AN EMPIRICAL ANALYSIS OF STRATEGIC ISSUE MANAGEMENT PERFORMANCE

1. AN EMPIRICAL ANALYSIS OF STRATEGIC ISSUE MANAGEMENT PERFORMANCE Strategizing in the Global Economy The 2nd Annual Copenhagen Conference on Strategic Management Markus Kajanto, Nokia Corporation Matti Keijola, Helsinki University of Technology Peter Kunnas, Nokia Corporation Tomi Laamanen, Helsinki University of Technology Markku Maula, Helsinki University of Technology

2. Strategic issue management performance Introduction and motivation Methodology and approach Empirical analysis Discussion and conclusions

3. FAILING TO ANTICIPATE AND RESPOND TO EMERGING STRATEGIC ISSUES CAN BE DETRIMENTAL TO A COMPANY… AT&T (---) understood that the convergence of telecommunications and computing would transform (---) much of business life. (---) But the company failed to see (---) that the internet was the specific vehicle through which the vision would be realized [Compaq] won its spurs (---) as an IBM-killer, but then its sales fell after it failed to react quickly to a (---) changing market Pope et al., 1993 Financial Times, 1999

4. …WHEREAS A CORRECT INTERPRETATION AND RESPONSE CAN PROVIDE MARKED RESULTS What we thought would be a complete threat, a destroyer of value, resulted in being a value creator. You should never come to conclusions about competition, partnerships, [or] alliances before really looking into them. When this issue came up we thought we knew what it was all about. As people monitored its progress and researched additional issues surrounding it, we began to see other aspects that led to our implementation strategy and in the long-term served us well. VP, Regulatory Issues, BellSouth Corporation in CSB, 1999

5. THE PRESENT UNDERSTANDING OF THE TOPIC IS LIMITED • Research on issue management has addressed multiple viewpoints • Organisational decision-making and information processing (e.g. Cohen et al., 1972; Cyert and March, 1963/1992; March and Simon, 1958/1993; Eisenhardt, 1989, 1990; Eisenhardt et al., 1992; Miller et al., 1999; Nutt, 1993; Rajagopalan, Rasheed and Datta, 1993; Schweiger et al., 1986) • Strategic issue management and interpretation (e.g., Ansoff, 1980; Bansal, 2003; Barr et al., 2004; Dutton, 1986, 1993; Dutton et al., 1993; Dutton et al., 2002; Dutton et al., 2001; Dutton et al., 1987a; Dutton et al., 1983; Dutton et al., 1987b; Dutton et al., 1987c; Dutton et al., 1989; Dutton et al., 1988; Schneider et al., 1991; Thomas et al., 1990) • Organisational attention allocation (Ocasio, 1997) • However, there has been scarcity of empirical research on strategic issue management practices and performance, due to the lack of sufficient quality company-internal issue management data available. • This paper contributes to this emerging research area by • Examining the effects of different issue characteristics on issue processing • Examining the effects of different issue processing means to performance • Examining the joint effects of issue characteristics and processing approaches

6. Strategic issue management performance Introduction and motivation Methodology and approach Empirical analysis Discussion and conclusions

7. METHODOLOGY AND APPROACH • We examined all the 92 corporate level strategic issues of a world-leading technology company over a three-year period. • We defined strategic issues on the basis of the company’s own sensemaking. Thus, we included all the strategic issues that were named as such and dealt with by the corporate strategy board of the company. • Our analysis covered • How the issue was interpreted at first and how this interpretation changed over time • Which persons participated in the process and what was done to process the issue • How the issue progressed in the decision-making and attention allocation system of the company • In addition, the analyses produced a coding of each issue with • A number of descriptive statistics on issue and issue processing characteristics • An analysis of the networked decision-making structures for processing the issues • A quantitative analysis of the results of individual decisions made • To externally validate our analyses, we interviewed representatives of other firms as benchmarks and studied the secondary material that is publicly available on the strategic planning practices of Hewlett-Packard, Shell, and IBM

8. THE WHOLE PROCESS RELIES ON THE WIDE-RANGING PARTICIPATION OF THE ORGANISATION • Much of the activity focuses around a few key individuals • Both members and visiting (internal) experts have played a significant role

9. Strategic issue management performance Introduction and motivation Methodology and approach Empirical analysis Discussion and conclusions

10. HYPOTHESES FOR THE EMPIRICAL ANALYSIS Hypothesis 1The higher the perceived value at stake of a strategic issue the more likely it is to (a) receive higher totalresource investment in managing the strategic issue (b) be resourced with a team possessing higher organizational power (c) leverage the knowledge of visiting experts (d) be coordinated by the most central people (e) lead a significant decision impact.

