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A study of executives’ perceptions of corporate crises Smart, Carolyne Faith 1980

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A STUDY OF EXECUTIVES' PERCEPTIONS OF CORPORATE CRISES by CAROLYNE FAITH SMART B.Comm., Univers i ty of B r i t i s h Columbia, 1966 M.B.A., Univers i ty of B r i t i s h Columbia, 1976 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY in THE FACULTY OF GRADUATE STUDIES ( In te rd i sc ip l ina ry Studies) We accept th i s thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA A p r i l , 1980 © Carolyne F. Smart, 1980 In presenting th is thesis in par t ia l fu l f i lment of the requirements for an advanced degree at the Univers i ty of B r i t i s h Columbia, I agree that the Library shal l make i t f ree ly avai lab le for reference and study. I further agree that permission for extensive copying of th is thesis for scholar ly purposes may be granted by the Head of my Department or by his representat ives. It is understood that copying or publ icat ion of th is thesis for f inanc ia l gain shal l not be allowed without my written permission. Department of Clfnumtrcc^ fiu&ia-ess Adnuiu^h^^ (^^krctix-ipt) The Univers i ty of B r i t i s h Columbia 2075 Wesbrook Place Vancouver, Canada V6T 1W5 i i ABSTRACT The purpose of this study was to examine cr is is management in business enterprises. The study had four objectives: 1) to integrate theories of cr is is behaviour into a concep-tual model of cr is is management providing a basis for empirical research; 2) to test specific hypotheses concerning cr is is behaviour, susceptibi l i ty to crises, and coping ab i l i t i es ; 3) to develop managerial tools for diagnosing organizational strengths and vulnerabil i t ies in coping with crises; 4) to develop prescriptions for improving ab i l i t ies to cope with crises and for preventing crises. A conceptual model was developed that provided a framework for study-ing decision-making and implementation processes during crises. Data on environmental, organizational, and managerial characteristics were collected from senior executives in 94 firms in Canada and the U.S. by means of a structured questionnaire. . . Thirty hypotheses derived from the cr is is model were tested. Envi-ronmental predictabi l i ty and a managerial style reflecting process rather than task orientation were two factors associated with lower than average susceptibi l i ty to c r is is . A general dimension of coping ab i l i t ies was ident i f ied. Firms that have a high ab i l i t y to cope with one type of cr is is tend to have high ab i l i t ies to cope with other kinds of crises. In addition to the general dimension the study discovered a spe-cialized dimension of coping ab i l i t i es . Firms that develop high ab i l i t ies to deal with continuous threats tend to have poor ab i l i t ies to deal with i i i . discontinuous threats i f the general dimension of coping a b i l i t i e s i s kept constant. High leve ls of organizat ional slack and a decentral ized decision-making structure were i den t i f i ed as two major factors re la t ing to the a b i l i t y to cope with market f a i l u r e s . Diagnostic functions were constructed that predicted vu l ne rab i l i t i e s to c r i s i s on the basis of executive and organizat ional a t t r i bu tes . Discrim-inant Analysis was used to derive the pred ict ive functions for d i f f e ren t types of threatening s i tuat ions (discontinuous threats and opportuni t ies, market stagnation, decl in ing markets, and cyc l i c a l markets). The powers of d iscr iminat ion for these functions general ly were high. Prescr ipt ions were developed for improving c r i s i s coping a b i l i t i e s and for preventing c r i se s . To help reduce c r i s i s su s cep t i b i l i t y , for example, improved scanning and monitoring techniques were prescribed to temper the impact of an uncertain environment. Dual organizat ional struc-tures, one for routine decision-making and one for c r i s i s decision-making were prescribed to improve performance in c r i s e s . Other prescr ipt ions were of a type that general ly would improve management c apab i l i t i e s , for example, expanding the reperto ire of standard operating procedures, increasing the motivation of operating departments, and making procedural modif ications in decision-making processes. The d isser ta t ion concludes by reviewing the successes and weaknesses of the empirical study, and proposals are made for future research. iv TABLE OF CONTENTS Page Table of Contents iv List of Tables vi List of Figures v i i Chapter 1: Introduction 1 1.1 Defining the Concept of Crisis 3 Chapter 2: Theoretical Concepts 6 2.1 The Environmental Context 6 2.2 The Individual Context 10 2.3 The Organizational Context 22 2.4 A Conceptual Model of Crisis 33 Chapter 3: Research Questions 36 3.1 What is the Nature of Crisis? 36 3.2 What are the Determinants of Crisis Susceptibility? 37 3.3 What are the Determinants of Coping Abi l i t ies 39 3.4 What are Some of the Standard Responses to Crisis? 48 Chapter 4: Research Methodology 50 4.1 The Sample 50 4.2 The Research Instrument 51 Chapter 5: Analysis of Results , 66 5.1 Demographic Attributes 66 5.2 Managerial Style 68 5.3 Corporate Attributes 71 5.4 Interactions between Variables 74 5.5 The Nature of Crises 75 5.6 The Determinants of Susceptibility to Crises 78 5.7 The Dimensionality of Coping Abi l i t ies 82 5.8 The Determinants of Organizational Coping Abi l i t ies 87 5.9 Standard Responses Invoked during Crises 101 V Table of Contents (cont'd) Page Chapter 6: Implications for Coping with Crisis 117 6.1 Reducing Susceptibility to Crises 117 6.2 Improving Coping Abi l i t ies during Crises 123 Chapter 7: Methodological Overview and Plans for Continued Research 134 Bibliography Appendix 1: Letter of Invitation and Crisis Questionnaire 153 Appendix 2: Kolmogorov-Smirnov Test for a Normal Distribution 169 Appendix 3: Smallest Space Analysis 172 vi LIST OF TABLES Table Number T i t le Page I Sample Composition by Industry 52 I I Functional Background of Respondents 67 I I I Frequency Distribution by Industry of Respondent Firms 72 IV Smallest Space Coordinates for m = 2: Patterns of Decision-Making 90 V Smallest Space Coordinates for m = 2: Programmed Behaviour 105 VI Summary of Results * 118 vn LIST OF FIGURES Figure Number T i t le Page 1 A Conceptual Model of Crisis 35 SSA Geometric Representation: Patterns of Decision-Making 91 SSA Geometric Representation: Dimensions of Programmed Behaviour 106 Categories of Programmed Behaviour Developed from SSA 111 - 1 -1. INTRODUCTION The modern organization exists in a turbulent, often hostile world where there are constant threats to i ts growth and survival. In the long term, only some organizations wi l l survive; these are defined in this paper as effective organizations. Although the concept of organizational effec-tiveness has been widely studied, there is l i t t l e agreement among investi-gators as to the important indicators of effectiveness or how to measure effectiveness. Goal achievement, eff iciency, resource acquisit ion, and adaptability are some of the dimensions of effectiveness that have been investigated (Bennis, 1966; Etzioni, 1975; Seashore and Yuchtman, 1972; Schein, 1972). In his d i s t i l l a t i on of the research l i terature, Steers (1977:174) sug-gests that the most salient dimensions of effectiveness may be adaptabil i ty, resource acquisition, productivity, and p ro f i tab i l i t y . He notes "the role of management . . . is to organize and u t i l i ze the available resources in a way that minimizes external threats and pressures and fac i l i ta tes the attainment of the ultimate aim of the organization". For an organization to maximize long term effectiveness, however, i t must develop the f l e x i -b i l i t y to cope not only with day-to-day events, but also with unexpected external threats and pressures of c r i t i ca l importance. Threats of this nature are commonly called crises. I f a cr is is is defined as an objective state, there must be some universal acceptance of the elements that constitute a c r is is . In addi-t ion , researchers need to designate thresholds for these elements, which when exceeded, precipitate a c r i s i s . Such a universal def ini t ion of "cr is is" does not exist, nor would i t be part icularly useful. - 2 -A more valuable analytic construct is to view a cr is is as a subjec-t ively defined event. A researcher can then study the particular patterns of behaviour that emerge and influence effectiveness during situations per- ceived to be very threatening by the members of an organization. This study adopts the second approach: crises are viewed as subjectively-defined states. Although many facets of organizational effectiveness have been examined, few studies have focussed on crises as a separate class of be-havioural phenomena. There is an extensive body of research that examines crises and cr is is decision-making in the f ields of foreign policy and international relations (All ison, 1971; de Rivera, 1968; Hermann, 1972; Holst i , 1972; Janis, 1972; Paige, 1968; Wagner, 1974). Organizational effectiveness during crises also has been examined in the context of natural hazards and natural disasters (Barton, 1969; Dynes, 1970; Fritz and Marks, 1954; Slovic, Kunreuther, and White, 1974). There appears to be an empty research niche, however, with respect to studies of crises in an organizational framework and part icularly with a focus on business enterprises. The purpose of this study is to examine the phenomena of corporate crises, and to identify the structural and behavioural attributes that increase or decrease the susceptibi l i ty of business enterprises to crises. In the analysis, both the external and internal environments of the firm are considered. Although crises may originate from external environmental threats, defects within the organization in the form of biased perceptions and pathological processes can affect i n i t i a l perceptions of threat,and the coping ab i l i t ies invoked to deal with threats. Starbuck, Greve, and Hedberg (1978:114) note that firms encountering crises do not have quali-tat ively unusual characteristics, nor are they fundamentally abnormal. - 3 -"Probably the great majority of organizations have the potential to work themselves into crises, and the processes which produce crises are sub-stant ia l ly identical with the processes which produce successes". This study seeks to achieve insight into those processes. 1.1 Defining the Concept of Crisis The word ' c r i s is ' is an often over-used term with a very imprecise meaning. All crises are not identical; they vary in kind and degree de-pending upon the perceptions of individual actors. "In a sense, crises are unto the beholder. What is a cr is is to one individual or group may not be to another" (Kupperman, et a l , 1975:404). Hermann (1972:13) developed a definit ion of a cr is is that has achieved wide acceptance, particularly among foreign policy scholars: "[a c r is is ] (1) threatens high pr ior i ty goals of the decision-making unit, (2) restr icts the amount of time available for response . . . and (3) sur-prises the members of the decision-making units by i t s occurrence." Researchers in other disciplines also have attempted to develop workable definit ions of a cr is is emphasizing different behavioural aspects of the concept. For example, Fink Beak, and Taddeo (1971:16) focus on the fai lure of organizational coping responses: "A human system is assumed to be in a state of cr is is when i ts repertoire of coping responses is not adequate to bring about the resolution of a problem." Milburn (1972:262) defines cr is is in terms of stressors that affect behaviour: "Crises may be regarded as a type of stress-producing stimulus . . . involving three simple stressors: (1) threat of value loss, (2) pressure to decide rela-t ively quickly, and (3) pressure to innovate in problem solving since no programmed decision, or relevant contingency plan, exists." Other researchers emphasize threat to goal achievement and the urgency for action as factors demarcating crises: "[a cr is is is ] a situation in which goals are at stake that are of high importance to the system . . . when the probability that these . . . goals w i l l be achieved is . . . small." (Mulder, van Eck, de Jong, 1971:21) "Crises are generally distinguished . . . by a sense of urgency and a concern that problems w i l l become worse in the absence of action." (Kupperman, Wilcox, Smith, 1975:404) From these definit ions i t appears that certain psychological and sociological factors distinguish crises from routine decision situations: a) the occurrence of an event that is unanticipated. b) a perceived threat to high-priori ty individual or organizational goals. c) a sense of urgency to take action brought about by perceived time pressures. d) the uncertainty of outcomes concerning the i n i t i a l threat and actions taken to alleviate the threat. e) the fai lure of standard operating procedures to eliminate or reduce the threat. f ) a high level of psychological stress among decision makers. Although each cr is is may d i f fer in specific content, in general, they al l can be viewed as comprising a class of phenomena with some common characteristics and underlying causes. However, in perceiving a cr is is not - 5 -al l decision-makers wi l l place equal importance on the six factors given above. The importance of a factor w i l l also vary over time for a single decision-maker given different types of threatening events and different situational factors. While crises may be unique in structure and content, they may be inevitable features of corporate l i f e . Given the current pace of tech-nological and social change, one is hard put to identify organizations, public or private, unlikely to experience situations that the members perceive to be crises (Holst i , 1978:50). One should note, however, that the effects of a cr is is are not always dysfunctional. Crises can pose both a threat and an opportunity to a f irm. On the positive side, a cr is is often provides the impetus for an organization to make construc-t ive changes. To evaluate the effectiveness of an organization in coping with crises, one must f i r s t understand the major dimensions that contribute to their emergence. Three dimensions are of prime importance in ana-' lyzing crises: (a) the environmental context, (b) the individual con-text, and (c) the organizational context. The theoretical underpinnings of this research were derived from a wide variety of studies that deal with various aspects of these dimensions. - 6 -2. THEORETICAL CONCEPTS 2.1 The Environmental Context An individual corporation does not exist in isolat ion; i t is only one part of a larger, more complex socio-economic system. Organizations "both respond to and operate upon the contexts in which they are imbedded" (Leavitt, Pi n f ie ld , and Webb, 1974:xii). This section examines those dimensions of the external environment that may influence a f irm's vulnerabil i ty to crises. The external environment of an organization has been conceptualized in various ways. One major dimension identif ied is the degree of environ-mental s tab i l i t y . Emery and Tr is t (1965) were early researchers of this theme. They suggested the concept of turbulence and i ts opposite, placid-i t y . Turbulence, broadly defined, is a measure of change that occurs in the factors or components of an organization's environment. At one end of a continuum of change there is a static environmental state (no change); at the other end, a turbulent or dynamic state where al l factors are in constant f lux. The amount of environmental turbulence is closely related to the degree of uncertainty facing a f i rm. As the environment becomes increasingly turbulent, factors become less predictable and more uncertain; the values of important variables and the variables themselves move in an errat ic fashion. The absolute amount of environmental turbulence is only one aspect of change important to a f i rm. The rate of change is also a c r i t i ca l factor. Although the meaning of 'rate of change1 has been defined only vaguely in the l i terature, Jurkovitch (1974) has attempted to add operational c lar i ty to the term. He suggests that rate of change can be defined by measuring the amount of alteration to major goals in a given period. The higher the - 7 -change rate in the environment, the higher the number of major organiza-tional goals that must be altered and vice versa. The ab i l i t y to time organizational changes to keep pace with environmental change rates is an important indicator of an organization's coping ab i l i t i es . A second major dimension of the external environment is that of simplicity/complexity. This dimension is concerned with the number of factors in the environment that must be taken into consideration by the firm in a decision-making situation. Child (1972) defined complexity as the heterogeneity and range of act iv i t ies relevant to organizational opera-tions. Steers (1977:86) noted that "a simple, or placid, environment is one in which the external factors with which an organization must deal are few in number and are relat ively homogeneous". Simon (1965) suggested that complex systems were composed of parts that interacted in a non-simple man-ner. A simple, non-complex environment frees the organization from the necessities of sophisticated information systems since there are only a limited number of information categories to be monitored that are c r i t i ca l for organizational decision-making. Complex environments in contrast, not only place greater demands on an information system, but also call for a higher quality of decision-making to account for diverse constituencies in the environment. The two dimensions of s tab i l i ty and complexity were integrated by Duncan (1972) into a four cell matrix of environmental states. He suggests that the dimensions of s tab i l i ty and complexity influence the degree of uncertainty in organizational decision-making. The more complex and dynamic the environment, the greater is the perceived uncertainty for the f i rm. In contrast, a stat ic and simple environment has low perceived uncertainty.^ ^ Note that a firm operating in a stat ic and simple environment can by i ts actions unsettle that environment and increase uncertainty. - 8 - -Duncan suggests that decision units with dynamic environments always expe-rience signif icantly more uncertainty regardless of whether the environment is simple or complex. I t is important to note the nature of human perception in the assess-ment of environmental uncertainty. Weick (1969) suggests that individual perceptions need not correspond to any objective rea l i ty . Managers wi l l 'enact' an environment that is consistent with their psychological set. An environment that one organization perceives as simple, s ta t ic , with l i t t l e uncertainty, may be perceived by a second organization as complex, dynamic, with a high degree of uncertainty. Organizational responses to an identical environment wi l l be highly variable as wi l l the responses of dif ferent parts of the same organization. Uncertainty, complexity, and other factors are not constant features of a f irm's environment, but are dependent on the prior beliefs of individual members (Starbuck, 1973). Individual tolerance for ambiguity and uncertainty thus become cr i t i ca l factors in determining organizational responses to environmental st imul i . The existing coping mechanisms of a firm can influence i t s perceptions of the environment. An organization's members can perceive the environment as posing a threat or offering an opportunity (Perrow, 1970). With f lexible coping strategies and a positive attitude towards uncertainty, a dynamic organization wi l l f ind even the most turbulent environment a source of opportunity rather than threat. Steers (1972:96) suggests that the predictabi l i ty of environmental states decreases with greater uncertainty. "The capacity of an organiza-tion to successfully adapt to i ts environment is fac i l i ta ted to a large extent by i ts ab i l i t y to know what the external environment is going to be l ike in the future". I f an organization can predict the extent and - 9 -direction of environmental change with some degree of certainty, there is a much greater probability that appropriate coping responses can be taken. Several writers have elaborated upon the dimension of complexity. Osborn and Hunt (1974) suggest that the concept of dependency can be viewed as a component of environmental complexity. Dependency refers to the degree to which an organization relies upon specific elements in i ts environment for growth and survival, and the extent to which these elements interact. The more dependent the organization, the more open to threat i t is,'and the less able i t is to exercise control over environmental variables. Jurkovitch (1974) extended the concept of dependency by distinguishing between organized and unorganized sectors of a f irm's environment. An unorganized sector re-fers to organizations or individuals that use a f irm's goods and services but are not bound together by formal or informal rules requiring coordinated interaction to reach a defined goal. Jurkovitch suggests that unorganized sectors, with greater sources of uncertainty, are much more d i f f i c u l t for a firm to deal with than organized sectors. Organizations interacting with complex, dynamic, and unpredictable environments face special problems of management and planning. The poten-t ia l for cr is is is great. Flexible strategies are essential for effectively coping with environmental discontinuit ies. Segal (1974) developed a set of organizational typologies for responding to various types of environments. Two types are of particular interest: the chain-structured organization and the adaptively-structured organization. The chain-structured organiza-tion is designed to accomplish a particular task or narrow range of tasks with great efficiency, but i t is without suff ic ient f l e x i b i l i t y to easily change i ts structure in response to changes in i ts environment. Organiza-tions with this structure perceive their environments as stat ic and - 10 -homogeneous. Management procedures are based on standardization (for ex-ample, bureaucracies). When the environment makes impossible demands on such an organization, (for example, through rapid change) the firm may be unable to do l i t t l e more than repeat standardized and unsatisfactory behaviour, making i ts position even more perilous. In contrast, Segal suggests that an adaptively-structured organiza-tion is comprehensively responsive to a turbulent environment. This type of organization is prepared to alter both i ts structure and internal roles to adapt to new conditions. Coping mechanisms are well developed to ensure the survival of the organization: Jurkovitch (1974:390) notes that in highly adaptive organizations existing in turbulent, uncertain environments, "problem solving is replaced by problem coping. Problems are never com-pletely solved and people are forced to learn to l ive with the consequences of the unsolved aspects of problems". 2.2 The Individual Context The effectiveness of an organization as a "problem solving, decision making, action taking system" (Olmstead, 1974:181) ultimately is dependent upon managerial effectiveness. This is part icularly true during crises when the need for decision may be immediate and responsibil ity is concen-trated in one or a very few senior individuals (Hermann, 1973; Mulder, et a l , 1971). Effectiveness "ultimately reduces to the judgments and actions of key leaders, both individually and col lect ively. I t depends upon sk i l l s in acquiring and interpreting information; choices concerning to whom acquired information is to be communicated, as well as the accuracy and completeness of the communications; decisions concerning ways to cope with unusual or unanticipated situations; and the execution of actions resulting - 11 -from such decisions - al l performed at a high level of sensit iv i ty and coordination" (Olmstead, 1974:181). There is a large body of l i terature directed towards establishing c r i te r ia of effective managerial behaviour. Although the subject has been dealt with extensively, no satisfactory global indices of managerial ef-fectiveness have been developed nor is there any agreement which factors should be incorporated in such indices. Some research suggest that a manager's effectiveness is contingent on his situation at any moment in time, reflecting his personal at tr ibutes, the special characteristics of his job, and his organization's motivational policies and practices (Campbell, et a l , 1970). Two dimensions are part icularly relevant when assessing managerial effectiveness during organizational crises. These are: cognitive per-formance (part icularly the effects of stress on information processing and perception) and preferred leadership style. Cognitive Performance: During crises when individuals are under great stress, and important decisions must be made within a short time, cognitive performance may be subject to certain pathologies. As the size of the decision unit contracts during crises, the amount of stress on individual decision makers increases since each member feels a greater responsibil ity for potential fa i lure (Hermann, 1963). The greater the level of f e l t stress, the greater the perceived pressure for decisive action. The intensity of f e l t stress appears to depend upon the perceived magnitude of losses the decision-maker anticipates from his chosen actions (Jam's and Mann, 1978:49). Although a moderate level of stress may promote learning in a decision situation (Cangelosi and D i l l , 1965), during a c r i s i s , stress is usually - 12 -of such a magnitude that i t promotes dysfunctional cognitive behaviour. With decreasing levels of cognitive eff iciency, behaviour becomes even less adaptive, and the resulting decision is often of poor quality (Levine, 1971; Robinson, 1972). An "increasingly severe cr is is tends to make creative policy-making both more important and less l ikely" (Holst i , 1971:62). Stress-related maladaptive behaviour is manifested in numerous ways. Milburn (1972) suggests, that stress has a curvilinear effect on individual performance. While a moderate level of stress may be conducive to good decision-making, high levels of stress lead to a breakdown in perceptual accuracy and reduced ab i l i t y to focus on relevant information from the environment (Easterbrook, 1959; Holst i , 1971). Decision makers become increasingly concerned with short-range issues at the expense of long-range outcomes (Paige, 1968; Albers, 1966). Stress also promotes a r ig id i t y in problem solving ab i l i t y , a functional fixedness that reduces the individ-ual 's capacity for abstract reasoning and tolerance for ambiguity (Beier, 1951; Smock, 1955; Loomis, 1960). The impaired cognitive ab i l i t i es of the individual may result in an inabi l i ty to predict the consequences of various alternative courses of action (Holst i , 1972). Postman and Bruner (1948) note that under stressful conditions, individuals make premature interpre-tation of s t imul i , and the ab i l i t y to distinguish the dangerous from the t r i v i a l is impaired. Due to the effects of cognitive dissonance, there is reduced objectivi ty and increased bias in the way individuals perceive and evaluate alternatives. Inconsistent cognitions motivate people to change their ideas or bel iefs; this change is usually in the direction of bol-stering the decision taken (Festinger, 1964). "The consensus of most behavioural research is that men operating under . . . acute stress are scarcely capable of considered judgment. Strain and fatigue commonly - 13 -produce actions which are caricatures of day-to-day behavior" (Nathan, 1975:259). The onset of a cr is is usually results in key decision-makers receiving sharply increased volumes of complex information st imul i . In many instances individuals are unable to cope with the cognitive demands of this increased volume. Decision-makers may attempt to cope with information overload by narrowing their span of attention to include only essential aspects of the decision task. Holsti (1978:46) notes that this can be a functional stra-tegy i f i t allows decision-makers to "eliminate t r i v i a l distractions, f i l t e r out irrelevant information, and develop an agenda of p r io r i t i es " . However, the results of this strategy more often are pathological. The error rate on task performance is positively correlated with the increased volumes of information received by decision-makers (Lanzetta and Roby, 1957). "When the degree of complexity of an issue exceeds the l imits of cognitive abi-l i t i e s , there is a marked decrease in adequacy of information processing as a direct effect of information overload and ensuing fatigue" (Janis and Mann, 1977:17). Under conditions of information overload, an individual's perceptions act as a screening device, selectively discriminating and interpreting data. The more ambiguous the circumstances, the more l ike ly an individual wi l l enact an environment consistent with his own personal predispositions i r re-spective of any external ' rea l i t y ' (Weick, 1969). Prior beliefs affect not only the interpretation of informational st imul i , but also whether one i n i t i a l l y takes note of particular st imul i . Individuals selectively expose themselves to information compatible with their belief structure and screen out potentially incompatible information. The biases resulting from selective attention are compounded by errors of judgment and concept formation in interpreting the information at hand. Decision-makers develop and employ mental models of their environment. These models play a dual role. They provide a framework for assessment of decision consequences as well as a framework for further information collec-t ion. These models are the images of real i ty upon which decision processes are based. The development of models and the processes by which they are revised when more data becomes, available to decision-makers are affected by several sources of error resulting from faulty techniques of concept generation. Tversky and Kahneman (1974) suggest that decision-makers are prone to cog-ni t ive errors as a result of over-reliance on certain in tu i t ive heuristics as a means of making judgments under uncertainty. Although these heuristics sometimes produce good estimates of subjective probabil i t ies, most often large errors are consistently made. The stress/information overload syndrome serves to accentuate these cognitive errors. Paradoxically, during crises, decision-makers suffer not only the effects of information overload, but also the effects of information under-load. The information available to top decision-makers may be of l i t t l e use; thus, managers may feel deprived of adequate amounts of information 2 necessary to do their job. I t has been demonstrated that information deprivation leads individuals to seek out stimuli (Jones et a l , 1961; Suedfeld, 1971). This psychological state may lead a decision-maker to seize upon irrelevant or incorrect information without appropriate dis-crimination. During crises both information overload and information underload reinforce already high levels of stress. 