QUASI-RATIONALITY OF STRATEGIC
DECISIONS
K. G. D. Pawironadi – s1616447
MSc Business Administration - Small Business & Entrepreneurship
Abstract
It is important for small restaurant to engage in strategic development in order to keep up with competition. Often decision-making in small restaurants is centralized to the small restaurant owner (SRO) whose personal traits are proposed to influence the strategic decision making processes (SDMPs). This study investigated whether education, experience, tolerance for ambiguity, self-efficacy, and risk-taking propensity influenced the quasi-rationality of restaurant-specific SDMPs. Therefore, personal traits of six SROs were assessed, and semi-structured interviews were conducted. It was found that the SRO who consistently scored low for the personal traits underwent more intuitive than rational SDMPs. Contrarily, the SRO who consistently scored high for the personal traits underwent more rational than intuitive SDMPs compared to the rest. Moreover, it was found that the cognitive task, rather than the personal traits, had a greater influence on the quasi-rationality of SDMP. Nevertheless, this study implies the importance of using both rational and intuitive thought for strategic decision-making.
Supervisor: Dr. O. A. Belousova Co-Assessor: Dr. ir. J. Kraaijenbrink
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Content
Introduction ... 3
Theoretical Background ... 5
Strategic Decision Making Processes ... 5
Rational and Intuitive Strategic Decision Making Processes ... 5
Rational strategic decision making processes ... 5
Intuitive strategic decision making processes ... 6
Quasi-rationality ... 7
Personal Traits as Antecedents of Strategic Decision Making Processes ... 8
Tolerance for ambiguity ... 9
Risk-taking propensity ... 9
Self-efficacy ... 10
Demographic personal traits ... 10
Strategic Decisions in the Restaurant Industry ... 10
Study Purposes ... 11
Methodology ... 13
Participants and Procedures ... 13
Research Design ... 13
Structure of the Interviews ... 13
Analysis Plan ... 13
Quality Criteria ... 14
Results ... 15
Restaurant Profiles ... 15
Small Restaurant Owners Profile and Personal Traits ... 15
Strategic Issues in the Restaurant Industry ... 16
Restaurant concept. ... 16
Menu development. ... 18
Design of the atmosphere and dining experience. ... 22
Location ... 24
Effects of Personal Traits on the Quasi-rationality of Strategic Decision Making Processes ... 25
Discussion ... 26
Limitations and Implications for Future Research ... 28
References ... 30
Appendix I. Interview Guide ... 34
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Case I. The Indian. ... 38
Case II. The Snackbar. ... 43
Case III. The Grillhouse. ... 48
Case IV. The Brasserie. ... 53
Case V. The Burger Place. ... 58
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Introduction
The restaurant industry is characterized by its high market rivalry which is a result of its oligopolistic structure. That is, the fierce competition is caused by the presence of many firms with similar concepts, that offer similar products at similar prices (MarketLine, 2015). Many of the restaurants in this industry belong to the small and medium-sized enterprises (SME) sector (Statline, 2016). The large number of small restaurants deserves a lot of attention since they make a great contribution to the economy as wealth and job creators (Day, 2000; Statline, 2016; Tonge, 2001). Academic research has also been interested in SMEs, and has particularly compared them to their larger counterparts (Acs and Audretsch, 1988; Chen and Hambrick, 1995). For instance, it has been argued that small businesses engage differently in strategic planning compared to larger businesses (Chen and Hambrick, 1995). In fact, it has often been assumed that the strategic planning that takes place in small firms is less professional compared to those in larger firms (McCarthy, 2003; O’Gorman and Bourke, 2005). As strategy is known to contribute to organizational success (Rumelt et al., 1994), the lack thereof may result in reduced success and possible failure.
Thus, it is important for small restaurants to invest in strategic development so that they can keep up with competitors and increase their chances of success. The purpose of strategic development is to design a plan with the objective to improve organizational performance and achieve organizational goals (Mintzberg, 1987; Nag et al., 2007). The process of strategic development occurs through a series of irreversible choices or decisions that are made and which have substantial effects on the direction – success or failure – of the organization (Shivakumar, 2014). These strategic decision making processes (SDMPs) are carried out by managers and owners. In order to develop the best strategy for the firm, these individuals must take consideration of all factors that will influence the organization as well as the irreversibility of the decisions that are to be made. Consequently, there is much uncertainty regarding whether the decisions made will have the desired effect. Therefore, it is important that decisions are made as carefully and as well as possible.
In recognition of this issue, research has investigated whether better strategic development are influenced by the nature, in particular rationality and intuitiveness, of SDMPs. Rational decision making involves a process where all possible options and scenarios are generated, analyzed and evaluated (Simon, 1978). In contrast, intuitive SDMPs are characterized by automatic, more holistic reasoning that based on past experience and feelings (Epstein et al., 1996). In the past, research has often investigated these two cognitive modes separately. More recently, there has been an emerging body of literature that supports quasi-rationality: the shared use of the rational and intuitive cognitive modes (Dhami and Thomson, 2012). Besides the notion that purely rational or purely intuitive decisions are impossible to achieve, quasi-rationality also supports the idea that people use different cognitive modes – more rational than intuitive thinking, or vice versa – under different circumstances (Dhami and Thomson, 2012).
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of the SDMP research, in general, has been performed in medium and/or large sized firms (Miller et al., 1988; Papadakis, 2006).
Despite the large amount of SDMP studies available, there is still a need for more SDMP research in the small business sector. The reason for the scarcity on SDMP research in small firms may be due to the fact that many researchers acknowledge that small firms seldom engage in strategic management and, therefore, lack a formal plan or strategy (McCarthy, 2003; Rauch and Frese, 2007). Nevertheless, it is important to understand SDMPs in small firms as it may help increase their chances at success. Since most of the SDMP research focused on larger firms, often the characteristics of management teams, rather than individual decision makers, have been examined (Goll and Rasheed, 2005; Papadakis et al., 1998). Only few studies have examined the personal characteristics of the individual CEO (Papadakis, 2006). However, it has been previously argued that CEOs and small business owners do not possess the same personal characteristics (Stewart and Roth, 2001; Zhao and Seibert, 2006). Moreover, it has been argued that personal characteristics of the small business owner have great effect on the course of the firm (Carland et al., 1983; Stewart et al., 1999). In line with this thought, it can be imagined that the characteristics of the small business owner will also influence the SDMP.
