Entrepreneurial Strategic Decision-Making

Entrepreneurial Strategic Decision-Making

A Cognitive Perspective

Patrick A.M. Vermeulen and Petru L. Curseu

Strategic choices made by entrepreneurs have major consequences for SME performance. This book explores the factors that influence entrepreneurial strategic decisions using a cognitive theoretical framework.

Chapter 8: Risk, Uncertainty and Stakeholder Involvement in Entrepreneurial Decision-making

Japp van den Elshout and Patrick A.M. Vermeulen

Subjects: business and management, entrepreneurship

Extract

Jaap van den Elshout and Patrick A.M. Vermeulen 8.1 INTRODUCTION Every organization, large or small, faces strategic problems (Vennix, 1996). In order to cope with strategic problems, managers need to make strategic decisions (Noorderhaven, 1995). The outcomes of these strategic decisions shape the future of the organization. In small and medium-sized enterprises (SMEs), strategic decisions are the responsibility of one actor, the entrepreneur, and not a management team’s responsibility as is often the case in large companies (Brouthers et al., 1998). Because entrepreneurs are central actors in the strategic decision-making in SMEs it is very likely that their individual traits play a very important role in shaping the strategic decision process. It has been stated that, as opposed to managers, entrepreneurs do not develop routines and often make decisions based on their intuition (ibid.), they are highly individualistic, have a high tolerance for uncertainty and are confident about their skills, knowledge and expertise (McGrath et al., 1992). Very often entrepreneurs have to identify business opportunities in the environment and make decisions that involve a considerable amount of risk and uncertainty. Perceived uncertainty and perceived risk are related concepts and often are obstacles for accurate strategic decision-making (Lipshitz and Strauss, 1997). Therefore, the way entrepreneurs perceive risks and uncertainty is a core element influencing their strategic choices. Scholars agree that it is perceived, rather than objective, risk that drives the decision-maker to a particular behavioural pattern in strategic decisions (Dowling and Staelin, 1994). Uncertainty reflects the inability of...

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