The nature of managerial involvement in strategic investment decisions.
The role of managerial judgement and involvement in strategic investment decisions (SIDs) has received limited attention in Management Accounting and Finance literature. This study inquired into the nature of managerial involvement, individually and collectively, in making SIDs. It validates and extends Harris’ (1999) investment appraisal model; builds on psychology concepts (heuristics, framing and group consensus), that are employed by managers in decision making, to identify factors that enhance/enable or inhibit managerial judgement and involvement in SIDs; and explores the nature of managerial involvement in SID making. The study was conducted in two phases. First, a cross-sectional survey of 105 respondents from 70 companies representing 27 industries, measured the extent of managerial participation in SID making and the influence of the above psychological factors. The survey data was analysed using Principal Component Analysis to identify the dominant or key influencing factors, which were further investigated using in-depth highly-structured interviews and direct observation in a total of six case studies involving four multinational corporations (MNCs) and two medium-sized enterprises (MSEs). The findings of the study confirm that the managers within the formal SID making process enrich objective (organisational context) practices with subjective insights. The study illustrates that there is a common approach to SID making across organisations. This common approach can provide a structure for new and developing organisations. However, there is variation in SID practice dependent upon organisational context and corporate culture (characterised by size and SID types) and between organisations (characterised by industry types). Personal attributes of managers impact on managerial judgement and involvement in SID making. The author suggests that establishing and organising SID teams that harness unique personal attributes can lead to optimal group decision during SID. The study recognises that explicit and tacit managerial knowledge (acquired, constructed and nurtured to maturity through managerial experience) impact on managers’ judgement and involvement in SIDs. It also identifies aspects of organisational context and culture, and individual, group and socio-political processes that might enhance/enable or inhibit managerial judgement and involvement in SIDs. The study reveals that for managers, the level of managerial involvement in SIDs is high across all sectors, though it is more idiosyncratic in MSEs. This highlights the insufficiency of the objective processes of SID making, which needs to be augmented by managerial judgement, exercised individually and collectively. This study extends the extant scope of our understanding of SID making, beyond the dominant ‘technical’ emphasis on the application of discounted cash flow techniques for the purpose of SIDs.
- MPhil