2 Information f i l t e r i n g within the organizational hierarchy may be one cause of information deprivation. - 15 -Cognitive performance during periods of high stress may be further impaired by the inabi l i ty of individuals to correctly judge time perspec-t ives. Under great stress, individuals overestimate how quickly time passes (Langer et a l , 1961). A moderate amount of perceived time pressure stimulates creat iv i ty and increases the rate of performance, but beyond moderate levels, perceived time pressure has detrimental effects on cogni-t ive ab i l i t i es . Complex tasks part icularly suffer from the effects of time pressure. Individuals display tendencies to retain familiar solutions to problems even when these solutions prove ineffective, or the problems are substantially different from previously encountered problems (Steinbruner, 1974). "There is . . . evidence that time pressure increases the propensity to rely upon stereotypes, disrupts both individual and group problem-solving, narrows the focus of attention, and impedes the use of information . . . high stress tends to result in a shorter time perspective and, as a consequence, a reduced resistance to premature closure" (Holst i , 1978:47). Leadership Style: The success or fa i lure 'o f an organization is often dependent upon the sk i l ls of the leader. There are suggestions in the l i terature that leader-ship behaviour during crises i s , and should be, quali tat ively different than during normal times. "In cr is is situations, some kind of powerful leader-ship is functionally required, and wi l l occur more often, or wi l l be more often considered necessary by group members, than in non-crisis situations" (Mulder, van Eck, and de Jong, 1971:21). The need for a dif ferent type of leader during crises is also noted by Blake and Mouton (1964:14). "Manage-ment of people in the cr is is of an explosion situation is l ike ly to be different than i t would be under circumstances that are routine". Hamblin (1958b) found that during crises, groups tend to replace leaders' with new - 16 -people i f leaders do not have obvious solutions to cr is is problems. House and Dessler (1975:35) note that people under threat prefer "strong" leaders because " . . . they are perceived as improving the chances of adequately re-sponding to the threat, and because such leaders reduce the dissatisfying effects of the uncertainties of the si tuat ion". Although leadership is a much studied phenomena, there is no agree-ment generally on what contributes to effective leadership either in c r i s i s , or in normal times, nor is there any integrated understanding of the factors important in assessing the quality of leadership. This situation exists in spite of an "endless accumulation of empirical data" (Stogdi l l , 1974:vii). I t is recognized, however, that the leader of an organization can have a great influence on i ts af fa i rs . "Since control of information and rewards can signif icantly influence the bel iefs, att i tudes, and behaviors of group members, the formal leader should be in a strong position to affect what a group does and how well i t does i t " (Porter, et a l , 1975:428). Many of the early theories attempted to explain leadership behaviour by identifying universal t ra i t s of successful leaders. For example Stogdill (1948) found that intell igence, scholarship, dependability, responsibi l i ty, social part icipation, and socio-economic status differentiated leaders from other individuals. In a later study, Ghiselli (1963) found that i n t e l l i -gence, supervisory ab i l i t y , i n i t i a t i v e , self assurance, and individual i ty were signif icantly correlated with management performance and organizational level. In the 19501s a school of research developed that sought to explain leadership in terms of what a leader does, rather than in terms of what a leader is . Leadership was studied as a means of developing effective organizations (Blake and Mouton, 1964; McGregor, 1966). Many studies - 17 -focused on three styles of leadership: autocratic (authori tat ive), democratic (supportive or participative) (L ip i t t and White, 1943), and instrumental (Fi l ley and House, 1969). An autocratic leader is defined as one who is arbitrary in decision-making and dogmatic in relations with subordinates. His style is to com-mand; compliance is achieved through the ab i l i t y to reward and punish. Bass and Valenti (1973:146) found that " . . . a directive leader style was 3 consistently and positively related to effectiveness". Other researchers have found that there is no consistent relationship between autocratic style and organizational effectiveness (usually defined in terms of productivity). However, Tannenbaum and Schmidt (1958) suggested that emergency situations called for a unilateral (autocratic) leadership style. In contrast, a democratic or supportive leader attempts to create a climate where subordinates want to perform. He sol ic i ts inputs to problem-solving and relies on general supervision rather than close task supervision. Supportive leadership styles have been found to be correlated with positive attitudes and satisfaction in subordinates (Indik, et a l , 1960; Spector, et a l , 1960). In some studies, supportive behaviour was found to have positive effects on productivity (Blau and Scott, 1962; Katz and Kahn, 1953), but no consistent relationship between supportiveness and produc-t i v i t y has been found. While researchers generally have found subordinates are more satisfied with democratic or supportive leaders, there is no agreement 3 A directive style was defined as " te l l ing subordinates what was expected of them, seeing that they work to capacity, emphasizing meeting deadlines, setting standards, ruling with an iron hand, encouraging uniformity, scheduling subordinates' tasks, te l l ing subordinates to follow rules and regulations, changing subordinates' duties without f i r s t talking i t over with them" (Bass and Valenti, 1973:139). - 18 -which style (democratic or autocratic) promotes greater organizational effectiveness. In summarizing the various empirical studies on autocratic and democratic leadership, Stogdill (1974:370) notes " . . . results clearly indicate that neither democratic nor autocratic supervision can be advo-cated as a method for increasing productivity, but member satisfaction is associated with a democratic style of supervision". Vroom and Mann (1960) conclude that the efficacy of autocratic versus supportive leadership style is dependent upon the expectations and needs of subordinates. An instrumental leader is defined as one who exhibits teleological behaviour designed to achieve organizational objectives. An instrumental leader often perceives his primary purpose as obtaining and allocating resources effectively and e f f ic ien t ly . In one study, task oriented (instrumental) leaders were found to be more effective than interaction oriented leaders (Bass and Dunteman, 1963). Simpson and Gulley (1973) note that organizations with narrowly defined instrumental goals w i l l be thoroughly centralized and undemocratic. The broader the range of goals, however, the greater the pressure for member participation as well as task efficiency. Fi l ley and House (1969) suggest that individuals who exhibit both instrumental and supportive behaviour w i l l be effective leaders in any situation. Some of the best known work on managerial style (part icularly among practising managers) was carried out by Blake and Mouton (1964); they developed the concept of the Managerial Grid. The authors suggest that managerial style is not f ixed, but is determined by a range of factors: organizational requirements, si tuat ion, values, personality, and chance. These factors operate on two dimensions that are signif icant in determining a manager's style. The dimensions are concern for production and concern - 19 -for people. Each of these dimensions was: measured' on a 9 point scale. Blake and Mouton were able to describe certain profi les of managerial styles by locating a position on a 9 x 9 matrix. For instance a 9,1 or task mana-gement style (high concern for production/low concern for people) is similar to an autocratic style. Subordinates are expected to obey orders without question. Management communication is formal, r i g id , and usually in written form. Decision-making is concentrated at the highest level of the hierarchy. There is an overriding concern for firm direction and control of operations. A 1,9 or 'country club' management style (low concern for production/ high concern for people) is exactly the opposite. The manager who adopts this style believes employees should be shown rather than directed in their jobs, and that people should be aided and supported in their ef for ts. Con-ditions of work are arranged so that the personal, social, and welfare needs of employees can be met on the job. A 1,9 manager wi l l try to avoid con-f l i c t and wi l l seek posit ive, harmonious relationships with employees. Both the 9,1. and 1,9 styles are of course extreme types. Blake and Mouton suggest the ideal managerial style is 9,9 (high concern for produc-tion/high concern for people). A 9,9 manager views the organization as a vehicle to promote the conditions that integrate creat iv i ty , high produc-t i v i t y , and high morale through concerted team action. This manager is orientated towards accepting the best and most effective solution in a given situation not a solution defined by tradit ion (not unlike an instru-mental manager). Management/employee relations are based on part icipation, mutual goal commitment, and open two-way communication. Another trend in leadership research has been the development of contingency or situational theory (Fiedler, 1967). The contingency approach posits that leader behaviour can be explained in terms of the - 20 -interaction between a leader and the organizational environment. Fiedler suggests that there are no universal characteristics indicative of an effective leader, however, in specific circumstances, one kind of behaviour may be more appropriate than another. The type of leadership behaviour that promotes effective performance is a function of three situational or contin-gent variables: leader-member relationships, the degree of task structure, and the formal power or authority of the leader's position. "[M]anaging, control l ing, directive leaders tend to be most effective in situations which are either very favorable for them or which are relat ively unfavorable. Nondirective, permissive, considerate leaders tend to perform best in situations of intermediate d i f f i cu l ty "^ (Fiedler, 1967:15). Burns and Stalker (1961) conducted a study that related environmental characteristics to managerial practices (including leadership styles). Their analysis concluded that managers employed two dist inct styles that were a function of the degree of environmental s tab i l i t y . The two styles of management identif ied were called mechanistic and organic. Mechanistic systems are characterized by specific goals, close performance measurement, many rules, close supervisory enforcement of the rules, high task speciali-zation, and centralization of authority with primarily vertical communica-tion patterns. Bureaucracies are typical ly cited as prime examples of mechanistic systems. Burns and Stalker found that a mechanistic style was associated with effective task performance and high levels of indi -vidual satisfaction when tasks were routine, repet i t ive, and predictable, and where interdependence is high and only narrow deviation is tolerated. Situations high on leader authority and task structure and with strong leader/group relations were considered by Fiedler to be favorable. - 21 -Organic systems are characterized by less specification of goals, less measurement, primarily process goals, general supervision, decentrali-zation of authority, and primarily horizontal communication patterns. Burns and Stalker found an organic style of management was effective when tasks were changing, uncertain, and unpredictable, and in situations that required independent problem-solving, innovation, and creat iv i ty . Steers (1974) enlarged upon Burns and Stalker's findings relating leadership style to a f irm's external environment. He suggests the role of management is to understand environmental conditions and to adapt management practices to meet those conditions. Steers (1974:89) proposes that a mech-anistic style may be more appropriate in highly predictable and stable environments " . . . where market and technological conditions remain largely unchanged over time". Task routinization and centralized authority promote maximum efficiency and effectiveness in this environment. In unstable, com-plex environments, however, an organic style may be more appropriate since 5 i t is more f lexible allowing a firm to respond to new conditions. Fi l ley and House (1969:98) made much the same suggestion. "In a relat ively pre-dictable environment, decisions are more effectively made at the top of the organization . . . In a highly unpredictable type of si tuat ion, in which al l levels of management need considerable influence to deal with environmental uncertainty, a more participative structure . . . would be advisable". Although the l i terature suggests that an organization may require a different kind of leader during crises than during normal times, l i t t l e progress has been made in identifying the specific attributes of such 5 Note that the response may take the form of adapting or coping with threatening situations, exploiting newly-identified opportunities, and attempting to exert control over the environment. - 22 -leaders. There is some evidence that emergency situations (crises) call for an autocratic, decisive leader (Tannenbaum and Schmidt, 1958). Conversely, crises often require creative, innovative behaviour to promote concerted team action to resolve the situation. A more open, participative style in this instance may be more effective in securing implementation and resolving the cr is is . At best the evidence is mixed with respect to the most desir-able leadership style. The type of leadership that promotes effective performance in crises is probably contingent on a number of factors such as individual characteristics, the environment, and the type of threat. A later chapter examines changing preferences during normal periods and crises for some of the leadership styles described in this section. 2.3 The Organizational Context In the previous sections two factors were examined that can affect individual behaviour during crises: limited cognitive capacities and management style. However, one must also take into account the behavioural impact of multiple decision-makers interacting within a complex organiza-t ion. In large corporations c r i t i ca l decisions are made not only as a result of the careful deliberations of individual managers, but also as a result of organizational processes or pol i t ica l bargaining (All ison, 1971). The position of the decision unit within the organizational network, thus, becomes an important factor. Under stress, deficiencies in decision-making can result from organizational characteristics and group processes, as well as from individual pathologies. Three dimensions of organization process can be identif ied that contribute to deficient decision-making during crises: communications d is tor t ion, premature decision choice, and defective judgment. - 23 -Communications Distortion: Key decisions during a cr is is usually are made by a relat ively small group of senior managers. The size of the decision-making group relative to the total organization produces d i f f i cu l t ies when managers attempt to process large volumes of information during periods of stress. In a pre-vious section i t was noted that individuals are prone to information over-load during c r i s i s . In much the same way, groups also can suffer from this condition. In c r i t i ca l periods, information flows within an organization become extremely important and subject to malfunction. Carter (1977:27) notes "the scarcity in today's environment is not information but capacity g to process information". Under conditions of crisis-induced stress, Hermann (1963) suggests that the number of communication channels used for collection and d i s t r i -bution of information between senior decision-makers and the rest of the organization wi l l be reduced. At the same time, the volume of information flows over these channels increases. Heavy frequency of information over a restricted number of channels results in a communications overload. The probability of information distort ion increases which in turn leads to deficient decision-making. Perceptions of shortened time horizons also increase the probability of decision error since fewer sources of informa-tion wi l l be relied upon i f decision-makers perceive a need to act quickly. In most organizations, the level of an operating unit within the hierarchy is an important factor that affects communications distort ion. Information must travel through a lengthy screening and f i l t e r i ng process at various levels of the organization before i t reaches senior _ Carter may overstate his position; one also must be cognizant of the costs involved in producing information. - 24 -management.'' Not only is there often a time delay, but the form in which data are received by senior managers represents the accumulation of impacts of information processing distortions at various intermediary levels. Downs (1967) calculates that with a six level hierarchy, there may be a 98% loss of informational content in communications between the f i r s t and highest level of the organization. Tullock (1965) notes that information is subject to 'hierarchical d is to r t ion ' , both in quantity and quality. The quantity of information being received by senior managers is reduced as a result of high costs of communication and by the limited cognitive capacities of individual decision-makers. Secondly, the quality of information is distorted as i t moves up the hierarchy as a result of perceptul biases held by managers at each level. "The greater the channelling of information-processing, the greater the dif ferentiat ion of perceptions within the organization" (March and Simon, 1958:128). Decentralized organizations in particular are prone to this perceptual distort ion. The necessity of specialization in large organizations also causes excessive information f i l t e r i ng that results in further distor t ion. ° Indi-viduals at lower levels in the firm have a much narrower range of o f f i c ia l interests than senior decision-makers. Subordinates naturally abstract parts of information stimuli that are most relevant for their own needs, not the needs of their superiors. A large portion of potentially relevant information content is thus discarded at low levels of the organizational hierarchy. "Those who decide which information their boss shall see rarely see their bosses' problem" (All ison, 1971:120). 7 This is only one view of information flow (bottom to top) throughout an organizational hierarchy. Managers may also engage in information-seeking behaviour, in some instances by-passing the hierarchy. By doing so, some of the effects of communication distort ion are avoided. - 25 -Lower level managers also have different self interests and transmit information of a type and in a manner that suits their own purposes not the needs of senior management. Downs (1967:136) notes that in any large or-ganization, a signif icant portion of a l l the act iv i ty being carried out is completely unrelated to the formal goals of the organization or the goals of senior management. As a result of this f i l t e r i n g , when information f ina l l y reaches the decision-makers at the top of the hierarchy, many c r i t i ca l pieces of data may have been lost; what content remains may be of l i t t l e use. Ackoff (1967) notes that most senior managers suffer from an 'overabundance of irrelevant information'. Many senior decision-makers are aware of these information distortions and attempt to offset them by counter-biasing strategies. A superior may make adjustments to al l information received from subordinates in an effort to counteract the distort ions. However, i f the corrections are not made in the right directions, further distortions take place. While the distortions accruing in the process of f i l t e r i ng information tend to bring about decision errors of the third type, wrong problem def in i -t ion, the time delays involved in the process of information transmission bring about what Raiffa (1968) termed errors of the fourth type, defining and solving the problem correctly, but too late. The standard operating procedures (SOPs) of the organization may contribute to this lack of time-liness in communications that can have important ramifications during crises. One function of SOPs is to coordinate complex routines and tasks performed by a large number of people. SOPs are intended to ensure align-ment of interpretation between senders and recipients of communications. While ensuring some predictabi l i ty , SOPs also may introduce an element of conservatism and r i g id i t y into communications that works at odds with the - 26 -needs of senior managers for timely and accurate information. Crisis s i t -uations often involve sharp environmental discontinuities that require adjustments in resource allocations, members' roles, and operating proce-dures. To obtain the required f l e x i b i l i t y to deal with crises, regular communications networks and information processing procedures may be inter-rupted or bypassed. However, since the process of organizational social i -zation usually penalizes deviations from SOPs, i t may be d i f f i c u l t to g obtain the needed f l e x i b i l i t y to cope with crises. Allison (1971) suggests that SOPs are highly resistant to change because they are usually grounded in the norms of the organization, and the basic attitudes of i ts members. Novel situations requiring communications that do not f i t established procedures may be ignored. I f important infor-mation is not brought to senior management's attention, the probability of a cr is is occurring is greatly increased. SOPs may also contribute signif icantly to information f i l t e r i ng and distort ion. Since various groups within an organization pursue divergent patterns of ac t iv i ty , each group develops i t s own specialized procedures over and above corporate SOPs. Information is interpreted di f ferent ly depending upon the particular interests of an operational unit and the procedures developed for pursuing that interest. Consequently, informa-tion that reaches senior management may be considerably biased and d i s - 0 torted by the procedures employed by contributing units. "The records that are kept determine in large part what aspects of the environment wi l l be observed and what alternatives of action wi l l be considered by the firm" (Cyert and March, 1963:106). _ Although some organizations have ' c r i s i s ' SOPs, these may be applicable to specific situations only. When threats are unfamiliar, there is a tendency to fa l l back on these procedures, since.they are known, even though they are inappropriate for the new situation. - 27 -The internal pol i t ics of the organization also direct ly contribute to information distort ion. The perceptions of decision-makers are often influenced by the process of bargaining between levels and individuals in the organizational hierarchy. Members' perceptions are biased by highly personalized goal structures of organizational and personal interests. The aphorism "where you stand depends on where you s i t " (Al l ison, 1971:176),. expresses the premise that the bargaining position of each player reflects his own perceptions of pr ior i t ies and issues. The power (in terms of abi l -i t y to acquire resources and influence policy) and the strategic positions of individuals or departments within an organization often determine which issues are brought to the attention of senior management and also which interpretation of events is adopted. Often times decisions are made not on the basis of rational choice, but on the basis of pol i t ical gamesmanship. A second dimension of organizational pol i t ics affects the efficiency of information diffusion. Information can be viewed as a resource, subject to manipulation by groups or individuals in order to achieve a power base within the organization. In an analysis of information flows, Barth and Vertinsky (1973:127) observed that information was concentrated at the top of the hierarchy even'..'though decisions were made at a l l levels of the organization. They conclude that information is often monopolized in an effort to increase bargaining power. Etzioni (1968), theorizing about the principles of dynamic controls, also commented upon the tendency of organi-zations to distr ibute information less equally than other organizational resources. While standard operating procedures prescribe what information is made available and to whom, delays in diffusing information often occur and are hard to control. Operating units or staff groups can manipulate information release times for their own advantage. The combination of - 28 -information distort ion resulting from select ivi ty and f i l t e r i n g , and the manipulation of information di f fusion, explains to a large extent why senior managers often have inadequate information for making c r i t i ca l decisions or they are unaware of situations developing that are poten-t i a l l y threatening to the organization. Premature Decision Choice: The effects of stress on group processes produce a second dimension 9 of deficient decision making — premature choice. During crises, when the potential losses to an organization are great, one would expect that a wide range of alternatives would be considered and carefully evaluated in an attempt to make the best possible decision. Paradoxically, fewer alterna-tives may be considered than during non-crisis periods when the stakes are much lower. Decision-making by " f l igh t and oversight" (March and Olsen, 1976:34) may become a major feature of cr is is decision-making. During crises, the authority for decision-making shifts to the highest levels of an organization and there is a reduction in the number of persons participating those decisions (Mulder, van Eck, and de Jong, 1971). As the size of the decision group shrinks, there is an accompanying increase in stress levels. Some examples of non-adaptive behaviour manifested by individuals under high stress conditions were noted previously; in partic-ular, cognitive ab i l i t ies are reduced. Impaired cognitions signif icantly effect the ab i l i t ies of decision-makers to generate and evaluate alterna-t ive courses of action. Holsti (1978:41) notes that there is a lack of consensus in the l i terature on the operational measures of stress. Some authors define stress as a stimulus, while others define stress as a perceptual and behavioural re-sponse to a stimulus. In this paper, the second view is adopted, that i s , stress is viewed as a response to a stimulus. - 29 -A moderate degree of stress in response to environmental threats "induces a vigi lant ef fort to scrutinize the alternative courses of action carefully and to work out a good solution" (Jam's and Mann, 1977:51 ). However, when decisional conf l ict is great due to the high risks involved with alternatives, as- is the case during crises, the likelihood of patho-logical decision responses increases. Janis and Mann note that one form of decision response may be defensive avoidance of the threat cues. This behaviour is manifested by a lack of v igi lant search for alternatives, selective inattention, selective forgett ing, distort ion of meaning of warning messages, and minimization of potential negative consequences of actions. When stress levels reach extremely high levels and decisional conf l ic t is severe, there is increased likelihood that the dominant response wi l l be panic — decision-makers wi l l seize upon the nearest alternative without properly evaluating the ramifications of their choice. During crises, the decision-making unit of a firm is usually a t igh t ly -kn i t homogeneous group, limited to a small, number of senior mana-gers (Hermann, 1972). The members of this group are insulated from the rest of the organization by their sense of urgency and responsibil i ty. As a result of this isolat ion, alternative viewpoints and fresh ideas from other members of the organization who may be 'closer to the action' and have different experiences and expertise are severely "restricted. Under stress, decision-makers also may be prone to over-simplifica-tion of a problem in order to reduce i t to manageable proportions. However, George (1974) notes that the tendency to rely on a simple decision rule may lead to a premature choice that overlooks non-obvious negative consequences. Cyert and March (1963) note a tendency to base decisions on factors of short run acceptability when managers are uncertain about the long run - 30 -consequences of alternatives. The result , in either case, may be a poor decision with severe consequences for the organization. Defective Judgment: During crises, under a particular combination of circumstances, pressures within the decision-making group bring about a third type of pathological behaviour that results in defective judgment. A tendency towards concurrence-seeking may become so dominant in a cohesive group that i t causes individuals to indulge in a mode of thinking that prevents real is t ic appraisal of alternative courses of action. Jam's (1972) used the term 'groupthink' to describe this behaviour. "Groupthink involves nondeliberate suppression of c r i t i ca l thoughts as a result of in ternal i -zation of the group's norms . . . the more cohesive the group, the greater the inner compulsion on the part of each member to avoid creating disunity, which inclines him to believe in the soundness of whatever proposals are prompted by the leader or by a majority of the group's members" (Jam's, 1971:44). Groupthink is most l ike ly to occur when individuals are placed under great stress. The effects of stress and dominant, directive leadership promote a high level of cohesiveness that insulates a decisionmaking group from the advice of qualif ied experts. The group usually lacks methodical procedures for search and appraisal of policy alternatives. When these antecedent conditions occur, there is an increase in concurrence-seeking tendencies that promotes the following symptoms of groupthink: (see Jam's, 1972) (1) Group members develop an i l lusion of invulnerabil i ty that promotes excessive optimism and encourages decisions of very high r isk. - 31 -(2) Group members ignore warnings and negative feedback that might force a reassessment of a decision. Members attempt to ration-alize the status quo. (3) Group members display an inviolate belief in their own morality; the ethical and moral consequences of a decision may be ignored entirely. (4) Group members hold stereotyped views of their adversaries. Com-petitors may be regarded as too immoral and e v i l , or too stupid and weak to take any effective action. (5) Groups apply direct pressure to any member who expresses doubts about a course of action or questions arguments supporting policies that are favoured by the majority. The potential negative ramif i-cations of a decision are never discussed. (6) Individual members practice self-censorship. They avoid deviating from group consensus by keeping si lent about their own doubts and misgivings. This occurs not because of a lack of fa i th in one's own ideas, but through a fear of losing approval of fellow group members. The assumption that silence means consent reinforces self-censorship. (7) Group members share an i l lusion that unanimity of opinion means t ruth. (8) Groups develop "mindguards" — self-appointed members who try to shield other members from information that may go against shared beliefs. When a management group displays most of these symptoms in a cr is is situa-t ion, i ts decisions may have disastrous consequences for the organization. - 32 -Implementation Failures: Crisis situations require precise and speedy implementation of deci-sions. In large organizations, most problems require the support of others for implementation of solutions. Rarely does a decision-making unit have the ab i l i t y to implement policies direct ly. Thus, a decision may be timely, well thought out, and represent the best action in a c r i s i s , but the organi-zation may s t i l l be susceptible to disaster through faulty implementation techniques. MacCrimmon (1973) suggests that in organizations with multiple implementation units, there is considerable room for discretionary action resulting in accidental or purposeful misimplementation. Di f f icu l t ies in implementation seem rooted in three areas: operating units are not moti-vated to carry out the decision selected; noisy channels of communication and inf lexible procedures affecting coordination may delay receipt of messages and timing of actions; and operating units may not understand their orders. The actions required to cope with crises may disrupt existing organi-zational patterns. The uncertainty produced by organizational reshuffling may strengthen the tendency of operating units to engage in defensive moves for preserving their ter r i tor ies and may heighten the commitment to famil-iar, parochial goals. Varying degrees of exposure to crises and therefore varying degrees of f e l t threat may increase the existing differences in perceived organizational pr ior i t ies between units. While an external threat may be the best motivator for long-term organizational cohesiveness, in the short run, differentiated exposure to this threat can intensify internal organizational confl icts (Al l ison, 1971). Even when operating units are suff ic ient ly motivated to adopt organizational objectives as their own objectives, implementation may fa i l because operating units do not - 33 -understand what is required of them, or they are incapable of executing the required course of action. In the discussion of standard operating procedures and their effect on communications, i t was suggested that operating units may ignore novel situations or interpret them in l ight of existing procedures. Such resis-tance to change unintentionally subverts directives from senior management. Control systems providing quick feedback to central decision-making units for corrective actions, also often suffer from r ig id i t y of programming and therefore f a i l to signal implementation fai lures. 