The purpose of this study is to investigate the relation between the small business owners’ – more specifically, small restaurant owners’ – personal traits and the extent to which his or her SDMP can be considered more rational or intuitive. This will be done through case analyses of six small restaurant owners (SROs). First, the SROs’ personal traits will be assessed through existing questionnaires. Then, semi-structured interviews were conducted in order to analyze the quasi-rationality of industry-specific SDMPs. Thus, the research question in this paper is: How do personal traits influence the
quasi-rationality of SDMPs in small restaurants?
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Theoretical Background
Strategic Decision Making Processes
Strategic decision making processes (SDMPs) involve the event where executives make choices that will ultimately determine the organizational direction. The SDMP is triggered by a problem or issue that can materially affect the well-being and nature of the organization (Eisenhardt and Zbaracki, 1992; Schoemaker, 1993; Shivakumar, 2014). As a response to this problem, a set of alternatives is developed which concerns objectives as well as the actions that need to be taken in order to realize the organizational goal (Mintzberg, Raisinghani, and Theoret, 1976). Next, executives will choose the most optimal choice among the developed set of alternatives (Dhami and Thomson, 2012; Simon, 1978). However, due to the complexity of the problem, there will always be some uncertainty about whether the choice made will lead to the desired result. Uncertainty arises from the fact that these problems are often hard to understand, and do not have few obviously wrong or right answers. After all, it is a frustrating task to find a right answer to a problem that is ill-defined. What is more concerning, is that severe consequences can occur if the “wrong” decisions are made (Shivakumar, 2014). Furthermore, the outcome of a decision is often uncertain due to unpredictable and unknowable changes that may occur in the organization's surrounding environment (Shivakumar, 2014). Moreover, once a decision is made, the firm will commit to it, and changes made will be hard to reverse (Shivakumar, 2014). In other words, strategic decisions highly influence the course of the firm.
Due to their importance, extant literature has aimed to elucidate how SDMPs contribute to better strategic outcomes. Subsequently, researchers have investigated SDMP stages or SDMP characteristics. Regarding the SDMP stages, studies have found it challenging to identify a sequence of activities. Moreover, very rarely have studies found consistency in the identification of stages (Papadakis, 2006). As a consequence, more studies have turned to the SDMP characteristics which describe generic attributes of the process, as well as its antecedents and consequences (Papadakis, 2006; Shepherd and Rudd, 2014; Wally and Baum, 1994). Such studies investigate how contextual variables such as environmental factors, firm characteristics, and decision maker characteristics influence certain attributes of the SDMP. Some of the characteristics include rationality and intuition on which this paper will focus further.
Rational and Intuitive Strategic Decision Making Processes
Research has popularly investigated rationality and intuitiveness as SDMP characteristics. By definition, rationality and intuition are states of being that refer to people’s ability to reason, think, or judge (Merriam-Webster, 2015). Both rationality and intuition are controlled by their respective cognitive system (Dhami and Thomson, 2012; Eisenhardt and Zbaracki, 1992). Rationality refers to a person’s ability to reason about things clearly based on facts and not emotions or feelings (Merriam-Websterb, 2015). Intuitiveness, on the other hand, is about having the ability to know or understand things without any proof or evidence (Merriam-Webstera, 2015). In decision making, rational decision making involves a step-wise analytical process while intuitive decision making is characterized as being based on hunches and feelings with no form of sequence involved in the process. The following paragraphs explain in more detail what rational and intuitive DMPs entail, and what has been found so far on the two phenomena.
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economic context, decision makers find themselves in an environment where perfect information is available and all objects in it are known (Eisenhardt and Zbaracki, 1992; Sadler-Smith and Shefy, 2004; Sauter, 1999). By possessing complete knowledge, decision making becomes the straight-forward task of collecting and analyzing appropriate information, followed by the formulation of alternative actions. Subsequently, the optimal alternative is chosen from the set of developed alternatives (Dhami and Thomson, 2014; Eisenhardt and Zbaracki, 1992; Fredrickson and Mitchell, 1984; Sadler-Smith and Shefy, 2004; Sauter, 1999). Thus, rational decision making is thought to follow the three sequential phases of identification, development, and selection (Eisenhardt and Zbaracki, 1992). The use of rational cognition is best when all relevant variables can be controlled or predicted, measured, and when complete information is available, making it possible to use purely analytic methods (Sauter, 1999) Thus, the classical rational decision making process envisions decision makers as “machine-like in
efficiency, setting clear, unambiguous goals and searching comprehensively for the “optimal” solution. Implicit here is the belief that each problem has a “right” solution and that decision-makers are capable of discovering it” (Shivakumar, 2014).
However, it is being argued that humans are incapable of making the optimal choice based on rationality as described in the neoclassical context. Many contend the existence of perfect information and argue, instead, that environments are characterized by much uncertainty and unpredictable changes (Sauter, 1999). As uncertainty in the business environment increases, the rational decision maker needs to increase his or her search efforts in order to reach the state of perfect information as much as possible after which it is possible to choose the most optimal alternative (Sadler-Smith and Shefy, 2004). However, due to limitations in cognition and analytic methods it is not possible to arrive at the most rational decision (Eisenhardt and Zbaracki, 1992; Schoemaker, 1993). Alternatively, time pressure and politics may cause decision makers to resort to additional or alternative ways of reasoning or judging in order to make the best possible choice for the organization (Papadakis et al., 1998; Wally and Baum, 1994). There is an accumulating amount of support for the notion that the rational cognitive system is not sufficient for making optimal strategic decisions. Simultaneously, research has started to gain more interest in the role of intuitive cognition in decision making processes.
