Managerial discretion is the theoretical construct set forth like a bridge between the polar views of organizations which are either inertial or highly adaptive. This has continued as a debate between population ecologists and strategic-choice theorists on the question of whether managers even matter.

In their early view, population ecologists tended to view managers (except founders) as generally superfluous relatively indistinguishable in their contributions. Conversely, strategic choice theorists pointed to numerous examples of the critical role of managers in determining organizational actions and outcomes.

Management consultants, for example, those at Gabriel Domale Consulting, help managers to reconcile the divergent views on managerial discretion and to determine the circumstances under which the different levels of managerial discretion can best apply. Organisations need to explore how the use of managerial discretion aligns with corporate actions.

What Is Managerial Discretion?

Discretion can be defined as the ‘latitude of action’. Managerial discretion refers to influence and actions that are taken that impact organisational outcome.

Improving our knowledge of managerial discretion could be helpful to business leaders in deepening their understanding of organisational concepts as succession patterns, executive compensation, administrative intensity, and strategic inertia.

The central argument is that managerial discretion is affected by the environmental, organization and individual factors. By 1995, Hambrick and Abrahamson had re-echoed that managerial discretion is influenced by “three sets of factors - characteristics of an organization's environment, particularly its industry, of the organization, and the executive himself or herself”.

Thus the manager’s degree of discretion is derived from three sets of factors such as environmental, organizational, and individual managerial characteristics.

Environment. Industry, and Managerial Discretion

Organizations function within environmental domains that are defined by their products or services and the markets they serve. These environmental characteristics include product differentiability, market growth, industry structure, demand instability, quasi‐legal constraints, and powerful outside forces.

The characteristics of these domains as well as the firm’s relationship of the task environment governing the domains are greatly affected by the level of managerial discretion.

Gabriel Domale Consulting develops frameworks that enable managers to map managerial discretion to industry type, environment and characteristics of managers. Industry type can be a major driver of managerial discretion.

Heavily knowledge-based industries such as consulting, research and development, innovation and technology firms tend to have greater managerial discretion at play. In such industries, the exercise of managerial discretion may not be too dependent on the personality of the CEO or the dominance of the Board.

The reverse may be the case in the mining, oil and gas industries where strong influences are exerted by the CEO and Board in decision making. Thus, managers in these industries seem to be cautious in applying managerial discretion as decisions to be taken are often revalidated with the CEO/and the Board.

It can also be noted that the level of managerial discretion within each industry may vary due to the requirements of different functions. Often, even within the same firm, the level of managerial discretion applied is influenced by the function for which the manager is responsible.

For example, managers that deal with local communities, social organizations and environmental pressure groups tend to have more latitude in building and managing the networks and social embeddedness.

On the other hand, managers leading project executions are more expected to deliver on well-monitored business plans, schedules and cost performance and thus, these managers exhibit less managerial discretion.

Organizations and Managerial Discretion

Managerial discretion varies greatly across organizations. Top managers of some organizations tend to have more discretion than their counterparts in other organizations, and that a given executive can have more discretion at some times than at others. This potential for contrasts, or variation in discretion determines in part the appropriateness of the inertial and strategic‐choice views.

Organizational internal characteristics limit the manager’s discretion or the organization’s ability to consider a change. These may be affected by inertial tendencies which may include organizational size, age, strong culture, capital intensity, resource availability, and internal political conditions.

Managerial Discretion and Individual Managers

Managers differ in the degree to which they generate and consider multiple courses of action due to their managerial characteristics which include aspiration level, commitment, tolerance of ambiguity, cognitive complexity, locus of control, power base and political acumen.

A manager's discretion has no rigid bounds: it is limited in part by his or her awareness and repertoire, as well as by constraints that are largely unstated and untested. The manager can operate in a host of both substantive and symbolic domains.

Substantive domains include resource allocation, product-market selection, securing resources, competitive initiatives, administrative choices (e.g. reward systems and structure), and staffing.

Symbolic domains include language, demeanour, and personal action that the manager might use to alter or reinforce standards and values. The manager must be aware of an option for it to be part of the discretionary set. Thus, discretion is a product of experience, scanning, and insight.

Strategic Implications

Discretion may help in the understanding of executive profiles, administrative turnover, executive rewards, administrative intensity, strategic persistence, and volatility of organizational performance.

The direct measurement of the manager’s discretion may be extremely difficult because it is not entirely knowable and it is a function of the manager’s attributes and the organizational performance.

Managers make decisions based on experiential knowledge to resolve ambiguities quickly. The greatest benefit from the discretion concept may be in helping to unravel a host of puzzles facing knowledge managers of organizations.

The Role Of Management Consultants

Local consulting firms in Africa should leverage their expertise in leaders coaching to guide public institutions and companies on the effective use of managerial discretion. One of such local management consulting firms is Gabriel Domale Consulting which provides advisory in finance, strategy, corporate governance, transformation, cost reduction and leadership training.

Considering strategy in practice, some questions that senior business leaders should strive to answer are:

1. How much discretion does the environment allow the organization?
2. How much discretion does a manager envision/creates for himself or herself?
3. Under what circumstances should managers’ discretion be restricted or expanded?
4. Given the preferences of business leaders, is more discretion preferable to less?

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This article is written by Dr Leesi Gborogbosi, the CEO of Gabriel Domale Consulting (Management Consulting Firm) Port Harcourt, Nigeria. 

Dr Leesi Gborogbosi has about three decades of leadership experience in the oil and gas industry. He is an expert in finance, strategy, corporate governance, transformation, cost reduction and leadership training. leesi.gborogbosi@gmail.com

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Gabriel Domale Consulting | Management Consulting Firm | Port Harcourt – Nigeria | +2347034604152 | info@gabrieldomale.com

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