11. HYPOTHESES FOR THE EMPIRICAL ANALYSIS Hypothesis 2The higher the perceived uncertainty of a strategic issue the more likely it is to (a) receive lower totalresource investment in managing the strategic issue (b) be resourced with a team possessing lowerorganizational power (c) leverage the knowledge of visiting experts (d) be coordinated by the most central people (e) be negatively related to decision quality.

12. HYPOTHESES FOR THE EMPIRICAL ANALYSIS Hypothesis 3The higher the (a) total resources (b) combined task force power (c) proportion of visitors (d) network centrality the greater the decision impact. Hypothesis 3The higher the (e) total resources (f) combined task force power (g) proportion of visitors (h) network centrality the greater the decision quality.

15. Strategic issue management performance Introduction and motivation Methodology and approach Empirical analysis Discussion and conclusions

16. DISCUSSION AND CONCLUSIONS • This paper represents one of the first longitudinal, in-depth analyses of strategic issue management processes based on unique data. Even though Dutton and Duncan (1987a) called for empirical research on strategic issue management processes already nearly 20 years ago, empirical evidence has remained scarce due to the lack of data. • While earlier research has emphasized the effect of categorizing an issue into a opportunity or a threat, our analysis shows that in particular the perceived value at stake and the perceived uncertainty play significant roles in determining the quality and impact of decisions regarding strategic issues. • Contrary to what one would have expected based on literature, the different issue characteristics seem to have quite little explanatory power with regard to the different issue management process characteristics.

17. DISCUSSION AND CONCLUSIONS • Some of the most significant relationships would seem to be between the perceived value at stake, resources invested in managing the issue, and issue impact. • Resource investment alone is a rather blunt instrument in managing a strategic issue. Large amounts of resources invested may ensure high impact already due to its escalation of commitment effect (Brockner et al., 1986; Conlon, 1999; Staw et al., 1995) without yet ensuring decision quality. • The strongest determinant of the decision quality would seem to be the perceived uncertainty. -- Interestingly, however, uncertainty would not seem to be compensated by the different issue management process characteristics. -- One practical reason for this may be that uncertain issues are handled more lightly, almost as options with a small investment into the issue while the issues with a high value at stake tend to be already on a higher level of certainty and represent more of the exploitation dimension than the exploration dimension (Levinthal et al., 1993; March, 1991).

18. SOME DIRECTION FOR FUTURE RESEARCH • A finer-grained distinction between the different ways to process issues • An analysis of the determinants of the issue management system saturation • Differences between the corporate level and division level strategic issues • A longitudinal analysis of re-occurring issues in the issue management system • Organizational transitioning from strategic issues to strategic initiatives • Extension of the analyses to different types of companies • An analysis of the role of (ex-post) errors in issue processing

19. THANK YOU

20. DISCUSSANT’S COMMENTS: GORDON WALKER • Good, unique data. • Why do you use structural equation analysis in your analyses?You could also have equally used normal, linear regressions. • Aren’t some of the variables conceptually related to each other, e.g. resources and power and some of the other mechanisms. Does that have an effect on the disappearance of your results? • How do you do measurement? How confident are you yourself in your variables? It is unclear which of the variables had absolute values that are then made into ordinal and how reliable are the ordinal value assignments. • What do you measure with network centrality? Is it in-degree or out-degree network centrality measure and of which people? Is it a measure over the three-year time period? What does it tell us? • What is the resource consumption of the system over time? How even is the resourcing of the system or does the overall resourcing of the system change somehow? • http://www.cox.smu.edu/academic/professor.do/gwalker