), our results highlight
how the environmental context can affect strategic
decisions absent change and indicate how envi-
ronmental dynamism and environmental hostility
interact in their strategic decision-making effects.
Moreover, while contrary to expectations, our
nding that dynamism leads to less erratic strategic
decisions also contributes to the richness of under-
standing about the effect of dynamism on strate-
gic decision making (cf. Baum and Wally, 2003;
Bourgeois and Eisenhardt, 1988; Judge and Miller,
1991). For instance, prior strategic decision-
making research has linked environmental
dynamism to reduced performance benets from
decision-making comprehensiveness (Fredrickson
and Iaquinto, 1989; Fredrickson and Mitchell,
1984; Hough and White, 2003), while at the
same time nding that successful decision making
in dynamic environments is related to increased
comprehensiveness (Eisenhardt, 1989; Goll and
Rasheed, 1997). Like these latter studies, the
results we present herein have challenged conven-
tional thinking: where we expected to nd that
dynamism increased the extent to which managers
make erratic strategic decisions, we actually found
the opposite. While we have speculated on the rea-
sons for why the results were contrary to our initial
expectations, this represents a fruitful avenue for
future research.
DOI: 10.1002/smj
Limitations
While the absolute magnitude of the sample is
small, it is nonetheless large enough to provide
sufcient statistical power to test the hypotheses.
Moreover, the study involved CEOs, who are gen-
erally the most skilled strategic decision makers in
their particular rm. The average participant was
highly experienced, running a relatively mature
rm. While the rms on average were small to
medium sized, CEOs from such a population of
rms likely will be more in touch with the types
of strategic decision making that we used in our
eld experiment. In this regard, we have a rich data
source that is well suited to inform the processes
and outcomes we study.
Managers in our study were asked to make deci-
sions about hypothetical as opposed to actual
opportunities. One benet of conjoint analysis,
however, is that it provides data on decision mak-
ing that is not affected by retrospective and self-
report biases (Shepherd and Zacharakis, 1997). We
also highlight previous research that suggests that
hypothetical conjoint-analysis-type decisions are
similar to actual decisions (Brown, 1972; Ham-
mond and Adelman, 1976) and that the use of
conjoint analysis can improve the practical rele-
vance of strategy research (Priem and Harrison,
1994). Related to this point, the content of the
decisions made by the managers was exclusively
within the realm of opportunity choice and may be
criticized as being narrow. Our view, however, is
that opportunity pursuit is a core area of strategic
decision making because such choices are critical
to the long-term success of the rm (e.g., Dutton,
Fahey, and Narayanan, 1983; Jackson and Dutton,
1988; Teece, 2007).
Conjoint analysis is also limited in the num-
ber of proles that individuals can manage: the
more attributes (cues) that are included, the greater
the number of proles each individual must eval-
uate (Hahn and Shapiro, 1966). To ensure that the
task was manageable for managers (see Green and
Srinivasan, 1990), we included only four attributes
in the hypothetical opportunities and asked the
CEOs to make a series of assumptions regard-
ing the opportunity proles: they were making the
decisions in their rms current industry and eco-
nomic environment; they had access to resources
needed to invest; and so on. In essence, these
factors were controlled by being set at a spe-
cic level. But this meant that interesting questions
went untested. Future research is, thus, needed to
better understand other elements of strategic deci-
sion making, which were controlled for in this
study.
CONCLUSION
Strategic decisions are of central concern for mod-
ern organizations. But to be effective at strate-
gic decision making, there must be, as we have
described, some consistency in strategic decision-
making outcomes (Mintzberg, 1987). In this study,
we endeavored to explain the factors that both
inhibit and enable managers to reect consistency
in their own strategic decisions. We have done
so by investigating the sources of erratic strategic
decisions. Whereas previous research has inves-
tigated the effects of erratic decisions, we have
endeavored to explain the source of such decisions.
Our results suggest that metacognitive experience
and perceptions of the external environment mat-
ter. Erratic strategic decisions are less likely from
managers with greater metacognitive experience
and for managers who operate in more dynamic
environments. Conversely, erratic strategic deci-
sions are more likely from managers in more hos-
tile environments, especially when dynamism in
that environment is low. Importantly, these results
inform understanding of when managers might be
more susceptible to having erratic strategic deci-
sions and why.
ACKNOWLEDGEMENTS
The authors thank Editors Richard Bettis and
Thomas Powell, and two anonymous reviewers for
their insightful comments on earlier drafts of the
manuscript. We also acknowledge and thank the
Johnson Center for Entrepreneurship and Innova-
tion at Indiana University for its generous sup-
port of this research. An earlier version of this
paper was presented at the Babson Entrepreneur-
ship Research Conference.
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APPENDIX: ERRATIC STRATEGIC
DECISION ILLUSTRATION
We illustrate how erratic strategic decision is cal-
culated using one of our cases for reference. As
noted in the text, we use a three-step process,
beginning with two regression equations per indi-
vidual: one for the 16 decisions at T1 and one for
the 16 decisions at T2.
Starting point: determining the usable (signicant at
p < 0.05) bs for each individual
T1 Regression weights and signicance
T1 T1 Usable
1
= 0.790