Intuitive strategic decision making processes. Intuition is a state of being that has been found both difficult to describe as well as define. As a consequence, extant literature knows a great number of definitions for the concept. The reason for this stems from the fact that the concept, as such, is not well-understood. Often, intuition is described as a 'gut feeling' or a hunch that people may experience without understanding how it arises (Sadler-Smith and Shefy, 2004). In this sense, intuition is a sense of knowing something by feeling. In a study conducted by Parikh (1994), executives described intuition as “an inexplicable comprehension, […] a feeling that comes from within, […] and a decision or
perception without resorting to logical or rational methods”. On that note, intuition is also often
described as what it is not. More specifically, it is often described as the opposite of rationality. For example, Kahneman and Tversky (1982) defined intuition as an informal and unstructured mode of reasoning without the use of analytical methods or deliberate calculation. Yet another definition explains that intuition is an illumination or a sudden awareness that arises through the (unconscious) recognition of patterns (Sadler-Shefy and Smith, 2004; Sauter, 1999). According to Sauter (1999), the sudden awareness of information occurs when the individual starts recognizing links between many pieces of seemingly unrelated knowledge and information that had been stored in his or her mind (Sadler-Shefy and Smith, 2004; Sauter, 1999).
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describe the process. By understanding the process of intuition, it may be easier to recognize the concept.
Even though we may not fully understand the concept of intuition, researchers have found that intuition is still important for decision making processes. Sadler-Smith and Shefy (2004) explain that the feelings involved in intuitive decision-making are a bodily sense that help executives make decisions for or against certain actions. Intuition comes in handy in situations where there is an overwhelming mass of information and or where decisions are expected to be made in a short period of time (Sadler-Smith and Shefy, 2004; Sauter, 1999). On such occasions, intuition allows the executive to look for cues that relate to previously experienced patterns, instead of exploring all the possibly available options (Sadler-Smith and Shefy, 2004).
As with rationality, there are some disadvantages to pure intuitive decision making. The most obvious “fault” of intuition is that it lacks the use of thorough, systematic, analytic methods. On the other hand, this is exactly what defines intuition in the first place. Another weakness of intuitive decision making is that the process does not know a sequence, as is the case with rational decision making. Instead, intuitive decision making is characterized as a holistic approach where procedures are not specified, and where the decision maker experiments with the unknown to get a feel of what is required (Sauter, 1999).
Quasi-rationality
Researchers have argued that humans are incapable of making purely rational or purely intuitive decisions. That is, neither the rational nor the intuitive cognitive system are sufficient for making optimal choices on their own. The two systems can be viewed as a dichotomy, where rationality and intuition are considered as exact opposites (Eisenhardt and Zbaracki, 1992; Epstein, 2010). Alternatively, it is argued that they are used alongside each other when judgment is needed, or when choices are made (Dhami and Thomson, 2012; Epstein, 2010). In this view, rationality and intuition are considered complementary systems, where one fills in where the other falls short (Epstein, 2010). As they are considered exact opposites, one system’s disadvantage automatically is the other’s advantage. For example, rationality has been shown to be of little addition when it comes to making judgments in environments where things cannot be predicted or measured. Under such circumstances, intuition can be helpful to facilitate and speed up the process. On the other hand, intuitive decision making processes lack the use of methodologies and/or systematic procedures which can be duplicated and which may be helpful to apply when a similar issue arises in the future. To solve this problem, the use of rational analytic methods can be recommended (Dhami and Thomson, 2012). The dichotomous view considers the two systems as separate but cooperating. Yet, there are other theories that regard rationality and intuition as two elements that make part of one single system. According to the Cognitive Continuum Theory, they are two extremes along the same continuum, with intermediate forms in between those extremes (Dhami and Thomson, 2012).
Quasi-rationality entails all the cognitive modes along the cognitive continuum that lie between rationality and intuition (Dhami and Thomson, 2012). The theory behind quasi-rationality holds that the vast majority of judgments are a mix of both intuition and rationality, albeit in different proportions. Quasi-rationality, thus, is not just one single mode of cognition. Rather, there are many “degrees of
quasi-rationality as measured by different combinations of rationality and intuition in terms of nature and degree” (Dhami and Thomson, 2012) (Figure 1). Some modes of quasi-rationality may be more
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in senior managers and executives who have a broad range of experience and knowledge (Sadler-Smith and Shefy, 2004). These individuals draw information that has been collected through past experiences and try to find links between these pieces of information (Epstein, 2010; Sadler-Smith and Shefy, 2004; Sauter, 1999). Contrarily, individuals that are less familiar with the cognitive task will undergo a more systemized, analytic process to find the most optimal choice since they do not yet possess the information necessary to perform the task (Doherty and Kurz, 1996). This concept of quasi-rationality is further supported by the finding that people use different cognitive modes under different circumstances. For instance, it has been argued that decision makers make less use of their rational cognition, and more of their intuitive cognition, in more complex or turbulent environments (Fredrickson and Mitchell, 1984). Contrarily, more rational, as opposed to intuitive, decisions are made in stable environments (Eisenhardt and Zbaracki, 1992).
In addition to changes in circumstances, it has also been suggested that people have a preference for certain cognitive modes. For instance, it has been found that senior managers in large firms use more intuitive reasoning than middle managers of similar sized firms, or senior managers in smaller firms (Sadler-Smith and Shefy, 2004). Alternatively, small business entrepreneurs have been found to apply intuitive reasoning in a similar fashion as senior managers of large firms (Sadler-Smith and Shefy, 2004). On another note, it has also been found that people who tend to be more intuitive possess different personal traits than people who rely more on rational thinking (Doherty and Kurz, 1996; Sadler-Smith and Shefy, 2004). In line with these findings, it has been suggested that personal traits influence the quasi-rationality of DMPs.
