Is managerial discretion good or bad for organizational adaptiveness?

Abstract

Managerial discretion is generally seen as a leadership capacity that affects organizations’ ability to adapt to new and changing demands and circumstances. The aim of this article is to examine this traditional view. Based on a review of the literature, I will argue: Both too little and too much managerial discretion might be disadvantageous to appropriate organizational adaptiveness. Based on findings from a pilot study of top leaders as “change agents,” I will make the argument: It is difficult for top leaders as change agents to have both discretion and power.

Keywords

Discretion leadership rules adaptiveness organization

Introduction

As the conditions that affect organizational efficiency, effectiveness, social image, and legitimacy change, an adaptive organization has to shift its practices. Leadership is generally viewed as an important force in organizations’ ability to adapt to new demands and challenges, or to “go dynamic” through exploration (Northhouse, 2010; Yukl, 2002). Leadership-initiated exploration of what might come to be known may lead to discovery of new ideas, new practices, and new directions and, in turn, affect adaptiveness (March and Weil, 2005).

Leadership research which has focused on the positive effects of leadership, posits that managerial discretion is a necessary condition for intelligent leadership-initiated adaption to new and changing circumstances. When the top leadership (as change agent) has discretion, it has freedom of choice and, in turn, the chance (and power) to affect the organization’s capacity to become more dynamic (Espedal, 2009; Hambrick, 2007; Hambrick and Mason, 1984; Kotter, 2005; March and Weil, 2005; Northhouse, 2010; Yukl, 2002). Thus, organizational adaptiveness is supposed to occur in a context that allows the top leadership a high level of discretion. In other words, organizational adaptiveness are pictured as being the result of intentions and actions of the leadership, and the language of leadership is associated with the idea that high level of discretion is good and a low level of managerial discretion is bad for top leadership. The purpose of the article is to examine this assumption.

Given this point of departure, the analysis will be based on (1) a review of the literature and (2) findings from a pilot study of top leaders as change agents. Concerning the review of the literature, I will first discuss: What is managerial discretion? Why might discretion be beneficial for adaptiveness? The discussion reveals that managerial discretion may foster leadership-initiated exploration, but unbridled managerial discretion may also diminish control and discipline over leadership-initiated exploration. Thus, both low and high level of managerial discretion might be bad for organizational adaptiveness. This finding leads to an exploration of the question: What are threats associated with a low and a high level of discretion? Regarding the pilot study, I will ask the question: How do top leaders, as change agents, think about managerial discretion as a condition for leading change?

The role of managerial discretion

What is managerial discretion?

The freedom and the capability to make and use judgments informed by knowledge are viewed as the central hallmarks of managerial discretion. Top leaders act by making choices, and they need discretion in order to make decisions and to act as they see fit in different organizational settings (Hambrick, 2007). Discretion is assumed to enhance a leader’s impact on organizational outcomes, as the organizational constraints common to leadership are generally less severe in a context that allows for discretion. Such constraints are related to job demands, expectations, rules, routines, formal control systems, resources, social embeddedness and networks (Hambrick, 2007; Stewart, 1989). That is to say, room for discretion implies a reduction in organizational limitations in the form of demands and constraints.

In addition to the organizational determinants of managerial discretion, Hambrick and Finkelstein (1987) identify individual determinants in the form of personal commitment, cognitive complexity, tolerance of ambiguity, and mindfulness. Hence, managerial discretion is not only shaped by organizational demands and constraints but also by individual factors that form a leader’s conception of the basis and motivation for action (March and Weil, 2005). Leaders are expected to have reasons for what they do—based on this conception. These reasons inform both their choices and the justifications of those choices. They reflect a logic of action that allows some types of leadership behavior and limits the prevalence of other types (the logic of action effects how a leader think, what the leader see, like, etc.). In this perspective, March and Weil (2005: 19) distinguish among (a) a logic of consequences (achievement of individual and collective aims) and (b) a logic of appropriateness (leaders act in accordance with their identities—associated with obligations and appropriate norms).

In the extant literature, the positive effects of managerial discretion are typically related to a reduction of the organizational constraints associated with organizational routines, formal control systems, and job-related demands. However, it is the perceived discretion that is important for action, and the logic of action impacts how a top leader perceives the formal discretion.

Why might discretion be beneficial for adaptiveness?

