Psychologist logo
Girl at painted crossroad
Decision making

Heuristics, biases and strategic decision making

A. John Maule and Gerard P. Hodgkinson discuss cognitive shortcuts in business.

18 February 2002

Strategic decisions concern the general direction taken by organisations over the medium- to long-term and are often the critical factor differentiating success from failure. Take the case of Rolls Royce. For the majority of the last century this organisation was considered to be the epitome of excellence in British engineering. Yet by the early 1970s, following the failure of a crucial strategic decision concerning the development of a new aeroplane engine, the aircraft division of this giant was sold for just one pound sterling! In contrast to this, Shell has been credited with well-managed strategic decision making. The effectiveness of their strategic processes meant that, relative to their competitors, they were considerably better placed to weather the financial crisis caused by soaring crude oil prices in 1973 (Wack, 1985a, 1985b). The aim of this article is to demonstrate how one area of behavioural decision research (BDR), concerned with judgemental heuristics and biases, can contribute to an understanding of strategic decision making, and in doing so has the potential to improve this important aspect of organisational activity.

Download PDF for article.