Personal Traits as Antecedents of Strategic Decision Making Processes
Decision making processes have been proposed to be influenced by personal traits. According to this idea, “decisions are the product of behavioral influences” (Shepherd and Rudd, 2014). Indeed, personal traits as determinants of SDMP characteristics and outcomes have been studied a number of times (Shepherd and Rudd, 2014). Research has long had great interest in personal traits in order to understand why people with similar abilities, under similar circumstances, will make very different choices (Hough and Ogilvie, 2005). Personal traits are individual characteristics and characteristic attitudes that are shaped by heredity, the environment, and the interactions between them (Kanfer, 1992). These characteristics unconsciously and indirectly influence a person's actions which, in the long run, translate into patterns of behavior (Haley and Stumpf, 1989; Kanfer, 1992).Findings for the proposed relation between personal traits and DMPs, however, have been quite equivocal (Shepherd and Rudd, 2014). This is due to the fact that researchers have just begun studying this phenomenon. Studies in this field of research have generally investigated demographic (e.g. age, education, experience, and tenure), psychometric (e.g. personality and cognitive style), or both traits (e.g. Haley and Stumpf, 1989; Mehrabi and Kolabi, 2012; Papadakis, 2006; Shepherd and Rudd, 2014). According to Shepherd and Rudd (2014), inconsistencies across SDMP studies may be the result of
“the lack of a systematic treatment of contextual variables”, such as the top management team, the
external environment and firm characteristics. Moreover, studies examining this phenomenon have chosen to investigate a limited, yet, divergent set of personal traits. For example, Papadakis (2006) has investigated the influence of need for achievement, risk propensity, locus of control, tenure, and education on the rationality, among other characteristics, of SDMPs. Alternatively, Witteman et al. (2009), chose to elucidate the influence of The Big Five personalities on rationality and intuition. Consequently, our understandings of SDMPs remain fragmented (Shepherd and Rudd, 2014).
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to be more consistent in predicting the rationality and intuitiveness of SDMPs (Papadakis, 2006). Alike the rest of SDMP literature, much of the research on this phenomenon have been performed in larger firms. As decision making in large firms are often executed by a group of managers, research has examined the variables such as the average age, education and tenure of the entire top management team (Goll and Rasheed, 2005; Miller et al., 1998; Papadakis et al., 1998). Yet, in order to truly understand how personal traits affect quasi-rationality of SDMPs it is necessary to focus on the individual rather than the team. Research in small firms, where decision making is a centralized process, may provide better insights on this phenomenon.
Since small business owners are often solitary decision makers, it is very likely that their personal characteristics will greatly influence the SDMPs and, thus, how their firm is managed (Curseu et al., 2010).In order to make effective decisions, small business owners need to be able to cope with the uncertainties in their business’s environment. Small businesses reside in highly dynamic environments where uncertainty is a major factor (Matthews and Scott, 1995). These uncertainties are caused by the unpredictability of threats (e.g. high competition) and opportunities. To cope with these uncertainties they need to be able to tolerate unpredictable changes in the environment, take risks, and be confident in their capabilities to perform various, often unanticipated, tasks (Curseu et al., 2010). Therefore, it has been suggested that, in order to make effective decisions, small business owners need to have high risk-taking propensities, high tolerance for ambiguity, and high self-efficacy. Small business owners need to take risks, tolerate ambiguity, and be self-efficient (Curseu et al., 2010).
Tolerance for ambiguity. People who have a high tolerance for ambiguity (TA) are able to effectively cope with situations that are unfamiliar, complex, and where limited information is available (Bhide, 2000; Furnham and Ribchester, 1995; Norton, 1975). In contrast to others, these individuals deal with ambiguous situations without experiencing stress, or other psychological discomfort (Furnham and Ribchester, 1995; Norton, 1975). Moreover, people with high TA have the “tendency to
perceive ambiguous situations as desirable rather than threatening” (Budner, 1962).
Since stress impairs effective decision-making it is important that small business owners minimize their stress or psychological discomfort as much as possible (Bhide, 2000; Curseu et al., 2010; Leder et al., 2015; Schere, 1982; Storey and Greene, 2010). Subsequently, it is beneficial for the small business owner to have a high tolerance for ambiguity since running a business is surrounded by uncertainty. As previously stated, decision-making under circumstances with limited information calls for the use of more intuitive than rational thought. Therefore, it is hypothesized that:
H1: Tolerance for ambiguity causes SROs to undergo more intuitive than rational SDMPs.
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themselves in risky and uncertain situations compared to individuals with low RT. As a consequence, they will be more dependent on their intuition to make decisions. Therefore, it is hypothesized that:
H2: Risk-taking propensity causes SROs to undergo more intuitive than rational SDMPs
Self-efficacy. Self-efficacy is a cognitive concept defined as “the belief in one’s capabilities to
organize and execute the course of action required to manage prospective situations” (Bandura, 1997:
2). In other words, it is about believing that one is able to perform various tasks in uncertain situations (Baum and Locke, 2004). In addition, people with high self-efficacy believe that they have substantial control over their destiny (Storey and Greene, 2010). Self-efficacy is a situational trait, meaning that people will have high self-efficacy for some situations but not others (Storey and Greene, 2010). Because of this, people are inclined to look for situations in which they believe to have more control, or high self-efficacy, as opposed to situations where they think they will have less control (Forbes, 2005). It has been suggested that executives create controllable and predictable situations through formal strategic planning, applying standardized procedures, as well as following formal rules (Miller and Droge, 1986; Miller et al., 1988). Since such acts require more analytic and rational thinking it is, therefore, hypothesized that:
H3: Self-efficacy causes SROs to undergo more rational than intuitive SDMPs
Demographic personal traits. Demographic traits have repeatedly been shown to influence various processes. This is because such traits affect how individuals think and behave. Subsequently, it has been proposed that these variables will also influence how individuals think and, hence, make decisions.
