Entrepreneurs and Strategic Decisions

Entrepreneurs and Strategic Decisions

Objectives

•Discuss the fundamental elements of entrepreneurial decision-making

•Connect cognition to the entrepreneurial process

•Examine strategic decision-making as a unique and significant tasks for entrepreneurs

Decision making is a cognitive process.

•Cognitive = Thinking

–Cognition involves individual decision-making involving the selection of a specific course of action that is supposed to bring a certain result.

•Decision-making implies choice.

–Alternative are available is a decision exists.

–Exact outcomes are unknown, albeit estimated.

Strategic decisions typically share the same process.

1. Recognizing a problem situation

2. Generating alternatives

3. Evaluating the various alternatives

4. Selecting the alternative that best satisfies our evaluation criteria

Study of entrepreneurial decision-making leads to better decisions.

•Decisions of entrepreneurs differ from company managers

–Operate with limited information

–Must be action-oriented and decisive

–Accept risk

–Involve major consequences

Decision-making is a strategic activity.

•Setting specific courses of action to reach strategic goals.

–Revenue and profit goals

–Market share and competitive advantage

–Product superiority and technical advantage

•Strategic decisions involve critical analysis, resource investment, and company commitment.

Strategic decisions share four fundamental characteristics.

•Complexity: facts, variables, and contingencies relevant for the decision at hand

•Uncertainty: all possible outcomes are not known and are difficult to forecast

•Rationality: a specific goal is intended by making a decision

•Control: intentional and deliberate actions are made by decision-makers

Environment of entrepreneurs is uniquely challenging.

•Entrepreneurs are doing new things.

•Entrepreneurs are without the resources and relationships typical of established companies.

•Uncertainty and complexity levels are high.

–Consequences of failed decisions include failed businesses; significant financial and emotional pain.

Summary

•Understanding entrepreneurial decision-making critically important for earliest stages

–Without opportunity discovery, there’s no venture

•Decision-making is a unique and significant tasks for entrepreneurs

–Requires quick, high-stakes decisions with incomplete information in a dynamic market