Proponents of managerial discretion argue that top leaders need discretion in order to meet and handle the great expectations and commitments demanded of them (Barnard, 1938; Bass, 1985; Burns, 1978; Finkelstein and Hambrick, 1996; Hambrick, 2007; Hambrick and Finkelstein, 1987; Hambrick and Mason, 1984; Kotter, 2005; Mintzberg, 1973; Stewart, 1989; Yukl, 2002). From this view, the top leadership needs discretion in order to contribute to the ways in which organizations are coordinated and controlled to improve outcomes. Second, discretion is important for creation of safe play spaces in change processes (March, 1999: 319). Playfulness may allow leaders to temporarily suspend their mental models, logics, and disbelief in favor of exploration and experimentation with new ideas. At the same time, play may acknowledge reason. Playfulness accepts an obligation that at some point playful behavior will be stopped or its learning outcome will be integrated into a change process in a way that makes sense. Third, top leaders need discretion for a motivational reason. A high level of discretion may help leaders to believe and feel that they can make a difference in situations where there are often ambiguity about outcomes and about who is responsible for outcomes (March and Weil, 2005). This belief can justify the great commitments demanded of them, and it can also lead to complacency, which again may affect how they interpret success or failure in an organizational change process.

Thus, scholars have argued that managerial discretion is an important catalyst for organizational learning and adaptiveness. From a learning perspective, discretion might allow the leadership to free up time for learning (Foss et al., 2009). Such an opportunity is important. Achieving adaptiveness is not only a question of freedom of choice but also a question of valid knowledge. Therefore, the leadership’s ability to influence an organization’s capacity to become more dynamic requires that the leadership devotes time to learn from one’s own experience and the experience of others (Levitt and March, 1988; March, 1999). Through such learning, the leadership might discover both a need to change organizational practice and premises for new practice (Espedal, 2008).

Learning from experience is not only a question of how the leadership gains access to experience but also a question of how the leadership reacts to that experience. In terms of ideal (structural and social) conditions for access to experience, a free flow of valid experience or information is the lifeblood for learning in an organization. From this perspective, Foss et al. (2009) argue that discretion (autonomy) may foster intrinsic motivation for information-sharing behavior. Hence, experience is supposed to be a good teacher for actors who have discretion, but March (1994) points out that experience has several limitations that are inherent in the very nature of experience itself. In terms of creating knowledge, the bridge between experience and learning is found in interpretation. Daft and Weick (1984: 294) define interpretation as “the process through which information is given meaning” and as “the process of developing shared understandings.” Learning occurs when the leadership reaffirms shared understandings and when the leadership changes those understandings. However, these two types of learning are contradictory (Argyris, 1999). The first type of learning is essentially learning within a perspective, while the essence of the second is escaping a perspective and implementing a different mindset. Learning within a perspective suggests that knowledge is accumulated and stored in organizational procedures, rules, and norms. Such learning might lead to improvement of rules and rule-based acting. Profound change of organizational routines requires new knowledge and a new mindset, however (March, 1991). Leaders are frequently good at learning within a logic of action, but profound changes in the logic that directs, motivates, and legitimates leadership behavior are difficult to achieve (Argyris, 1999).

From a change and adaptiveness perspective, discretion might create a context that allows exploration—associated with new possibilities. March (1991: 71) defines exploration as “search, variation, risk-taking, experimentation, play, flexibility, discovery, and innovation.” This definition is quite broad in scope and open to various interpretations. In subsequent work, Levinthal and March (1993: 105) restricted the scope of these activities to the knowledge domain, stating that exploration involves “a pursuit of new knowledge.” Novelty in terms of new knowledge can be seen as the lifeblood of the process of organizational adaption. Adaptation suggests change and the notion of change, in turn, suggests a shift to a new logic of action, to a new knowledge base, to a set of new practices, and to a new form. Hence, managerial discretion can be seen as an arena that nurtures exploration as a source of change and adaptiveness. Such a context may enable the pursuit of novelty and new possibilities since the power and legitimacy associated with discretion protect the leadership from the uncertain success of new ideas. Furthermore, the leadership may have the authority to explore ideas that do not appear to be justifiable in terms of internal, organizational norms but that have high potential in the view of external stakeholders. In these ways, the leadership sustains exploration because the leadership has the opportunity and capability (power/authority) to be impatient with old ideas and patient with new ideas.

Organizational dilemmas associated with discretion

In an increasingly dynamic world, organizations are being forced to develop room for managerial discretion (associated with leadership-initiated exploration) in order to enable adaptiveness (Hambrick, 2007). At the same time, however, organizations have become arenas and top leaders have become actors of misconduct, resulting in harmful or morally objectionable acting (Greve et al., 2010). Thus, discretion has come under sharp scrutiny as organizations face increasing pressure to limit managerial discretion (associated with leadership-initiated exploration) in order to avoid opportunistic leadership behavior and managerial waste. From this view, a high level of discretion is not good for adaptiveness. Hence, autonomous leaders might be dangerous: “For every leader who pursues an autonomous direction that benefits society, there are many more that pursue autonomous directions that harm society” (Podolny, 2011: 504).