1
= 0.790
2
= 0.503

2
= 0.503
3
= 0.216

3
= 0.216
4
= 0.168

4
= 0.168
5
= 0.120

5
= 0.120
6
= 0.120

6
= 0.120
7
= 0.072
p < 0.05
T2 regression weights and signicance
T2 T2 Usable
1
= 0.702

1
= 0.702
2
= 0.521

2
= 0.521
3
= 0.294

3
= 0.294
4
= 0.249

4
= 0.249
5
= 0.204

5
= 0.204
6
= 0.158

6
= 0.158
7
= 0.023
p < 0.05
Step 1: Subtract each signicant T2 b from the
corresponding signicant T1 b
Step 1
T1 T2 = X
0.790 0.702 = 0.088
0.503 0.521 = 0.018
0.216 0.294 = 0.078
(0.168) (0.249) = 0.081
0.120 0.204 = 0.084
0.120 0.158 = 0.038
Step 2: Take the absolute value of each difference
Step 2
|X|
|0.088|
|0.018|
|0.078|
|0.081|
|0.084|
|0.038|
Step 3: Sum the scores for each individual
to result in our dependent variable
Step 3
Erratic strategic decision: 0.387
DOI: 10.1002/smj
APPENDIX: SCALE ITEMS
Metacognitive experience items (see Haynie and Shepherd, 2009: 710)
I think about what I really need to accomplish before I begin a task.
I use different strategies depending on the situation.
I organize my time to best accomplish my goals.
I am good at organizing information.
I know what kind of information is most important to consider when faced with a problem.
I consciously focus my attention on important information.
Environmental hostility items (see Green et al., 2008: 378; Slevin and Covin, 1997: 205206)
The failure rate of rms in my industry is high.
My industry is very risky, such that one bad decision could easily threaten the viability of my business unit.
Competitive intensity is high in my industry.
Customer loyalty is low in my industry.
Severe price wars are characteristic of my industry.
Low prot margins are characteristic of my industry.
Environmental dynamism items (see Green et al., 2008: 378379; Miller and Friesen, 1982: 1718)
My business unit must rarely change its marketing practices to keep up with competitors.
The rate at which products are becoming obsolete in my industry is very slow.
Actions of competitors are quite easy to predict.
The set of competitors in my industry has remained relatively constant over the last 3 years.
Product demand is easy to forecast.
Customer requirements/preferences are easy to forecast.
DOI: 10.1002/smj

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Strategic Management Journal

Strat. Mgmt. J., 32: 683704 (2011)

Correspondence to: J. Robert Mitchell, Richard Ivey School of

Reliability at time 1 0.41

Reliability at time 2 0.00 0.04 0.11

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