Education undoubtedly affects the way people think and process information. The more educated an individual becomes, the more knowledge this person will possess. Moreover, such individuals will be able, as well as more likely to use analytic techniques (Bantel, 1993; Goll and Rasheed, 2005). Therefore, this study hypothesizes the following:
H4: The level of education achieved causes SROs to undergo more rational than intuitive SDMPs
Experience, on the other hand has been suggested to trigger more intuitive thought than rational. The reason for this argument is that those that have more experience will also draw their thoughts from a unique set of past events which have been molded through the process of learning and the repetition of performing certain acts (Maitland and Sammartino, 2015). Consequently, individuals with lots of experience and knowledge, rely more on their paradigms and make less use of searching for new information (Hambrick and Fukutomi, 1991; Papadakis, 2006).
H5: Experience causes SROs to undergo more intuitive than rational SDMPs
Strategic Decisions in the Restaurant Industry
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It is important for the small restaurants to engage in strategic development in order to overcome the fierce competition in this industry. The market rivalry in this industry has been considered high because it exists of many companies with similar structures that offer similar products at similar prices (MarketLine, 2015). The strong competitive environment in this industry is further intensified by the lack of switching costs incurred for consumers who have the opportunity to switch restaurants as they choose (MarketLine, 2015). That is, customers have a wide range of choices between restaurants to choose from. In order to stand out from their competitors, restaurants typically seek their competitive advantage through product differentiation which are achieved through product assortment (e.g. type of cuisine, and choice of dishes) and type of service given (e.g. dining experience, and ambiance) (MarketLine, 2015).
In this paper the three most common, and perhaps most important, strategic issues that are unique to the restaurant industry are discussed. Strategic issues in the restaurant industry will highly vary and may concern the choice of concept, opening hours, hygienic regulations, choosing the target group, setting up the facility, and choosing a location (Lynn, 2001). The first, and most important strategic decision that restaurant owners make is the choice of concept. Restaurant concepts are the most important communicators towards diners as they let customers know what they can expect from the restaurant (Lynn, 2001). Restaurant concepts may center on a theme, a type of cuisine, or the type of service given. Therefore, the next strategic decisions that are usually made are based on this concept and willl concern either the menu, the design of the atmosphere or that of the dining experience (Lynn, 2001; Rey and Wieland, 1985). The ultimate aim of menu development is to let the customers know what products the restaurant serves and how they are made (Rey and Wieland, 1985). Next to menu development, restaurant owners will also have to design the atmosphere and dining experience that will further communicate what the restaurant stands for. According to Rey and Wieland (1985) the atmosphere, service and cuisine must harmonize with each other. The interior design will concern elements such as noise, lighting, and color coordination. Furthermore, a well-designed interior will have considered the proper way of laying out the dining area which will affect service (Rey and Wieland, 1985). Because of the complexity of this task restaurant startup books advise restaurant owners to hire professional help with regards to the design of the interior and government regulations regarding safety (Garvey et al., 2007; Lynn, 2001; Rey and Wieland, 1985).
Study Purposes
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Methodology
Participants and Procedures
Six small restaurant owners were approached to take part in this study. All participants were active owners of restaurants in The Netherlands. The restaurants all belonged within the small business category as defined by the EU definition. According to this definition, firms that fall into the small firm category have less than 50 employees, and a balance sheet total, or turnover, equal to or less than 10 million Euros per year (European Commission, 2014). Prior to the interviews, participants were informed about the study purposes and that the provided information would be kept anonymous and would be used for study purposes only. The structure of the interviews are explained in more detail in the next paragraph.
Research Design
This study followed a mixed methodology whereby qualitative and quantitative research methods were combined to increase both the scope and the level of possible analysis (Muskat et al., 2012). In this study surveys were used to quantitatively assess the personal traits of the SROs and the quasi-rationality of the SDMPs. Furthermore, semi-structured interviews were conducted and qualitatively analyzed for the quasi-rationality of SDMPs. Then, the results from the qualitative and quantitative analyses were compared to come to a better understanding of the phenomenon.
Structure of the Interviews
Questionnaires were used to assess the personal traits education, experience, tolerance for ambiguity (TA) self-efficacy (SE), and risk-taking propensity (RT). TA and SE were measured using five questions derived from the constructs of McLain (2009) and Chen et al. (2001), respectively. These constructs were measured on 5-point Likert-type scales ranging from “strongly disagree = 1” to
“strongly agree = 5”. RT was measured with a general question of the interviewees’ self-perception of
their risk-taking behavior. Additionally, RT was assessed with two hypothetical, standardized scenarios derived from Kogan and Wallace (1964) and Schneider and Lopes (1986). Appendix I provides the interview guide and details of scales followed in this study.
SDMPs were investigated and analyzed by conducting semi-structured interviews to understand in as much detail as possible how SDMPs occur, and to investigate why they occurred in that way. First, interviewees were asked to discuss the general background of their restaurant. By doing so, the interviewee would discuss those subjects and issues that were more important to him. Subsequently, the researcher would be able to pick up cues that could indicate important SDMPs that the interviewee had previously dealt with. Moreover, a general description of the restaurant provided the researcher with a better understanding of the answers provided during later stages of the interview.
In addition, a structured questionnaire that consisted of closed-ended questions on the strategic issues (1) concept and menu development, and (2) design of the restaurant atmosphere and dining experience was used. These questions followed the construct of Fredrickson and Mitchell’s (1984) rationality/comprehensiveness dimension (See Appendix I). This construct analyzes strategic decisions by dividing it into four steps; (1) situation diagnosis, (2) alternative generation, (3) alternative evaluation, and (4) decision integration.
Analysis Plan
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question was measured on a 10-point scale. The average scores for the personal traits were calculated as follows:
𝑇𝐴 =
𝑇𝐴1+𝑇𝐴2+𝑇𝐴3+𝑇𝐴4+𝑇𝐴5 5𝑆𝐸 =
𝑆𝐸1+𝑆𝐸2+𝑆𝐸3+𝑆𝐸4+𝑆𝐸5 5𝑅𝑇 =
𝑅𝑇1+ 1 2𝑅𝑇2+𝑅𝑇3 3The semi-structured interview served to qualitatively analyze the SDMPs by exploring how and
whether the restaurant owners diagnosed the situation, generated and evaluated alternatives, and how
they came to their final decision. Special attention was paid towards menu development and design of atmosphere and dining experience.