2.4 A Conceptual Model of Crisis Figure 1 i l lustrates the components of the conceptual model of c r i s is . Three major dimensions provide the theoretical bases of the model: the individual context, the organizational context, and the environmental con-text. In the f igure, solid lines indicate immediate impacts; broken lines indicate long run or historical impacts. An organization's susceptibil i ty to crises is direct ly affected by the type of environment in which i t operates. Environmental threats are mediated by an organization's coping ab i l i t i es . Over the long term, these coping ab i l i t ies evolve in response to environmental pressures. The degree of threat that is perceived to be emanating from the envi-ronment and the ab i l i t y to cope with threats direct ly influence the indi-vidual context through the intervening variable of stress. Changes in cognitive processes (for instance, the ab i l i t y to process information, time perceptions, and the impacts of biases) are attributed mainly to the effects of stress. Preferences for leadership style also change, given high or low levels of stress. - 34 -Individual factors, in turn, have an impact on the organizational context of a f i rm. Leadership style directly affects the communications processes and group processes. These two factors in conjunction with individual cognitive processes influence the quality of decision-making. Leadership style and communications processes also have a direct impact on implementation. The quality of decision-making and the ab i l i t y to implement decisions determine the overall ab i l i t y of the organization to cope with threat, and, hence, susceptibi l i ty to crises. These interactions formed the basis of the empirical study described in the next section. Figure 1 A Conceptual Model of C r i s i s Ind iv idua l Cogni t ive Processes Leadership S ty l e Group 1^ Processes Communi-cat ions Processes Dec is ion-making Coping A b i l i t i e s Imple-mentation st ress \ Y K' threat Suscep-t i b i l i t y to c r i s i s Environ-mental Complexity Environ-mental Turbulence - 36 -3. RESEARCH QUESTIONS 3.1 What is the Nature of Crisis? This study addresses several questions concerning the nature of crises and the responses of individuals and organizations to crises. The f i r s t question concerns the attributes of a situation that identify i t as a c r is is . The relationship between elements present in situations that are generally regarded as crises are of particular interest. These ele-ments are: 1) threats to high pr ior i ty goals and values of an organization 2) surprise occurrence of threats 3) restricted time available for decision-making 4) a high degree of uncertainty in possible outcomes of decisions 5) the lack of plans or their fa i lure to deal with threats 6) the experience of stress by decision-makers From these elements, the following hypotheses were developed concerning the nature of crises: H-j: Threats to high pr ior i ty goals, stress, and restricted decision time are universal c r i te r ia in labelling a situation as a c r is is . H :^ The subjective cr i ter ia defining a cr is is are invariant with the type of environments that individuals face. - 37 -3.2 What are the Determinants of Crisis Susceptibility? A second question that arises is what are the determinants of organizational susceptibi l i ty to crises? How prone to crises are certain industries? Do crises occur in patterns? The following hypotheses were identi f ied that are derived from theories of the environmental and indi-vidual context of an organization. Environmental Context H :^ Firms operating in predictable environments wi l l have a low frequency of crises. Rationale: When there is l i t t l e environmental uncertainty, a firm is better able to predict future states. Steers (1977:96) notes that the capacity for.an organization to successfully adapt to i t s environment is fac i l i ta ted to a large extent by i ts ab i l i t y to know what the environment wi l l be l ike in the future. The more certain managers are about future states, the greater opportunity they have to develop adequate coping responses and take preventive measures against crises. High environmental complexity or turbulence wi l l not by themselves contribute direct ly to a high frequency of crises. Rather, susceptibi l i ty may be more "a function of the extent to which . . . ins tab i l i ty (and the direction of such changes) can be predicted in advance with some degree of certainty" (Steers, 1977:97) Alternatively, one could argue that although the frequency of crises is low in predictable environments, a f irm's sensit iv i ty to them is high. This results primarily from inexperience in dealing with surprises. - 38 -H :^ Firms with a high degree of control over their environments wi l l have a low susceptibi l i ty to c r is is . Rationale: The more control a firm can exert on various environ-mental factors, the more simple and predictable that environment becomes. Firms that control a large portion of their resource inputs and f inal markets through vertical integration are not highly dependent on other organizations (Williamson, 1970). Thus, firms do not have as many sources of uncertainty to con-tend With. Pfeffer (1972:218) notes that large size also allows a firm to exercise more environmental control. Large organiza-tions are better able to survive mistakes, and through growth they can diversify, further reducing susceptibi l i ty to c r is is . H :^ Firms that are very dependent on other elements in the environment are prone to c r is is . Rationale: The more dependent a firm is on other elements in i ts environment, the less control i t can exert. Thus,it becomes susceptible to changes in resource markets, product markets, or labour markets. Without some control in these markets a firm is not able to buffer i t se l f against changes and is par-t icu lar ly open to crises. Pfeffer (1972) notes that inter-locking boards of directors are a technique of co-optation sometimes used to reduce the interdependence of firms. Individual Context Hg: Organizations managed by process oriented managers wi l l have a low frequency of crises. - 39 -Rationale: Process managers wi l l encourage delegation of responsi-b i l i t y and decentralized programs that allow for local freedom of actions ( f l e x i b i l i t y ) . Lower level managers and supervisors are able to act quickly on threats. This reduces the potential for surprise threats to central goals. Hji Managers who prefer decision-making strategies associated with groupthink come from organizations that are prone to c r is is . Rationale: Jam's (1972) noted a number of factors that foster the development of group norms, bolstering cohesiveness and morale to the detriment of c r i t i ca l analysis. He noted eight major symptoms of groupthink: invulnerabi l i ty, rationale, morality, stereotypes, pressure, self-censorship and unanimity.^ When decision-makers display most or al l of these symptoms decisions of such poor quality are made that an organization is prone to c r is is . 3.3 What are the Determinants of Coping Abilit ies?. A third question of interest with respect to crises is what are the correlates and determinants of organizational coping abi l i t ies? Coping is defined in this study as the ab i l i t y to reduce threats direct ly (for example, by eliminating external sources) or to minimize the impact of threats (for example, by making internal changes). Three areas are of particular importance: The reader is referred to page 31 for a complete description of the symptoms of groupthink. - 40 -1) preferred decision structures during crises and suscep-t i b i l i t i e s to pathologies 2) the dimensionality of coping ab i l i t ies 3) formal preparedness The following hypotheses arise from these areas: Preferred Decision Structures Environmental Context Hg: Managers from firms with complex environments w i l l tend to consider only a limited number of alternatives during crises. Rationale: A great deal of cognitive stress is placed upon decision-makers operating in complex environments. Janis and Mann (1977) note that when the degree of complexity of an issue begins to exceed the l imits of cognitive ab i l i t i es , a decision-maker seeks methods to provide closure of the problem. One of the ways this is achieved is to l imi t the number of alternatives being consid-ered to a quantity that is comfortably handled. A satisf icing strategy may be adopted rather than an optimizing strategy. Hg: Firms operating in complex environments wi l l develop strong adherence to Standard Operating Procedures. Rationale: SOPs t radi t ional ly have been developed as an instrument to deal with complexity (March and Simon, 1958). H^g-. Managers from firms with more complex environments w i l l seek the aid of many individuals to help evaluate actions and alternatives during crises. Rationale: Decision-making in complex environments requires the use of many computational resources. Managers may delegate and - 41 -seek input from a variety of sources to aid in decision-making . H-|-j r Managers from firms with more complex environments w i l l concen-trate on the short term effects of proposed solutions rather than long term effects during crises. Rationale: Complex environments are characterized by the interactions of many diverse components. Because of this diversi ty, managers in complex environments often find i t d i f f i c u l t to accurately assess or predict changes in components and their impact on the f i rm. This is part icularly true over the long term. For this reason, emphasis is placed on short-run impacts in an effort to simplify the decision process (Cyert and March, 1963). One should note a competing hypothesis found in the l i terature. Experience with complexity may sensitize decision-makers to the need to take into account long term impacts (Forrester, 1969; Holling, 1978). H.|2: Firms operating in turbulent environments wi l l not develop strong adherence to Standard Operating Procedures. Rationale: I f a firm operates in changing environments, there are no economies to be gained by developing standard programs to deal with these environments. Furthermore, learning is l imited and no committment to a particular program of response can develop. Individual Context H-j3: Task oriented managers wi l l follow SOPs closely and use only o f f ic ia l information channels during crises. - 42 -Rationale: Burns and Stalker (1961) identif ied a mode of managerial practice called mechanistic management. In this style, task routinization is closely associated with specification of performance procedures, close enforcement of procedures, and centralization of authority with primarily vertical communica-tion patterns. H-|^ : Process oriented managers wi l l not perceive information gathering to be an important act iv i ty during crises. Rationale: Process management is based on the premise of decentral-ization and local coping. Information gathering act iv i t ies are usually aimed at increasing information for a different type of system, that i s , centralized decision-making. H-jg: During crises, process oriented managers wi l l f ind i t particu-lar ly important for employees to understand the decisions made by management. Rationale: Process managers are results oriented. Their style favours decentralization and delegation of authority. To effectively delegate i t is important that employees understand the reasons for decisions. Although this process is important during normal periods, the potential for misimplementation and i ts attendent high costs during crises intensif ies the need for employee understanding. H-jg: Executives who prefer a democratic management style w i l l encourage individuals who are responsible for implementing a decision to be involved in making the decision during crises. - 43 -Rationale: I f an executive generally subscribes to norms of demo-cratic management, he would tend to maintain this style during crises. Increased needs for information and information process-ing channels during crises are served better by a democratic style of management rather than an autocratic style of management. H-|7: Executives who prefer an autocratic style of management wi l l f ind i t desirable for an organization to have a directive leader during crises. Rationale: Autocratic managers feel a need to work in an organization that reflects their own style: a desire for order, centraliza-tion and strong leadership. Although this preference may exist under normal conditions, during crises, when uncertainty in-creases and there are'perceived pressures for immediate action, these needs are intensif ied. H-jg: Managers who think i t is important to maintain organizational harmony during crises wi l l encourage executives who disagree with company policies to keep their reservations to themselves. Rationale: Strong concurrence-seeking tendencies have been observed among very cohesive groups. Janis (1972) notes that in such groups direct pressure may be applied to members who express strong arguments against group policies. Dissent is not expected of loyal group members. H-jg: Managers who find i t important to maintain organizational harmony during crises wi l l encourage members of an executive committee to minimize conf l ic t within i t se l f and to be loyal to the Chief Operating Officer. - 44 -Rationale: Highly cohesive groups are closely associated with norms of strong leadership. These groups tend to minimize conf l ict in order to maintain sol idar i ty. (See H-jg). The Dimensionality of Coping Abi l i t ies Organizational Context H2Q,: Organizations that are capable of coping successfully with one type of threat are capable of coping with any type of threat. Rationale: The sk i l ls required to deal with surprise and the a b i l i -t ies to reduce the impact of stress are not situation specific, but are developed as part of a general dimension of coping ab i l i t i es . H i^'• Organizations develop special ab i l i t ies to cope with one of two types of threats: those that occur precipitately and without warning (discontinuous), or those that build up gradually over a period of time (continuous). Rationale: The mechanisms required to deal with a constantly high level of threat are different than the mechanisms required to deal with occasional, unpredicted high levels of threat. In the f i r s t case, one can invoke strategies and programs speci-f i ca l l y developed to absorb stress. There is also some tendency for organizations to recruit executives who are adapted to high stress situations. In the second case, the intermittent nature of threat occurrences does not permit the development of such permanent mechanisms. Intense, remedial strategies that are specific to the threat may be required to alleviate stress. - 45 -H 2 2 : Organizations have less ab i l i t y to cope with threats that have a sudden onset than with threats that build up gradually. Rationale: Threats that build up gradually with a small incremental impact may not be perceived as threats to organizational goals in the short term. Declining sales or loss of market share, for example, frequently are rationalized as short term de-clines that can be managed with normal procedures. A threat may not be interpreted as c r i t i ca l unt i l a certain threshold is reached. An event with a surprise onset and a large i n i t i a l impact, in contrast, may be perceived as a c r i t i ca l threat since extraordinary measures are required to cope with i t and poten-t i a l losses are large. H23: Predictable threats in stable environments wi l l stimulate information gathering act iv i t ies during crises. Rationale: Firms with the ab i l i t y to cope with predictable threats require a long term orientation. Information gathering, which is a long term ac t iv i ty , wi l l pay off when focussed towards long term, continuing types of threats rather than non-recurring types of threats. tt^: Organizations that have a high level of slack can cope better with crises involving threats to market share or sales than they can with crises involving threats to other areas of operations. Rationale: High slack organizations can mobilize resources to meet changing market conditions (Cyert and March, 1963). They can switch product emphasis or increase/decrease sales. These - 46 -actions require a c r i t i ca l mass of resources. Other types of crises may not be resource intensive. ^25 : Organizations that maintain a decentralized decision-making structure under threat can cope better with crises precipitated by a drop in sales than organizations that centralize decision-making authority under threat. Rationale: Coping with market failures requires a high reliance on f ie ld managers and personnel for information and market con-tacts. Organizations that react to threats by reducing the authority of managers lose these information sources. Environmental Context H2g: Firms operating in complex environments have a greater ab i l i t y to cope with crises than firms operating in simple environments Rationale: Successful decision-making in cr is is situations requires effective and economical information processing to evaluate a complex system of interactions. Such a system wi l l tend to evolve in firms with complex environments rather than in firms with simple environments. H^j' Firms operating in turbulent environments have a greater abi-l i t y to cope with cr is is than firms operating in stat ic envi-ronments. Rationale: A turbulent environment develops the capability to deal with change. Firms learn to adapt and they develop a tolerance for surprise and stress that increases their coping ab i l i t i es . - 47 -F^g.' Firms operating in turbulent environments have a greater ab i l i t y to cope with cyclical market conditions than firms operating in stat ic environments. Rationale: Firms with experience in dynamic environments wi l l develop more adaptive procedures to deal with contingencies. Familiarity with change breeds confidence in managerial ab i l i t ies to cope with turbulence. Individual Context H^g-. Firms managed by entrepreneurial executives have a greater ab i l i t y to cope with a major technological breakthrough,than firms not managed by entrepreneurs. Rationale: By def ini t ion entrepreneurial managers actively seek opportunities and are most attuned to exploiting an oppor-tunity when i t is presented. H ^ Q : Firms managed by executives with an aggressive marketing orientation have a greater ab i l i t y to cope with a sudden drop in sales than firms managed by executives with other orientations. Rationale: An aggressive marketing program is an indication of a f irm's preparedness to cope with the contingency of market fa i lure. : Firms managed by more democratic executives have a greater ab i l i t y to cope with the death of a number of key executives than firms managed by less democratic executives. Rationale: Since democratic managers encourage a high level of employee participation in decision-making, there is a greater - 48 -depth of management talent in departments or organizations headed by these managers. There is also greater knowledge of problems, issues, and strengths of the firm when many subordi-nates participate in the process. Participatory organizations may be able to absorb the death of key executives more easily than other organizations that do not have trained people backing up incumbent management. 3.4 What are Some of the Standard Responses to Crises? The fourth major area of interest in the study is to identify some of the standard responses to crises (programmed behaviour) and to find explana-tions for them. The following hypotheses were developed: Organizational Context W^2: Managers from firms with a high degree of f l e x i b i l i t y are l ike ly to adopt entrepreneurial behaviour as a response to c r is is . Rationale: Entrepreneurial behaviour requires f lexible adjustment in goals and means. Individual Context ti^y Managers make parochial responses based on their previous business experience during crises. Rationale: Dearborn and Simon (1958) suggested that a manager's business specialization influences the manner in which he views business problems. In responding to crises, managers wi l l in-voke behaviour or SOPs based on previous training and experience rather than developing new behaviours. - 49 -H^: Process oriented managers prefer programmed behaviour stra-tegies that manipulate the managerial structure of the firm during crises. Rationale: I f a manager is process oriented, he would not focus on individual actions, but on the organizational processes used to obtain the end goals. - 50 -4. RESEARCH METHODOLOGY Although specific aspects of processes that affect cr is is decision-making have been studied previously (for example, information processing, cognitive ab i l i t i es , group cohesiveness, etc.) there is a paucity of em-pir ical work that examines in an integrated manner the various dimensions important to understanding business crises. In this study a structured questionnaire was administered to a sample of senior executives in major Canadian and American business enterprises. The data obtained were sub-jected to a series of s tat is t ical analyses to test the formulated hypotheses. The study investigated the major areas of organizational susceptibi l i ty to crises, and. the determinants of cr is is coping ab i l i t i es . Methods by which this susceptibi l i ty can be decreased and coping ab i l i t ies improved are • proposed. 4.1 The Sample A random sample of Canadian and American companies was selected from a population of approximately 1200. The population was determined to be those firms l isted in the Fortune 500 Directory (American) and the Canadian Business 400 for 1977. The sizes of firms in the population ranged from $48 mil l ion to $55 b i l l i on (General Motors). The population considered was restricted to large enterprises since public information was readily avail-able for these firms. Also i t was f e l t that executives in large corpora-tions would have had experience with many different kinds of crises and would therefore be able to give richer responses to questions than executives in small companies. v All firms in the population were assigned an identi f icat ion number and a random sample was selected through use of a random number generator - 51 -(UBC RANDOM). The sample size was determined on the basis of a common 'rule of thumb1 used in multivariate analysis: the rat io of the number of observations to the number of variables should be between 3:1 to 5:1. The maximum number of variables to be analyzed at any one time was 18, thus, 90 observations were required (using the more conservative 5:1 ra t io ) . Assuming a 25% return rate on mailed questionnaires, the minimum sample size required was calculated to be 360 cases. Firms selected for the study represented a wide variety of products and services. The composition of the sample, by industry, is given in Table I. 4.2 The Research Instrument A 12 page questionnaire with a personalized covering let ter was sent to the President or Chief Operating Officer of each company selected (Appen-dix 1). The questionnaire examines various dimensions of the firm and i t s environment that theoretically could affect susceptibi l i ty to cr is is and management capabil i t ies. Two separate p i lo t studies composed of graduate and undergraduate students (n = 65, n = 71) were used to pretest the ques-tionnaire. After each pi lot study, modifications to the instrument were made, both in form and content. The questionnaire consists of seven sections that examine the following dimensions: 1) programmed behaviour styles during crises 2) quality of decision-making and susceptibi l i ty to pathologies during crises 3) preferred managerial style during cr is is and non-crisis situations - 52 -Table I Sample Composition by Industry No. of firms Industry Description* sampled Forestry (logging, pulp and paper, sawmills, services) 17 Mines (metals and non-metals) 6 Fuels (petroleum and natural gas) 16 Food and beverage (meat, poultry, f r u i t , dairy, f lour) 59 Tobacco products 2 Textiles (cottons, wools, synthetics, ropes, carpets, knitt ing mil ls) , 8 Clothing mfg. 4 Furniture and fixtures 2 Printing and publishing 6 Metal and metal fabricating ( i ron, steel, aluminum) 61 Transportation equipment (motor vehicles, a i rc ra f t , ro l l ing stock, ship building 22 Electrical products (appliances, radio, T.V., computers) 22 Non-metallic mfg. (cement, concrete, glass, etc.) 9 Refineries 15 Rubber and chemicals (plastics, f e r t i l i z e r s , pharmaceuticals, paint, soaps) 45 Construction 2 Transportation (a i r l ines, railways, buses, pipelines, etc.) 9 Communications (radio-T.V. broadcasting, telephones, cables, etc.) 4 U t i l i t i es (electr ic, gas, water) 6 Trade (wholesale, re ta i l ) 14 Finance (banks, insurance, investments) 29 Amusement, recreation (movies, hotels, restaurants) 3 Miscellaneous 15 Total 376 Categories developed from Standard Industrial Classifications (Statist ics Canada) and Industry Codes (Office of Management and Budget). - 53 -4) environment of the organization 5) coping ab i l i t ies of the firm with respect to dif ferent dimensions of threat 6) factors defining a cr is is 7) demographic characteristics Section 1 of the questionnaire investigates two dimensions of mana-gerial posture in terms of preferred strategies in dealing with crises. Decision-makers may choose between two different postures: a defensive (reactive) style, or an entrepreneurial (active) style. A defensive manager is defined as one who favours reactive strategies oriented towards retrenchment or curtailment of organizational programmes when the firm is threatened by c r is is . In part icular, there is a preoccupation with cutting expenses. Defensive managers tend to focus on costs rather than benefits when evaluating programmes. During crises, a defensive manager reacts to a specific problem stimulus and corrective measures are primarily oriented towards returning to or maintaining the status quo. There is more concern for survival of the organization than for i t s growth and development. In contrast, a entrepreneurial manager is defined as one who favours active or offensive strategies that enable an organization to exert con-trol over i ts environment. When threatened by c r i s i s , an entrepreneurial manager favours f lexible strategies aimed towards turning threats into opportunities for organizational growth. The potential benefits of pro-grammes are stressed rather than the costs. Unlike the defensive manager, who concentrates primarily on financial factors, the entrepreneurial manager is more systems oriented; he attempts to exert control over the environment from various points throughout the organization. Thus an entrepreneurial manager's response to a prof i t cr is is may be to increase - 54 -advertising expenditures and inst i tute incentives for sales personnel in an ef for t to achieve greater sales volume. A defensive manager in con-t rast , may impose across-the-board cuts in al l operating budgets as a response to a prof i t c r is is . Positive responses to questions 1, 4, 7, 8, 11, and 14 are indicative of an entrepreneurial style while positive responses to questions 2, 3, 5, 6, 9, 10, and 12 are indicative of a defensive style. In addition to assessing the two dimensions of managerial posture, the items in Section 1 can be further classif ied into three categories of strategies: personnel, operational, and developmental. Personnel stra-tegies are defined as those actions concerning human relations, motivation, and incentives. Questions 4, 5, 10, 12, and 13 fa l l into this category. Operational strategies describe actions concerning the non-human functions of the f i rm, primarily finance, control, and marketing (questions 1 , 2 , 3, 6, and 9). Developmental strategies are defined as primarily long term actions that do not direct ly affect current operations, but may contribute to the future development of the f i rm. Expansion of R&D act iv i t ies and structural re-organization are examples of developmental strategies (questions 7, 8, 11, and 14). I t was surmised that one of two well-defined response patterns to items in section 1, with regard to the preferred strategies selected to deal with crises, would be found. The f i r s t premise was that i t would be possible to classify individual respondents as favouring either predomi-nantly entrepreneurial or defensive strategies. Managers from certain industries were expected to favour one mode over the other. On a second level , i t was surmised that certain categories of stra-tegies (personnel, operational or developmental) would be highly correlated - 55 -with the functional backgrounds of managers. The findings of Dearborn and Simon (1958) suggest that a manager's business specialization influences the manner in which he views business problems. For example, managers with a strong orientation in finance (comptrollers, financial V.P.s, etc.) may tend to rate the operational strategies as most useful in dealing with crises. On the other hand, managers with staff backgrounds in R&D or -corporate planning may rate the developmental strategies as most useful. Section 2 of the questionnaire is concerned with group attitudes and behaviours that may affect the quality of decisions made during a cr is is and that may prevent successful implementation of those decisions. Pre-viously three sources of deficient decision-making behaviour were identi-f ied: communications distor t ion, premature decision choice, and defective judgment. A series of questions relate to each of these dimensions. Three questions are concerned with the characteristics of information processing procedures and communications networks that contribute to com-munication distort ion. For example, r ig id adherance to standard operating procedures and o f f i c ia l communications channels can reduce organizational f l e x i b i l i t y . Managers who insist that SOPs be adhered to during cr is is are faced with the possibi l i ty of responses being made that are unsuited to the current conditions, or of time delays in the transmission of v i ta l information (question 6). Strong biases, through excessive f i l t e r i n g , may be introduced i f subordinates transmit only information they think is important or appropriate (question 7). In order to meet needs for un-biased, timely information, i t may be necessary for senior management to develop their own communications channels that by-pass the formal organizational hierarchy (question 3). - 56 -Five questions relate to aspects of decision-making behaviour that result in premature choice. When a decision-making group under intense stress becomes isolated from the rest of the organization, too few al ter-natives and fresh ideas may be presented. This is due primarily to restricted information sources (questions 10 and 17). During crises, the tendency for decision-making authority to shi f t to the top of the organi-zation puts tremendous pressures on the leadership. Executives may act hasti ly and without due consideration in order to give the impression of decisiveness and to maintain confidence in their leadership (question 16). At the same time, decision-makers may become overly concerned with short-range issues to the neglect of long-range outcomes and they may overlook possible negative ramifications of their decisions (questions 12 and 15). Janis 1 (1972) identi f icat ion of groupthink phenomena provides the theoretical basis for six questions that assess tendencies leading to development of defective judgment. Dominant leadership, high cohesive-ness, and insulation of the decision-making group from the rest of the organization are conditions that foster the emergence of groupthink (questions 13 and 14). A cohesive group may develop i l lusions of invul-nerabil i ty that promote over-optimism and encourage high-risk decisions (questions 11 and 18). Adversaries or competitors may be viewed in a stereotyped manner and the effectiveness of their actions underestimated (question 4). Cohesive groups also wi l l attempt to apply pressure to any member who t r ies to express a viewpoint dif ferent from dominant group beliefs, and there is a tendency for members to suppress their own doubts about a course of action (question 9). Four questions in this section examined the problems of implementa-tion fa i lure. In conditions of c r i s i s , when the organization is under - 57 -stress, there w i l l be increased conf l ict between the decision-making group and other parts of the organization. This conf l ict may be manifested in the form of intensified factionalism between various divisions or depart-ments. Some groups may view the actions of senior decision-makers as an infringement on their powers and therefore resist implementation of deci-sions even i f the decisions are of high quality (question 8). Implementa-tion failures may also occur because of 'noisy' communication channels. Operating units either don't understand directions (question 1), or they have no committment to implement decisions since they are excluded from the decision-making process (question 2). For successful implementation to occur, i t is not necessary for operating units to agree with a decision, but i t is necessary for them to understand the process by which the decision was reached and why a particular decision was chosen (question 5). Section 3 of the questionnaire examined different managerial styles and evaluated preferences during normal times and during crises. One cluster of variables is composed of items that relate to styles of task performance, either mechanistic or organic (Burns and Stalker, 1961). Managers with preference for a mechanistic style w i l l agree with close employee supervision, well-defined procedures, enforcement of