The Process of Strategic Decision Making - JP Morgan Chase - Case Study Example

Organisations as Political Systems: The Process of Strategic Decision Making Introduction Strategic decision making is an important aspect of the overall strategy making process that organisations engage in. By making the most appropriate decisions with regard to different issues, organisations are able to choose the right overall strategy to pursue within a particular business environment. On the other hand, organisations operate within complex environments that are defined by internal factors and external forces. The strategies that organisations develop and adopt are those that are most suitable to particular environments. Therefore, there is a close link between the environment in which an organisation operates and the approach to strategic decision making that is used. This essay seeks to examine how strategic decision making changes when organisations and the environments that they operate in are seen as political systems. Using the basic characteristics of an organisation as a political system, it is argued that the strategic decision making process of such an organisation fundamentally changes in several ways and is influenced by the most powerful individuals within it. This follows the three key characteristics of organisations as political systems: the influence of powerful individuals, use of political tactics and presence of conflicting interests among individuals. To support this argument, reference is made to the garbage can model of organisational choices and examples drawn from Tett’s (2010) analysis of J.P. Morgan Chase and the financial crisis of 2008. Strategic decision making in organisations when they are viewed as political systems Strategic decision making is a process that is important for organisations in several ways (Beresford & Sloper 2008, p. 2; Nickols 2005, p. 11; Poister 2004, p. 5). The way organisations make their strategic decisions as part of their overall process of making strategies can be interpreted in terms of several different models which represent the process as one that is made up of different steps with varying degrees of interdependence within an ambiguous and uncertain environment (Nickols 2005, p. 11). Further, Mador (n.d., p. 4) identifies three key characteristics of a sound strategic decision making process as: how extensive the process is in addressing long terms issues, the speed of the decision making process in enhancing performance and the extent to which the process is comprehensive in addressing all the issues that affect the organisation. These are important characteristics since the strategic decision making process is undertaken by a few individuals within an organisation, yet it affects different aspects of the entire organisation (Vasilescu 2011, p. 105). Langley et al. (1995, p. 270) developed a model that describes the different ways in which the decisions that are made by organisations are related to each other. The same authors also observed that basically, decisions are related to each other in the form of three key linkages: sequential, precursive and lateral (p. 271). Lateral linkages between decisions are a result of two or more decisions sharing resources within an organisation. Further, decisions that are related by precursive linkages influence each other in the course of time while those that are made on a similar issue are related to each other through sequential linkages. This view of the process of strategic decision making within organisations corresponds to the view of March (1991, p. 109), that organisations function as networks of relationships and that the decision making process takes place in the form of complex interactions within the network. When viewed as political systems, organisations and their environments are said to be made up of three key features: the presence of conflicting interests among individuals within the organisation, domination of the decision making process by a few individuals and overt engagement of individuals in political activities (Eisenhardt & Zbaracki 1992, p. 23). What is important here is that as a group, the individuals may share a single goal that may correspond to the objectives of the organisations. However, their interactions with each other are actually based on pursuit of different individual interests that may inevitably be in conflict with each other. When applied to the context of organisations, it can be seen that organisations are made up of different individuals who share the common goal of advancing the agenda of the organisation in form of the vision, mission and objectives. However, individuals working within the same organisation have different personal interests that they pursue. This situation inevitably leads to conflicts among different individuals and groups as they seek to secure more power and authority (Beugre & Liverpool 2006, p. 124). Secondly, when viewed as political systems, organisations can be said to be characterised by the presence of a small group of individuals who are able to influence the way decisions are made within them (Eisenhardt & Zbaracki 1992, p. 24). This means that individuals and groups within the organisation, who enjoy a disproportional degree of power, are able to influence decisions and choices within the organisation to reflect their own preferences. Thirdly, as members of a political system, individuals within an organisation get involved in activities that are aimed at increasing their power (Beugre & Liverpool 2006, p. 125). This denotes that individuals tend to find different ways by which they can influence the overall agenda and the decisions that are made about specific issues within an organisation. It is also important to note that individuals tend to use a wide range of tactics as a means to increase their influence over the decision making process. All these characteristics are seen in the way organisations approach the strategic decision making process. For instance, during the process, individuals within an organisation will engage in open political activities as a means of achieving power to influence the way decisions are made. Eisenhardt and Zbaracki (1992, p. 26) observe that there are many different political tactics that individuals may make use of during the strategic decision making process which include timing, opportunism, controlling the flow of information and lobbying. The use of such tactics by individuals as a way of influencing strategic decision making can be seen in the analysis of J.P. Morgan Chase and the financial crisis of 2008 by Tett (2010) on several occasions. For example, the intense lobbying that the corporate executives undertook following the initial indications by the government that it would regulate derivatives was meant to influence the decisions made by Congress and the Federal Reserve Bank (Tett 2010, p. 24). Further, within the leading organisations of the time, such as