To quantitatively assess the strategic issues menu development and design of atmosphere and dining experience, closed-ended questions that followed Fredrickson’s (1984) comprehensiveness/rationality construct were used. For each strategic issue (1) information seeking activities, (2) use of external resources, and (3) expertise of people involved were examined. Moreover, wherever applicable, different stages (i.e. situation diagnosis, alternative generation, and alternative evaluation) of the SDMP were also measured. All dimensions and stages of the strategic issues were measured on 5-point Likert-type scales. Then, the average score per issue and the overall average score were calculated. When analyzing scores were translated in terms of intuitiveness and rationality as follows: 1 = Very intuitive, 2 = More intuitive, less rational, 3 = Equally intuitive and rational, 4 = More rational, less intuitive, and 5 = Very rational.
Finally, correlations between the assessed personal traits and quasi-rationality of DMPs were explored. It is strongly emphasized that the assessed scores for the personal traits as well as the SDMPs were used for descriptive and illustrative purposes rather than statistical purposes.
Quality Criteria
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Results
Restaurant Profiles
Table 1 provides an overview of the restaurant profiles. The participants were all owners of restaurants in The Netherlands. The ages of the establishments ranged between 0 and 42 years. All of the restaurants had dine-in possibilities. The restaurant types included in this sample were Indian, Dutch snack-bar, Mid-Eastern Grill, brasserie and steakhouse, burgers, and International. The size of the restaurants were determined based on the number of employees only, since interviewees did not share their turnover or balance sheet total. The employee count for the restaurants was between 7 and 21, thereby confirming the small size of the firms.
Small Restaurant Owners Profile and Personal Traits
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Strategic Issues in the Restaurant Industry
The aim of the semi-structured interviews was to identify and verify strategic issues that SROs have been dealing with. All SROs were able to explain the SDMPs of the concept of their restaurant, the menu development, as well as the design of the atmosphere and dining experience in their restaurant. Furthermore, two SROs discussed location and site finding as a strategic issue.
Restaurant concept. From the interviews, it was noticed that the SDMP for the choice of concept was very short and almost absent. In fact, three of the SROs (The Indian, The Snackbar, The Grillhouse) based their choice for the concept on their years of experience in the same type of restaurant. That is, The Indian’s SRO decided to start an Indian restaurant because he has always worked in such restaurants. The same accounts for the SROs of The Snackbar and The Grillhouse.
For two restaurants (The Brasserie, The Burgerplace) the concept could be seen as a given. The SROs of these restaurants were both approached by persons who offered them the opportunity to take over or start the business that they are currently in. The impression was made that The Brasserie immediately took the opportunity without thoroughly evaluating its chances of success. This could have been due to the fact that this SRO, at the time, had another running restaurant and, thus, was familiar with the business dynamics and competition on the peninsula; “Before I started with this brasserie, I
had another smaller restaurant around the corner. So, the actual process of starting the company was very familiar and the arrangement of the start-up went relatively easy”. Contrarily, The Burgerplace’s
SRO thoroughly evaluated the attractiveness and chances of success for this concept. To illustrate: “I
noticed that in Europe there is a trend for casual and fast dining. I thought and saw that burgers were hot and in. I noticed that the Dutch prefer to have quick bites and snacks, rather than sit down and have elaborate meals. Therefore, I decided to open a fast food restaurant. To verify my hunch, I did some market research. After this was confirmed [I took the steps to realize the startup of the restaurant]”.
Menu’s was the only restaurant for which the concept of the restaurant was more thoroughly evaluated. Table 3 shows an overview of how the choice of concept was made for each restaurant. The score given indicates to what extent SROs received (expert) assistance to develop their business and come up with their concept.
It seems that SROs with a strong determination of the concept as a result of their working experience almost disregard the choice process for this strategic issue. Accordingly, they indicated that they received little assistance from outsiders with regards to the business development. who based their concept on their working experience. Those that were presented with the opportunity to start a business with a certain concept were able to evaluate the opportunity. Whereas this was the case for The Burgerplace, The Brasserie did not evaluate the opportunity because of his familiarity with the business environment of his restaurant.
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Whether or not SROs have thoroughly thought through the choice of concept, it sets the stage for the other strategic issues (i.e., menu development, atmosphere and dining experience). This is in line with what theory has suggested. For instance, Restaurants that serve ethnic foods (The Indian and The Grillhouse) or only a certain type of food (The Burgerplace) aimed to introduce “new” foods. To elevate this tasting experience they have created an atmosphere that complemented the food. For instance, The Burgerplace “…created a story on the walls that shows how different cultures came together and,
ultimately, gave rise to this type of cuisine”. Moreover, The Indian states that besides the Indian food, “…it is also important to give them as much of an Indian ambiance as possible, mainly through the music that is played, and the Indian attire that [they] wear”. He also teaches his staff how to apply
Indian hospitality.
Menu development. The development of the menu concerned the selection of dishes and the pricing of the menu items. These are discussed separately in the next paragraphs.
Selection of dishes. In four of the restaurants – The Indian, The Snackbar, The Grillhouse, and The
Burgerplace – the selection of dishes was found to occur in two steps: 1) the following of a standard menu, and 2) the addition of “special” menu items. SROs were found to use a standard menu as a guidance for their menu to conform to the restaurant’s concept, as well as to meet customer’s expectations. SROs mentioned different reasons for the addition of their special menu items. Yet, in essence, they were added to create a competitive advantage for the restaurant. By following a standard menu, it can be said that SROs used a rational method to select their dishes. However, none of these SROs explained on what criteria the dish selection was based. In fact, there was the impression that the selection of dishes from the standard menu occurred on the basis of hunches. This impression was confirmed with quotes such as: “I added those [dishes to the menu] that I thought were staple Indian
dishes” – The Indian, and “I wanted to add dishes that I think are very special” – The Grillhouse.