rules, and well-defined performance measures (question 9). Organic managers, in con-t rast , w i l l prefer process rather than task goals, fewer performance meas-urements, and general supervision with an emphasis on outcomes (question 3). Mechanistic style may be appropriate in situations where tasks are routine, repet i t ive, and predictable, for instance, large bureaucracies during non-crisis times. Managers in organizations with placid, simple environments may also f ind this style appropriate. Burns and Stalker note that under such conditions, the characteristics of a mechanistic system - 58 -promote effective task performance and high levels of individual satis-faction. An organic style may be best when the environment is rapidly changing, and when task accomplishment requires independent problem-solving, innovation, and creat iv i ty. Such conditions may occur during crises, for example. Questions 2, 5, and 11 assessed preferences for autocratic or demo-cratic style (Lippett and White, 1943). Authoritarian leaders do not encourage participation in decisions. They are generally arbitrary and dogmatic with employees. Democratic leaders, in contrast, are generally supportive and encourage the contributions of al l employees. Although neither an autocratic nor a democratic style can be advocated as a means to ensure productivity, Gibb (1969:261) notes that "group decisions which have been arrived at interactively e l i c i t more solid support and issue into action more frequently than do those which are handed down more authorita-t ive ly . " I f Gibb's premise is correct, in non-crisis times one would ex-pect fewer problems of implementation in organizations headed by democratic managers, part icularly when acceptability of a decision to subordinates is an important issue (Vroom and Yetton, 1973). However, Hamblin (1958) notes that during crises, groups prefer strong leadership. He found that a group may replace i ts leaders with a new person i f the leader does not have an obvious solution to a c r is is . Where there are time pressures for a quick decision, authoritarian leadership may be required. For these reasons one would therefore expect that an autocratic, directive style would be preferred during cr is is (both by leaders and subordinates). Questions 7 and 10 assessed preferences for an instrumental style of management. Fi l ley and House (1969) defined an instrumental leader as one who has the ab i l i t y to exhibit rat ional, intellectual behaviour in order to - 59 -fac i l i t a te group accomplishment of organizational objectives. Parsons (1951) further suggested that instrumental behaviour was characterized by a concern for obtaining and allocating resources. An instrumental style may be either autocratic or democratic as the situation demands, but the emphasis is always on teleological decision behaviour aimed at task accom-plishment in the most ef f ic ient manner. Instrumental behaviour may be equally appropriate in crises or normal situations, but during crises there may be a need to find new and novel solutions to problems at the expense of organizational tradit ions. The f inal cluster of variables in this section assessed concern for people versus concern for production (Blake and Mouton, 1964). Managers with a high concern for people believe that employees should be supported and aided in their jobs, and that the attitudes and feelings of employees are important. People-oriented managers arrange work conditions so that personal, social, and welfare needs of employees are met before the pro-duction needs of the f i rm. Questions 1 and 4 assess preferences for this style. A people-oriented style is the opposite of a production oriented style. In the extreme, managers who adopt a production orientation dis-regard to ta l ly the needs of employees. The organization is viewed as a vehicle for achieving production. Decision-making authority is concen-trated at the highest levels of the organization and communication is formal and r i g id . Question 6 assessed preferences for a production-oriented style. Question 8 assessed preferences for a style balanced between concern for people and concern for production. Managers adopting this style recog-nize that an effective organization w i l l attempt to meet both objectives, - 60 -although given a particular set of circumstances, people or production may take pr ior i ty in the short run. During crises, when organizational survival could be at stake, more emphasis may be placed on achieving production or implementation of decisions at the expense of concern for people. During normal times, a balanced style, with more emphasis on organization harmony and employee satisfaction may be favoured. Section 4 of the questionnaire is concerned with collecting informa-tion on a number of dimensions of environmental phenomena that contribute to organizational uncertainty. Three dimensions have been included: turbulence, complexity, and degree of predictabi l i ty. Questions on two dimensions of organizational response to environmental stimuli were also included: f l e x i b i l i t y and contro l lab i l i ty . Question 1 measured the amount of perceived turbulence in the f irm's environment (Emery and Tr is t , 1965). The dimension of complexity is meas-ured by three questions. Question 4 examines the concept of dependency as a component of complexity (Osborn and Hunt, 1974). Question 9 examines the degree of environmental heterogeneity (Child, 1972). Question 8 deals with routineness as a component of complexity (Jurkovitch, 1974). The combined dimensions of turbulence and complexity influence the degree of uncertainty facing a firm (Duncan, 1972). Organizations with environments perceived as predominantly simple and stat ic , theoretically w i l l experience signif icantly less uncertainty than organizations with environments perceived as predomi-nantly complex and dynamic. I t was hypothesized that there would be a strong positive correlation between high environmental uncertainty (complex and turbulent) and perceived susceptibi l i ty to crises. The third dimension of environment investigated in the questionnaire is the degree of predictabi l i ty. Question 6 measured this dimension. High - 61 -predictabi l i ty suggests a more certain environment (Steers, 1976) with potential ly fewer crises than in highly uncertain environments. Question 2 also examined the dimension of predictabi l i ty , but in terms of the f irm's predictions vis-a-vis rea l i ty . The more successfully an organization can predict the extent and direction of environmental change, the greater the degree of certainty i t enjoys. With increased certainty, there is a higher probability the firm can develop appropriate coping responses to deal with changes and either avoid crises or manage crises better when they do occur. I t is essential for an organization to develop effective coping strategies to deal with environmental discontinuities. Coping with complex, dynamic, and unpredictable environments requires a high degree of organiza-tional f l e x i b i l i t y . Two questions measured the degree of perceived f l e x i -b i l i t y of the respondent firms. Question 3 examined the f irm's motivation to respond adaptively to perceived environmental turbulence (Segal, 1974). Firms that are unwilling to al ter goals and structures may be insuff ic ient ly f lexible to deal with rapid environmental change. Question 7 examined the extent to which f l e x i b i l i t y is bu i l t into organizational structures in the form of slack (Cyert and March, 1963). High slack is equated with high f l e x i b i l i t y and the potential to cope with crises. The orientation of decision-makers with regard to the environment w i l l also affect organizational coping ab i l i t i es . A decision-maker can per-ceive the environment as either offering an opportunity, or posing a threat (Perrow, 1970). Decision-makers who view the environment as threatening are judged to have a defensive orientation; those who perceive environmental opportunities are judged to have an entrepreneurial orientation. The coping mechanisms of firms run by defensive managers may be aimed towards developing protective contingency plans to deal with environmental change. In contrast, - 62 -the coping mechanisms of firms with entrepreneurial managers may be more in the nature of sophisticated information systems capable of alert ing the firm to new opportunities brought about by changing environmental conditions. In addition to the Likert scale items in Section 4, a number of ques-tions in Section 7 (Background) are related to dimensions of the f irm's environment. Specifically these questions concern firm size (5), type of industry (6), competitive situation (8), and degree of vertical integration (9). Responses to these items provided an estimate of the degree of control the firm is able to exert over i ts environment. For example, a very large firm is able to extend a much greater degree of control than can a small f i rm. The competitive nature of the environment is also important. One may reasonably expect a firm in a monopoly position to face a much smaller degree of uncertainty than a firm in an environment where cut-throat competition is the norm. Likewise, a firm that is integrated ver-t i ca l l y can exert influence on the product market ( i f integrated forward) and control sources of raw materials ( i f integrated backward). Such firms face a lesser degree of uncertainty than firms with no integration. The particular industry within which a firm operates is a c r i t i ca l factor. Some industries by their very nature are extremely complex and dynamic, generating high levels of uncertainty (for example, merchandising and electronics). Firms in other industries may face rather low levels of uncertainty due to the relat ively simple and static nature of their envi-ronments (for example, public u t i l i t i e s ) . One hypothesis is that firms with a high degree of control, and thus a lower level of uncertainty, i n i t i a l l y wi l l be less prone to crises. However, firms in crisis-prone industries may be more adept at managing crises (a sk i l l developed through necessity) than firms from relat ively stable industries where crises are uncommon events. - 63 -Section 5 of the questionnaire is concerned with the perceptions of senior managers vis-a-vis the performance of their corporation when exposed to a variety of events. Heretofore, crises have been treated as an unitary phenomenon. I t is clear, however, that there are many different kinds of crises, some of which may be less threatening (and therefore perceived as more manageable by some organizations) than others. The items in this section addressed the following questions: a) is there a general cr is is dimension? b) what classes of cr is is are perceived as most threatening? c) how do managers perceive the ab i l i t y of their corporation to deal with different types of crises? Four general classes of events were posited: discontinuit ies, stag-nation, decline, and cycles. Questions 1, 2, and 5 assessed perceived ab i l i t y to deal with different types of discontinuous threats, that i s , unexpected threats in markets, personnel, or the natural environment. Although some managers may perceive a high ab i l i t y on the part of their organization to deal with a sudden market slump, they may not have the same confidence in their f irm's ab i l i t y to deal with the sudden death of key senior executives. Question 4 is concerned with a discontinuous opportunity, the poten-t i a l to rapidly increase sales. Some firms may be capable of coping with threatening events, but lack the ab i l i t y to capitalize On opportunities that are suddenly presented. Failure to exploit opportunities, in the long term, can be threatening for the f i rm. This is especially true in indus-tr ies where technology changes rapidly. For example, in the 's ix t ies , firms that ut i l ized newly developed semi-conductor technology in the elec-tronics industry found themselves with almost unlimited opportunities for growth. On the other hand, firms that were more conservative and fai led - 64 -to switch over to the new technology, rapidly lost market share. Many soon found themselves on the verge of bankruptcy. Question 3 examined a manager's perceptions of his firms ab i l i t y to deal with conditions of market stagnation. While this situation is not commonly associated with threat and c r i s i s , a steady-state environment with no real growth can indeed constitute a threat to a firm whose existence is predicated on unlimited growth and expansion. The current economic ' c r i s i s ' of many Western nations is the result of d i f f i cu l t ies in adjusting to a slow-down in growth; many firms are faced with the same phenomenon. Stag-nant market conditions may require entirely different marketing techniques, new products, and even a different management to deal with new rea l i t ies . The need for such drastic changes can precipitate a c r is is . A long term decline in markets (question 6) can also pose a threat. However, the threat is so insidious that firms may not recognize the con-dit ion as inherently threatening. Market decline may be so gradual that companies take l i t t l e corrective action; the situation is often viewed as merely 'a bad year'. By the time the true situation is realized, a firm may be in a very precarious financial position. Cyclical market conditions (question 7) can pose either a threat or an opportunity to a firm depending on i ts f l e x i b i l i t y . In many industries cyclical conditions are common, and firms that adapt to them, thr ive. For instance, merchandising firms make a very large percentage of their yearly sales in the two months of November and December, and a very small percent-age in January and February. However, their operating systems, procedures, and personnel levels are designed to cope with such extreme cycles. Clearly environmental variation can be beneficial for some firms. They become more adaptive and f lex ib le , and are able to capitalize on market upswings. - 65 -However, firms in more stable environments may perceive a much lesser ab i l i t y to cope with cyclical conditions. A manager's confidence in the ab i l i t y of his f irm to cope with various contingent events may be highly correlated with the type of industry in which the firm operates and i ts prior preparations for c r is is . - 66 -5. ANALYSIS OF RESULTS The general response rate to the questionnaire was 25.0% (94 com-panies). The returns were distributed as follows: 64 Canadian companies, (a 34.6% response rate) and 30 American companies (a 15.7% response rate). Due to technical reasons such as preparation of covering letters and col la-tion of the questionnaire package, the U.S. portion of the sample was sent out approximately three weeks later than the Canadian portion. Unfortu-nately, a postal strike occurred shortly after the American questionnaires were mailed and an embargo was placed on al l U.S. mail coming into Canada for the duration of the str ike. This may be one reason why the U.S. response rate was not higher. 5.1 Demographic Attributes The participants in the study were from the most senior ranks of their companies. Forty-four percent of the respondents (n = 41) were Presidents or Chief Operating Officers of their firms. The remaining respondents were primarily vice-presidents, controllers, or executives of equivalent rank. Sixty percent of the executivesiin the sample had back-grounds in major staff or l ine functions, for example, production (16%), sales marketing (22%), and finance/accounting (22%). Only one respondent gave R&D as his primary experience, and only 2 respondents gave their backgrounds as Human Relations functions. Table I I shows the frequency distr ibution by categories. Sixty-f ive percent of the respondents were age 50 and older; 28% were between 40 and 49; and only 6% younger than 39 years of age. Seventy-three percent of the Presidents and Chief Operating Officers participating - 67 -Table I I Functional Background of Respondents Function n_ °k Production 15 16. ,0 Sales, marketing 21 22, .3 Finance, accounting 21 22. ,3 Personnel, industrial relations 2 2. ,1 R&D 1 1. .1 General administration 20 21. ,3 Miscellaneous 4 4. .3 D.N.A. 10 10, .6 94 100. ,0 - 68 -in the study were clustered in the over 50 year age group. Only 3 Presi-dents were between 30 and 39 years of age. They were CEOs of a petroleum exploration, a re ta i l ing , and a food manufacturing f i rm, respectively, and al l 3 were in Canadian companies. Overall, the participating executives had a very high level of formal education. Eighty-four percent of the respondents had completed university, and 40% had obtained a graduate degree. The average level of education for American executives was higher than for Canadians; 94% of the American respondents had completed university versus 80% of the Canadians. 5.2 Managerial Style Researchers have found that during crises there is a need for a quali tat ively different kind of leadership than during normal times (Mulder, van Eck, and de Jong, 1971; Hamblin, 1958b; House and Dessler, 1974). L i t t l e progress has been made, however, in identifying the pat-terns of behaviour that are the mark of an effective leader. This study examined executives' preferences for a number of theoretically important dimensions of leadership. In part icular, any shifts in preferences of leadership style between normal times and times of cr is is were noted. Three categories of leadership variables were examined: styles of task performance; autocratic/democratic orientation; and people/production orientation. Preferences were assessed on a 7 point Likert scale. Differences between the means for normal periods and cr is is periods were tested. The results of the analysis indicate that executives favour a process management style of task performance during non-crisis periods. During - 69 -crises, however, their preferences shi f t towards a style of specific task direction (question 3: x n Q r m a 1 = 4.426 > x c r i s i s = 3.479; a < .05). I t is interesting to note that although managers prefer task supervision over process supervision during c r is is , there is no signif icant difference be-tween the degree of programming and enforcement of rules preferred during these periods. Those who favour a high degree of programming in task performance, tend to do so, whether or not a cr is is exists. There was consensus among executives that a democratic style of management was most suitable during normal times. There is a signif icant shi f t in preferences, however, towards a more autocratic style of management during crises. Tests of differences between the means in normal and cr is is periods were signif icant for the three questions comprising this dimension (question 2: x ^ ^ = 5.989 > x c H s i s = 5.032; a < .05; question 5: x ^ ^ = 2.500 < x ^ . ^ = 3.096; a < .05; question 11: x ^ ^ = 2.936 < x ^ . ^ = 4.245; a <_ .05). The majority of executives recognize the need to explain directions to employees during normal times in order to fac i l i ta te implementation of decisions. During crises, however, there is a signif icant shi f t in prefer-ences towards more directive management (question 7: x n o r m a - | = 2.096 < ^cr isis = 2-670; a < .05). The urgency of a cr is is situation may preclude the need for explanations and may jus t i f y a more autocratic style to f a c i l -i tate the accomplishment of organizational objectives. There is agreement among respondents that during normal times i t is important to achieve a balanced management style stressing both the human needs and the production goals of the organization. However, there is a significant shi f t towards preferences for a more problem-solving orienta-tion during crises. In the short term, the need to meet production goals - 70 -becomes dominant. The objective of meeting employees' social needs (a long term goal) seems to be expendable during a cr is is (question 6: ^ n o r m a - ] = 4.053 > x . . = 2.851; a < .05). cr is is - ' A goal of maintaining organizational harmony can be part icularly im-portant during crises since i t affects implementation. I f there is f r i c t ion between individual employees or groups there may be intentional or uninten-tional subversion of directives and lack of coordination, both of which can adversely affect attempts to reduce a c r is is . There was a consensus among respondents that i t is important to encourage organizational harmony at al l times. This need for harmony, however, is perceived to be somewhat less important during crises (question 1: x n o r m a ] = 2.106 < x ^ ^ = 2.638; a < .05). During normal times, on the average, executives agree that achievement of job satisfaction for subordinates is an important goal. During c r i s i s , however, there is a highly signif icant shi f t away from this norm. I t is interesting to note the relationship of the satisfaction variable (question 4) with the harmony variable (question 1). During c r i s i s , i t is perceived that harmony is more important (due to implementation requirements) than is satisfaction. Employee satisfaction, while a desirable goal in the long term, is an expendable goal during the short term (question 4: >< n o r m a-| = 1.745 < x . . = 3.202; a < .05). cr is is Executives indicate a willingness to trade-off high employee morale for increased production during c r is is . In normal times high employee morale is an important organizational goal, however, during cr is is there is a signif icant shi f t towards a greater emphasis on productivity (ques-tion 8: x . • = 2.883 < x . . = 3.296; a < .05). I t is interesting to note that the degree of concern for employee morale during normal times is less than concern for employee satisfaction. 5.3 Corporate Attributes The frequency distr ibution by industry for the responding firms is given in Table I I I . Minor discrepancies between industries sampled (Table I) and industries responding (Table I I ) are due to the respondent's percep-tions of his f irm's industry a f f i l i a t i o n . Respondents were asked direct ly to give the industry a f f i l i a t i on of their f i rm. For this reason, the clas-si f icat ion was subjective and may d i f fer somewhat from standard industry classifications given by Fortune and the Financial Post. For example, one of the respondents gives his industry as Agriculture but no firms in the sample were so classif ied. Most probably this firm belongs to the Food and Beverage industry. Fifty-seven percent of the executives responding to the questionnaire described the competitive situation of their industry as one where a few firms dominate the market (oligopoly). Twenty-nine percent responded that their firms operated in a competitive environment with many firms but none dominating, and 7% indicated a market situation dominated by one large firm Only 22% of the respondents suggested their firms had any degree of control over sources of raw material. The remainder of the firms were dependent to a greater degree on inst i tut ions within the environment for their sources of supply. Fully 30% of the firms indicated no control over inputs, a situation that suggests high vulnerabil i ty to environmental f luctuations. There was a great deal of consensus with respect to the nature of the environment of participating firms. Most respondents perceived their f i rm' environment as very complex, with many diverse components, and very - 72 -Table I I I Frequency Distribution by Industry of Respondent Firms Industry Description No. of Firms Responding Agriculture 1 Forestry 3 Mines 3 Fuels 4 Food and beverage 11 Furniture and fixtures 2 Printing and publishing 1 Metal and metal fabricating 4 Transportation equipment 5 Electrical products 6 Rubber and chemicals 8 Construction 3 Transportation 2 Communications 2 U t i l i t i es 3 Trade 3 Finance 8 Amusement, recreation 1 Professional consultants 3 Conglomerates, holding companies 10 Miscellaneous 8 Did not answer _3 Total 94 - 73 -turbulent. Approximately 86% of the executives f e l t their f i rm's environ-ment was in a continual process of change. The respondents' perceptions varied as to the degree of predictabi l i ty of their environment. Some executives thought their f i rm's environment was very predictable, others characterized the environment as highly unpredictable. As might be expected, there is some positive correlation between per-ceived predictabi l i ty and characterization of the f irm's problems as routine and capable of being dealt with by established corporate procedures (x = .23, a = .05). The degree of perceived complexity of the f irm's environment is the major determinant of predictabi l i ty of events. Those executives who noted their f irm's environment had only a small number of homogenous com-ponents, (that i s , a simple environment) often perceived a higher degree of environmental predictabi l i ty (T = .45, a = .01). There was consensus among respondents that their firms were wi l l ing to alter structure and goals to respond to the demands of a changing envi-ronment. In other words, they perceived high f l e x i b i l i t y on the part of their firms. This is an important characteristic to consider when assess-ing susceptibil i ty to c r is is . With a high degree of f l e x i b i l i t y , i t is possible for firms to develop coping strategies to deal with environmental change. In this way the firm either can avoid crises, or manage crises better when they occur. In the total sample of 94 firms, only 45% of the executives responded that their firms had any formal plans to deal with potential crises. In general, the plans to deal with crises were not well developed, perhaps reflecting the respondents optimism that crises were not a probable occur-rence. Only 14% of al l respondents assigned a greater than .50 probability of a cr is is occurring in their firm within 5 years. Respondents were - 74 -s l ight ly more pessimistic when assessing the probability of cr is is in an average firm in their industry. Twenty-nine percent gave a greater than .50 probabil i ty. Obviously the respondents think of their own firms as better than average performers. This is perhaps a reasonable assessment given that the firms in the sample were drawn from a population of top performing companies. Overall, executives were very optimistic about the probability of crises occurring; fu l l y 64% of respondents gave a probabi-l i t y of .25 or less to a cr is is occurring in their f i rm. 5.4 Interactions Between Variables As a f i r s t step in understanding the dynamics of crises, the pattern of correlation's between the component variables were investigated. Since a portion of the sample data was not distributed normally, Kendall's tau 12 (x) rank order correlation was used. Although Spearman's rho (r ) may be the more commonly used nonpara-metric correlation coeff icient, the Kendall and Spearman techniques are quite similar in that both produce standardized coefficients based on the amount of agreement between two sets of ordinal rankings. However, Nie, et a l , (1975:289) note that the Kendall coefficient may be more appropriate when the sample data contain a large number of tied ranks, and a large num-ber of cases are classified into a relat ively small number of categories. Since the sample data in this study met these conditions, the Kendall coefficient was used. Kendall's x has a further advantage over Spearman's 'r in that i t can be generalized to a partial correlation coeff icient. T2 The Kolmogorov-Smirnov Test was used to test the sample data for a normal distr ibution (see Appendix 2). - 75 -In general, the absolute value of tau tends to be smaller than the parametric Pearson's r. Siegel (1956:223) notes that when used on data to which the Pearson r are properly applicable, tau has an efficiency of 91 percent. Kendall's tau was used to investigate the relationships be-tween variables that affected susceptibi l i ty to crises and coping ab i l i t i es . .5.5 The Nature of Crises An analysis of the data indicates that the most important cr i ter ion identifying a situation as a cr is is is the high degree of uncertainty f e l t by decision-makers with respect to possible outcomes of decisions. Criteria of secondary importance in defining a cr is is are: an element of surprise; a threat to high pr ior i ty goals; and a restricted time for deci-sions. I t was postulated i n i t i a l l y that stress would be one of the univer-sal c r i te r ia defining a cr is is (H^). This hypothesis was not supported. Stress was not rated highly by the respondents as an important factor. Executives, in fact , ranked the two cr i te r ia of stress on decision-makers and the fai lure of SOPs as the two least important factors in defining a cri sis. One must be aware of a possible bias in the respondents' answers to this item. The degree of f e l t stress is not a cr i ter ion on which a respond-ent can rate himself objectively. Executives may be unwilling to admit that they feel stressed during crises. In fact, many executives may not be aware of the levels of stress under which they operate. I t is l ike ly that stress, as a contributing factor to c r i s i s , arises from the interactions of uncer-ta inty, threat, and time pressure within a given situation. The degree of stress experienced by decision-makers wi l l be a function of the type of - 76 -goal threatened, the immediacy of the threat, the degree of generated uncertainty, perceived time for decision, and the personality of the decision-maker. The degree of f e l t stress is positively correlated with the level of goals threatened and i t is also a function of how soon the impact of that threat w i l l be f e l t . Some threats may have potentially serious impacts on an organization, however, i f this impact is far in the future, the level of stress experienced by managers wi l l be low. The combined factors of threat to high pr ior i ty goals and the immediacy of impact have a synergistic effect on stress levels. Unfami1iarity with a type of threat, or surprise associated with i t s occurrence also wi l l have considerable influence upon the degree of stress f e l t . I f a threat is of a type that is unfamiliar to an organization, the level of stress wi l l be higher than that generated by more ' famil iar ' threats. Lack of experience with an event induces a high level of stress since the organization has no repertoire of responses to help i t cope with the threat and the effects of the potential impact are uncertain. The surprise occurrence of familiar situations also may induce stress but i t has a shorter l i f e span than the stress produced by uncertainty. When organizations attempt to deal with uncertainty there is a need to de-velop a model of the situation with an appropriate repertoire of responses. This process of concept formation typical ly is slow, as i t requires dis-crimination among alternative models of the situation and estimation of their parameters. When an organization deals with familiar threats the avai labi l i ty of a model to manage the situation permits quick convergence in reconciling new data (the surprise) with existing concepts in the organization. - 77 -Although structural factors are important, the personality of a deci-sion-maker may be the factor that contributes most to feelings of stress. Certain personality types are stress-prone and this tendency is accentuated under conditions of threat. As managers come under high stress levels, psychotic and neurotic tendencies which may have been latent are aggravated. They in turn elevate the level of perceived stress in a self-perpetuating cycle (de Rivera; 1968). Hypothesis 2 postulated that the cr i ter ia defining a cr is is were invariant irrespective of a particular f irm's environment. This hypothesis was not supported. Significant differences were found on two environmental variables: f l e x i b i l i t y and predictabi l i ty. Executives from firms with considerable f l e x i b i l i t y perceived restricted decision time as a much more important cr i ter ion in defining a cr is is than executives from firms without much f l e x i b i l i t y . The high f l e x i b i l i t y group also rated the cr i ter ion of uncertainty as signif icantly less important in defining a cr is is than did other managers. There was also a signif icant difference in the way certain managers viewed a fai lure in SOPs. Executives from firms with predictable environ-ments indicated a fai lure in SOPs was more important to them in defining a cr is is than executives whose firms operated in unpredictable environments. When environments are predictable, consistency of actions becomes possible. Firms are able to develop standard operating procedures as a major manage-ment tool . In contrast, unpredictable environments do not allow firms to develop standard responses since they would be obsolete rapidly. A fai lure in SOPs is not as c r i t i ca l for such organizations as i t is for firms that rely extensively on standardization. - 78 -5.6 Determinants of Susceptibility to Crisis Some organizations may be part icularly prone to crises; others have the f a c i l i t y to avoid serious crises. Organizations that avoid crises may be only marginally different from those organizations that encounter crises. Starbuck, et a l , (1978:116) note that a l l organizations possess