An image theory of strategic decision-making in family businesses

Abstract

Purpose Research suggests family businesses often pursue risky or aggressive strategies despite the desire to preserve socioemotional wealth (SEW), which is thought to lead to conservativism in family firm strategic decision making. The purpose of this paper is to resolve this apparent contradiction by presenting a model that describes the screening criteria used by family business decision-makers when evaluating strategic opportunities. Design/methodology/approach The conceptual model relies on insights derived from image theory to resolve apparent contradictions inherent in the SEW perspective’s implications for family firms’ risky strategic decisions. Findings The proposed model suggests new strategic opportunities in family firms are evaluated through an unconscious, schema-driven decision process and that the preservation of SEW does not preclude risky strategic directions, but instead serves as an unconscious screening criteria for strategic opportunities. Originality/value This paper contributes to the literature by expanding the understanding of family-firm strategic decision-making to include considerations of the decision’s fit with the family’s principles, goals and strategic plan rather than solely to overall risk to SEW. Thus, the paper presents a detailed model of family-firm strategic decision-making that relies on insights from image theory.

Psychological Antecedents of Decision Comprehensiveness and Their Relationship to Decision Quality and Performance in Family Firms: An Upper Echelons Perspective

“…Such discretion may lend itself to less comprehensive decision processes because leaders may be more likely to use heuristics or intuition in arriving at decisions. Indeed, literature suggests that family firm decision makers are more likely to rely on schema in decision making (Penney et al, 2019; Vardaman & Gondo, 2014), indicating that decision comprehensiveness takes on greater importance in family firms, specifically as a likely source of variation in both the quality of family firm decisions and the performance. The added managerial discretion available to family firm decision makers also brings their dispositional traits to the fore in the decision process.…”

“…Thus, snap decisions become more likely when the decision maker has higher risk-taking propensity. Discretion also allows family firm decision makers to default to schematic decisions where all alternatives are not weighed (Penney et al, 2019). In this way, family firm decision makers may rely more heavily on their predispositions, giving greater importance to risk-taking propensity.…”

“…Family firm decision makers high in need for cognition are more likely to be comprehensive in their decision processes even when they have the discretion not to, because they enjoy cognitive processes such as gathering information. In this way, family firm decision makers high in need for cognition are more likely to fully evaluate decisions rather than rely upon schema or reflexively make a decision that prioritizes noneconomic goals (Penney et al, 2019; Vardaman & Gondo, 2014). On the other hand, family firm decision makers low in need for cognition rely more heavily on heuristics (Petty et al, 2009).…”

“…Notably, decision making is one of the most heterogeneous aspects of family businesses (Chrisman et al, 2005; Penney et al, 2019; Woods et al, 2019). Decision makers vary in their strategic decision comprehensiveness, or the extent to which firm leaders seek out and process information from the environment in order to make informed decisions (Reina et al, 2017).…”

“…Variation in strategic decision comprehensiveness should be particularly important for decision quality and performance in family businesses, as firm leaders often have high levels of managerial discretion in decision making that allows them broad leeway in the decision process (Le Breton-Miller & Miller, 2008). Family firm decision makers have the discretion and agency to make decisions rooted in schema or intuition rather than a full review of all available information (Penney et al, 2019), bringing the importance of strategic decision comprehensiveness to the forefront.…”