BU481 Lecture Notes - Lecture 7: Risk Aversion
BU481
Management Preferences and Strategy
Betting Example
• Fun in betting
• Risk aversion vs. risk taking
• Many strategic choices are based on management preferences
Management Preferences
• There is o ay to diore the deisio deteriig the ost sensible economic strategy for a
opay fro the persoal alues of those ho ake the hoie
• Aligning shareholder interest with leadership
o Incentives
o Board of directors
o Options
• Formed by interaction needs, beliefs, and situational pressures
• Specific to personalities, experiences, and situations
• Differences in personal preferences => different strategic positions
Roots of Strategic Performance
• Basic – manager personality, stable, enduring, generally consistent, fundamental influences on
strategic performance
• Beliefs – can vary from deep to casual and can change over time, direct management
preferences towards specific strategic initiatives & responses
• Job context (situation) – defie the sope ad ature of aager’s resposiilities, perforae
assessment, and rewards, formal and informal relationships, job definition (what you do) and
job relations (expectations of others on you)
• Strategy can come from CEO influences and beliefs or you can find one that fits
o Size makes a difference, environment has an impact
• Mismatch between management preferences and the environment
• Preferences are underpinned by these ideas and values
Management Preferences
• In whose interest is management acting?
• What is aageet’s etral resposiility?
• What’s aageet’s role in value creation, capture and distribution?
o Which stakeholders are the most important?
• Can give profits to management, employees, R & D, back into the community, keep it yourself
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