disadvanta-geous characteristics and al l organizations make mistakes. Crises occur when environmental threats pick out specific organizations and bring them face-to-face with their mistakes. Hypotheses 3 through 7 postulated envi-ronmental and individual factors that may affect a f irm's susceptibi l i ty to crises. A positive association was found between the degree of environmental predictabi l i ty of a firm and the perceived probability of cr is is (Hg: T = .49; a = .01). The Chief Operating Officers of firms with predictable envi-ronments assessed a lower probability of cr is is occurring in their firms than did COO's operating companies in unpredictable environments. Steer's (1977) observation appears accurate when he notes that the degree of change and complexity of a f irm's environment are not in themselves c r i t i ca l fac-tors. Susceptibility to crises is more a function of the extent to which environmental change can be predicted with some measure of certainty. Those firms who cannot adequately predict their environments wi l l be more susceptible to crises. Management style also seems to be a contributing factor to cr is is susceptibi l i ty. The results indicated that process oriented managers per-ceived their companies to have a lower probability of cr is is than task oriented managers (H g : T = .15; a = .05). Line managers who are evaluated and supervised on the basis of outputs have the f l e x i b i l i t y enabling them - 79 -to act quickly on threats at the local level. In contrast, organizations managed by executives who are primarily concerned that subordinates follow al l the specified procedures and who do not encourage individual i n i t i a -t ives, do not have this same f l e x i b i l i t y . One can speculate that this lat ter style may be appropriate in simple, placid environments, but during times of rapid environmental change or during crises, organizational re-quirements for independent problem-solving, creat iv i ty , and innovation may outweigh any advantages of r ig id programming. A process management orien-tation seems to provide some of the f l e x i b i l i t y needed to avoid major organizational crises. I t is surprising to note that no relationship was found between the degree of control a firm has over i ts environment and i t s susceptibi l i ty to cr is is (H^, H^). These results are counter-intuitive to accepted prem-ises of why businesses attempt to extend control through growth or diversi-f icat ion. There is also a well developed body of theory suggesting that vertical integration, large size, market control, etc. help to buffer firms against environmental uncertainty (Pfeffer and Salancik, 1978; Williamson, 1970, 1975). No signif icant differences were found in perceived suscep-t i b i l i t y to cr is is between firms with a high degree of environmental control and firms with l i t t l e control. Susceptibility to crises may also occur as a result of group inter-actions within the decision-making process. Jam's (1972) documented instances of defective decision-making behaviour in policy making groups that resulted in a high susceptibi l i ty to c r is is . This behaviour, which took the form of defensive-avoidance decision-making, was called groupthink. Hj postulated that certain organizations would be part icularly susceptible to cr is is when their managers preferred strategies associated with - 80 -groupthink. This hypothesis, unfortunately, could not be tested since the number of respondents who met the c r i te r ia defining groupthink behaviour was too smal1. Predicting Susceptibility to Crisis A major purpose of this study was to test some specific relationships between variables that hypothetically contribute to cr is is susceptibi l i ty. From a managerial standpoint, however, a secondary purpose was to predict those companies or individuals who were part icularly susceptible. For this purpose, discriminant analysis was used to develop an index representing profi les of attributes that predict high and low categories of cr is is susceptibi l i ty. Discriminant analysis is a multivariate technique that permits a researcher to distinguish between two or more groups of cases. A dis-criminant function is derived from the data that consists of variables measuring characteristics on which the groups are expected to d i f fe r . Mathematically, discriminant analysis weights and l inearly combines selected variables so that the resulting groups are as s ta t is t i ca l ly dif ferent as possible. In the simplest case of categorizing into two groups, discriminant analysis is basically multiple regression analysis where the dependent variable is group membership (Kerlinger and Pedhazur, 1973:337). Discriminant analysis has a two-fold objective in research: analysis and classi f icat ion. As an analytic technique, discriminant analysis pro-vides a stat is t ical test for determining how well the resulting function actually distinguishes between groups. The variable coefficients "can be interpreted much as in multiple regression or factor analysis . . . they - 81 -serve to identify the variables which contribute most to di f ferent iat ion along the respective dimension" (Nie, et a l , 1975:436). Once a function has been derived that provides satisfactory discrimination for cases with known membership, the technique can then be used to classify new cases with unknown membership. The conceptual model of cr is is developed in a previous section sug-gests that the environmental context, the individual context, and the organizational context are dimensions relating to c r is is . Specific var i -ables were selected from these dimensions to derive a discriminant function that predicts high and low susceptibi l i ty to c r is is . (High susceptibi l i ty was defined as a probability > .5 of a cr is is occurring in a company within f ive years.) The variables included in the analysis were: programmed behaviour, decision-making strategies, environmental characteristics, managerial style, and perceived coping ab i l i t i es . A stepwise discriminant analysis produced the following function: D - - ,224C0 - .298'C00 - .3780^ + ,365CC1 + 1.974 S 3 32 55 61 This equation reflects the fact that severe environmental turbulence (C^g) and low levels of organizational slack (Cg-j) are important contributors to cr is is susceptibi l i ty. Similarly, tendencies to cope with threats by adopting extreme retrenchment strategies (C^) or, in contrast, by adopting high-risk innovative strategies (C 3 2 ) a l s o contribute to an increased probability of c r i s is . - 82 -The discriminant function classif ied 79% of the highly susceptible cases correctly. This figure is rather impressive given that Cp f Q = .52 5.7 The Dimensionality of Coping Abi l i t ies This section examines the premise that the ab i l i t y to cope with crises is unidimensional, that i s , generalizable to al l types of cr is is situations. Coping ab i l i t ies may not be confined to certain specialized types of crises, PI^Q postulated that organizations capable of coping suc-cessfully with one type of cr is is are capable of coping with any type of c r is is . This hypothesis was supported. I t seems that organizations do develop some general coping ab i l i t i es . A positive relationship was found between the ab i l i t y to cope with crises brought about by two very different types of events, discontinuous threats and continuous threats (T = .439, a = .001). Crises precipitated by discontinuous threats are defined as those with an abrupt onset, for example, the death of a number of key executives 1 o The discriminant analysis program provides a classif icat ion table of the following type: Classified  group 1 group 2 i group 1 Actual ~ group 2 n l l n12 n 2 1 n22 where ( n ^ + n 2 2 ) /n is the proportion of cases classified correctly. The maximum chance cr i ter ion (C ) is the appropriate s ta t is t ic to use max i f one is interested in maximizing the percentage of cases correctly classif ied. I f the discriminant function cannot do better than C , max al l cases should be classified as belonging to the larger of the two groups. When one wishes to correctly identify members of both groups, and in particular the smaller group, the proportional chance cr i ter ion (C ) is the correct s ta t is t ic to use (Morrison, 1969:157,158). - 83 -in an a i r disaster. Crises brought about by continuous threats, in con-trast are defined as those having a gradual onset, and where a cr is is con-dit ion is not recognized as existing unti l a c r i t i ca l threshold is reached. A long term decline in market share is an event that fa l l s into this class. The results suggest that successful coping ab i l i t ies are learned behaviours that can be applied to either of these two classes of crises. Although there is evidence of a general dimension of coping ab i l i t i es , certain firms develop a special capability to cope with particular types of crises. The effects of general coping ab i l i t ies were removed from the data by discounting for average performance and constructing two indices: one representing discontinuous crises and the other continuous crises. When these two indices were correlated a perfect inverse relationship was found between them (x = -1.00, a = .001). The results suggest that although a firm may have ab i l i t ies to cope with al l types of crises i t has specialized advantages in dealing with crises brought about by either continuous or discontinuous threats. Coping with continuous threats, for example, may require the ab i l i t y to develop a long term perspective. Since continuous threats build up gradaully, i t may be necessary to develop information systems or other 'early warning systems' to cope adequately. Discontinuous threats, in contrast, have a sudden, unpredictable onset. Successful coping with this type of cr is is may be predicated on having suff icient bu i l t - in f l e x i b i l i t y and organization slack for the firm to act quickly in response to threats and to absorb short run impacts. Since discontinuous crises are associated with a sudden onset, they may be perceived as more threatening than those crises with gradual onsets (H22)• T n i ' s hypothesis was not supported when tested. In general, execu-tives did not perceive discontinuous crises as more threatening than - 84 -continuous ones. One particular type of discontinuous c r i s i s , however, was rated by most respondents as potentially very threatening. This was the death of key senior executives in an air disaster. Of seven types of events given in the questionnaire, executives perceived that their firms had the least ab i l i t y to deal with unexpected losses of key personnel. The differences in perceived coping ab i l i t ies between this particular type of discontinuous cr is is and the continuous crises were found to be signi-f icant (T = 2.18, a = .032; T = 3.12, a = .002). The analysis shows that managers thought certain strategies would be most effective with a particular type of c r is is . I t was found that a pre-dictable threat in stable environments tended to stimulate information gathering act iv i t ies ( H 2 3 : T = .14, a = .05). A relationship also was found between the degree of organizational slack and the ab i l i t y to cope with some types of market threats. The more slack an organization has (in terms of mobilizable resources) the greater is i ts perceived ab i l i t y to cope with a sudden drop in sales (T =..18, a = .05). High slack organizations perhaps can switch product emphasis more easily. I t is interesting to note, however, that this ab i l i t y does not seem to apply in predictable cyclical markets where a 'boom' is followed by a 'bust 1 . High slack also does not seem to give an organization any special capabilit ies in exploiting markets when a technological breakthrough occurs. The ab i l i t y to cope with a sudden drop in sales also was found to be associated with the role f ie ld managers and department heads play during a c r is is . Firms that rely on the mobilization of these managers during crises have confidence in their ab i l i t y to deal with a sudden drop in sales ( H 2 5 : x = -.19, a = .05). Organizations that centralize authority and decision-- 85 -making during crises may lose 'on the spot' market information and contacts v i ta l for successful resolution of the cr is is . The ab i l i t y to cope with certain broad classes of crises or with a specific type of threat may be a function of the environmental context of the f i rm. I t was posited, for instance, that experience with a complex environment would improve general coping ab i l i t ies relative to a l l types of crises (H 2g). Two constituents of complexity were tested: the degree of heterogeneity and the degree of routineness. No relationship was found between environmental complexity and coping ab i l i t ies that were generali-zable to a l l types of crises. A relationship was found, however, between complexity and the ab i l i t y to deal with a specific type of threat. Firms with complex environments, measured by high degrees of heterogeneity and unpredictabil i ty, obtained a signif icantly higher rating of their ab i l i t y to cope with periodic growth and decline of markets (cycl ical) than did firms with simple environments (T = -2.00, a = .049; T = -1.96, a = .05). Another hypothesis tested was that managers operating in turbulent environments (that i s , environments with a high rate of change) would de-velop general cr is is coping ab i l i t ies (H2-,). Surprisingly, this hypothesis was not supported. No relationship was found between the degree of envi-ronmental turbulence and the ab i l i t y to cope either with general classes of crises or with specific threats. Experience with a turbulent environment may develop some capabilit ies to deal with change but these capabilit ies do not seem to be generalizable to cr is is situations. The relationship between turbulence and the ab i l i t y to cope with cyclical markets was also tested (H 2 g ) . Again, i t was found that fami l i -ar i ty and experience with dynamic environments does not seem to induce improved coping ab i l i t i es . The results indicate, in fact , that the - 86 -reverse relationship holds. Firms rated as having a high ab i l i t y to cope with cyclical conditions tend to have more placid environments (T = -2.05, a = .043). When environmental components do not undergo much change they may become manageable through the use of SOPs. Cyclical market conditions would seem to have suff icient regularity that they also could be managed by SOPs. The degree of predictabi l i ty of this type of threat may match the organizational style of firms in placid environments and, thus, their ab i l i t ies to cope are increased. Managerial characteristics or behaviours may also affect a f irm's abi-l i t y to cope with particular types of crises. The results of the analysis show that managers with an aggressive marketing orientation perceived a high ab i l i t y to cope with crises brought on by a sudden drop in sales ( H ^ : x = .15, a = .05). The special ab i l i t ies of market oriented managers seem to be tailored to cope with this type of c r is is . Market oriented firms with SOPs emphasizing aggressive strategies wi l l be attuned to coping with market fai lures. No relationship was found, however, between an aggressive mar-keting orientation and the ab i l i t y to exploit market opportunities (ri^g not supported). I t was noted previously that the death of key executives was perceived as a highly threatening event for most respondents. I t was hypothesized, however, that participatory organizations would be able to cope with this type of cr is is more easily than other organizations. This' hypothesis was not supported (H^^)- Although there may be greater depth of management talent in participatory organizations, executives from these firms perceive them as equally vulnerable to this threat as other firms. - 87 -5.8 The Determinants of Organizational Coping Abi l i t ies The long term v iab i l i t y of an organization ultimately rests upon i ts ab i l i t y to cope with threats. An inabi l i ty to cope with environmental discontinuities leaves a firm part icularly vulnerable to crises. In this section some factors were examined that may fac i l i ta te organizational adaptation to new circumstances and that increase ab i l i t ies to buffer threats and cope effectively with them. What Patterns of Decision-Making Contribute to Effective Coping? During crises certain aspects of the decision-making process may become susceptible to pathological behaviour. These pathologies can cause an organization to be part icularly susceptible to cr is is (for instance, groupthink) or reduce the chance of a successful resolution of the cr is is . Section 2 of the questionnaire provided the data for examining the under-lying patterns of decision-making, some of which may be pathological to the f i rm. The items in Section 2 of the questionnaire concentrated on four broad classes of act iv i t ies that could affect the quality of decision-making during crises: communications, evaluation, choice, and implementation. The frequency analysis of the variables in this section showed that there is a great deal of consensus in the responses to six of the items: - 98% agreed i t is important for employees to understand the decisions of management (variable 1). - 89% f e l t i t was important for those responsible for imple-menting a decision to be involved in making the decision (variable 2). - 81% agreed i t was more important to reach the 'best' decision during a cr is is rather than satisfying certain interest groups within the organization (variable 8). - 88 -- 86% f e l t that executives should not remain si lent i f they disagreed with proposed policies (variable 9). - 92% f e l t i t was desirable to have a very strong leader during crises (variable 14). - 80% agreed that during crises executives need to make decisions quickly and decisively to maintain corporate confidence in the leadership (variable 16). The consensus on variables 1 and 2 ref lect the importance placed on factors that increase the probability of successful implementation. In part, this may demonstrate the successful dissemination of 'good' manage-ment principles. These attitudes are consistent with behaviour that re-duces the probability of misimplementation, part icularly in two areas: lack of motivation to carry out instructions and misunderstanding orders. One important area of possible d i f f i cu l t y is ignored, however, the sample group rejects the premise that acceptability of a decision to certain in-terest groups within the organization sometimes may be more important than the optimality of a decision (the pol i t ica l aspects of decision-making). There is ample evidence in the l i terature that pol i t ical gamesmanship either can slow implementation, or prevent i t entirely even during c r i t i ca l periods (All ison, 1972). However, one cannot determine whether or not subjects are responding to this item in terms of an expected ' rat ional ' decision-making norm, or whether there is t ru ly a tendency to disregard (or f a i l to recognize) the pol i t ica l real i t ies in most organizations. The importance of strong directive leadership is i l lustrated by the consensus of agreement on variables 14 and 16. The success or fa i lure of any organization is often dependent on the quality of the leader. This is true whether the organization is a nation, a business enterprise, or an athletic team. During crises and times of rapid change, the perceived need for strong leadership intensif ies. Yet, i ronical ly when the need for strong - 89 -leadership interacts with group norms for cohesiveness-building, the result for the organization may be pathological (Janis and Mann, 1977). The items in Section 2 of the questionnaire were analyzed to identify the important-underlying concepts of decision-making during crises. Factor analysis is a technique commonly used by researchers to identify underlying structures in sample data which appropriately may be analyzed with para-metric s ta t is t ics . In this study, however, portions of the data were not normally distr ibuted, therefore, an alternate method of analysis was used. Smallest Space Analysis (SSA), a type of 'nonmetric factor analysis' was the technique selected. SSA is a multidimensional scaling technique that identif ies underlying patterns in non-metric data and represents them in the form of a geometric model or picture (Shepard, 1972). Although SSA is a method of rigorous multivariate analysis i t di f fers from a tradit ional factor analysis in that i t provides a visual presentation of the dimensions. Visual izabi l i ty is the most important cr i ter ion in SSA, therefore, the representation is confined when possible to two, or at most, three spatial dimensions. Interpretation of the spatial representation is made in a number of ways: a) by examining direct ional i ty of the axes; b) by looking at the manner in which data points cluster into homogeneous groups throughout the space; and c) by examining how the data are ordered into simple geometric structures. Appendix 3 gives a detailed description of Smallest Space Analysis. The results of the SSA appear in Table IV (2-space coordinates) and in Figure 2 (a geometric representation). The data can be represented adequately in two dimensions (coefficient of alienation = .19461, Kruskal's stress = .16776). The goodness of f i t did not improve appreciably with greater dimensionality. (The coefficient of alienation for m = 3 is .12623). - 90 -Table IV Smallest Space Coordinates for m = 2 Patterns of Decision-Making Dimension 1 2 Variable 1 77.507 0.780 2 100.000 -17.576 3 -65.693 -42.101 4 5.239 -96.383 5 45.828 18.093 6 52.576 61.961 7 -55.679 45.408 8 -100.000 -30.826 9 . -94.783 10.063 10 -58.012 1.529 11 -14.626 58.983 12 -69.438 4.848 13 -34.098 -42 .'390 14 4.503 -9.558 15 69.440 -65.858 16 10.211 -40.197 17 74.568 -43.910 18 -55.558 -100.000 Guttman-Lingoes1 Coefficient of Alienation = 0.91461 Kruskal's Stress = 0.17221 - 91 -FIGURE 2 SSA GEOMETRIC REPRESENTATION: PATTERNS OF DECISION-MAKING VECTOR PLOTS VECTOR 2 PLOTTED AGAINST VECTOR 1 100 92 VECTOR 1 -100 -80 -60 -40 -20 20 40 60 80 100 VECTOR 2 - 92 -Figure 2 shows a structural configuration in the form of a rough wheel. One central cluster of variables forms the hub of the wheel and other clusters l i e at various points on the rim. The central cluster is defined as a leadership cluster. I t is composed of variables 14 and 16, which denote two aspects of leadership: a) problem-solving a b i l i t y , and b) decisiveness and the ab i l i t y to maintain subordinates' confidence. The placement of the leadership dimension in the spatial configuration reflects the central i ty of leadership to cr is is decision-making. (Note that var i-ables 14 and 16 are items on which there was a high level of agreement.) Other clusters of variables on the rim of the wheel define various aspects of decision-making along two vectors: a) the quality of the deci-sion-making process (vector 1), and b) exposure to uncertainty (vector 2). The quality of the decision-making process is a latent dimension that delin-eates decision-making styles on. the basis of the number of people par t ic i -pating in the decision, the extent to which alternatives are generated, the 14 amount of alternative evaluation, etc. The decision process becomes more rational and open, moving from le f t to r ight on vector 1. (The rational decision model assumes a complete information base and generation of al l alternatives.) Exposure to uncertainty is delineated in terms of risk posture. The lower end of vector 2 represents exposure to r isk while the upper end'of the vector represents risk absorption. The central placement of the leadership dimension (relat ively neutral on both vectors) suggests that i t is independent of a particular decision-making orientation. Strong leadership is associated with al l styles of decision-making during a c r is is . ^ A particular paradigm is implied by the use of the word "quali ty". In this context i t is assumed that better cr is is decisions are made given free flows of information, diverse sources of alternative generation and evaluation, and an enlarged decision c i rc le . - 93 -The f i r s t decision-making component is defined by three variables spread along vector 1 in the upper half of the space. This cluster repre-sents a bureaucratic r isk absorption component. The central variable of the cluster (11) reflects patterns of r isk preference in strategic choices. To the le f t l ies variable 7, which is concerned with internal r isk absorp-tion through hierarchical f i l t e r i n g . Variable 6 makes up the third variable in the cluster. I t is concerned with the predictabi l i ty of organizational responses as represented by the degree of programming in the f i rm. The second broad cluster of variables represents an implementation component. I t consists of three variables (5, 1, 2) and is concentrated on the far r ight side of vector 1. Variable 1 is at the center of the cluster and i t is concerned with the degree of understanding that imple-mentors possess with respect to decisions made. To the le f t there is a variable (5) that reflects the extent of employee agreement with decisions. Variable 2 makes up the third item in the cluster. I t reflects a strategy of active involvement by implementors in decision-making. One should note that the degree of openness in decision-making increases as one moves from le f t to r ight along vector 1 in the cluster, for example, from variable 5 to 1 to 2. The circle of participants in the decision process is enlarged. Agreement with a decision (variable 5) involves only a passive role; under-standing a decision (variable 1) may offer the potential for active involve-ment in the process; while actual involvement of implementors (variable 2) enlarges the scope of the decision-making process. Moving clockwise along the rim of the wheel, the next cluster of variables is defined as an evaluation component. I t is composed of var i -ables 17 and 15. Both of these variables represent a high degree of open-ess to ideas, alternatives, and people (high on vector 1) and represent a - 94 -relat ively high level of r isk confrontation (vector 2). Variable 17 re-f lects the willingness of executives to be exposed to ideas and opinions outside the normal management decision c i rc le . This strategy is augmented by variable-15, which reflects an orientation of confronting and empha-sizing a l l the negative aspects of proposed solutions. In a sense, var i -able 15 measures the degree of dialectic confrontation bu i l t into the decision process. At the bottom of the wheel there is a cluster of variables repre-senting a component of r isk confrontation (variables 4 and 18). Variable 4 represents the risk facing orientation of the decision-making process as reflected by the conceptual model of the task environment held by executives. (Do executives see themselves as being in competition with an aggressive environment?) Variable 18 reflects tendencies for risk-taking as a response to threats. The f inal broad cluster on the wheel is composed of six variables (8, 3, 13, 10, 12, 9). This cluster represents a collection of threats to the quality of decision-making, that i s , threats to optimality. Variables 9 and 13 ref lect closure of the domain of alternatives by exerting pressure on decision-makers to adhere to the consensus of group decisions. Two vari-ables are concerned with actions that may bring about premature closure of the alternatives. Variable 12 reflects a tendency towards myopia in decision-making, that i s , only concentrating on short term effects, and variable 10 is concerned with restr ict ing the domain of alternatives. A further threat to optimality may occur through the behaviour suggested by variable 8. The negative impact of consensus searching may threaten the quality of decisions taken. The last variable in the cluster (3) is con-cerned with the pathological effects on information processing that may - 95 -occur when the decision circle is tightened too much. Information overload of key decision-makers can result when middle managers are by-passed and responsibility for decision-making is not delegated. The variable clusters identif ied in the Smallest Space Analysis emphasize certain factors. I t was found that strong leadership is central to cr is is decision-making. Specific patterns of decision-making adopted by managers, however, can be defined on the basis of the quality of the decision-making process, (for example, susceptibi l i ty to pathologies), and the degree of exposure to uncertainty. The relationships of these variables to some specific questions are now examined. What are the Relationships between Decision Structures and the Environment? As well as trying to identify some of the various decision-making styles that may be selected during crises, some specific hypotheses that might reduce a f irm's coping ab i l i t ies were examined, for instance, stra-tegies that increase susceptibi l i ty to pathologies. I t was postulated that managers in complex environments would l im i t the number of alternatives con-sidered during cr is is to avoid cognitive overload (Hg). This hypothesis was not supported. In fact , the correlation matrix suggests that i t is managers from simple environments who tend to rest r ic t the number of alternatives they consider (x = .14, a = .05). This tendency may be a function of the environment. In simple environments there are fewer factors of which one needs to take account; the number of alternatives generated reflects this condition. A related hypothesis, that managers from firms with complex environ-ments wi l l concentrate on short term effects of solutions rather than long term effects during crises also was not supported (H,, ) . The results of the - 96 -analysis indicate that, as with Hg, i t is managers from simple environments who display this tendency. Cyert and March (1963) note that concentration on short run effects helps to simplify the decision process. In simple environments there may not be great negative consequences in ignoring long term effects. In this sample, however, the competing hypothesis advanced by Forrester (1969) may be correct. Executives from complex environments are sensitized by their experiences to the danger of ignoring the long term. There need not be a contradiction between the premises of Cyert and March (1963) and Forrester (1969). The questionnaire tests the attitudes of executives not their actions. During a c r i s i s , the feas ib i l i t y of par-t icular actions ultimately determines whether a short term or long term perspective is adopted. No relationship was found between complexity and turbulence of the f irm's environment and a tendency to develop SOPs (Hg, H^)- There was a relationship, however, between management style and adherence to SOPs. . Tests suggest that task oriented managers find i t useful to follow SOPs closely during crises ( r = .25, a = .01). While this tendency may l im i t individual in i t ia t ives and thus reduce a f irm's coping ab i l i t i es , task oriented management is not feasible without precise specification of procedures and enforcement of those procedures. What are the Relationships between Decision Structures and Managerial Style? A task oriented management style requires an extensive information system as a control device since decision-making is usually centralized. For this reason perhaps, a strategy of increasing information gathering was perceived as being useful by task oriented managers. Conversely, a negative relationship was found between information gathering act iv i t ies and .a process management style. Since process management is based on the - 97 -premise of local coping and decentralization, the need for (centralized) information act iv i t ies was not perceived. (H-^ was supported; T = .25, a = .01). Two other hypotheses concerning coping ab i l i t ies and managerial style were supported (H-|g, H^) . Executives who favoured a democratic managerial style during crises indicated they found i t useful to involve employees in decision-making, especially when those employees were responsible for imple-mentation (T = .39, a = .01). These executives appeared to give credence to the rationale that acceptance of a decision is often essential to ensuring that the decision is carried out. Maier (1970) notes that acceptance comes about through participation in the decision-making process. Since crises may generate problems that require solutions dependent upon the support of others to be effect ive, participation becomes an even more important facet of decision-making during such times. Previously i t was noted that most of the executives participating in the study believed i t is important to have a strong leader during crises. Twenty percent of the sample, however, diverged from the consensus. Tests of the differences between these two groups show a delineation based on preferred managerial style. Those executives who favoured strong leaders during crises tended to be more autocratic than those executives who did not think strong leaders were important (x = 2.73, a = .008). The ration-ale for the hypothesis seems to be that during crises, autocratically oriented managers feel an intensified need to work in an organization reflecting their own style. The two remaining hypotheses in this section (H-|g, H-jg) that posited relationships between maintenance of group harmony and the tendency towards developing group pathologies were not supported. Although Janis (1972) - 98 -notes that cohesive groups may be part icularly susceptible to these pathologies, in this study no support was found for this premise. One must note, however, that the act of maintaining group harmony may not be equivalent to building group cohesiveness. Predicting Coping Abi l i t ies Some of the individual hypotheses tested in the previous section sug-gested that organizations have differentiated ab i l i t ies to cope with spe-c i f i c types of c r is is . From a managerial point of view, i t is interesting to identify those characteristics that promote high coping ab i l i t i es . A series of discriminant analyses were run for seven different threatening situations. 