Reasoning in the Executive Suite: The Influence of Role/Experience-Based Expertise on Decision Processes of Corporate Executives

This study investigates the effect of high-level executives' professional experience, expertise, and role in a specific functional area such as finance or corporate development on their reasoning processes when making managerial decisions. Chief Financial Officers (CFOs) and Vice-Presidents of Corporate Development (VPs) in the diversified foods industry were tape recorded as they thought aloud while evaluating four restaurant chains which were candidates for corporate acquisition. The experiment was designed so that these four acquisition candidates varied with respect to key financial and profitability data and such measures of a firm's strategic business position as product concept, markets, distribution channels, labor relations, and managerial expertise and loyalty. The attributes of financial performance and strategic position embedded in the descriptions of candidate firms were validated by an expert panel. The executives also provided rating-scale evaluations of the strategic, financial, and overall desirability of the four candidate firms.The taped thought processes (verbal protocols) were analyzed to determine whether CFOs and VPs differed when evaluating the overall desirability of the acquisition candidates in their use of such lines of reasoning as assessments of the candidate's competitive environment, financial strength, management, operations, and the potential financial, managerial, and operational synergies offered by the proposed acquisition. The probability of generating these assessments during the evaluation process did not appear to be related to expertise based on experience or organizational role.When the protocols were analyzed with respect to specific business issues identified by CFOs and VPs when evaluating acquisition candidates, however, there was a role/experience effect. Overall ratings of candidate-firm desirability were straightforward functions of the executive's ratings of the candidate's strategic position and financial performance. On average, VPs tended to be more optimistic in their evaluations than CFOs.There is modest statistical evidence that VPs and CFOs differ in the emphasis they place on strategic and financial ratings in evaluating a candidate's overall promise. VPs tend to take a balanced view in forming their overall ratings, whereas CFOs place the predominant weight on financial matters.The similarity in lines of reasoning used by CFOs and VPs presents evidence of shared expertise at the corporate level. The difference in the attention that CFOs and VPs place on specific business issues suggests that collectively these different perspectives constitute an adaptive survival mechanism which evolves in successful organizations. The mechanism complements the shared expertise and protects organizations from making flawed strategic decisions. Analyzing these role/experience-based differences has value in developing an understanding of how organizations do and should integrate recommendations from executive officers of various functional areas.