Strategic Decision Making

This paper introduces a methodology for strategic intervention in collective aeclsion making. The methodology is based on (1) a decomposition of the problem into a few main controversial issues, (2) systematic interviews of subject area specialists to obtain a specification of the decision setting, consisting of a list of stakeholders with their capabilities, positions, and salience on each of the issues; (3) computer simulation. The computer simulation models incorporate only the main processes through which differences in positions and salience are accommodated in binding decisions: management of meaning through the provision of convincing information, challenges, and exchanges. The methodology generates insights into the likely outcomes of the process, the amount of conflict involved, and the stability of the outcomes. These insights and the investigation of the effects of strategic moves provide major strategic advantages to the user. This is likely to lead to a better representation of the user's own position in the decision outcome and the creation of a broader political and social support behind the decision outcome. Advances in Group Processes, Volume 17, pages 131-153. Copyright O 2000 by JAI Press Inc. AU rights of reproduction in any form reserved. ISBN: 0-7623-0651-3 FRANS N. STOKMAN ET AL. Collective decision making is one of the most fundamental processes in society. People's long-term common interests often require binding decisions for their successful accomplishment. Whenever all people strive toward the same outcome there is no problem. They can simply turn the preferred outcome into a decision and act accordingly. Collective decision making becomes difficult when stakeholders take different positions and express different preferences with respect to the outcome. Then, the different positions have to be accommodated in one way or the other. The dynamics in the decision-making process result from the fact that each stakeholder, with different intensity and potential, attempts to realize his2 position whereas only one outcome can be chosen. Small informal groups can often make decisions on the basis of informal rules and agreements. As soon as common interests become more complex and groups larger, collective decision making has to be institutionalized through the elaboration of generally accepted decision-making procedures. Such formal procedures can be found at all levels of society. They specify, among other things, which bodies have the authority to make the final decisions, how these bodies are composed and their members selected, and which stakeholders at what moment have to be heard or are otherwise involved in the decision making. In addition, rules specify procedures for appeal against decisions that are harmful or not made according the required procedures. In the social sciences, models for collective decision making have been developed since the early eighties that provide far-reaching insights into collective decision-making situations (among others, Bueno de Mesquita et al. 1985; Coleman 1990; Laumann et al. 1987; Stokman and Van den Bos 1992; Stokman and Van Oosten 1994; Torenvlied 1996; Konig 1997; Pappi and Henning 1998). Game theoretical insights are combined with mathematical models and computer simulation to model essential collective decision-making processes. The models represent three processes that precede formal decision making and that affect the final positions of the stakeholders involved. First, position changes are sometimes induced because stakeholders receive or provide new convincing information rather to take other positions (management of meaning). Second, in other situations stakeholders feel challenged by others to change their positions because the losses incurred by losing such a challenge are larger than the losses incurred by defending their position. Finally, stakeholders may change their positions when they see possibilities to create win-win situations through exchanging (logrolling). All models require a limited set of data obtained through interviews with subject area specialists. The models generate information on the outcome, the type of process, and the amount of conflict to be expected. The aim of the models is twofold. First, the models are used for the analysis of decision-making processes and for the prediction of decision outcomes without intervention. On the basis of a Strategic Decision Making large number of evaluation studies of mostly political decisions at the international, national, and local level (Bueno de Mesquita and Stokman 1994; Ray and Russett 1996; Stokman and Berveling 1998; Rojer 1999; Payne 1999), it can be concluded that the models are quite a~cura te .~ Second, the models are particularly useful for intervention in decision making in order to optimize the utility of one stakeholder, to create sufficient support for a decision, or to arrive at a fair decision on the basis of mediation. These strategically oriented applications are mainly applications for large organizations and governmental agencies. They prove the usefulness of the models for obtaining direct strategic insights and for intervention in ongoing decision-making processes. The models depart from a systematic analysis of the decision-making situation which is useful in itself. Such a systematic approach involves at first a decomposition of the problem resulting in the specification of a limited number of main controversial issues to be solved. Subsequently, an analysis of all stakeholders is required, including an overview of their positions, capabilities, and salience on each of the issues. Next, different strategies have to be considered. Computer simulation models are particularly useful for evaluating these strategies. We will elaborate each of these elements. THE DECOMPOSITION OF THE PROBLEM INTO CONTROVERSIAL ISSUES The first essential step in a strategic decision-making analysis is the specification of the problem at stake in terms of a limited number of issues on which decisions have to be made. Each issue can be seen as a major controversial point for decision. Decisions of the stakeholders on the specified set of issues should determine the contours of the chosen solution. Usually, one to five issues are sufficient, even in complicated situations, but incidentally up to 20 issues have been used in some applications. The requirement of the specification of a limited number of issues is in its own right a good exercise to distinguish main from subordinate points. Ill-defined specification at this stage implies a possible solution to something that has little impact on the actual problem. Misspecification of the issues is the main cause of the failures in model predictions. An important aid in the specification of issues is the requirement that at least the two extreme positions on each issue should be identified. Identification of the two extreme positions actually implies that an issue can be seen as unidimensional, a straight line on which different positions can be 10cated.