Competitive analysis or stakeholder pre-commitments? How firms’ strategic decision-making choices mediate the relationship between its strategic posture and digitalizationKrishna Satyanarayana, Deepak Chandrashekar, Nanjangud Vishwanath Vighnesh, Alexander Brem
Over the past decade, digitalization has disrupted almost all facets of society, due to its ability to lower transaction costs and its characteristics. Organizations must reassess and realign their strategy in order to deal with and take advantage of the opportunities and mitigate the challenges posed by digitalization. This study explains how strategic decision-making choices of firms in some specific contexts influence their digitalization-based firm outcomes.
Digitalization of firms has been studied in extant literature under different contexts, including the strategic decision-making context. Over the past two decades, recent theories have focused on the human cognitive aspects to strategic decision making, and among them, the theories of effectuation and causation have received much acceptance. Prior literature has indicated that the two decision making logics are operationalized using four sub-dimensions: 1. Goals versus means; 2. Expected returns versus affordable loss; 3. Competitive market analysis versus partnerships and 4. Planning versus leveraging contingencies.
While there are adequate results available from past studies on whether goals or means, expected returns or affordable losses, planning or leveraging contingencies is a better approach to deal with decision-making under uncertainty, there is not much exploration on the other key dimension of the choice of competitive analysis versus partnerships/stakeholder pre-commitments. Given the importance and role that partnerships and market-based analysis play in the operational aspects of firms, it is surprising that there is limited examination of the influence or impact of these decision-making logics on organizational outcomes in prior literature. This study fills the above research gap.
The study empirically establishes the linkage between a firm’s strategic posture and its decision-making preferences in the contexts related to engaging with competitors and partners, taking digitalization as a firm outcome. Next, it extends available knowledge on firms’ decision-making literature by establishing that a firm’s decision-making orientation related to its competitors and partners has direct influence on its degree of digitalization. Finally, it empirically deduces that in the context of digitalization of firms, market-based analysis is the dominant decision-making paradigm as against obtaining stakeholder partnerships or pre-commitments.
The study outcomes indicate that those entrepreneurs who are risk-taking, proactive, and innovative are likely to have positive results in realizing digitalization-based outcomes. Further, the results imply that entrepreneurs would benefit from causal decision-making approaches as they embark on advanced degrees of digitalization of their firms. For practitioners who are tasked with effecting digital transformation in their firm or business unit, the results indicate that outcomes may not be visible at initial levels of digitalization.
However, causal decision-making would aid in the digital technology adoption across the firm, thereby providing evidence of the realization of firm strategy. Another key takeaway for the practitioners is to rely on market-based analysis as against working on obtaining pre-commitments as they embark on digitalization. At a regional level, based on this study outcomes, policy makers can devise appropriate incentives and guidelines for enterprises to embark on a pragmatic path of digitalization, so that the probabilities of failed outcomes due to digital adoption are minimized.Read more