Two countervailing forces suggest a fundamental organizational dilemma: Leadership-initiated exploration might increase the number of good new ideas (that are beneficial for appropriate adaptiveness) but it might also increase the number of bad new ideas (that are not beneficial for appropriate adaptiveness). Thus, if managerial discretion is essential to organizational adaptiveness but can also cause organizations to go wild, organizations run two types of risk. The first type is the risk of eliminating managerial discretion to a point that undermines the top leadership’s ability to explore in order to adapt the organization to new and changing demands. The second is the risk that unbridled freedom of choice might lead to harmful leadership acting. This article makes the argument that one way to reconcile this dilemma is to recognize that the relationship between adaptiveness and discretion is curvilinear. On the one hand, too little managerial discretion may inhibit organizational adaptiveness since it might discourage any kind of leadership-initiated exploration whose outcome regarding adaptiveness is uncertain. On the other hand, too much discretion may inhibit organizational adaptiveness since unbridled managerial discretion might diminish discipline and control of leadership-initiated exploration whose outcome regarding adaptiveness is uncertain. Thus, both a low and a high level of discretion might create organizational contexts that allow nurturing and development of threats to the leadership’s pursuits of appropriate organizational adaptiveness. Taken together, these ideas suggest that an intermediate level of discretion is optimal for organizational adaptiveness. This suggestion raises the question: What are threats to an optimal level of freedom to make choices?

Threats to an optimal level of freedom to make choices from a low level of discretion

Proponents of managerial discretion suggest the top leadership has a low level of discretion if most of the leadership functions are built into organizational rules and routines. Organizational rules and routines have been regarded as the primary means by which organizations accomplish much of what they do (Cyert and March, 1963; March and Simon, 1958; Thompson, 1967). While recognized as an essential aspect of organized work, organizational rules and routines are also seen as programs that might be executed without conscious thought. This understanding has deep roots in social theory, as reflected in writings on bureaucracy (Blau, 1955; Crozier, 1964; Gouldner, 1954; Hummel, 1987; Kaufman, 1977; Merton, 1940; Selznick, 1949; Weber, 1947).

Thus, organizational rules and routines may become a source of stability, inertia, inflexibility, and mindlessness, and such a development may create numerous problems regarding freedom of choice. One problem can be “over discipline” (Merton, 1940) or “over conformity” (Merton, 1957). Rule governance can enforce overly strict codes of behavior that make deliberate decisions a rarity. Such decisions may be hindered by a lack of information or by the absence of impulsive, spontaneous pleasures in the leaders’ organizational life (Pfeffer et al., 1998). A second problem is over-identification with the rules, or inordinate and inflexible adherence to rules, i.e. a passion for legalism. A related problem is “double-binding” (Argyris, 1999). Precommitment is an activity designed to help the leadership to deal with threats. However, precommitment to a rule in order to be “in control” over a threat might itself be a threat that creates defensive reasoning and political games in organizations. As a result, defensive reasoning and opportunistic acting violate the intention behind the precommitment, and if actors become aware of their impact they will claim “that they are in a double-bind, helpless but to act as they do” (Argyris, 1999: 167). A fourth problem might be “goal displacement” (Etzioni, 1964: 10; Merton, 1957: 201): The need for leadership to accomplish a goal leads to precommitment to a rule and to follow this rule might become a goal in itself. A fifth problem is associated with self-liberation. Rule governance emphasizes command that makes actions more rational and more predictable. However, modern organizations are moving away from an emphasis on command and control (Pfeffer, 1994).

Managerial discretion suggests ideally that the top leadership makes the correct decisions or avoids making incorrect decisions—in relation to balancing passion and discipline, efficiency and adaptation, short-term view and long-term view, and stability and change. A mistaken response can consist of leaders saying no to good ideas and ventures, or refraining from becoming aware of the “correct” resolutions. Another incorrect reaction consists of the leadership saying yes to bad ideas and ventures, or passing unwise resolutions. Organizational rules and routines may reduce the creation of bad new ideas but may at the same time reduce the creation and persistence in good new ideas. Therefore, rules and routines are not useful for distinguishing good new ideas from bad ones, and a routine provides no guarantee that new good ideas will be adopted and developed. This is because being rule driven involves a clear risk of new good ideas being filtered on the path to selection. It also involves the risk that new ideas s will not be looked into closely enough to appreciate the full benefits of mastering them.

