A unified framework for incorporating decision making into explanations of business failure
| Date | 10 August 2015 |
| Published date | 10 August 2015 |
| DOI | https://doi.org/10.1108/IMDS-03-2015-0085 |
| Pages | 1341-1357 |
| Author | Joseph Amankwah-Amoah |
| Subject Matter | Information & knowledge management,Information systems,Data management systems |
A unified framework for
incorporating decision making
into explanations of
business failure
Joseph Amankwah-Amoah
School of Economics, Finance and Management,
University of Bristol, Bristol, UK
Abstract
Purpose –The purpose of this paper is to examine how decision-maker attributes unfold to precipitate
organisational failure. The analysis brings to light how key attributes such as information-processing
capabilities and human capital decay interact to bring about business decline and exit.
Design/methodology/approach –The study is basedon an integrated review and conceptualisation
of the literature.
Findings –The study articulates how a set of attributes of decision makers, i.e. human capital obsolescence,
powerlessness, meaninglessness and institutional linkages, contributes to organisational failure.
Research limitations/implications –The paper concludes by setting out an array of strategies of
learning from others’failures.
Originality/value –In spite of a growing body of research on organisational failure, scholars have
placed overwhelming emphasis on ecological explanations and business failure prediction models.
The study moves beyond the ecological explanations to offer a more fine-grained analysis of firm-level
factors that precipitate business failure.
Keywords Human capital, Business failure, Decision making, Information processing
Paper type Conceptual paper
Introduction
Over the past five decades, management scholars have offered a plethora of business failure
prediction models (see Aziz and Dar, 2006). Although organisational decision-maker
characteristics (DMCs) have been identified as a contributory factor in organisational failure
(Wiesenfeld et al., 2008), to date, scholars have relied mainly on either the embeddedness or
ecological explanations of business failure, which place primary emphasis on a firm’s size,
age and density of the population (Hager et al., 2004).
One of the common limitations of both the ecological explanations and prediction
models is that they offer little or no insight into the effects of DMCs. Both have also failed to
capture the more intricate dynamics of decision-making processes which precipitate
organisational failure. This omission is surprising given that scholars have long recognised
that the “images of organizations and their leaders are intertwined”(Sutton and Callahan,
1987, p. 405) and organisational outcomes are a reflection of the characteristics of their
decision makers (Finkelstein and Hambrick, 1990; Rider and Negro, 2015).
The primary purpose of this study is to examine how DMCs unfold to precipitate
organisational failure. We contend that the four sets of cognitive and psychological
attributes of the decision maker, i.e. obsolescence, powerlessness, meaninglessness and
institutional linkages, interact to contribute to business failure (see also Seeman, 1971).
Our study builds on and extends the literature by developing an integrated
framework to explain how DMCs interact with other factors to lead to business failure.
Industrial Management & Data
Systems
Vol. 115 No. 7, 2015
pp. 1341-1357
©Emerald Group Publis hing Limited
0263-5577
DOI 10.1108/IMDS-03-2015-0085
Received 20 March 2015
Revised7May2015
Accepted 11 June 2015
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0263-5577.htm
1341
Framework for
incorporating
decision
making
The study thus adds to the growing body of literature that has recognised the crucial
role played by human capital held by decision makers in the rise and fall of companies
(Semadeni et al., 2008).
In addition, one of the unintended consequences of a lack of a comprehensive
overview of theeffects of DMCs has been that researchhas largely flourished in silos and
thereby providing conditions for confusion to emerge, leading to poor understanding of
the causes ofbusiness failure. Thus, our synthesisof the literature led to the identification
of unchartered territories and pinpointed key factors that contribute to business failure.
By incorporatingDMCs and their dynamics, the studydeparts from much of the existing
literature that has focused on mainly the prediction failure model (Aziz and Dar, 2006)
and ecological explanations (Hager et al., 2004) to bring into focus the “decision-making
processes”.
The remainder of the paper proceeds as follows. In the next section, we set out the
key pillars of our conceptualisation and key features of decision makers. We then
briefly examine organisational failure as a decision process. This is then followed
by the development of a conceptual framework and examination of its components.
We conclude by setting out the implications of our conceptualisation.
Definitions and decision maker
Decision making can be defined as the ability of organisational leaders to choose
between competing courses of action based on careful evaluation of the alternatives
(Balleine, 2007). One of the key elements during decision making is timing. Decision
time refers to a period “when the situation will be altered in the near future, after which
no decision can be made or the decision can be made only under less favorable
circumstances”(Billings et al., 1980, p. 301).
Organisational decision makers are individuals in a position of responsibility, power
and resource control who determine the right course of action for their organisations
(Robbins and Judge, 2011). In many small organisations, there is often an individual
with sole responsibility and power to influence or make all key decisions. Such
organisations tend to have a less-decentralised approach to decision making and
decisions are influenced by the individual’s opinions and biases. However, the decision
makers are often not individuals in isolation, but rather small groups of individuals
such as committees, top management teams (TMT) and boards of directors with the
responsibility and authority to ensure not only organisational success, but also
the firm’s long-term survival (Hambrick and Mason, 1984).
Although groups have access to a wider range of expertise across functional areas, it
remains unclearwhether groups actually make better organisational decisions relativeto
individuals (Kocher and Sutter, 2005). Past studies have indicated that decision makers,
whether individuals or groups, displayerrors in their judgements and choices(Frese and
Keith, 2015). In this sense, business failure partly stems from the accumulation of errors
of the decision makers (Cannon and Edmondson, 2001). The decision-makers’survival
and longevity often hinge on their ability to deliver organisational successes.
Organisational failure as a decline and decision process
For analytical clarity, organisational failure refers to “the actual demise of the organization
when an entire company goes out of business or a plant, office, or other unit is closed […]
the organization completely ceases to exist”(Marks and Vansteenkiste, 2008, p. 810).
It stems from a downward spiral of extended or unrestrained decline which leads to the
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IMDS
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