1) Coping with a sudden drop in sales The following discriminant function was derived: D = .225C0, + .424C„ - .310C-, + '.344Cct- - 2.677 s 25 32 41 55 The equation reflects the fact that successful coping with this type of threat is predicated upon a firm being risk averse in general ( C ^ h but not so bound by conservatism that i t cannot adopt innovative measures when they are required (C^) • A relat ively low level of environmental turbulence (Cg^) also seems to contribute to success in dealing with market fai lures. The discriminant function correctly classified 85% of the cases with high coping ab i l i t ies ( C p r o = .64; C m a x = .76). - 99 -Coping with sudden death of key executives The following discriminant function was derived: Dr = - .504COQ + .296C^n - .243C„ - .424CK/, s 28 31 33 54 + -269C55 + 1.346 An organization's success in coping with the sudden death of key decision-makers is related to i ts experience with complex environments (C^) and to i ts ab i l i t ies in developing a wide network of external inputs to decision-making (Cg-]). Success-ful firms tend to adopt norms of autocratic management (Cg^) and to cope with threats by focussing on productive needs rather than employees' needs (C 3 3 ) in the short run. More importantly, however, successful firms do not concentrate the locus of decision-making power in the hands of a single strong leader (C2g)- The discriminant function correctly classified 66% of the organizations with high coping ab i l i t ies (Cp r Q = .56; C = .68). max ' Coping with stagnant markets The following discriminant function was derived: D = .266C07 - .251CC,' + .454CC1 - 1.860 s 37 51 61 This equation reflects the fact that a process management style (C 3 7 ) and high levels of organizational slack (Cg-j) are impor-tant contributors to successful coping in stagnant markets. Similarly, a tendency to abide by established organizational tradit ions seems to promote coping ab i l i t ies ( c 5 1 ) . The dis-criminant function correctly classified 75% of the cases with high coping ab i l i t ies ( C p r Q = .59; C m a x = .72). - 100 -Coping with a major technological breakthrough The following discriminant function was derived: D = .472C1C - .419C„ + .958 S 16 32 The equation suggests that successful exploitation of opportu-nit ies in expanding markets is predicated upon a firm adopting strategies that involve implementors in decision-making (C-|g). Tendencies to avoid innovative, but high risk strategies also promote successful coping. The discriminant function correctly classified 62% of the cases with coping ab i l i t ies (Cp r Q = .50; W • -52>-Coping with natural disasters The following discriminant function was derived: Ds = - .303C54 + .469C57 - .197C5g + .390C61 - .701 This equation suggests that a strong orientation towards achieving corporate goals (Cg7) contributes to successful coping with a major natural disaster. A low level of organi-zational slack (Cg-j) and a strong sense of threat emanating from the environment (C^g) seem to reinforce preferences for high levels of independent actions on the part of employees to cope with this event. The discriminant function correctly classified 67% of those cases with high coping ab i l i t ies ( C p r Q = .65; C m a x = .78). Coping with a long term market decline The following discriminant function was derived: D = - .187C00 + .283Cct- + .382C,-7 + .488CC1 - 2.294 S 32 55 57 61 - 1 0 1 -The equation suggests that experience with turbulent envi-ronments (Cgg) and high levels of organizational slack (Cg-|) contribute to successful coping in declining markets. A f i rm's coping ab i l i t ies are also increased by adoption of a risk averse stance (C 3 2 ) a n Q l a willingness to alter goals and structures to meet new contingencies ( C 5 7 ) . The discriminant function correctly classified 6 9 % of the cases with high coping ab i l i t ies ( C p f 0 = . 5 5 ; C m a x = . 6 6 ) . 7 ) Coping with cyclical markets The following discriminant function was derived: D = . 3 7 4 C , n + . 4 3 6 C o o - 3 . 7 3 6 S 10 6tL The equation suggests that a f irm's ab i l i t y to cope with cyclical markets is increased when i t centralizes decision-making authority ( C - | Q ) . A tendency towards risk averse stra-tegies also promotes coping ab i l i t ies (C^) - The discriminant function correctly classified 6 8 % of the cases with high coping ab i l i t ies ( C p r o = . 5 1 ; C m a x = . 5 6 ) 5 . 9 Standard Responses Invoked During Crises In a previous section i t was noted that organizations develop Standard Operating Procedures (SOPs) to coordinate complex routines and tasks. These SOPs ensure economical information processing and pred ic t ib i l i t y of responses to recurring st imul i . However, since SOPs are grounded in the basic norms of the organization, even novel situations w i l l trigger the same predictable patterns of responses as routine situations. Like organizations, individ-uals develop preferences for set patterns of behaviour that aid them in - 102 -'decision-making and problem-solving. This behaviour is programmed in the sense that i t is not consciously selected, but is a function of personality, background, a particular organizational climate, and previous successful interventions. Section 1 of the questionnaire was designed to investigate the types of programmed behaviour that executives may select during crises. The i n i t i a l premise was that two dimensions of programmed behaviour would be evident in the types of strategies that managers believe to be useful in helping an organization cope with a financial c r i s is . The two dimensions of behaviour are: 1) a defensive style characterized by retrenchment or cutback strategies with an emphasis primarily oh financial factors. Indi-viduals who favour this type of behaviour tend to focus on costs not bene-f i t s when evaluating programs; 2) an entrepreneurial style characterized by a preference for offensive strategies that potentially enable an organization to exert control over i ts environment. Further, i t was surmised that behaviour could be categorized into three types of strategies that are a function of an executives' background: personnel (human relations orientation); operational (functional orienta-t ion) ; developmental (long term orientation). I t was expected that a mana-ger's business specialization and previous experience would programme him to prefer one of these categories of strategies. For example, executives with a financial background may prefer defensive or cutback strategies, focussing primarily on cost reductions. In contrast, an individual with a marketing background may prefer entrepreneurial strategies such as increased advertising and a stepped-up sales programme as a solution to a financial c r is is . - 103 -The frequency analysis of the variables in section 1 indicated that the responses were normally distributed on al l but three of the questions. The respondents were in consensus, however, in their ratings of questions 4, 9, and 13. Most respondents rated these three strategies as being particularly useful during a financial c r is is : a) enlisting the support of unions to improve produc-t i v i t y (72% of respondents); b) cutting back on expense items such as photocopying, long distance telephone cal ls , etc. (87% respondents); c) introducing Management by Objectives (MBO) and pro f i t incentive programmes (75% of respondents). The high consensus on the strategy of cutting back on expense items is probably best explained by the ease with which this step can be imple-mented. Also, on the surface, i t seems an obvious step to take when a firm is f inancial ly pressed, and in the short run, benefits w i l l probably out-weigh any negative impacts. The consensus on the other two items however, is more puzzling. With respect to enlisting union support, the state of mistrust or antagonism that permeates the relationships between management and unions in many firms would seem to preclude any real chances of coopera-t ion. The introduction of a Management by Objectives programme, while an attractive idea, also has i t s own p i t f a l l s . Most notable of these is the d i f f i cu l t y in measuring an individual's contribution and establishing standards and norms against which performance is measured. In addition, MBO is not l ike ly to provide a short term solution to problems since the technique requires a period of organizational learning before i t functions properly. The marked degree of consensus on these two strategies may ref lect the dissemination of current teachings about "good" management - 104 -practices. A 1974 survey suggested that less than 10% of Fortune 500 firms had implemented a true MBO program although the term was freely used by many companies (Schuster and Kindall, 1974). A smallest space analysis (SSA) was performed on the 14 variables of section 1 to test the premise concerning the underlying dimensions of pro-grammed behaviour. The results of the SSA appear in Table V (2-space coordinates), and in Figure 3 (geometric representation). The data could be represented adequately in two dimensions (coefficient of alienation = .19533, Kruskal's stress = .16776). The goodness of f i t does not improve in large increments with greater dimensionality. The coefficient for m = 1 is .33198 and that for m = 3 is .12260. There are no obvious clusters of homogenous variables in the geo-metric representation. The configuration of the variables in the space seems to lend i t se l f best to interpretation based on the two axes. Vector 1 was identi f ied as an entrepreneurial/defensive orientation. This dimen-sion lends some support to the original theory. Moving from le f t to r ight , the individual strategies become less active or entrepreneurial and more defensive. The entrepreneurial orientation is characterized by strategies that attempt to shape or control the f irm's environment in l ine with organi-zational objectives, as opposed to strategies that are merely reactive or defensive responses to environmental threat. The three most clearcut examples of entrepreneurial strategies are: variable 1: developing an aggressive marketing strategy to increase sales; variable 7: increasing capital expenditures on more ef f ic ient equipment to reduce production costs; and variable 8: expanding R&D to help maintain a .firm's competitive posi-t ion. These strategies may help a firm to alleviate a cr is is by enabling i t to gain a competitive advantage, greater market share, or higher prof i ts . - 105 -Table V Smallest Space Coordinates for m = 2 Programmed Behaviour  Dimension 1 2 Variable 1 -100.000 55.270 2 77.329 66.514 3 92.797 13.625 4. 17.881 85.033 5 100.000 44.012 6 97.074 -47.969 7 -86.808 -36.129 8 -77.222 -31.639 9 -6.052 61.100 10 89.062 -100.000 11 -27.851 -29.458 12 35.782 7.658 13 3.852 49.699 14 64.166 68.355 Guttman-Lingoes1 Coefficient of Alienation = 0.19533 Kruskal's stress = 0.16776 a - 106 -FIGURE 3 SSA GEOMETRIC REPRESENTATION: DIMENSIONS OF PROGRAMMED BEHAVIOR VECTOR PLOTS VECTOR 2 PLOTTED AGAINST VECTOR 1 VECTOR 100 92 84 72 64 56 48 40 32 24 16 8 1 -8 -16 -24 -32 -40 -48 -56 -64 -72 -84 -92 100 14 9 13 12 11 10 •100 -80 •60 -40 -20 20 40 60 80 100 VECTOR 2 - 107 -In al l three cases, a firm seeks to control events by i t s actions; i t t r ies to produce greater benefits to alleviate financial d i f f i cu l t i es . Variable 11, increasing information gathering ac t i v i t i es , is also an entrepreneurial strategy but to a lesser extent than the previous ones. Greater information may improve a f irm's 'early warning system' and alert i t to possible threats. By removing the element of surprise, a firm has time to cushion i t se l f against possible adverse impacts. In this way, the organization retains some control over i ts destiny and is not forced merely to react to external st imul i . In contrast, the defensive orientation is characterized by programmed behaviour that is clearly reactive consisting of retrenchment or cutback strategies. Most of the variables at the upper end of this vector are con-cerned with financial cutbacks: variable 2: cut back operating budgets of departments; variable 3: make across-the-board cutbacks of budgets in a l l departments; variable 5: reduce staf f ; variable 6: eliminate marginally profitable new products to reduce costs. A variable concerned with organi-zational reforms (variable 14) also is considered to be indicative of financial retrenchment. Although this variable may at f i r s t appear to be quali tat ively dif ferent than the more obvious financial strategies, i t is interpreted as a cost-saving move. For example, firms may undertake major organizational reforms to eliminate redundant staf f , departments, or programmes to reduce costs. Variable 10, reducing the authority of f ie ld managers and department heads, is also a highly defensive strategy. There is some essence of financial retrenchment impl ic i t in this behaviour. Reduced authority often is related to decreased discretionary budget and expense control. - 108 -This strategy also implies a greater centralization in decision-making power with responsibil ity being assumed by senior management. All these actions represent a retrenchment in the face of a hostile or threatening environment. By employing these strategies, managers do not try to change the course of events but merely try to 'ride i t out' in the best way possible. I f indeed, the cause of a financial cr is is is lack of adequate financial control, these strategies may be effective. However, i f the cr is is is rooted in another area of operations, for instance, obsolete products or insuff icient market share, these actions wi l l only deal with the symptoms not with the underlying causes. The remaining 4 variables in the section are relat ively neutral along this dimension, not clearly entrepreneurial or defensive. They have more explanatory power with respect to the second dimension. The second dimension of programmed behaviour (vector 2) identif ied by the SSA, is concerned with the immediacy of impact of cr is is management strategies. Strategies that w i l l have an immediate impact in reducing the deleterious effects of a financial cr is is are located at the upper end of the scale. There are two types of strategies represented, those previously identif ied as being primarily of a financial nature such as cutting budgets, reducing staf f , cutting expense items, etc. (variables- 2, 5, 9, 14) and strategies that are concerned with improving the f irm's productivity. This lat ter group includes seeking union cooperation, introducing MBO, and increasing sales (variables 4, 13, 1). The financial strategies contribute to immediate al leviat ion of the cr is is (at least the symptoms) by improving cost effectiveness. Cash re-sources are reallocated in a more effective manner, adapting to the f i rm's current state. I t is interesting to note the differences between variable - 109 -2 (cutting departmental budgets) and variable 3 (making across-the-board cuts in departmental budgets). In the SSA, variable 2 appears to be higher in this vector, that i s , i t is more effective in immediately relieving the c r is is . The behaviour associated with variable 2 suggests some evaluation of programs. Financial cutbacks are made, but in selective areas, presum-ably in less effective (in terms of pro f i t ) departments or programmes. In contrast, across-the-board cuts, although equitable, may in fact contribute further to the financial pressure on a f irm. Operating budgets may be re-duced proportionately in al l departments without evaluating the contributions of various parts of the organization. This adversely affects operations by cutting back on very profitable programs that contribute more than their share to overhead. The productivity enhancing strategies help to a l le-viate the financial cr is is by concentrating more on achieving greater benefits than costs. One should note the positioning of variables 4, 9, and 13 on the upper part of this dimension. These are the three variables on which there was a high degree of consensus that they were useful strategies to employ during c r is is . The interpretation of the second dimension, the degree of immediate impact on c r i s i s , is supported by the skewed responses to the item. One of the reasons the majority of respondents f ind these strategies to be very useful is because they believe the strategies contribute to an immediate re l ie f of the c r is is . Strategies on the lower end of the scale may not contribute much to the immediate al leviation of a c r is is . (They may indeed aggravate the short run problems). Variables 7, 8, and 11 which are concerned with in-creasing capital expenditures, R&D, and information gathering, for example, are strategies with long run impacts. While in the long term they may - 110 -substantially contribute to a f irm's effectiveness by developing new tech-nology and increasing productivity, in the short run these strategies w i l l be costly. Implementing them diverts resources from current operations. Eliminating new products, s t i l l only marginally profitable (variable 6 ) , and reducing the authority of f ie ld managers and department heads (variable 1 0 ) , are two defensive strategies with low immediate impact. I t could be less damaging for a firm to f i re managers outright (variable 12) than to reduce their authority and leave them in a position to cause trouble for the organization. The results of the SSA suggest a division into 4 broad categories of strategies based on the two dimensions: entrepreneurial/high immediate im-pact; entrepreneurial/low immediate impact; defensive/high immediate impact; defensive/low immediate impact. While some of the strategies are relat ively neutral on one or both of the dimensions, i t is possible to identify some variables that represent extreme types of programmed behaviour in each category as shown in Figure 4. One would expect that strategies on the diagonal of the matrix would be the most different since they are opposite on both dimensions. Examina-tion of the SSA geometric representation (Figure 3) shows that the two most dif ferent strategies (as measured by the greatest distance between pairs) are variables 1 and 10. These are located in the upper le f t and lower r ight cel ls. Developing an aggressive marketing strategy (variable 1) and re-ducing the authority of managers (variable 10) are diametrically opposed behaviours. There is a highly signif icant negative correlation between these two variables (x = - . 2 6 , a = . 0 1 ) . - I l l -Figure 4 Categories of Programmed Behaviour Developed from SSA entrepreneurial mode defensive mode high immediate impact on cr is is low immediate impact on cr is is • Develop an aggressive marketing strategy to increase sales (var. D • Undertake major organi-zational reforms (var. 14) • Cut back the operating budgets of al l d iv i -sions and departments (var. 2) • Reduce staff (var. 5) • Increase capital ex-penditures on more ef f ic ient equipment (var. 7) -• Expand R&D to help maintain competitive position (var. 5) • Reduce the authority of f ie ld managers and de-partment heads (var. 10) • Eliminate new products, s t i l l only marginally profitable (var. 6) - 112 -I t is interesting to note the relationship between variables 6 and 10 (both in the lower r ight ce l l ) . These two variables have a signif icant positive correlation (T = .25, a = .01). Although these strategies are substantively di f ferent, in terms of specific content, they are qualita-t ively the same, in terms of their impact on the organization. As might be expected, variable 6 also is negatively correlated with variable 1 on the diagonal, although at a lower level of significance (T = -.16, a = .05). I t is not too surprising to f ind great distance between these three strategies. Logically, strategies of reducing a manager's authority (var. 10) and eliminating new products (var. 6) are incompatible with developing a strong marketing presence (var. 1). Quite often the ab i l i t y to close a sale is predicated upon the authority to make in- the-f ie ld decisions without having to wait for time-consuming referrals to head of f ice. Timing can be c r i t i ca l for sales personnel, especially in fiercely, competitive markets. I t is often the new product that attracts customers to a f i rm. Dropping innovative products from the l ine, even though they s t i l l make only a mar-ginal contribution to p ro f i t , may weaken an organization's competitive position. The two next most distant strategies are found on the other diagonal. They are variable 5, reducing staf f , and variable 7, increasing capital expenditures. Although this pair is negatively correlated, i t is not imme-diately obvious how the two strategies are confl ict ing (T = - .14, a = .05). I f one examines the geometric representation, however, i t can be seen that the greatest delineation between the two occurs on the entrepreneurial/ defensive dimension. Increasing capital expenditures is highly entrepre-neurial, and cutting staff is highly defensive. Although there is a - 113 -considerable difference between the two strategies as regards their imme- . diate contribution in relieving crises, this axis appears to be of secondary importance in accounting for the differences between the strategies. Qualitatively, variable 7, increasing capital expenditures, and var i -able 8, increasing R&D, are the same strategies. The reader w i l l note a highly significant positive correlation between these two variables (T = 34, a = .01). Like variable 1, the R&D strategy is negatively correlated with a strategy of reducing staff (T = -.18, a = .05). In addition to their placement on the entrepreneurial/defensive dimension, the distance separating these two items best can be explained in terms of feas ib i l i t y . Increasing R&D and reducing staff would seem to be mutually exclusive be-haviours. When staff cutbacks are made, they usually are implemented in 'non-essential' departments, quite often in staff functions. Since R&D is a personnel-intensive operation, which may be considered a ' luxury ' , and therefore expendable by many executives, this function would feel the direct impact of staff cuts. At the very least, i t would seem a d i f f i c u l t feat to increase manpower for R&D projects while staff cuts were being made in other parts of an organization, unless the firm had an extraordinary 15 commitment to R&D or that function was the f irm's primary business. There is also a great spatial distance between the two entrepreneurial strategies in the lower le f t cell and variable 14, undertaking major organi-zational reforms and variable 2, cutting operating budgets (both in the upper right ce l l ) . As mentioned previously, these lat ter two strategies are interpreted as financial retrenchment actions (note their positive The reader should note that this discussion applies to business enter-prises. The two strategies need not be incompatible in highly bureau-cratized organizations such as government departments where there may be l i t t l e lateral communication or accountability. - 114 -correlation, x = .25, a = .01). Their distance from variables 7 and 8 is not surprising. The two entrepreneurial strategies require increased out-lays of resources and call for behaviour that is completely antithetical to cutting budgets in al l departments. Although the immediacy of impact on cr is is is an important dimension of d i f ferent iat ion, again i t is the entrepreneurial/defensive vector that is the most explanatory. One other relationship on the SSA geometric representation is worth noting. Although variable 1 (aggressive marketing strategy) and variable 5 (reduce staf f) are approximately equal with respect to immediate contr i-bution in al leviating a c r i s i s , spat ial ly, they are one of the most distant pairs of variables. The two variables also have a signif icant negative correlation (x = -.20, a = .05). Their great separation occurs almost entirely as a result of differences along the entrepreneurial/defensive dimension. Referring to Table V., the reader w i l l note that on vector 1, variable 1 = -1000.000 and variable 5 = 100.000. The two types of be-haviour would appear to be incompatible and l ike ly would be favoured by firms in different industries. The perceived value of certain strategies is emphasized by noting the distr ibution of responses to the four major types of programmed behav-iour. The distr ibution of variable 1, a highly entrepreneurial strategy, is positively skewed (x = 3.447, S.D. = 1.899). Approximately 51% of re-spondents indicated that an aggressive marketing strategy would be useful in a c r i s i s , while 23% thought i t would be damaging to the f i rm. Most respondents did not f ind the other two entrepreneurial strategies (var i-ables 7 and 8) to be nearly as useful. Thirty-nine percent of the execu-tives judged a strategy of increasing capital expenditures to be useful (x = 4.234, S.D. = 1.589). A large group of respondents (51%) indicated - 115 -they thought increasing R&D would be damaging to the firm during crises (x = 4.596, S.D. = 1.476). I t seems obvious that the long term nature of these lat ter two strategies diminishes their value in the eyes of most managers. The usefulness of short term ' f i r e f ight ing ' strategies is once again emphasized when one examines responses to some of the defensive variables. Executives clearly favoured the short term defensive behaviour over the long term. 51% of respondents indicated i t was useful to make budget cuts (variable 2) in al l divisions and departments (x = 3.819, S.D. = 1.906). 63% thought i t was useful to reduce staff during a cr is is (x = 3.96, S.D. = 1.422). In contrast the long term defensive strategies were seen to be far less useful by most executives. Only 27% of respondents, for example, indi-cated i t would be useful to eliminate new products (x = 4.66, S.D. = 2.019). Most executives did not favour a strategy of reducing the authority of f ie ld managers and department heads.' In fact , a majority (54%) believed that this would be damaging behaviour during a cr is is (x = 4.683, S.D. = 1.831). I t was hypothesized or iginal ly that managers from firms with a high degree of f l e x i b i l i t y would invoke entrepreneurial behaviour as a response to crises ( H 3 2 ) . No support was found for this premise, however. Flexi-b i l i t y may be a general dimension. There is no evidence of any selection process occurring, that i s , entrepreneurs seeking out f lexible organizations and vice versa. Rather, one speculates that entrepreneurs create their own f l e x i b i l i t y . Dearborn and Simon (1958) suggested that an executive's business specialization influences the way he approaches business problems. No evidence was found, however, that managers w i l l respond parochially on the basis of their functional backgrounds during a cr is is (H~o). Implementation - 116 -of a particular management style also had no effect on the patterns of programmed behaviour displayed (H34). Predicting Programmed Behaviour A stepwise discriminant analysis was used to try and predict the variables that contribute to entrepreneurial and retrenchment behaviour. The following function was derived for entrepreneurial behaviour: D = .379C„ + .196C., - .232CC1 - .290CVo + .848 S 33 41 51 63 This equation reflects the fact that managers who prefer entrepreneurial behaviour tend to be highly democratic, encouraging a lo t of employee input to decision-making ( C ^ ) , and to be very concerned with maintaining organizational harmony even during times of threat ( C ^ ) . Entrepreneurial managers also tend to come from firms with very complex environments (Cg3) but tend to rely on organizational traditions to lend s tab i l i t y to their actions (C^-j). The discriminant function correctly classified 12% of the entrepreneurial managers (C = .66; C = .79). r 3 pro max I t was not possible to derive a discriminant function to predict retrenchment behaviour. The best function consisted of twelve variables; these were too many for meaningful interpretation. - 117 -6. IMPLICATIONS FOR COPING WITH CRISIS 6.1 Reducing Susceptibility to Crises Two specific findings associated with corporate susceptibi l i ty to crises emerged from the analysis (see Table VI for a summary of a l l hypotheses tested). F i rs t , firms have a lower susceptibi l i ty to cr is is i f their environments are predictable. While this observation may seem rather simplist ic, i t has implications for corporate behaviour. Since most firms today operate in turbulent and complex environments with l i t t l e inherent predictabi l i ty , i t becomes essential for them to upgrade their intelligence systems and long range forecasting. Improved scanning and monitoring techniques of the information environment w i l l help ensure that key decision-makers receive timely and useful information. Special information systems concentrating on part icularly vulnerable areas may be developed. These systems, based on effective sampling techniques, would flag c r i t i ca l trends above a given threshold. Constant scanning of the organizational environment for possible threats may reduce the chance of surprise. I t may be possible, for ex-ample, to form special intelligence groups whose major responsibil ity would be the identi f icat ion of possible rare events with threat potential. While the formation of special scanning groups offers an advantage to the organization in anticipating the future, the problem associated with such independent centers is one of c red ib i l i t y . The hyper-innovative tendencies of such groups may build up feelings of mistrust among other organizational groups. The result is an isolation from power with accompanying inabi l i ty to influence decision processes. The problem of credib i l i ty can be eliminated par t ia l ly by involving other organizational members in the act iv i t ies of such groups. Hypotheses  The Nature of Crises H-p Threats to high p r io r i t y goals, stress, and restr icted decision time are universal c r i t e r i a in label l ing a situation as a c r i s i s . Table VI  Summary of Result H ? : The subjective c r i t e r ia defining a c r i s i s are invariant with the type of environments that individuals face. Susceptibi l i ty to Crisis H^: Firms operating in predictable environments have a low frequency of crises. H.: Firms with a high degree of control over thei r environments have a low suscept ibi l i ty to cr ises. Hr: Firms that are very dependent on 'other elements in the environment are prone to cr ises. H f i : Organizations managed by process oriented managers w i l l have a low frequency of crises. H , : Managers who prefer decision-making strategies associated with groupthink come from organizations that are prone to crises. Preferred Decision Structures H„: Managers from firms with complex environments w i l l tend to consider only a l imited number of alternatives during crises. Hg: Firms operating in complex environments w i l l develop strong adherence to Standard Operating Procedures. H,Q: Managers from firms with more complex environments w i l l seek the aid of many individuals to help evaluate actions and alternatives during crises. H , , : Managers from firms with more complex environments w i l l concentrate on the short term effects of proposed solutions rather than long term effects during crises. Results Not supported: stress was rated as one of the least important factors in defining a c r i s i s . Threat to high p r io r i t y goals and restr icted decision time are very important determinants of c r i s i s . Not supported: differences were found based on the degree of f l e x i b i l i t y + environmental pred ic tab i l i ty . Supported Not supported Not supported Supported Not tested; not enough respondents met c r i t e r ia for groupthink. Not supported: managers from simple environments tend to l i m i t the number of alternatives considered. Not supported Not supported Not supported Table VI (cont'd) Hypotheses Preferred Decision Structures (cont'd) H,„: Finns operating in turbulent environments w i l l not develop strong adherence to Standard Operating Procedures. H,,: Task oriented managers w i l l follow SOPs closely and use only o f f i c ia l information channels during crises. H..: Process oriented managers w i l l not perceive information gathering to be an important ac