Strategy Formation as Solving a Complex and Novel Problem Timothy E. Ott Kenan-Flagler Business School University of North Carolina at Chapel Hill, 4200 Suite, McColl Building, Chapel Hill, North Carolina 27599, U.S.A. Tel. (732) 778 - 6692 Email:
[email protected] Ron Tidhar Department of Management Science & Engineering Stanford University Huang Engineering Center 475 Via Ortega Road Stanford, CA 94305 Email:
[email protected] Working Paper – 04/10/2018 ABSTRACT In this paper, we seek to better understand how executives can intelligently combine modular and integrated problem solving processes to form the best possible strategy in entrepreneurial environments. To do so, we compare the efficacy of strategies formed via different processes under various market conditions, exploring the sources of significant performance differences. We address this question using NK simulation methods. We show that the ‘decision weaving’ strategy formation process leads to more effective strategies than either local or ‘chunky search’ processes across a variety of problem specifications. We also offer insight into two key concepts of the decision weaving framework; stepping stones and learning plateaus, which allow executives to balance the tradeoff between quality and the speed of the strategy formation process. This provides practical points for executives forming strategy to overcome their own bounded rationality and contributes to literature on strategy processes and complex problem solving within organizations. Keywords: Strategy formation, problem solving, strategic decision making, behavioral theory, simulation 1 Introduction In 2007, Brian Chesky and Joe Gebbia were struggling to pay rent in San Francisco so they rented out their apartment to three conference attendees to help make ends meet (Tame, 2011).