Design-Based and Theory-Based Approaches to Strategic Decisions

We develop a unified framework to examine the implications of two primary approaches to strategic decision-making under uncertainty: designing and shaping future scenarios vis-`a-vis testing theories about future scenarios. We conducted a three-arm randomized controlled trial involving 308 early-stage entrepreneurs, dividing them into three groups: design-based training, theory-based training, and a control group, and tracked them over approximately 1.5 years. Our findings reveal that both approaches reduce the need for information in decision-making and lead to higher commitment rates. The design-based approach encourages action despite negative beliefs, resulting in less frequent and later project termination. In contrast, the theory-based approach promotes a more conservative termination rule, leading to earlier and more frequent project abandonment. Although the theory-based approach is associated with higher average performance upon survival, the design-based approach fosters breakthroughs decision-makers. In sum, the design-based approach is well-suited for innovative ventures that gather information to shape their environment, whereas the theory-based approach is optimal for pursuing high performance under lower degrees of uncertainty.