t iv i ty during crises. H.,-' During crises, process oriented managers w i l l f ind i t part icular ly important for employees to understand the decisions made by management. H,g: Executives who prefer a democratic management style w i l l encourage individ uals who are responsible for implementing a decision to be involved in mak decisions during crises. H, 7 : Executives who prefer an autocratic style of management w i l l f ind i t desirable for an organization to have a directive leader during crises. H,„: Managers who think i t s important to maintain organizational harmony during crises encourage executives who disagree with company policies to keep their reservations to themselves. H.g: Managers who f ind i t important to maintain organizational harmony during crises encourage members of an executive committee to minimize conf l ic t within i t s e l f to be loyal to the Chief Operating Off icer. The Dimensionality of Coping Ab i l i t i es Hp0: Organizations that are capable of coping successfully with one type of threat are capable of coping with any type of threat. H„,: Organizations develop special ab i l i t i es to cope with one of two types of threats: those that occur precipitately and without warning (discontin-uous), or those that build up gradually over a period of time (continuous) Organizations have less ab i l i t y to cope with threats that have a sudden onset than with threats that build up gradually. Predictable threats in stable environments w i l l stimulate information gathering ac t iv i t ies during crises. Resul Not supported Supported Supported Not supported Supported Supported Not supported Not supported Supported Supported Not supported Supported T a b l e V I . ( c o n t ' d ) Hypotheses The D i m e n s i o n a l i t y o f Coping A b i l i t i e s ( c o n t ' d ) H„.: O r g a n i z a t i o n s t h a t have a h i g h l e v e l o f s l a c k can cope b e t t e r w i t h c r i s e s i n v o l v i n g t h r e a t s t o m a r k e t share o r s a l e s t h a n t h e y can w i t h c r i s e s i n v o l v i n g t h r e a t s t o o t h e r a r e a s o f o p e r a t i o n s . H ? ( - : O r g a n i z a t i o n s t h a t m a i n t a i n a d e c e n t r a l i z e d d e c i s i o n - m a k i n g s t r u c t u r e under t h r e a t can cope b e t t e r w i t h c r i s e s p r e c i p i t a t e d by a d rop i n s a l e s t h a n o r g a n i z a t i o n s t h a t c e n t r a l i z e d e c i s i o n - m a k i n g a u t h o r i t y under t h r e a t . H ? f i : F i rms o p e r a t i n g i n complex e n v i r o n m e n t s have a g r e a t e r a b i l i t y t o cope w i t h c r i s e s t h a n f i r m s o p e r a t i n g i n s i m p l e e n v i r o n m e n t s . W^-j' F i rms o p e r a t i n g i n t u r b u l e n t e n v i r o n m e n t s have a g r e a t e r a b i l i t y t o cope w i t h c r i s e s t h a n f i r m s o p e r a t i n g i n s t a t i c e n v i r o n m e n t s . H „ f l : F i rms o p e r a t i n g i n t u r b u l e n t e n v i r o n m e n t s have a g r e a t e r a b i l i t y t o cope w i t h c y c l i c a l m a r k e t c o n d i t i o n s t h a n f i r m s o p e r a t i n g i n s t a t i c e n v i r o n m e n t s . Hgg: F i rms managed by e n t r e p r e n e u r i a l e x e c u t i v e s have a g r e a t e r a b i l i t y t o cope w i t h a m a j o r t e c h n o l o g i c a l b r e a k t h r o u g h t h a n f i r m s n o t managed by e n t r e p r e n e u r s H,Q: F i rms managed by e x e c u t i v e s w i t h an a g g r e s s i v e m a r k e t i n g o r i e n t a t i o n have a g r e a t e r a b i l i t y t o cope w i t h a sudden d r o p i n s a l e s t h a n f i r m s managed by e x e c u t i v e s w i t h o t h e r o r i e n t a t i o n s . H., , : F i rms managed by more d e m o c r a t i c e x e c u t i v e s have a g r e a t e r a b i l i t y t o cope w i t h t h e d e a t h o f a number o f key e x e c u t i v e s than f i r m s managed by l e s s d e m o c r a t i c e x e c u t i v e s . S t a n d a r d Responses t o C r i s e s H 3 2 : Managers f rom f i r m s w i t h a h i g h degree o f f l e x i b i l i t y a r e l i k e l y t o adop t e n t r e p r e n e u r i a l b e h a v i o u r as a response t o c r i s i s . H g , : Managers make p a r o c h i a l responses based on t h e i r f u n c t i o n a l backgrounds d u r i n g c r i s e s . Ho- : P rocess o r i e n t e d managers p r e f e r programmed b e h a v i o u r s t r a t e g i e s t h a t m a n i p u l a t e t h e m a n a g e r i a l s t r u c t u r e o f t h e f i r m d u r i n g c r i s e s . R e s u l t s Suppor ted f o r sudden drop i n sa les Suppor ted Not s u p p o r t e d Not s u p p o r t e d Not s u p p o r t e d : f i r m s w i t h p l a c i d e n v i r o n m e n t s have a g r e a t e r a b i l i t y t o cope w i t h c y c l i c a l c o n d i t i o n s . ^ o Not s u p p o r t e d , i Suppor ted Not s u p p o r t e d Not s u p p o r t e d Not s u p p o r t e d Not s u p p o r t e d - 121 -Corporate susceptibi l i ty to crises also can be reduced by enriching an organization's repertoire of responses, for example, by developing con-tingency plans with appropriate, sensitive trigger mechanisms. The serious-ness of environmental threats can be mitigated by timely, appropriate responses. At a minimum, the impact of surprise associated with a threat can be reduced by contingency planning. The second important finding is that a process style of management (one that evaluates employees on the basis of results rather than on how well they follow specific procedures) is associated with reduced suscep-t i b i l i t y to crises. Creativity and independent problem-solving appear to be necessary requirements in evading c r is is . Process management allows for individual discretion and gives greater f l e x i b i l i t y to employees for dealing with local threats before they escalate to the c r i t i ca l level. Although r ig id programming and task specification provide a corpora-tion with a greater degree of control, a high level of task programming is only effective in coping with anticipated events. I f programming is too r i g i d , corporate vulnerabil i ty to crises is increased when novel situations occur. Inappropriate procedures may delay the realignment required to cope with novel decision situations. Corporations must, therefore, obtain an appropriate balance between standardization, which ensures control, and f l e x i b i l i t y , which enables employees to deal with local threats. The executives who.participated in this study clearly perceive their corporations to be susceptible to crises. Only 13% of the respondents indicated that there was no probability of a cr is is occurring in their companies within f ive years. In contrast, 15% of executives suggested that there was at least a .50 probability of cr is is occurring. - 122 -Although the respondents perceived crises to be probable events, only 45% of the firms had any formal plans to deal with crises. Contin-gency budgeting was the most common measure adopted by corporations to reduce the impact of crises. Other types of plans included: decision-making and problem-solving training, vulnerabil i ty analysis, long range planning, secondary document sources, and management succession plans. F i f ty- f ive percent of the sample corporations, however, had no plans to help them weather the effects of a c r i s i s , in spite of their own assessments of susceptibi l i ty. Corporations must be wi l l ing to make a strong commitment to precrisis training, both in time and in money, to effectively reduce their suscepti-b i l i t y to crises. Clearly the size of a corporation, i ts resources, and i ts objectives wi l l determine the specific strategies chosen to help reduce susceptibi l i ty and to improve coping ab i l i t i es . One relat ively simple meas-ure that a firm can take is to enrich i ts repertoire of Standard Operating Procedures. Quite often SOPs increase organizational inert ia and lead to the subversion of new programs, however, the inst i tut ionalized committment to procedures can be made to work for the f irm's advantage. Special cues for triggering new automatic programs designed to deal with crises can be developed and incorporated into existing SOPs. These cues can be rein-forced by the use of precrisis d r i l l s and simulations. During an actual c r i s i s , much of the required behaviour i s , thus, preprogrammed, reducing the latitude for error. On a more major scale, basic modifications can be made in an organi-zation's structure that w i l l improve i ts performance in crises. For example, a firm can develop dual structures, one for routine situations and the other for crises, with appropriate cues that determine when either - 123 -structure is to become operational. The structure for crises would be characterized by a f lexible repertoire of operating procedures capable of responding to novel situations. Key positions in staff and l ine units would be f i l l e d by cr is is specialists (who may not be the same executives f i l l i n g key positions during normal operations). These individuals would be selected on the basis of their creative, adaptive ab i l i t ies in high-stress situations. Special emergency communications networks and intelligence systems can be developed to augment the cr is is structure. The concept of dual structures is not part icularly radical; the closely-related project management form of organization has been used successfully by many corporations for years. Personnel are assigned on a temporary basis to particular projects; when a f irm's needs change, per-sonnel are reassigned. This type of structure is part icularly suitable for situations that require f lexible strategic and operational responses (Ansoff and Brandenburg, 1971). I t is important, however, that membership in a cr is is project management team remain relat ively stable. Studies have shown that during periods of high stress, permanent decision-making groups tend to perform better than ad hoc groups (Hall and Williams, 1966). 6.2 Improving Coping Abi l i t ies During Crises The analysis suggested that there is a general dimension of coping ab i l i t ies applicable to al l types of crises. Corporations that are capable of coping successfully with one type of c r i s i s , in general, are capable of coping with any type of c r is is . Firms develop specialized advantages, however, in dealing with particular types of threatening events. Some firms are more adept at coping with threats that build up into a cr is is over a long term. Successful coping in this situation requires the - 124 -ab i l i t y to develop a long run perspective. Early warning systems and other scanning techniques, thus, are needed to alert an organization to threatening trends developing in the environment. In contrast, threats that occur with a sudden onset, as for example, natural disasters, require different coping sk i l l s . A high level of f l e x i -b i l i t y , which allows a firm to act quickly in response to threats, and a high degree of slack, which allows a firm to absorb short run impacts, are prerequisites for coping with this type of threat. Strong leadership was found to be a crucial element for effectively coping with a c r is is . Leaders may adopt many different styles and orien-tations but two characteristics of leadership are considered essential: problem-solving ab i l i t y and the ab i l i t y to maintain the confidence of group members. Five important components of the decision-making process were ident i f ied. These components were: r isk absorption, implementation, evaluation, risk confrontation, and threats to optimality. Each of these components was delineated on the basis of two under-lying dimensions: the quality of decision-making processes (number of people participating in the decision, number of alternatives generated, degree of evaluation, etc.) and the exposure to uncertainty (r isk posture). The bureaucratic risk absorption component reflects a concern for the pro-cess of decision-making. Exposure to uncertainty is minimized by reliance on procedures and programming. The implementation component is concerned with ensuring that decisions, once reached, are put into effect. The degree of employees' understanding of decisions, participation in the process, and agreement with decisions are important factors. The eval-uative component is concerned with the quality of decisions reached. I t represents a high degree of openness to ideas, alternatives, and people - 125 -to ensure an optimal choice. The risk confrontation component represents the extent to which decision-makers are wi l l ing to accept high levels of uncertainty (r isk) during the decision process. Threats to optimality reflects a collection of threats to the quality of decsion-making such as tendencies for groupthink and information f i l t e r i n g . Reducing Bureaucratization I t was noted previously that Standard Operating Procedures are val-uable tools for an organization. SOPs, however, are clearly dysfunctional when they are used as a means to avoid decision responsibil ity by over-reliance on rules and regulations (the bureaucratic syndrome). A firm can attempt to minimize the effects of bureaucratic risk absorption tendencies either by expanding the repertoire of programmed solutions to account for more contingencies, or by building higher levels of personal discretion into existing procedures. A strategy of expanding SOPs involves high development and mainte-nance costs to an organization, and, clearly, i t is effective only in coping with events that can be anticipated. The vulnerabil i ty of the organization is actually increased when novel situations occur. Complex but inappropriate decision programs may delay organizational realignment necessary to cope with the novel decision si tuation. While an expanded repertoire of SOPs wi l l reduce the number of errors that occur when infor-mation is forced into r ig id formats, the complexity involved wi l l increase random noise in the information system and make the tracing of errors more d i f f i c u l t . A strategy of allowing more individual discretion in following procedures gives greater f l e x i b i l i t y but organizational economies obtained by standardization and programming are lost. - 126 -Every organization must develop SOPs to obtain an appropriate balance between f l e x i b i l i t y and standardization to f i t i ts specific environment. A dialectic component can be bui l t into every information processing and decision program, however, to guard against the introduction of biases. The dialectic wi l l ensure that counterplans are developed for al l major decisions and contradictory points of view are examined. In this manner any latent biases can be ident i f ied. This procedure is similar to the dialectical approach suggested as a measure to prevent groupthink — episodic dialectics are supplemented by routine programmed dialectics. Reducing Implementation Dysfunctions An organization's effectiveness in coping with crises is a function of i ts ab i l i t y to implement decisions. Dysfunctions in the implementation component of decision-making, clearly, can have grave consequences for a f i rm. Implementation fa i lures, in part, can be prevented through the de-velopment of general coping ab i l i t i es . For example, a group's motivation to implement a decision can be improved by involving at least one repre-sentative from each group in the actual decision process. When a group solves a problem, each member participating feels responsible for making the solution work. I f a solution has been imposed without consultation, however, there is not the same commitment to implementation. Action groups involved with the decision wi l l also be more aware of c r i t i ca l timing factors. Maier (1967:249) noted that "a low-quality solu-tion that has good acceptance can be more effective than a higher-quality solution that lacks acceptance". Motivation also can be improved by thorough indoctrination programs for a l l members of the organization to develop a heightened commitment to goals. While this procedure wi l l not - 127 -remove entirely the problems of pol i t ica l games and bargaining between units, there wi l l be some reduction in the incompatibility of goal struc-tures between the diverse units of the organization. Problems of comprehension are also reduced by participation in the decision process. Implementation units frequently do not understand the reasons for choosing a course of action that they regard as arbitrary or threatening. A tendency to subvert the implementation process either con-sciously or unconsciously often emerges. Participation in the decision process increases understanding of the decision through exposure to a l l the alternatives considered and the reasons for their rejection. Part ic i -pation also leads to a widened perspective of the total c r i s i s , including overall organization goals, not just a narrow perspective dominated by self- interest. Commitment to and understanding of the decision fac i l i ta tes diffusion of information throughout the organization. Implementation dysfunction, in the form of misinterpretation and lack of coordination, can occur as a result of noisy channels of communi-cation between decision and implementation units. This in part can be alleviated by placing trusted people in the f ie ld to affect coordination. Usually such people wi l l be in direct communication with the senior decision-makers to reduce the probability of error. Reducing Evaluation Dysfunctions Previously, i t was noted that strong leadership is a desirable and necessary factor for effective coping during crises. Strong leadership, however, has been recognized as an element of group dynamics that can lead to dysfunction in the evaluative component of the decision process. Speci-f i c a l l y , a very strong leader promotes the tendency toward premature - 128 -convergence on a single alternative without fu l l y evaluating a l l other alternatives (Maier, 1967; Jam's, 1972). This tendency can be alleviated by the Chief Operating Officer or other decision leader encouraging c r i -t ical evaluation of pol icies, perhaps assigning a specific role to each group member, and encouraging the expression of diverse points of view. A range of opinions is more l ike ly to be el ic i ted i f the leader refrains from cr i t i ca l evaluation and acts merely to guide the discussion (Thibaut and Kelley, 1959). Although this procedure can work i f the leader is com-mitted to ensuring c r i t i ca l appraisal of al l alternatives, i t is d i f f i c u l t for most organizational members to overcome tradit ional hierarchical norms of deference to the leader. I f one group or individual is intent on pleasing the leader, the evaluation process can be subverted. Open cr i t ic ism in debates can lead to damaged feelings i f members are carried away in their roles as c r i t i ca l evaluators. "Feelings of rejections, depression, and anger might be evoked so often when this role assignment is put into practice that i t could have a corrosive effect on morale and work-ing relations within the group" (Jam's, 1972:210). Impartiality by the leader in a discussion may also be a drawback. An organization may be de-prived of the services of one of i ts best decision-makers. The result may be a lower quality decision than would have resulted i f the leader had participated. There is also the danger that nondirection by the leader may result in a decision that is completely unacceptable to him. The proper role of the leader l ies somewhere between the two extremes. Cri t ical evaluation and the exploration of a wide range of policy alternatives is a time-consuming process. A firm may not have the time to adopt such procedures. During crises, decisions must be reached very quickly to head off disaster. High levels of stress f e l t by decision-- 129'-makers at this time also contribute to reduced cognitive ab i l i t i es . Increased generation and evaluation of alternatives can contribute to information overload, which in turn increases the probability of infor-mation distor t ion. Cri t ical evaluation of alternatives can be promoted by invi t ing the opinions of outside experts, seeking opinions from associates in the organi-zation, and generating alternatives through brainstorming, synectics, and other creative problem-solving techniques (Arnold, 1962; Stein, 1974). These techniques may prevent premature closure on a particular alternative, but they also substantially increase the probability of information overload. Janis (1972) noted that while the use of outside experts and trusted asso-ciates provides a decision-making group with fresh perspectives, there is always the danger of a breach of security or an information leak in an expanded group. In highly competitive situations this is most undesirable and potentially damaging to the organization. I f expert assistance is to be used effect ively, assistants must be consulted early in the decision process before convergence on a particular alternative starts. Special ef for t should be made by the leader to ensure that a long-range perspective is introduced early into the deliberations by assigning special responsibil ity to certajn members for developing such a focus. Incremental decisions made for short-term expediency may have severe consequences on future policies and negotiating positions. Reducing Tendencies Toward Excessive Risk-Taking While i t is often necessary and desirable for corporations to take higher risks during crises, dysfunctions in the risk posture component of the decision process may promote excessive r isk-taking. The effects of stress and individual biases can contribute to this tendency. The - 130 -propensity to take high risks can be alleviated in part by thorough indoc-tr inat ion and training in corporate objectives and the level of risk allow-able to achieve those objectives. We have noted previously the debi l i tat ing effects of stress on decision-makers and i ts role in intensifying any under-lying personality tendencies. For example, i f an executive normally is a risk-taker, under extreme pressure he may take even higher r isks. Clearly, i t is important to select executives in stressful positions not only on the basis of their technical competence, but also on their ab i l i t y to handle stress. A variety of stress-reducing techniques can be incorporated into the daily routine of appropriate executives. Techniques such as meditation, and progressive relaxation are currently in vogue. Key decision-makers may also undergo behavioural modification treatment to raise their tolerance for stress. Another possibi l i ty is to rotate decision-makers or tempo-rar i l y replace them with individuals selected and trained for high-stress situations (this is of course not feasible at the most senior levels of a corporation). Personal biases and inaccurate stereotypes of competitors are major factors that contribute to increased r isk propensity during crises. Role playing and psychodrama are techniques developed by psychologists that may help to overcome the influence of stereotypes and- to increase understanding of competitors. Scenario building is another technique that promotes understanding of a r ival and enables decision-makers to predict responses to their actions more accurately (Jam's, 1972). Role playing can be expanded to include general cr is is training for a number of hypothetical events. This has the secondary effect of reducing stress on managers when a real cr is is develops. The cost of techniques - 131 -such as role playing, however, may be prohibitive since they are so time consuming. Ideally these techniques should be developed as part of a package of precrisis training. Reducing Decision-Making Dysfunctions There is evidence in the l i terature that organizations often engage in behaviour that threatens the quality of decision-making. For example, Janis (1972) and Jam's and Mann (1977) have documented dysfunctions resulting from group dynamics and manifested by symptoms of groupthink. Solutions to group problems such as the propensity to take increased risks can be found by focussing on an individual's responsibil ity for decisions. In this manner, a group-induced shi f t toward greater risk taking can be avoided (Wallach, Kogan, and Bern, 1964). Techniques such as building 'worst outcome' scenarios wi l l aid in rea l is t ica l ly evaluating the serious-a ness of proposed outcomes and wi l l reduce the propensity of decision-making groups to favour high-risk alternatives. Since decision-making groups that are subject to groupthink try to rationalize warnings and other disturbing information requiring a re-evaluation of policy, i t is necessary to ensure that al l alternatives are fu l l y evaluated. The use of a 'devi l 's advocate' ensures that both good and bad aspects of a proposal are examined. The technique is based on the premise that conf l ict is the best means of exposing hidden assumptions. The dialectical approach is another, more formal technique, that uses structured debate to bring forth alternative world views. The use of dialectics also exposes hidden assumptions allowing an organization to develop a new conceptualization of a problem and possible solutions. - 132 -Organizations can reduce pressures on decision-makers to conform to majority opinions by the use of techniques that allow for the anonymous expression of dissenting opinions and questioning. A Kantian Delphi, for example, is a structured technique that e l ic i tes diverse points of view from individuals with dif ferent backgrounds (Mitroff and Pondy, 1974). The purpose of the technique is to enlarge the information base, relative to a decision si tuation, beyond that possessed by any one individual. The technique is particularly good for poorly-structured problems and i t serves to protect minority viewpoints. Information distort ion is another threat to the quality of decision-making that can reduce coping ab i l i t ies during crises. Information over-load is a serious problem for decision-makers during crises given the requirements of increased information flows, the debi l i tat ing effects of heightened stress, and shortened time horizons. More information does not necessarily mean better information. Improved scanning techniques and monitoring devices of the information environment and presentation of information in special formats can help ensure that the information re-ceived by decision-makers is of the proper quality as well as a manageable quantity. Special information systems can be developed that include extraordi-nary channels of communication to cut through the organizational hierarchy and, in some instances, to u t i l i ze direct links with the environment or more than one source of the same information (Downs, 1967). These tech-niques wi l l also help reduce the effects of time delays, isolation of decision-makers, and screening processes at various levels of the hierarchy as information is f i l te red upward. In terms of resources, however, such systems can be costly for an organization. In many instances, personnel - 133 -are diverted from their regular pursuits to participate in these systems, sometimes at the expense of the day-to-day functioning of other parts of the organization. Most certainly there are costs of system development that must be incurred. Expansion of organizational systems also has the drawback of making the firm more unwieldly, especially in i ts ab i l i t y to affect coordination. The prol i ferat ion of new departments promotes an increased danger of empire building, that can lead to intra-organizational conf l ic t and bargaining. This in turn w i l l affect a f irm's ab i l i t y to implement decisions. - 134 -7. METHODOLOGICAL OVERVIEW AND PLANS FOR CONTINUED RESEARCH The objectives of the study were four-fold: 1) to integrate theories of cr is is behaviour into a conceptual model of cr is is management to provide a basis for empirical research, 2) to test specific hypotheses concerning cr is is behaviour, susceptibil i ty to crises, and coping ab i l i t ies in the context of business organizations, 3) to develop managerial tools for diagnosing organizational strengths and vulnerabil i t ies in coping with crises, 4) to develop prescriptions for improving cr is is coping ab i l i t ies and for preventing crises. . This chapter reviews the success of the thesis in terms of achieving these four objectives and i t diagnoses the weaknesses of the study. On the basis of this analysis proposals are made for future research. A conceptual model was developed (Figure 1) that provided a means for studying decision-making and implementation processes during crises. The analysis was streamlined by focussing on the elements of the model and identifying 'principal actors' in the decision process. In this study, senior executives were selected as subjects; their cognitive abi-l i t i e s , behavioural preferences, and managerial styles were examined. The selection of senior executives as the focus of the study was jus t i f ied on the basis that during crises, decision processes tend to centralize and shi f t to the top of an organization when goals central to the organization are threatened (Hermann, 1972). Other decision-making centers within an organization were studied in terms of their behavioural alignment with the principal actors on certain variables, for example, communications patterns and response times. - 135 -Although the conceptual framework permitted identi f icat ion of a specific target for the empirical study (senior executives), nevertheless, this focus provided only a ' f i r s t cut' in the analysis. Some important aspects of crises that are not centered at the top of the hierarchy are not dealt with by the model. For example, one must focus on the total organization to assess the impact of structure and inter-uni t relat ion-ships upon cr is is management patterns. Similarly, communications systems and the evolution of organizational norms can only be analyzed in the context of the total f i rm. As a tool for empirically testing the theory, the study must be regarded primarily as a p i lo t . I t explored areas showing promise and meriting investment in more rigorous research designs. The study iden-t i f i ed underlying patterns in the data that were then used to further describe behaviour during crises. These patterns also were used to test the effectiveness of theoretical concepts as principals for organizing data. Smallest Space Analysis (SSA) was the technique used to identify these latent dimensions. SSA was f i r s t applied to data representing behavioural programs during a crisis.. Two dimensions were found to be important in delineating behaviour. The f i r s t dimension was entrepre-neurship versus defensiveness, and the second dimension was " f i re- f ight ing" versus long-term investment. SSA was also applied to data concerning deci-sion-making structures. Two dimensions were ident i f ied. One axis repre-sented quality of decision-making ( ra t iona l i ty ) , and the second axis represented the degree of exposure to uncertainty during decision-making. The findings of the Smallest Space Analysis supported the theoretical constructs. - 136 -The results derived from testing specific hypotheses suffered prim-ar i l y from two methodological shortcomings: a) response effects, and b) conclusiveness of findings. Cozby (1977) and Sudman and Bradburn (1974) have reviewed the problem of response effects on va l id i ty . An important response effect is the problem of self-presentation in survey research. People tend to t ry and make as good an impression on other people as possible. "The social desirabi l i ty response set leads the individual to answer in the most socially acceptable way -- the way he thinks most people respond or the way that reflects most favorably on him . . . i f a survey asked people to admit to behavior they may consider undesirable, the results may be considered suspect" (Cozby, 1977:49). In gathering data on senior executives' attitudes and behaviour during crises there was a danger that subjects would respond in a manner they per-ceived to be 'good management' practice. The findings, however, were con-sidered to be quite robust for two reasons. F i rs t , since self-administered questionnaires are anonymous, they seem to be less subject to the biases of self-presentation than face-to-face interviews (Sudman and Bradburn, 1974: o 40). Secondly, this study sought only to examine the relationships between variables in cr is is situations, not to determine absolute levels of performance. The second methodological shortcoming results from the fact that tests of hypotheses were based upon observed associations. Although the conclusiveness of the results may be questioned for this reason, the short-coming is a general problem in non-experimental organizational research. Without using an appropriate experimental design, or at least a quasi- . experimental design, the findings of the study are inconclusive. At best, - 137 -they can be regarded only as supportive evidence for the theory, and the quality of this evidence is not exp l ic i t l y specified. There are several d i f f i c u l t i e s , however, in attempting to study cr is is behaviour experimentally. Laboratory experiments, while feasible, are'highlyconstrained by ethical considerations. Much of the interesting phenomena of cr is is behaviour centers around reactions to intense stress generated by threats. One must question whether an experimenter could jus t i f y subjecting participants to stressful experiences. Without simu-lating the stressful effects of a c r i s i s , however, the threats to external va l id i ty are magnified. Field experiments, in contrast, may be va l id , but are rarely feasible. I t would be most d i f f i c u l t to find an organization wi l l ing to deliberately generate crises or stress for i t se l f . The third option, quasi-experimental designs (Campbell, 1969) also has d i f f i cu l t i es . The problem here is one of gaining access to relevant information. Organizations in cr is is no doubt would be reluctant to give access to their f i les for reasons of security and self-representation. The third objective of the study was to develop managerial tools for diagnosing strengths and weaknesses. Diagnostic functions were con-structed that predicted vulnerabil i t ies to cr is is on the basis of execu-t ive and organizational attr ibutes. Discriminant analysis was used to derive the predictive functions and their powers of discrimination generally were high. Such functions, however, should be used for screening purposes only, since they are not based upon causal models, but only upon patterns of association. The discriminant functions derived in this study could be improved by enlarging signif icantly the sample size. This would reduce the probability of discriminating on - 138 -the basis of c r i te r ia specific to the sample of subjects, but irrelevant to the total population under study. One could also use the discriminant functions as inputs to a diagnostic simulation model to test alternative design propositions (Smart, Thompson, and Vertinsky, 1978). The fourth major objective of this study was to develop prescrip-tions for improving cr is is coping ab i l i t ies and for preventing crises. The prescriptions developed tended to concentrate on specific aspects of the conceptual model of cr is is (Figure 1). For example, to reduce cr is is susceptibil i ty improved scanning and monitoring techniques were suggested to help temper the impacts of an uncertain environment. On a more major scale, basic modifications in organizational structure were proposed to improve performance in crises, for example, dual decision-making structures. Prescriptions for improving coping ab i l i t ies during crisies focussed on components of the decision-making process derived from the Smallest Space Analysis. These included suggestions to reduce the effects of bu-reaucratization, implementation and evaluation dysfunctions, and excessive r isk-taking. The prescriptions were of a type that would increase general management capabil i t ies, for example, expanding the repertoire of standard operating procedures, improving the motivation of l ine units, and making procedural modifications in the decision-making process to use techniques such as a devi l 's advocate, dialect ics, and scenario building. The development of prescriptions is i t se l f an act of judgment based upon current knowledge. Although many of the prescriptions suggested may be effective in preventing crises or reducing their impacts, future studies should include an evaluation of the proposals. I n i t i a l l y , this could be accomplished, in part, by means of experiments using a r t i f i c i a l laboratory organizations in simulated environments. - 139 -To conclude, future research should: Generate alternative theoretical perspectives to enrich the domain of analysis. 