Strategic issue diagnosis by top management teams: A multiple-agent model

Abstract

This study proposes an explanation for the accuracy of top management teams’ diagnoses of strategic issues. Key determinants are the number of members on the management team, as well as the span of managers’ attention and its allocation to the environment and to other managers. Depending on the nature of the issues faced, managers who reason analogically from past experience to draw inferences about current strategic issues may arrive at accurate or inaccurate diagnoses. We specify and analyze a multiple-agent model that encompasses individual, top management team, and context characteristics relevant to classifying strategic issues as opportunities or threats based on learning from experience. Results from our model indicate that attending to the environment improves the accuracy of strategic issue diagnoses, whereas attending to other managers’ inferences proves detrimental. Adding members can enhance issue diagnosis accuracy for a team that makes decisions according to majority-rule voting, despite leaving the accuracy of individual managers’ diagnoses unchanged.