Behavioral Strategy

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Behavioral strategy combines findings from neuro- , social , cognitive and depth psychology with the theory of strategic management , so that aspects of behavioral science are taken into account in the development and implementation of corporate strategies .

Behavioral strategy is a relatively new approach to researching psychological influences on corporate strategy development and applies this to strategy development, strategic management and the implementation of strategies. It ties in with the still young fields of “behavioral finance” and “behavioral economics”. With its help it should be achieved that the strategy theory is more firmly anchored in realistic assumptions about human cognitions, emotions and social interactions and thus receives more practical relevance. This means that success factors based on behavioral science for good strategic decisions, for implementation in the company and their effects on management systems and corporate financing are increasingly moving into the focus of research and can be made applicable in practice.

As an interdisciplinary approach, "Behavioral Strategy" combines various theoretical fields such as behavioral aspects in economic research with classical strategy theory, leadership and decision-making, transformation management, change management and organizational behavior. The findings can be used as a basis for holistic corporate management that combines strategic management and change management with management issues.

history

In the German-speaking area, Claudia Nagel was the first to deal with the behavioral strategy approach in lectures and publications since 2007. On the basis of theoretical and practical knowledge of psychodynamic change management, she first developed psychodynamic strategy consulting and then further developed this approach into behavioral strategy. The first and so far only monograph was published in 2013 by Claudia Nagel under the title “Behavioral Strategy. Thinking and feeling in the decision-making process. The unconscious and corporate success ”was published in German and in English the following year. A first anthology in English was also published in 2014 with Das, TK as editor: Behavioral Strategy: Emerging Perspectives.

The term has appeared more frequently in English-language academic literature since 2011. It was extensively introduced by a so-called special issue of the Strategic Management Journal (SMJ). Lovallo, Fox & Sibony (2011) and Gerard P. Hodgkinson & Mark P. Healey (2011, 2014) are pioneers with their pioneering contributions.

The approach is not really new, but can be related to a large number of existing and in some cases very famous works, such as on biases in decision theory by Daniel Kahneman and Amos Tversky , on the behavioral theory of companies ( Richard Cyert & James March ), with cognitive schemes and meaning in organizations ( Karl E. Weick ), on the influence of the personality of CEOs (Kets de Vries & Danny Miller , 1984), on the role and importance of top management teams (Hambrick & Mason, 1984), for dominant logic (Prahalad & Bettis, 1986). All have done indirect preparatory work on this topic.

However, the introduction of the term behavioral strategy was mainly necessary because, on the one hand, the development of strategic management theory has not kept up with developments in the fields of behavioral economics and, on the other hand, the more recent neuroscientific and depth psychological findings have not yet found their way. With the new generic term of behavioral strategy, all approaches can be brought together under this umbrella term, so that these research findings also serve better for a practice-relevant further development of strategic management. (Lovello et al. 2011, Nagel 2013)

The discussion of CK Prahalad and Gary Hamel on the question of strategic failure and the mental models can be mentioned here as an example of work on the subject of behavioral strategy that does not yet use the term . At the European conference EURAM ( European Academy for Management ) there has been an area (T13 09) that researches the topic of behavioral strategy since 2015.

Content today

Under the generic term of behavioral strategy, a wide range of behavioral factors influencing corporate strategy are discussed today , which, individually or in their relationship with one another, affect strategic management. These are cognitions and biases, emotions and psychodynamics at the individual and working group level. In principle, these can only be examined separately from one another to a very limited extent, since their complex interplay at the individual and group level influences thinking and decision-making. A process-oriented view clarifies the interaction of the individual elements.

Process-oriented considerations

A strategy-process-oriented approach developed by Nagel (2015) connects the work of Teece (2007, 1997), which arose in connection with Dynamic Capabilities, with the work on Strategic Choice by Finkelstein, Hambrick, and Canella (2009). A three-stage process model for the strategic transformation process can be derived from the combination of these two approaches.