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The Corporate Crisis Study Group at the University of B.C. was formed to study how corporations and managers working within those corporations respond to the challenges and demands of a business c r i s i s . Since c r i s i s decision-making i s primarily a function of senior management and particularly of the chief operating officer, we are asking your assistance in our study of c r i s i s phenomena. Enclosed is a brief questionnaire that is designed to learn about the attitudes and decision-making styles of senior executives in c r i s i s situations. General information about your corporation and i t s environment i s also requested. Would you please give us approximately thirty minutes of your time and complete the questionnaire. Similar information i s being requested from a sample of the chief operating officers of the top 400 corporations in Canada and the U.S. We wish to stress that responses to the questionnaire w i l l be kept confidential and that i t w i l l not be possible to identify responses with individuals or specific corpora-tions. Although the study w i l l be financed by Canadian and international agencies, no agency has control over the direction of the study or over the information received. No individual responses w i l l be released to any agencies or other persons and the results of the study w i l l be published openly in professional journals. - 155 -I f y o u r t i m e s c h e d u l e i s s u c h t h a t y o u cannot a s s i s t u s , would y o u p l e a s e p a s s t h e q u e s t i o n n a i r e t o a n o t h e r s e n i o r e x e c u t i v e i n your company t o c o m p l e t e . We s t r e s s t h a t t h i s i s a s t u d y o f s e n i o r management n o t m i d d l e management. P l e a s e r e t u r n t h e q u e s t i o n n a i r e i n t h e e n c l o s e d e n v e l o p e w i t h i n t h r e e weeks. To o b t a i n the most i n f o r m a t i o n f r o m t h e s t u d y , y o u r p e r s o n a l p a r t i c i p a t i o n i s v e r y i m p o r t a n t t o u s . We w i l l o f f e r you a copy o f t h e r e s u l t s of t h e s t u d y ; t h e s e s h o u l d be a v a i l a b l e e a r l y n e x t s p r i n g . S i n c e t h e c o r p o r a -t i o n s t h a t p a r t i c i p a t e i n t h e s t u d y w i l l be anonymous, we cannot send t h e r e s u l t s t o you a u t o m a t i c a l l y . I f you a r e i n t e r e s t e d , p l e a s e w r i t e t o u s and we w i l l send y o u t h e i n f o r m a t i o n . The C o r p o r a t e C r i s i s S t u d y Group a l s o has r e c e n t l y p u b l i s h e d some more g e n e r a l m a t e r i a l on c r i s i s management t h a t we would be p l e a s e d t o send i f you so r e q u e s t . Thank you v e r y much f o r your c o o p e r a t i o n . Y o u r s t r u l y , I l a n V e r t i n s k y , P r o f e s s o r of P o l i c y A n a l y s i s . C a r o l y n e Smart , P r o j e c t D i r e c t o r . IV/ee E n c l . - 156 -CORPORATE CRISIS QUESTIONNAIRE For the purpose of th is questionnaire, a c r i s i s i s de-f ined as an unexpected event that ser ious ly threatens major corporate goals and presents a res t r i c ted time in which a response can be made. Section 1 Please examine the fol lowing statements descr ibing some spec i f i c operating strategies that an organization may use to help i t deal with an unexpected c r i t i c a l decl ine in p ro f i t s . Without any further information, indicate how useful you think these strategies would be in re l i ev ing a f inanc ia l c r i s i s in a typ ica l f i rm in your industry. Please c i r c l e the number on the scale that represents your evaluation 1. To reduce a f inanc ia l c r i s i s , a company should develop an aggressive marketing strategy to increase sales. (very useful) 1 2 3 4 5 6 7 (very damaging) 2. During a f inanc ia l c r i s i s , a company should cut back the operating budgets of a l l d iv is ions and departments. (very useful) 1 2 3 4 5 6 7 (very damaging) 3. To reduce a f inanc ia l c r i s i s , a company should impose across-the-board cuts in the operating budgets of a l l d iv i s ions or departments. (very useful) 1 2 3 4 5 6 7 (very damaging) 4. Management should try to en l i s t the support of unions in a j o i n t e f fo r t to improve product iv i ty during a f inanc ia l c r i s i s . (very useful) 1 2 3 4 5 6 7 (very damaging) 5. During a f inanc ia l c r i s i s , s t a f f should be reduced. (very useful) 1 2 3 4 5 6 7 (very damaging) 6. During a f inanc ia l c r i s i s , new products that are s t i l l only mar-g ina l l y p ro f i tab le should be el iminated to reduce costs. (very useful) 1 2 3 4 5 6 7 (very damaging) - 157 -7. During a f inanc ia l c r i s i s , a company should increase capi ta l expenditures on more e f f i c i e n t equipment to t r y and reduce production costs. (very useful) 1 2 3 4 5 6 7 (very damaging) 8. Research and development a c t i v i t i e s should be expanded to help a company maintain i t s competitive posi t ion during a c r i s i s . (very useful) 1 2 3 4 5 6 7 (very damaging) 9. During a c r i s i s , a company should cut back on expense items such as long distance c a l l s , photocopying, entertainment allowances, and t r a v e l . (very useful) 1 2 3 4 5 6 7 (very damaging) 10. During a f inanc ia l c r i s i s , the author i ty of f i e l d managers and department heads should be reduced. (very useful) 1 2 3 4 5 6 7 (very damaging) 11. A company should increase i t s information gathering a c t i v i t i e s during a f inancia l c r i s i s . (very useful) 1 2 3 4 5 6 7 (very damaging) 12. During a c r i s i s , managers whose div is ions have poor performance should be f i r e d . (very useful) 1 2 3 4 5 6 7 (very damaging) 13. A company should introduce management by objectives and p r o f i t incentive programmes to help reduce a f inanc ia l c r i s i s . (very useful) 1 2 3 4 5 6 7 (very damaging) 14. Major organizational reforms should be undertaken to reduce the ef fects of a c r i s i s . (very useful) 1 2 3 4 5 6 7 (very damaging) (19) (21) (23) (25) (27) (29) (31) (33) - 158 -Section 2 In this section of the questionnaire we are interested in learning about attitudes and behaviours that may affect decision quality and organizational performance during a c r is is . Please indicate by c i rc l ing a number on the scale whether you agree or disagree with the following statements. Base your replies on your own beliefs, expectations, and values. 1. During a c r i s i s , i t is important for employees to understand the decisions made by management. (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) 2. I t is important for individuals who are responsible for imple-menting a decision to be involved in making the decision during crises. (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) 3. During a c r i s i s , top management should become involved in day-to-day operating decisions, by-passing middle managers i f necessary. (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) 4. To develop team s p i r i t during a c r is is , i t is helpful i f managers think of themselves as being in a competition^with the environment as an aggressive opponent. (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) 5. During a c r i s i s , i t is important for employees to agree with the decisions made by management. (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) 6. During a c r is is , i t is important for managers to follow standard operating procedures and to use o f f i c ia l communications channels. (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) 7. During a c r i s i s , lower level managers should transmit only important information to their superiors. (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) 8. I t is often more important to reach a decision that is acceptable to certain interest groups within the organization than to reach the 'best' decision to reduce a cr is is . (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) - 159 -During a c r i s i s , executives who disagree with proposed po l i c i e s should keep the i r reservations to themselves. (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) To avoid wasting time during a c r i s i s , i t i s best to consider only two or three a l ternat ive solut ions to the company's problems. (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) During a c r i s i s , preference should be given to st rateg ies of lower r i sk even i f they may be less e f fec t ive than higher r i sk strategies (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) Decision-makers should concentrate on the short term effects of a proposed po l i cy and forget about long range outcomes during a c r i s i s (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) During a c r i s i s , i t i s important for an executive committee to minimize con f l i c t with in i t s e l f and to be loyal to the ch ief operating o f f i c e r . (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) During a c r i s i s , i t i s pa r t i cu l a r l y desirable to have a very strong leader who can provide solut ions to the company's problems and push through decis ions. (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) The negative aspects of a l l proposed solut ions to a c r i s i s should be e x p l i c i t l y emphasized. (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) Executives need to make decisions quick ly and dec is ive ly during a c r i s i s to maintain corporate confidence in the i r leadership. (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) During a c r i s i s , executives should seek the aid of many people both ins ide and outside the company to help evaluate a proposed course of ac t ion . (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) When faced with a c r i t i c a l s i t ua t i on , managers should adopt innovative strategies even i f they are very r i sky . (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) (51) (53) (55) (57) (59) (61) (63) (65) (67) (69) - 160 -Sect ion 3 The f o l l o w i n g statements descr ibe c e r t a i n aspects o f managerial s t y l e . Please i n d i c a t e whether o r not you t h i n k these are approp r ia te behav-iours f o r a manager (a ) du r ing c r i s i s p e r i o d s , (b) dur ing n o n - c r i s i s p e r i o d s . Please c i r c l e the number on the scale t h a t represents your o p i n i o n . 1 . I t i s impor tan t f o r a manager to encourage and ma in ta in o r g a n i -z a t i o n a l harmony. a) dur ing c r i s i s p e r i o d s : ( s t r o n g l y agree) 1 2 3 4 5 6 7 ( s t r o n g l y d isagree) b) dur ing n o n - c r i s i s p e r i o d s : ( s t r o n g l y agree) 1 2 3 4 5 6 7 (strongly disagree) 2. A manager should make u n i l a t e r a l dec is ions and announce them to h i s subord ina tes . a) dur ing c r i s i s p e r i o d s : ( s t r o n g l y agree) 1 2 3 4 5 6 7 ( s t r o n g l y d isagree) b) dur ing n o n - c r i s i s p e r i o d s : ( s t r o n g l y agree) 1 2 3 4 5 6 7 ( s t r o n g l y d isagree) 3. Guidance o f subord inates should be l i m i t e d t o general processes o f problem s o l v i n g r a t h e r than to s p e c i f i c task d i r e c t i o n . a) dur ing c r i s i s p e r i o d s : ( s t r o n g l y agree) 1 2 3 4 5 6 7 ( s t r o n g l y d isagree) b) du r ing n o n - c r i s i s p e r i o d s : ( s t r o n g l y agree) 1 2 3 4 5 6 7 ( s t r o n g l y d isagree) 4. A manager should do h is best to ensure t h a t subord inates achieve a high l e v e l o f j o b s a t i s f a c t i o n . a) dur ing c r i s i s p e r i o d s : ( s t r o n g l y agree) 1 2 3 4 5 6 7 ( s t r o n g l y d isagree) b) du r ing n o n - c r i s i s pe r iods : ( s t r o n g l y agree) 1 2 3 4 5 6 7 ( s t r o n g l y d isagree) - 161 -When faced with a problem, a manager should encourage the contributions of a l l employees to solve the problem. a) during cr is is periods: (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) b) during non-crisis periods: (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) A manager should regard the organization as a means to achieve production goals not meet the social needs of employees. a) during cr is is periods: (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) b) during non-crisis periods: (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) Directions given to subordinates always should be accompanied by explanations. a) during cr is is periods: (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) b) during non-crisis periods: (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) A manager should place equal weight on productive efficiency and high employee morale. a) during cr is is periods: (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) b) during non-crisis periods: (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) Employees should be highly programmed; procedures need to be spelled out and 'the rules' enforced. a) during cr is is periods: (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) b) during non-crisis periods: (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) (23) (25) (27) (29) (31) (33) (35) (37) (39) (41) - 162 -A manager should encourage the search for new ideas as long as organizational traditions are not violated. a) during cr is is periods: (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) b) during non-crisis periods: (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) A manager should encourage subordinates to make their own decisions and to act independently. a) during cr is is periods: (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) b) during non-crisis periods: (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) - 163 -Section 4 This section of the questionnaire is concerned with collecting infor-mation about your organization's external environment, for example, client groups, markets, suppliers, government agencies and other organizations. Please indicate your agreement or disagreement with each statement as it applies to your firm by circling the appropriate number on the scale. 1. The environment of your firm is in a continual process of change, (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) 2. Your firm's predictions of environmental changes are usually accurate. (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) 3. Your organization is prepared to alter both its structure and goals to respond to a changing environment. (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) 4. Your firm relies to a large extent upon other organizations within its environment for growth and survival. (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) 5. The environment is a source of threat to your organization, (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) 6. The environment of your firm is generally predictable, (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) 7. Your organization has a pool of people and resources that allows i t to make quick adjustments to new situations caused by unanticipated environmental changes. (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) 8. The problems generated by your firm's environment generally can be characterized as routine and can be dealt with by established corporate procedures. (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) 9. There are only a small number of components in your organization's environment and these are somewhat similar to one another. (strongly agree) 1 2 3 4 5 6 7 (strongly disagree) (51) (53) (55) (57) (59) (61) (63) (65) (67) - 164 -Section 5 Following is a l i s t of events that an organization may encounter. How would you rate the ab i l i t y of your organization to cope with each of them. Please circle the appropriate number on the scale. 1. A sudden and substantial drop in total sales of your company after a long period of increasing sales. (very high) 1 2 3 4 5 6 7 (very low) 2. The death of three key senior executives in an air disaster, (very high) 1 2 3 4 5 6 7 (very low) 3. A steady state environment with zero real sales growth potential. (very high) 1 7 (very low) A major technological breakthrough with the potential for your company to double i ts sales within two years. (very high) 1 4 (very low) A major natural disaster that destroyed 30% of your company's operations. (very high) 1 (very low) 6. A gradual long term decline in market share of your products, (very high) 1 2 3 4 5 6 7 (very low) 7. 'Boom or bust1 market conditions that can be predicted, (very high) 1 2 3 4 5 6 7 (very low) (1-3) _ 1(5) 3 (7) (9) 01) (13) (15) (17) (19) - 165 -Section 6 Following is a l i s t of factors which are present in many cr is is situations. Please indicate what factors in your opinion are the three most important ones in defining a cr is is si tuation. Please select the three factors by placing 1, 2, or 3 in the appropriate space (1 = the most important). A threat to high pr ior i ty organizational goals or values. An element of surprise in the occurrence of a threatening event. A restricted amount of time in which to make a decision. A high degree of uncertainty in the possible out-comes of decisions. The fai lure of standard operating procedures to deal with an event. _____ The feeling on the part of decision-makers that they are under a great deal of stress. In this section of the questionnaire we are interested in your opinion about the possible role of governments in aiding corporations undergoing a financial c r is is . Please examine each statement and circle the number that represents your opinion of each action. When a corporation is undergoing a financial c r i s i s , an appropriate role for governments may be to: 1. Buy common shares in the troubled corporation to increase equity financing. (no role) 1 2 3 4 5 6 7 (active role) 2. Provide market information to the corporation, (no role) 1 2 3 4 5 6 7 (active role) 3. Provide direct subsidies to the corporation i f needed, (no role) 1 2 3 4 5 6 7 (active role) (21) (23) (25) (27) (29) (31) (33) (35) (37) 4. Make direct loans to the corporation. (no role) 1 2 3 4 5 6 7 (active role) (39) - 166 -5. Provide management consultation in specific areas. (no role) 1 2 3 4 5 6 7 (active role) 6. Provide temporary tax re l ie f . (no role) 1 2 3 4 5 6 7 (active role) 7. Provide guarantees for loans made to the f i rm. (no role) 1 2 3 4 5 6 7 (active role) 8. Give preference to the firm in awarding government contracts as a means of temporary re l ie f . (no role) 1 2 3 4 5 6 7 (active role) 9. In i t ia te mergers and rationalization. (no role) 1 2 3 4 5 6 7 (active role) 10. Restrict foreign competition by enacting quotas and higher ta r i f f s on direct ly competing imports. (no role) 1 2 3 4 5 6 7 (active role) 11. Buy up excess inventories of the f inancial ly troubled firm. (no role) 1 2 3 4 5 6 7 (active role) 12. Intervene direct ly in labour markets and other resource markets to assure supplies when needed. (no role) 1 2 3 4 5 6 7 (active role) 13. Relax anti-combines legislation to allow mergers and rationaliza-t ion. (no role) 1 2 3 4 5 6 7 (active role) - 167 -Section 7 To help us in the s tat is t ica l analysis of the data, may we please have the following information about your corporate and personal status. 1. T i t le of your present position in your company In which functional area have you spent the majority of your career? Production Sales, Marketing, or Advertising Finance or Accounting Personnel, Training, or Industrial Relations Purchasing Research and Development General Administration Other (please specify): Age (check one) 20-29, 30-39, 40-49, 50+ 4. Formal education (check the highest level completed) Some High School Technical Certif icate University Degree Advanced Degree High School Diploma Some University 5. Please indicate the approximate size of your company's sales in 1977 f iscal year (check one) Size group ($000s) less than 49,999 50,000-99,999 100,000-249,999 250,000-499,999 500,000-999,999 1,000,000-4,999,999 greater than 5,000,000 6. In what industry is your firm? (1-3) (5) 4 (7) 9) (11) (13) 15) 17-19) - 168 -7. How many levels of management are there above your position? (give the number) ) 8. Which description best f i t s the competitive situation in your industry? (check one) One large firm dominates the market A few firms dominate the market Many firms in market but none dominate 9. Does your company own or have control over i ts sources of raw materials? (please circle appropriate position on the scale) (complete control) 1 2 3 4 5 6 7 (no control) 8 n/a 10. When making decisions, do you feel you gather more or less infor-mation than other managers in your company? (please circle the number on the scale) (very much less) 1 2 3 4 5 6 7 (very much more) 11. Does your organization have any formal plans to deal with potential crises? yes no I f yes, what kind? 12. How would you assess the probability of a major cr is is occurring in an average f irm in your industry within the next f ive years? (please circle the number closest to your evaluation) 0.0 .25 .50 .75 1.0 (very improbable) (with certainty) 13. How would you assess the probability of a major cr is is occurring in your company within the next f ive years? 0.0 .25 .50 .75 1.0 (very improbable) (with certainty) THANK YOU VERY MUCH FOR YOUR COOPERATION - 169 -Appendix 2 The Kolmogorov-Smirnov Test for a Normal Distribution - 170 -The Kolmogorov-Smirnov Test for a Normal Distribution To determine which stat is t ical tests are appropriate for analyzing the questionnaire data, i t is essential that we consider the nature of the population from which the sample was drawn. The Kolmogorov-Smirnov one-sample test was used to test whether or not the sample data could reasonably have come from a population that was normally distr ibuted. The Kolmogorov-Smirnov test is sensitive to any differences between the sample distr ibut ion and a speci-f ied theoretical d istr ibut ion, in this case a normal distr ibut ion. I t tests, for example, the degree of skewness and kurtosis. The test involves specifying the cumulative frequency distr ibution that would occur with a normal distr ibu-tion and comparing this with the observed cumulative frequency distr ibut ion. A s tat is t ic D is computed that is the point of maximum deviation between the two distr ibutions. This s ta t is t ic is compared to a c r i t i ca l value from a standard Kolmogorov-Smirnov table. The larger the value of D, the less l ike ly the observed (sample) distr ibution is normal. D = max F0(X) - S . ( X ) where F (X) = the theoretical cumulative frequency distr ibut ion Sn(X) = the observed cumulative frequency distr ibution of a random sample of n observations (Siegel, 1956:48) All pertinent variables in the data set were tested for normality. Of the 70 variables tested, only 21 i n i t i a l l y were distributed normally. Since we wished to use parametric stat is t ics in the data analysis, i t was necessary to perform distributional transformations to t ry and achieve - 171 -normality. Rummel (1970:284) discusses a number of transformations that may be used to normalize and reduce out l iers, and in some cases to improve the homoscedasticity of the distr ibutions. Depending upon the distributions of the sample variables, a number of different transformations were attempted. Three transformations were applied to variables with right skew distr ibutions; these were log , ( x ^ ) 2 , and 1/x.. Four transformations were applied to variables with le f t skew distr ibu-2 ^ t ions; these were (x^) , log x^/1 - x^, ^Ipg 1 + x^/1 - x . , and arcsin ( x^ ) 2 . After transformations, the distributions were again tested for normality. An additional 21 variables in the data set were transformed to achieve normality, bringing the total to 60% of the sample variables. However, the remaining variables were found to have primarily J-shaped or reverse J-shaped distr ibutions. Rummel (1970:286) notes that for these types of distributions there is no simple nongrouping transformation that w i l l normalize the d i s t r i -bution. - 172 -Appendix 3 Smallest Space Analysis / - 173 -Smallest Space Analysis SSA belongs to class of techniques subsumed under the term of 'mult i-dimensional scaling'. These techniques have been developed "for inferring multidimensional metric structure from non-metric ordinal data" (Press, 1972: 400). Despite the diversity of multidimensional scaling techniques, they al l have a unifying purpose of "somehow getting hold of whatever pattern or struc-ture may otherwise l ie hidden in a matrix of empirical data and .... of repre-senting that structure in a form that is much more accessible to the human eye -- namely, as a geometrical model or picture" (Shepard, 1972:1). SSA differs from a tradit ional factor analysis in that the technique provides a visual presentation of the dimensions. Also, most factor analytic methods lead to representations of such high dimensionality that i t is often d i f f i c u l t to identify and interpret the underlying structures. SSA is a nonmetric analysis developed by Guttman (1968). Although i t is a method of rigorous multivariate analysis, i t requires no special assump-tions. The technique requires as input, data in the form of a measure that expresses an observed relationship between pairs of variables, for example, correlation coefficients or conditional probabil i t ies. In the present study the Kendall correlation matrix was used as input. Generally, fewer dimensions are needed to reproduce order information than to reproduce metric information (for example, as in a factor analysis). To reproduce order information, one requires a simpler and more direct representation of the data; this in turn fac i l i ta tes the interpretative process. " I f our interest is in patterns or configurations, the most natural concept for revealing them is order and the appropriate method for analysis is one which focuses on monotonic transforma-tions" (Lingoes, 1972:52). - 174 -The algorithm employed in the SSA programs seek a mathematically"unique configuration of n points in some given type of coordinate space. Two condi-tions must be sat isf ied. The f i r s t condition is that of monotonicity. To an acceptable degree of approximation, interpoint distances are related to interpoint proximities in the sense that d i j < d k l w h e n s i j > s k l where d . . denotes the distance between the points A. and A. in the desired space, and s . . denotes the proximity between the points A. and A.. The second condition is that the monotonicity condition must be satisfied in as few dimensions as possible (Guttman, 1968). SSA determines the smallest space (in terms of the fewest number of dimensions) in which the body of data may be adequately represented. The cr i ter ion of visualizabi1ity is the most important factor in smallest space analysis. For this reason, the representation of the data should be confined when possible, to two" or at most, three spatial dimensions. However, the user of SSA must be aware of the trade-off required between v isual izabi l i ty and goodness of f i t . A coefficient of alienation is calculated for each analysis that assesses the goodness of f i t . The smaller the coeff icient, the better the f i t . As the number of dimensions increases, goodness of f i t also increases, but at the expense of v isual izabi l i ty . Shepard (1972:10) notes "certainly i t is contrary to the whole sp i r i t and purpose of this approach to data analysis to focus exclusively on goodness of f i t . . . and, so, to go for a representation of so many dimensions that the structure is no longer accessible to the human eye". The following rule of thumb has been suggested to determine whether or not a representation is adequate in terms of goodness of f i t . For a number - 175 -of dimensions m, i f when m = 2 the coefficient of alienation is much smaller than for when m = 1, and not much larger than when m = 3, the 2-space solu-tion would be adequate (Bloombaum, 1970:411). Interpretation of the spatial representation may occur in a number of ways. F i rs t , the researcher may look for direct ional i ty along the axes. For example, as one moves further in one direction through the space, the data may possess more of a particular property. Second, one can look at the way data points cluster into homogenous groups throughout the space. Third, the manner in which data points are ordered in simple structures such as triangles or circles may offer interesting insights (Degerman, 1972). One prime advantage of SSA, is that a researcher can look for interpretable representations with-out having to specify in advance exactly the form this representation must take (Shepard, 1972:4). Bloombaum (1970:415) provides a summary of the salient features of SSA: 1) a multivariate technique suitable for f a i r l y large numbers of variables; 2) geometric output to render the structure of a body of data easily comprehensible; 3) no special assumptions with respect to level of measurement, l inear i ty of data, etc.; 4) gives the fewest number of dimensions; 5) analyzes any matrix of observed relationships within computer size l imitat ions; 6) provides a measure of "goodness of f i t " ; 7) results remain invariant under rotat ion; 8) eliminates the necessity of choosing between orthogonal and oblique solutions; 9) no communalities to estimate; - 176.-10.) output may be checked direct ly against input table; 11) available as part of a standard l ibrary of computerized programs. Guttman and Lingoes have developed three sets of programs in the SSA series that allow for data input from square, rectangular, and partitioned matrices. Each type of program is designed to accommodate either different mathematical models or different contingencies of data collection (see Lingoes, 1973). 

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