For the other two restaurants – The Brasserie and Menu’s– the menus are developed regularly (e.g. monthly or seasonally) through brainstorm sessions with the restaurant owners and their chefs. In developing the menu, both restaurants try to invent and add dishes that keep up with trends or current happenings in the culinary world. Therefore, they need to closely observe the market and evaluate which dishes would fit best with both the menu as well as the concept. Indeed, for Menu’s, the selection of dishes occurs in a very rational way. First, the market is observed for trends. Then, the owner and chef generate a number of alternative dishes to add to the menu. Subsequently, they make a selection from all the alternatives that have been named. The final selection for Menu’s menu is based on a set of criteria (Table 4a). Therefore, the dish selection for Menu’s was found to occur more rationally than intuitively. The same could be concluded for The Brasserie as the SRO and chef also evaluate alternatives. However, there was no fixed set of criteria used to make the final decisions.
Thus, the selection of dishes was found to occur in different ways depending on the restaurant concept. For the ethnic restaurants that specialize in a certain cuisine, SROs make use of a standardized menu from which they intuitively select dishes that they think their customers would appreciate. The SDMP for dish selection in the other two restaurants was found to occur in a more rational manner as both restaurants analyze market trends, get expert help from their chefs, and evaluate different dishes to put on the menu.
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Pricing method. All SROs used a combination of price imitation and cost analysis, with the
emphasis on price imitation, to set their prices. Price imitation was considered more important for SROs because of competition. Moreover, by imitating competitors’ prices, SROs are able to meet their customers’ expectations. Since The Indian concerned a takeover, the SRO based his prices on the old menu so that existing customers would still receive the service that they were used to. The Snackbar admitted to have applied prices based on his knowledge. He was so confident of his knowledge that he did not consider calculating or analyzing the prices. It was not clear how The Grillhouse determined the prices for his items. He claims to have used a combination of both, but did not elaborate in what proportions, how or why he did it in this manner.
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Design of the atmosphere and dining experience. With regards to the design of atmosphere and dining experience, it was found that décor and serving procedures were important contributors.
In accordance with previous statement, it was found that the décor of the restaurant was designed in such a way that it conformed to the restaurant concept. For instance, SROs of The Indian, The Grillhouse, The Brasserie, and The Burgerplace used theme-oriented characteristics as a criteria for the decorative elements to include in their décor. For example, The Indian chose to serve its dishes in typical Indian pots and its staff to dress in Indian attire. Similarly, The Brasserie’s décor, which is based on its peninsula-theme, includes a painting of the lighthouse, boat rope, and reed. In addition, restaurants designed their décor in such a way that it created the desired atmosphere. For example, although The Snackbar’s SRO did not express this, his snack bar is meant to provide people a place where they can have a quick bite. In order to assure that his customers do not occupy the seats for a longer period, he uses bright lighting and has large windows to let in as much sunlight as possible. Thus, SROs were able to describe their décor and why they had designed it in that manner. However, only two of the SROs explained how the process occurred. To illustrate, The Burgerplace had started with the design and construction of its interior. Unfortunately, its SRO realized at some point that he was not satisfied with the design and hired a professional company to assist him with it. Alternatively, the design process for Menu’s “warm and cozy, [interior with] dimmed lights, lots of candle lights, […] and cozy chairs” started with its SRO searching for inspiration and ideas. The actual selection process was not explained. Nevertheless, it is presumed that the owner selected elements for his décor that were “cozy and warm”. However, this a subjective activity meaning that the interpretation of “warm and cozy” will differ between different persons. It was found that SROs used a set of criteria to help them choose which decorative elements to include in their décor. However, the criteria, as such, were very subjective. Therefore, it was found that the interior design occurred more intuitively than rationally.
All SROs implied that the charisma and personality, rather than technical competencies and skills, were important contributors for the dining experience. In fact, three of the SROs (The Indian, The Snackbar, and The Brasserie) stated that they did not develop nor follow a serving procedure. These SROs deliberately decided not to develop such procedures. The Indian’s SRO found procedures to be unnecessary because waiters should be able to use their common sense when serving guests. The Snackbar’s staff mainly consists of the SRO and his partner who have many years of experience and, therefore, did not need to develop such procedures. The Brasserie’s SRO did not explain why serving procedures were not developed. However, in line with the arguments from The Indian and The Snackbar, it was implied that standard serving procedures are followed, but that these were of less importance because they really wanted the charisma of their waiters to come through and contribute to the dining experience: “For us, it is not so important if you have the skills or not, because you can learn
that. But especially the people should be able to give service with a smile”. The Grillhouse and The
Burgerplace did not clarify whether serving procedures were developed. Only Menu’s SRO seemed to have put more thought into the development of the serving procedures. “The procedures are partly
common restaurant serving procedures, and I added some actions that I apply at home when I receive my guests” (see appendix II).
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Location. For two of the SROs (The Indian and The Brasserie), the restaurant’s location was fixed as it concerned a takeover. Therefore, these owner were not able to, or did not, go through a decision making process for their location. For The Grillhouse and Menu’s the availability of the location was the reason for starting the restaurants in concern. That is, The Grillhouse decided to buy the space for the restaurant because out of necessity since he needed to generate income. Furthermore, Menu’s knew that a neighboring restaurant was going to end his business and had his eyes set on that location. He further implied that he was only going to start a restaurant if that one became available, and that he was not looking for other open spaces; “I had heard through the grape vines that the site would become free.
I had my eyes set on this venue. It was more of a “let’s-see-how-this-turns-out” thing. If it works out, then I would have a new challenge, if not, then I would not be upset either. So, others might say that it was an impulsive move”.
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Effects of Personal Traits on the Quasi-rationality of Strategic Decision
Making Processes
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Discussion
The aim of this study was to investigate whether the personal traits influenced the rationality and intuitiveness of strategic decision making processes in the restaurant industry. Therefore, the personal traits and characteristics of SROs were assessed first. This was followed by the assessment of the SDMPs.