In an ideal world, the strategy process begins with the CEO , who reacts to strategically relevant stimuli in his own individual and specific way. His perceptions are processed in an individual filter process and result in a subjective interpretation of the company's strategic situation. In generic terms, Teece means “perceiving strategic opportunities and threats” ( sensing ). In the next step, the individual view of the CEO is further developed, changed and refined in a dialogue with the top management team so that a strategic alternative can be selected. At Teece, it's about the competence of choosing an opportunity (seizing). In a third step, the assets are re-orchestrated, which is achieved by transforming the corresponding resources in the company. Teece calls this the "ability to reconfigure the asset base" / reconfiguring. These three levels and generic skills do not run linearly one after the other; psychological influencing factors act on each. Using this process model, these psychological building blocks, which influence the strategic management process, can be located and their effects can be examined separately from one another.

Biases and Heuristics

Cognitive biases, which became popular primarily through the work of Nobel Prize winner Kahnemann, dominated the field of behavioral strategy in the first few years. This is because behavioral finance and behavioral economics, as pioneers in this field, have dealt intensively with biases (e.g. Daxhammer / Facsar 2012: Behavioral Finance, utb, Beck H. Behavioral Economics 2014: An Introduction, Springer Gabler). Cognitive biases can fundamentally influence any strategic decision because they are a natural part of human perception, assessment and decision-making processes. The highest decision-making bodies in companies are also particularly susceptible to confirmation bias, overoptimism, overconifidence and loss aversion. These bias errors are therefore often examined in the context of behavioral discussions with strategic corporate management.

While cognitive biases mainly deal with false conclusions, these biases can be understood from a different perspective as decision aids and supporters, in which the human brain uses an abbreviation for reasons of time or information. Gerd Gigerenzer and his team at the Max Planck Institute are concerned with this positive function of heuristics, also known as rules of thumb.

Individual and social cognitions

In the context of behavioral strategy, in the area of cognitions , the extent to which mental processes induced by psychological or social mechanisms influence the company. Through this context, the background and the effects of cognitive distortions and heuristics can be explored and explained. The investigation of the connections between social identity, group membership and the corresponding group focus mentality (Huy 2011) is an example of this approach. Other examples are socially effective biases such as social stereotypes, group think (Janis) and complexes at the group level.

Emotions in general

Especially since Damasio's investigations into the theory of somatic markers , it has become clear that thinking and feeling, i.e. cognition and emotion, are inextricably linked. In strategic management, learning from experience in management plays an important role, because the manager combines an internal, individual preference system with different classes of external stimuli (company, market, customer developments). Conscious and unconscious emotional evaluations are used to control perception and attention processes in terms of content and direction, and therefore have a decisive influence on strategic decisions. (Nagel 2013). Hodgkinson and Healey (2011, 2014) in particular have examined the influence of emotions on strategic behavior in their work. Emotional management, self-regulation and self-reflection at the level of top management play an important role as core competencies for strategic management. This also includes the realization that under certain circumstances - if the manager is an expert in this specific decision-making situation - it makes sense to trust his intuition. (Gigerenzer, 2009, Kahnemann 2011, Hodgkinson, Hodgkinson & Healey 2011, 2014, Nagel 2013)

Psychodynamics and the role of fear as a special emotion

The analysis of psychodynamics is based on psychoanalytic theoretical models ( Psychoanalysis Freud , Analytical Psychology CG Jung ), unconscious processes are considered at the individual and group level. Fear plays an important role in this. In management in particular, fear and fears are warded off, tabooed and suppressed. And this despite the fact that fear and thinking about the future are linked in the brain. The fear of the uncertainty of the future gives rise to the need for planning and control. By planning and controlling the (unconscious) fear is kept in check and feels like it is no longer there. (Gilbert, Nagel 2013) When fear is tabooed and suppressed, when it becomes unconscious, so to speak, a series of more or less neurotic defense reactions arise. These result in a restricted or unrealistic perception of the external environment. This also applies to managers, because they can no longer realistically perceive the company's strategic situation. This is to be assessed extremely critically, because the consequence can be taking risks that are too high or no risks at all. Unauthorized individual decisions or the involvement of too many participants in the decision-making process are also a possible consequence. The only thing that helps against this is to actively and consciously deal with your own feelings of fear, because only then will they not obscure the view of reality. (Nagel, 2015 “Behavioral Strategy: Integrating Psychology into Corporate Strategic Management Theory and Practice” Research Colloquium EBS, Oestrich-Winkel, July 1st, 2015)

