Strategy and Choice

Strategic moves such as threats and promises attempt to change someone else’s expectations about your response to their actions. But these moves will fail if they believe that you will not carry them out. Without any effect on others’ expectations, there will be no effect on their actions. Strategic moves must first be made credible. There are a number of ways in which commitments can be made credible. One way is to change the payoff structure of the game, so that it is in one’s own interest to follow through on the commitment. This involves making it more costly to break a commitment than to keep it. It can be done through the establishment and use of a reputation or the use of contracts. Sometimes destroying your reputation can also create the possibility for commitment, by committing you not to take actions in the future that are not in your interests. A reputation for being crazy may also give credibility, so that apparent irrationality can become good strategic rationality. Contracts are a common device for commitment. However, in order for contracts to become credible commitments, there must be an enforcement mechanism and the party that enforces the contract must have an independent incentive to do so. Otherwise, the contract may be subject to easy renegotiation that negates its effectiveness as a commitment device.

Another means by which credibility can be established is to limit your ability to back out of the commitment. This can be done in a number of ways, including cutting off communication, burning bridges behind you or removing one’s self from the decision making process entirely by leaving the outcome to chance. Credibility can also be enhanced by leaving the outcome only partially to chance, scaling down the threat by making it only a probability rather than a certainty. This is known as brinkmanship The idea is to balance the probabilities so that the risk is sufficiently intolerable to the other side that they back down, but not so great that the risk is unacceptable to you. Moving in small steps may also be an effective source of credibility. If a large commitment is broken down into many smaller ones, then the gain from breaking a little one may be more than offset by the loss of the remaining contract. Commitment can also be maintained by the use of external actors. Individuals may be weak on their own, but they can build resolve by forming a group that brings peer pressure to bear on the individual. Credibility can also be established through the use of a mandated negotiating agent. The authority of the agent as a negotiator is based on his position. The agent may not have the authority to act contrary to the mandate they have been given, thereby enhancing their bargaining credibility.

An organisation’s paradigm and cultural web explain how different ways of thinking and different cultural elements can lead to contrary points of view. In this context, strategic management is an organizational response over time to a business environment which is essentially internally constructed and, therefore, subjective in nature. Managers tend to discount evidence contrary to the prevailing paradigm, but readily accept that which supports it. As a result, strategic drift can occur. This is when the strategy of an  organization becomes increasingly less in line with the environment in which it operates. As a consequence, planning of strategic change must take into account not only analytic planning approaches, but also the sociopolitical and cultural realities which underpin the organization. A climate for change must also exist, such as that generated by a severe downturn in performance, or from major competitive moves in the marketplace. To some extent, intervention by outsiders can influence strategic change by bringing different perspectives to organizations. However, these views, while often well received, face resistance to implementation when they fall outside the prevailing paradigm. In addition to monitoring change, strategic management must also be seen by executives as a means of signaling a change in corporate culture. That is, planning change needs to bring about changes in the everyday routines which affect the behavior of those in the organization.