The participating SROs were found to score high for the personal traits TA, SE, and RT. This is in accordance with theory which suggests that entrepreneurs have high TA, SE, and RT. Only one SRO (Menu’s) scored low (2.7) for RT. However, the low score does not seem to be in line with the observations made based on the interview. That is, Menu’s SRO did not seem less risk-taking than other people as he was willing to take on a new business next to his other running business. Running a business, in itself, is already considered a risky venture. Subsequently, running two businesses at the same time can be considered even riskier. Moreover, expressions such as: “It was more of a
“let’s-see-how-this-turns-out” thing. If it works out, then I would have a new challenge, if not, then I would not be upset either.” that give the impression that this SRO is not less, but more, risk-taking than most
individuals. If this reasoning is followed, then all of the SROs scored high for the psychometric traits. This study showed that five out of the six SROs scored less than 3.0 (min = 2.1, max = 2.6), for the overall SDMPs. These scores indicate that SROs used more intuition than rationality to make strategic decisions. This is in accordance with theory which states that entrepreneurs will rely more on their intuition in situations where there is uncertainty and where there is limited information. Only one of the SROs, The Burgerplace’s, was found to have undergone slightly more rational SDMPs than the other five (3.4). The possible reason for this is explained later in this chapter.
With the exception of experience, no relation was found between the investigated personal traits and the rationality or intuitiveness of the SDMPs. It was hypothesized that education would have a positive effect on the rationality of SDMPs. This hypothesis was not supported in this study. However, if The Burgerplace is not taken into account it can be observed that rationality increases with educational level. On another note, one could expect that the type of study may influence the intuitiveness with which strategic decisions are made. That is, as people with an education in hospitality should have more knowledge about the respective industry, it can be expected that they will have undergone more intuitive SDMPs with regards to their restaurant. However, this was not observed either as the two SROs with an education in Hospitality scored very differently – The Brasserie had the second lowest score (2.3) and The Burgerplace had the highest score (3.4) for overall SDMPs out of the six SROs. As for the psychometric personal traits (i.e. TA, SE, and RT), it is possible that they do influence SDMPs but that their effects were not observable in this study for different reasons. First, it could be that influences were not observed because the SROs in the sample were all similar in the personal traits investigated which, consequently, caused them to have similar SDMPs. Another explanation may be that these traits do not influence the SDMPs that were investigated in this study, but they may influence SDMPs for other strategic issues. Finally, it is likely that there are other personal traits that also influence, or influence the SDMPs more than the three investigated.
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to apply more research and to do things according to standard procedures as it was expected from his former bosses. SROs from The Indian, The Snackbar, and Menu’s have also had some years of experience as managers in the restaurant industry. However, they were not as much as that of Menu’s. Subsequently, it can be observed that they have second and third highest scores for the SDMPs. The two SROs with the least experience as employees were observed to have the lowest SDMP scores. It seems that those who have worked the least as employees seemed to rely more on their intuition than to make decisions rationally. As these SROs have not had much professional training, they had to resort to their own knowledge and develop their own ways to deal with practical issues. Thus, from these observations it seems as though the type of experience rather than the length of experience influences the rationality or intuitiveness with which the person makes decisions. This implies that the more you were trained to think rationally the more you will apply this kind of thought.
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Limitations and Implications for Future Research
In conclusion, this study was not able to show whether the personal traits TA, RT, SE, and education influenced SROs SDMPs. However, it is proposed that since running a business is surrounded by uncertainty it is necessary for small business owners to become risk-taking, have high tolerance for ambiguity and have high self-efficacy. On that note, it may be that it is probably not so that people with these traits are more likely to run their own businesses, rather it is more likely that the small business owner will adjust himself and his behavior according to the environmental circumstances. On the other hand, it is also likely that people who have scored very low for these traits will also not be able to function as well as their counterparts under the same circumstances. Such is observed from this sample; The Grillhouse’s SRO scored lower for these personal traits. Unfortunately this restaurant also exited the business. Although it is not known what the reasons for this are, it is possible that the misfit of his personal traits and “inability” to effectively manage the business are the cause for the exit.
The fact that no relation was established with the personal traits and SDMPs, except for experience, could also be caused by the research design. It is possible that the wrong method was used to determine whether TA, RT, and SE influences the quasi-rationality of the SDMPs. In reality, only these variables were assessed separately. However, their correlation was not established. In order to do that, the researcher could have inquired more specifically about how TA, RT, and SE might have affected the SDMP. Nevertheless, it was shown that different situations will call for different modes of quasi-rationality.
The sample population of this study was limited to the restaurant industry and contained only six study participants. Because of this, the generalizability as well as the reliability are very small. However, by limiting the population the researcher was able to conduct more in-depth interviews, and so, gain a better understanding on the phenomenon. Moreover, by limiting the population to one industry environmental influences, that may be a source of great deviations and inconsistencies, are standardized. Previously, there have been no studies investigating the rationality and intuitiveness of SDMPs in small restaurants. As a result, no constructs to examine this exist either. Therefore, the rationality or intuitiveness of SDMPs in restaurants were assessed through semi-structured interviews first because it was necessary to understand what aspects of strategic decisions in restaurants are important. From there, the information and insights gained from this study can be used to further develop such a construct which, later, can be used to investigate larger samples of SROs to come to statistically reliable findings. From the findings and observations in this study it seems that the type of strategic issue has a greater influence on the SDMP than SROs personal traits. It is possible that personal traits do have an influence on SDMPs. However, it could be that they have to match. That is, future research can investigate which
type of personal traits influence the SDMPs of which type of strategic issues. To do so, researchers
should keep either the personal traits or the strategic issues constant. Theory suggests that there is a difference in personal traits between entrepreneurs and managers. On that note, future research can investigate whether SROs make undergo SDMPs differently than managers in small restaurants.
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