An interactionist model of research and development investment decisions : determinism, strategic choice, and perceptual filtering

Abstract

This research effort proposes to develop and test an integrated and extended model of strategic decision making. The model is developed using an interactionist framework that emphasizes the relevance of both the person and situation in explaining organizational behavior and systematically integrates the interactive relationship between theories of determinism, strategic choice, and perceptual filtering. This is being done to suggest a more comprehensive and necessarily complex model of strategic decision making than has currently been proposed. The interactionist model proposed is applied specifically to corporate strategic investments in research and development (R&D). Fifteen hypotheses associated with the effects of industry volatility, previous investments in R&D, and CEO characteristics on current R&D investments are proposed. These hypotheses are tested using data from one hundred and seventy companies that invested in research and development from 1986-1989. Data for the theory testing portion of the study were obtained from multiple sources. Structured interviews with sixteen CEOs, in six states representing three industries, provided additional data for theory building. Results from theory testing and theory building argue for a U shaped relationship between volatility and current R&D investments. The empirical predictive relationship between previous and current R&D investments was even stronger than expected. A number of reasons for this strong relationship surfaced during the interviews and provided an opportunity to build theory regarding the causes of the consistency in R&D investments over time. CEO characteristics did not have the powerful empirical predictive implications of previous R&D but were found to affect current R&D investment decision both directly and indirectly. The CEO's functional experience affected current R&D investments directly. Education level moderated the relationship between volatility and current R&D, CEO tenure and functional experience moderated the relationship between previous and current R&D, and previous R&D mediated the relationship between CEO tenure and company tenure and current R&D. Finally, the CEO's perceptions of the importance of previous R&D investments and their perceptions regarding the funding level in the past also significantly affected current R&D. These empirical findings and the aggregated interview data support the proposed complex interrelationships of factors affecting strategic decision processes and the potential for CEOs to affect corporate investment decisions.