Managers' Perspectives on Making Major Investment Decisions: the Problem of Linking Strategic and Financial Appraisal
| Author | Tony Grundy,Gerry Johnson |
| Date | 01 December 1993 |
| DOI | http://doi.org/10.1111/j.1467-8551.1993.tb00062.x |
| Published date | 01 December 1993 |
British
Journal
of
Management, Vol. 4,253-267 (1993)
Managers’ Perspectives
on
Making Major
Investment Decisions: the Problem
of
Linking
Strategic and Financial Appraisal
Tony Grundy and Gerry Johnson*
Department
of
Strategic Management, Cranfield School
of
Management and *Department
of
Strategic Management,
City University Business School
SUMMARY
Major investment decisions are an important factor shaping strategic change in complex
organisations. Traditionally, they have been primarily regarded
as
the
domain of finan-
cial theory, with
a
few notable exceptions. This paper explores how the apparent gulf
between strategic and financial appraisal of major investment decisions can
be
bridged.
The approach taken in this research study was to explore linkages between strategic
and financial appraisal from managers’ own perspectives. These perspectives were exa-
mined through a learning process. This enabled managers to reflect and debate on
their experiences and issues
-
upon both strategic and financial theory($. Unlike many
prior studies, this research took a qualitative approach to data analysis and interpre-
tation.
This
yielded a range of insights
-
some of these amplified findings
in
earlier
research studies; others suggested a more radical shift in thinking on strategidfinancial
appraisal linkages towards
a
closer fusion
of
the two disciplines.
Introduction
This paper describes research into how managers
see
the difficult problems associated with linking
strategic and financial appraisal during the making
of major investment decisions from their perspec-
tive.
Previous research has identified that this prob-
lem is highly complex (Bower, 1970; King, 1975;
Bromiley, 1986; Barwise
et al.,
1988).
A
major issue
at the heart of this problem is that managers have
great difficulty in understanding the linkages
between strategic and financial appraisal (Derkin-
deren and Crum, 1986; Barwise
et al.,
1988; Tom-
kins, 1991).
Whilst there is extensive literature on strategic
appraisal and financial appraisal, the borders of
both literatures are relatively underdeveloped. Past
debate has also centred on the issue of whether
strategy actually dominates finance, or
vice
versa,
or
whether it
should
so
dominate. There are few
accounts of how strategic and financial appraisal
may be complementary, exceptions being Barwise
el
al.
(1989) and Reimann (1990). Yet the making
of major investment decisions involves formulating
both strategic and financial assumptions. The
extent to which these assumptions are closely linked
in managers’ minds may therefore play a role in
determining the overall reliability of these assump-
tions, the appropriateness of major investment
decisions and subsequently in determining longer
term corporate performance.
Despite the efforts of research on this problem
(e.g. Pike and Dobbins, 1984), the underlying rea-
son why managers have problems in grappling with
this problem remain cloudy. This research there-
fore began by seeking to understand managers’ per-
spectives of the problem and how they resolve the
strategy-financial linkage. This approach was
taken rather than to follow the path of previous
research, which has been either to ask managers
what strategic and financial tools they use (Pike
and Dobbins, 1984) or observing them in action
1045-3
172/93/040253-15$12.50
@
1993
by
John
Wiley
&
Sons,
Ltd.
Received
31
March
1992
Revised
22
December
I992
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