Microfoundations and Dynamic Managerial Capabilities

In the recent research literature on dynamic capabilities ( dynamic capabilities ) micro fundamentals are discussed as a base for successful strategic transformation in recent years. This somewhat fuzzy concept includes the complex, emergent and aggregated interaction of individuals, processes and structures at the group or organizational level. One branch also understands dynamic management skills as cognitive skills of the manager (Dynamic Managerial Capabilities: Helfat & Martin, Hefat & Peteraf). The scientific literature is currently discussing whether it is a matter of individual skills (Gavetti 2005) or a systemic concept (Gavetti, 2012), or processes or structures (Eisenhardt, Furr, and Bingham (2010), Eisenhardt & Martin, 2000). Some also speak of a transactive memory system at the organizational level (Argote and Ren 2012). The main difficulty is that the dynamic skills cannot be developed if you cannot state exactly where they can be found and how they are developed.

Application in practice

The complex field of behavioral strategy is currently not widely used in practice. Strategy and management consultants can be considered as pioneers. The main advantage of the behavioral strategy approach is the result of better quality strategic decisions and, as a result, better implementation processes. With the latter in particular, cost savings arise by avoiding repeated attempts in the otherwise frequently dispatched strategy implementations. On the other hand, the disadvantage is that the necessary prerequisite, namely the willingness of top management to reflect on themselves, is usually low, due to function and selection. Although, according to Porter, the top strategist in the company must be a practical expert in analyzing market forces, he should also be a practical psychologist who can analyze his own and other people's thought processes.

literature

  • Claudia Nagel: Behavioral Strategy and the Method of Psychodynamic Strategy Development . In: Ingo Bamberger, Thomas Wrona (Eds.) Strategic Management Consulting : Concepts - Processes - Methods . Gabler, Wiesbaden 2012, ISBN 978-3-8349-3262-4
  • Claudia Nagel: Behavioral Strategy. Thinking and feeling in the decision-making process. The unconscious and corporate success , with a foreword by Hermut Kormann . Unternehmermedien, Bonn 2013, ISBN 978-3-937960-18-0
  • TK Das, City University of New York (Ed.): Behavioral Strategy: Emerging Perspectives . Information Age Publishing, Charlotte NC 2014, ISBN 978-1-62396-711-6
  • Bianca Drerup, Alina Bestmann and Andreas Wömpener : Behavioral Strategic Planning. Effects of psychological effects on the strategic planning process and implications for its design . In: Controller Magazin . No. 2 . Controller Institute, 2016, ISSN  1616-0495 , p. 44-50 .

Web links

Individual evidence

  1. ↑ Powell, TC, Lovallo, D., & Fox, C: Behavioral Strategy: Thinking and Feeling in Decision Making. The unconscious and corporate success (=  Strategic Management Journal 32 ). 2011, p. 1369-1386 .
  2. ↑ Dr. C. Nagel: Behavioral strategy . Unternehmermedien, Bonn 2013, ISBN 978-3-937960-18-0 .
  3. ↑ Dr. C. Nagel: Psychodynamic Change Management - Theory and Practice . Ed .: F. Keuper and H. Groten (=  sustainable change management ). Gabler, Wiesbaden 2007, ISBN 978-3-8349-9531-5 , pp. 275-295 .
  4. ↑ Dr. C. Nagel: Behavioral Strategy and the Method of Psychodynamic Strategy Development . Ed .: Ingo Bamberger, Thomas Wrona (= Strategic Management Consulting  . Concepts - Processes - Methods ). Gabler, Wiesbaden 2012, ISBN 978-3-8349-3262-4 .
  5. ↑ Dr. C. Nagel: Behavioral Strategy: Thinking and Feeling in the Decision-Making Process. The unconscious and corporate success. Unternehmermedien, Bonn 2013, ISBN 978-3-937960-18-0 .
  6. ↑ Unpublished conference presentation: “Dynamic Capabilities and Behavioral Strategy: An Integration with the focus on unconscious and psychodynamic aspects to better deal with uncertainty in strategic decision-making”. 15th EURAM conference “Uncertainty is a great opportunity”, Warsaw, June 18, 2015.
  7. ↑ Lovallo, Dan et al. Sibony, Olivier: A Language to Discuss Biases (=  McKinsey Quarterly ). Entrepreneur Media, New York 2010, pp. 44 f .
  8. ↑ Research areas. Max Planck Institute for Human Development, accessed on May 13, 2016 .
  9. ↑ Gavetti, G .: The new psychology of strategic leadership (=  Harvard Business Review ). 2011.