Intuition in Strategic Decision Making: A Critical Analysis

Putra Business School MGT7103E

Strategic Management

Introduction
Strategic decision making is made after information is gained from external and
internal analysis which implies it is a rational process (Hitt et al., 2020). Researchers view
intuition as a “nonconscious” process that draws on tacit knowledge that is retrieved through
pattern recognition (Wu, 2022). This report aims to critically comment on the importance of
intuition in strategic management focusing on decision-making. As in most matters, there are
always advantages and disadvantages to any one position taken at any given time.

Intuitive Judgement
Intuition is a sense of certainty and perception that one’s feelings are correct, despite
the lack of rational analysis. The advantage of intuitive judgement is faster decisions are
made as it does not follow a linear, logical reasoning process that can be reconstructed
(Calabretta et al., 2017). Another advantage is that it does not require any formal training
and expertise. Since there is no formal training, and it relies on previous experience and
learned patterns, this allows flexibility in adaptation in new and unfamiliar environments.

As the individual becomes more experienced in their specific domain, their expertise
increases which can develop into a distinctive type of intuition, known in literatures as expert
intuition or problem-solving intuition (Calabretta et al., 2017). If knowledge management
processes are applied properly on this tacit knowledge, then it is possible an organization
can achieve better performance such as faster work or best practices (Abubakar et al.,
2019). Intuitive judgement is highly useful especially if there are time constraints or high
stakes, and very little information or data to be analyzed. Take-The-First (TTF) heuristic can
be applied in this case, where the most valid option given the specific situation at hand is
chosen (Medvegy et al., 2022).

Business Case
Company X operates and maintains offshore assets for Client A. This was a new
facility which has just started production. During the installation phase, proper
commissioning practices were not complied with. One week later, the refurbished engine
shut down and was unable to restart, causing production to stop. It just so happened that a
 1

supervisor used a chemical tank to store diesel which was filled into that engine the night
before.

Client A was understandably unhappy and blames Company X that the root cause of
the issue was contaminated fuel, and this was due to the incompetence of the crew.
Company X put the blame back on Client A highlighting that the engine was not designed for
continuous running and that proper commissioning procedures were not complied with.
However, engineer C, who worked for Company X, had anecdotal knowledge about that
particular chemical which should act as an octane booster when mixed with diesel. As such,
the contaminated fuel probably would not cause the engine failure and deduced that the
design of the engine could be the root cause. There was no evidence to confirm either
position. Two days after the incident, engineer C suggested to the client that Company X
transport the engine to shore for an independent inspection, and if the findings found that the
fuel was the root cause, then Company X would pay for the repairs and it was estimated that
the repairs would cost RM500,000. The findings found that the fuel was not the root cause
and that the internals of the refurbished engine were not as per specification. This enabled
Client A to file claims from the engine dealer and the relationship between Company X and
Client A improved to the point that Company X now operates and maintains five of Client A’s
assets, which makes up to 40% of Company X’s revenue.

A root cause analysis were conducted, however it took one week for a consensus to
be reached on all the probable root causes which would then need to be investigated one by
one.

Conclusion
This shows that intuitive judgement can be important for improved organizational
performance. However, it is not without its pitfalls. Rational decision-making process is
geared towards ensuring the optimal choice is made after intentional and thoughtful analysis
and this process is repeatable (Shresth et al., 2019). As intuitive judgement is based on
experience and not logic, it can be influenced by bias and emotions, which may not lead to
the most preferred outcome. As the case above demonstrates, it carries a risk of Company X
losing the client and RM500,000 in the process.

Optimal strategic decision-making may require both rationality and intuition

(Calabretta et al., 2017). Analytical skills are required to process details while intuitive
judgement is required to enable decision makers to view the “bigger picture” which mitigates
the risks of “paralysis analysis” and “extinction by instinct” (Hodgkinson & Sadler-Smith,
2018). In an organizational setting, this can be achieved through committees to reflect on a
 2

situation to make joint decisions to leverage on individual tendencies that skew towards
intuitive or rational decision-making (Srivastava & D’Souza, 2021).
 3

References
Abubakar, A. M., Elrehail, H., Alatailat, M. A., & Elci, A. (2019). Knowledge management,
decision-making style and organizational performance. Journal of Innovation and
Knowledge, 4(2), 104-114. https://doi.org/10.1016/j.jik.2017.07.003
Calabretta, G., Gemser, G., & Wijnberg, N. M. (2017). The Interplay between Intuition and
Rationality in Strategic Decision Making: A Paradox Perspective. Organization
Studies, 38(3-4), 365-401. https://doi.org/10.1177/0170840616655483
Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2020). STRATEGIC MANAGEMENT:
COMPETITIVENESS & GLOBALIZATION. Cengage Learning.
Hodgkinson, G. P., & Sadler-Smith, E. (2018). The Dynamics of Intuition and Analysis in
Managerial and Organizational Decision Making. Academy of Management
Perspectives, 32(4), 473-492. https://doi.org/https://doi.org/10.5465/amp.2016.0140
Medvegy, Z., Raab, M., Toth, K., Csurilla, G., & Sterbenz, T. (2022). When do expert
decision makers trust their intuition? Applied Cognitive Psychology, 36, 748-757.
https://doi.org/10.1002/acp.3958
Shresth, Y. R., Ben-Menahem, S. M., & Krogh, G. v. (2019). Organizational Decision-
Making Structures in the Age of Artifical Intelligence. California Management
Review. https://doi.org/10.1177/0008125619862257
Srivastava, S., & D’Souza, D. (2021). Measuring Strategic Thinking in Organizations.
Journal of Managerial Issues, XXXIII(1), 90-111.
Wu, H. (2022). Intuition in Investment Decision-Making Across Cultures. Journal of
Behavioral Finance, 23(1), 106-122.
https://doi.org/https://doi.org/10.1080/15427560.2020.1848839