~ Intermediate positions indicate more moderate positions, but also possible compromise outcomes. If extreme and possible intermediate positions cannot be ordered, the specification of the issues is wrong, for example, because more underlying issues are involved. In such cases it is recommended to go one step deeper and to identify the underlying dimensions. FRANS N. STOKMAN ET AL. If we, for example, aim to analyze the merger of two companies, typical issues ' are the premium to be paid for the other company above the market or shares value, the desired degree of integration of the two companies, the initial number of representatives of each company in the integrated board, the timing of the merger, and which of the two presidents will be nominated as the president of the merged company. The last issue is an example of a dichotomous issue without intermediate outcomes. Often, such issues are most difficult to solve, as no compromises are possible. Whenever possible, it is therefore advisable to integrate such issues with other issues, facilitating, for example, a solution through an exchange with other issues (e.g., the initial number of representatives in the board). A decomposition of the problem also implies at least a provisional specification of the main stakeholders. Without such a specification it will be difficult to specify extreme and intermediate positions. Stakeholders can be individuals or organizations. Individuals usually represent organizations or hold important positions in organizations. CAPABILITIES, POSITIONS, AND SALIENCE After specifying the issues, the stakeholders, and the different possible positions on the issues, the next step in a strategic decision analysis consists of the specification of three characteristics of each stakeholder in relation to each issue. These data are usually obtained in interviews with one or two experts who make estimates relating to all stakeholders. The experts should have a good overview of the whole decision-making setting. Numerical specifications are required in the models. An example of such a numerical specification is given in Table 1. The example originates in a project carried out by a transition manager from the Dutch company W&S Transition and Interim Management. W&S was asked to reorganize a company in the Amsterdam harbor that was facing serious economic problems. The company, given the acronym ABC, had a strong ideological orientation and had to accept more projects on economic grounds in order to survive. Maintaining the present ideological orientation was highly controversial. Some stakeholders wanted it to be reduced, whereas others wanted its continuation or even strengthening. We specified the central issue of the ideological orientation as the percentage of projects that the company would be allowed to accept on ideological grounds after the reorganization. The second column of Table 1 gives the positions of the stakeholders on the issue. The range is between 0 percent for competitors to 100 percent for the trade unions. The transition manager, the chairman of the supervisory board, and the economically oriented faction in the board took the rather radical position of 10 percent. Several other intermediate positions were also taken. 1 ' Strategic Decision Making t Table I . Example of a Specification of an Issue and the Capabilities, Positions and Saliences of the Stakeholders Issue: ldeological Orientation Capabilities Position Salience 0.1 5 70 0.2 Ideological faction in the Supervisory Board 0.1 5 10 0.3 Economically oriented faction in the Supervisory Board 0.30 40 0.3 Managing director 0.30 80 0.4 Deputy director 0.1 5 80 0.2 Administrator 0.1 5 90 0.3 Project leaders 0.30 30 0.3 Managers of commercially oriented departments 0.20 70 0.4 Managers of ideologically oriented departments 0.70 100 0.1 Trade unions 0.40 80 0.1 Municipality of Amsterdam 0.60 50 0.4 Employee Board 0.80 10 0.9 Transition manager 0.10 50 0.2 Accountant 1 .OO 10 0.9 Chairman of the Supervisory Board 0.1 0 0 0.2 Competitors Note: Position: Percentage of projects with an ideological orientation. The interests of the stakeholders are not only represented in the positions they' take, but also in the degree to which they are interested in the issue. We denote this as the salience of the issue for the stakeholder. The salience indicates the willingness of the stakeholder to push his position in the decision making. If the issue is hardly related to essential interests of a stakeholder, he will hardly fight for an outcome close to his position and he is to be expected to compromise quickly. If the issues are related closely to his main interests, a stakeholder will put all available clout behind his position and he is unlikely to compromise quickly. In the table, salience is scored on a scale from 0 (not related to own interests) to 1 (the stakeholder is willing to go to the limit). The transition manager was hired to transform the company into an economically viable one. As the success of his task depended strongly on his success on this issue, the issue was very salient to him. In other words, he had a strong interest in the outcome. The chairman of the supervisory board hired the transition manager and had committed himself to make the company economically viable. For him too, success on this issue was highly important. Failing would probably have cost him his chairmanship. The other stakeholders took other positions but were also less committed to them. In the literature and in practice it is often forgotten that the combination of position and salience determines the behavior of stakeholders. These combinations are generated by the incentive structures of stakeholders. If one of the two is overlooked (in practice often salience), serious miscalculations are inevitable. The third element is the capabilities of the stakeholders to co-determine the outcome. This refers to a potential, not the actual mobilization of the capabilities. 136 FRANS N. STOKMAN ET AL. Formal discretional or voting power is an important capability to co-determine the ' outcome of decisions. Nevertheless, people with the authority to make the final decision do not do so in isolation without taking into consideration the interests of the other stakeholders. If they were to neglect the interests of others, their decisions would quickly provoke societal and political opposition, resulting in the undermining of their own authority and legitimacy. Apart from that, most decision makers lack the required expertise to decide themselves and have to rely heavily on experts and advisors who are often strongly committed themselves. In addition, decision makers often need the cooperation of others for the implementation of their decisions, for example for the required financial resources or for loyal implementation. Other capabilities, therefore, result from exclusive expertise and information, financial resources or the capability to mobilize a large number of people. Scaling capabilities therefore requires the addition of things that are difficult to compare. Nevertheless, experts are often able to provide such a scale. During the extraction procedure, a "1" is often assigned to the stakeholder with the largest capabilities. Subsequently, the capabilities of the others are related to the one with the highest capabilities and to the capabilities of each other. Additivity is assumed here. If, for example, two stakeholders form a coalition against a third, their joint capabilities are compared with those of the third to determine which of them is stronger. When a subject area specialist tries to construct such a scale, it is important to make many such comparisons, that is, to compare many opposing coalitions of different compositions and sizes. Capabilities and salience together determine the effective power of stakeholders. Salience can be interpreted as the fraction of capabilities that a stakeholder is