J.P. Morgan Chase, it is seen that the executives working in the swaps department made extensive use of the tactic of manipulating information to their advantage. By carefully making information about how derivatives work unnecessarily complex and obscure, they managed to shield themselves from possible scrutiny by the top management of the organisation, thus influencing the strategic decisions that were made with regard to the way they were to conduct their affairs (Tett 2010, p. 16). Further, when an organisation is seen as a system made up of different groups with conflicting goals (Tripon & Dodu n.d., p. 7), it then follows that the way the groups clash with each other while in the process of pursuing their different goals characterises the strategic decision making process within the organisation. According to Dahl (1961 cited in Feldman & Kanter 2013, p. 641), there are different ways in which such groups attempt to resolve their conflicts within such a system. These include decisions being made in secret by a clique of the most powerful individuals, use of an executive-centred approach that brings on board representatives of different groups and the approach that involves different groups fighting out for control. When applied to strategic decision making within the context of an organisation, it can be seen that there were several different coalitions of individuals struggling to control the decision making process in the case of J.P. Morgan Chase. The first coalition was made up of the senior executives of the bank who, after feeling increasingly threatened by the increasing power and autonomy of the swaps department, repeatedly sought to rein them in (Tett 2010, p. 17). The second coalition was composed of the individuals working in the swaps department team who, by virtue of their work and the prestige that came with it, sought to shield themselves from any form of external interference. The third coalition was made up of the bodies charged with the responsibility of regulating the financial system in the country. Led by the Federal Reserve Bank, these bodies felt the need to regulate derivatives and on many occasions sought to develop such regulations (Tett 2010, p. 34). Therefore, all these coalitions fought for control of the decision making process by seeking to influence decisions to work in their favour. From the foregoing, it can be seen that when organisations are viewed as political systems, power, conflict and interests play a key role in shaping the strategic decision making process. It is important to note that in actual practice, strategic decision making within organisations takes place within a completely uncertain environment. Although the political view of organisations provides adequate explanations of how the strategic decision making process is influenced by these characteristics of organisations, there are other models that have been developed to provide a detailed analysis of this issue. One of them, the garbage can model of organisational choice, is instructive in elaborating how exactly the decision making process within organisations takes place in an environment characterised by a high level of uncertainty. Under this model, organisations are seen as organised anarchies that are defined by their level of extreme ambiguity (Eisenhardt & Zbaracki 1992, p. 27). Extreme ambiguity within an organisation is created in three distinct ways: the existence of preferences as a loose collection of incoherent ideas, lack of clear understanding of the exact processes that the organisation uses in its operations by the individuals working within it, and a high level of variation in the persons that are making decisions (Cohen, March & Olsen 1972, p. 1). Under this model, the strategic decision making process within an organisation is seen as one that occurs as a result a random confluence of different factors at different times as follows: choice, opportunities, solutions, participants and processes (Cohen et al. 1972, p. 2). Problems are specific instances of concerns by people within and outside an organisation. On the other hand, solutions represent specific answers that are meant for specific problems. Choice and opportunities can be described as specific occasions in the course of operations of an organisation that create the need for decision making. Lastly, participants are individuals within an organisation who are involved in its internal processes. From this, the decision making process within organisations is seen within the context of chance and luck (Fioretti & Lomi 2008, p. 3). This implies that decisions are made depending on the confluence of all the four factors of participants, solutions, problems and choice. Therefore, it can be seen that using the garbage can model, the strategic decision making process of an organisation can be described as a chaotic process made up of unstructured relationships, contested goals and uncertain outcomes (Fardal & Sornes 2008, p. 555). This may be enhanced particularly in organisations operating in a high-velocity environment (Eisenhardt 1989, p. 549). This ties in with the argument using the political view of organisations that the decision making process is influenced by the power struggles among individuals and groups who seek to pursue their conflicting personal or group interests. Conclusion In this essay, it has been argued that when organisations are viewed as political systems, the process and nature of making strategic decisions changes completely. This is because as political systems, organisations are composed of individuals who pursue their own interests either as such or in temporary groups. This creates conflicts throughout the organisation, as people struggle to influence the decision making process so that it favours them. In a bid to have power, individuals will seek to control the flow of information by lobbying and use of other tactics in their interactions. This defines how the strategic decision making process is accomplished within organisations. It has also been seen that strategic decision making is an important process for organisations since it determines how well an organisation is able to survive in its environment. Lastly, it has been argued that the strategic making processes in organisations that are seen as political systems tie in with the perspective of garbage can model of organisational choices. This is because the high level of uncertainty that is proposed in this model reflects what actually happens when organisations are characterised by power, conflict and interests – which are essential aspects of a political system. References Beresford, B & Sloper, T 2008, ‘Understanding the dynamics of decision-making and choice: a scoping study of key psychological theories to inform the design and analysis of the panel study,’ A Report for the Social Policy Research Unit, University of York, viewed 17 September 2014, . 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