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Behavioral Strategy: Thoughts and Feelings in the Decision-making Process, the Unconscious and the Company’s Success

July 20, 2015 • Emerging Ideas, INNOVATION, Strategic Spotlight, STRATEGY & MANAGEMENT

By Claudia Nagel

It is evident that the psychology of the decision-making person – to a certain extent the human factor – plays an important role in the finding and determination of strategies.  Bearing in mind that strategic decisions are never made as rationally as they are always believed, it is a welcome change that this often overlooked area, Behavioural Strategy, is receiving the attention it deserves. In her book, Claudia Nagel has successfully developed an innovative concept for the further development of business strategy work. Her concept targets the improvements of strategic thinking and its effective implementation. She makes a case for the culture of cooperative discourse that determines what is right – and not a discussion that is sustained by the need to be right. In this excerpt, Dr. Nagel introduces the four stages of her “Behavioural Strategy” approach to contemporary strategy development.

 

“Behavioral Strategy” – The New Approach
Today, we know a lot more than we did when we first started working with corporate strategies. We now know how people make decisions and by which conscious and unconscious factors these processes are affected. Carl von Clausewitz (1780-1831), a well-known military theorist of his time, is considered one of the founders of strategic management, whereas the topic only surfaced on the corporate agenda in the 20th century; to be exact, in 1912 through a “Business Policy” course given at Harvard Business School. The topic of this seminar was to integrate the knowledge from the functional areas of companies (accounting and finance as well as operations) in order to solve long-term problems. Therefore, the strategy concept being used today is mainly based on the number-specific or financial considerations of business entities. This approach only made real progress in the late 1950s and 1960s. In this regard, the US public administration researcher Kenneth R. Andrews quite possibly was the first to formulate this still relevant requirement: “Every business organization, every sub-unit of an organization, and every individual (ought to) have a clearly defined set of purposes or goals which keeps it moving in a deliberately chosen direction and prevents its drifting in undesired directions.”1 He is known as the father of methods and tools such as “industry notes” and “company cases”, but also the SWOT analysis. In all of this, the modern understanding of strategy is mainly influenced by the work of the leading management consulting companies (McKinsey, BCG, Bain, Arthur D. Little, Booz, Allen & Hamilton, Oliver Wyman) as well as through the work of pioneers who are viewed as management or strategy gurus (Peter Drucker, Alfred Chandler, Igor Ansoff, Michael Porter, Peters and Waterman, Hammer and Champy, March and Simon, Gary Hamel, Fredmund Malik). Even the German microeconomics curriculum is subjected to the US development but, in terms of the corresponding trends, has partially developed on its own.2

However, the understanding of how we as human beings make decisions has not yet been included in the critical reflections related to the specific conditions of strategic thinking. It still applies that in business studies – but also in the world of business in general – the basic assumption of the “homo oeconomicus” is common: A being who continuously makes rational decisions in order to maximize his or her benefit. Only more recent research such as “Behavioral Economics” and “Behavioral Finance” increasingly calls this theory-based construction into question and assumes that unconscious influencing factors lead to cognitive biases.



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