Threats to an optimal level of freedom to make choices from a high level of discretion

Proponents of managerial discretion suggest that freedom of choice is an important condition for the top leadership’s rational considerations and judgments in the achievement of organizational goals. From this view, top leaders are described as seeking to adopt organizational courses of action that lead them over the long run to outcomes that they and external and internal stakeholders find satisfactory. Such a vision of leadership as forging alignment, coherence, and a unity of harmonious purpose and commitment clashes, however, with an alternative vision of leadership that accepts the limits of rationality, the emotionality of human existence, conflict among rational actors, and alternative logics of actions. Thus, the intelligent instrumental conception of leadership action (associated with organizational identification) has been subject to criticism. The top leadership acts by making choices, and this freedom of choice implies that not only the rational self (associated with organizational identification) but also the self-interested (rational) self and the emotional self might influence the top leadership’s considerations and judgments (Elster, 1979). Therefore, unbridled discretion (associated with top leadership-initiated exploration) might be risky. In other words, discretion may actually hurt exploration, and hence adaptiveness.

For this reason some scholars, especially within the fields of transaction cost economics and agency theory, have adopted a hostile view of managerial discretion (Arrow, 1963; Eisenhardt, 1989; Fama and Jensen, 1983; Jensen, 1986, 1993; Williamson, 1964; Zahra et al., 2005). These scholars assume that high managerial discretion (autonomy) is associated with managerial self-interest rather than organizational accountability. Top leaders may prefer a high level of discretion in order to pursue their own interest rather than to act in the interest of their organizations. What’s more, top leaders who are protected from the pressures of internal and external governance mechanisms/constraints will make choices that “accord better with their own preferences than with economic considerations” (Child, 1972: 11). In this way, unbridled managerial discretion may create an arena that allows nurturing and development of opportunism, cynicism, incompetence, and sloth rather than appropriate long-term organizational adaptiveness. As an outcome, top leaders might become actors of misconduct with potential consequences that far exceed what individuals are capable of outside this context. Organizations go wild because they tempt their top leaders too much and control them too little. From this perspective, unbridled discretion inhibits appropriate organizational adaptiveness by breeding complacency and a lack of control and discipline of leadership-initiated exploration, resulting in harmful or morally objectionable acting. Hence, unbridled discretion may allow a leader to view him/herself as a self-interested optimizer in an organizational context—in which there might be an unclear distinction between right and wrong, and in which there are few formal, social, or cultural control mechanisms.

Self-interest, related to strategic opportunism, might be another threat associated with unbridled managerial discretion. A process in which the top leadership intends to “go dynamic” can be seen as a development over time with several sequential stages. At each stage, the top leadership wants to have discretion in order to adapt the organization to new or changing demands. Actions that are consistent with demands in the initial stages of the process do not necessarily lead to better outcomes in the long run, however. It might be difficult to accomplish a balance between short-term and long-term considerations. This may have to do with conflicting interests in organizations (Bolman and Deal, 1997; Cyert and March, 1963; Mintzberg, 1985).

For example, when the top leadership has freedom to make choices intended to enable dynamic adaptiveness, opportunistic interests may enter the process and affect the outcome(s). Opportunistic interests who act intelligently from their own point of view can experience a leadership pattern that expresses dynamic adaptiveness to new demands. These actors learn from their observations, develop knowledge about the leadership’s way of thinking and acting, and form expectations about how the leadership will act in the future. They can exploit this knowledge in political games against the leadership, or they can opportunistically use their knowledge to change the premises of a chosen strategy: The actors act opportunistically, the top leadership will respond (dynamic adaptiveness to new demands), and this response may trap the leadership in a way that changes or manipulates the leadership’s preferences (Selznick, 1949). Discretion, associated with dynamic adaptiveness, creates new circumstances; these new circumstances change the premises and the conditions for the chosen strategy. In this way, the leadership’s unbridled discretion creates opportunities for opportunistic change of premises and goals that, over time, make an intended strategy inappropriate. Adaptive acting in one stage of the process produces binding premises for acting in the next stage, and that again changes the initial premises or preferences. Top leaders may have discretion and good intentions and act intelligently in the short run, but this short-term acting traps them in ways that prevent them from following their good intentions in the long run.

The emotional self is the third threat associated with unbridled discretion. The instrumental logic of expected consequences suggests ideally that the top leadership is forward looking, anticipates consequences, and generates expectations about the future in order to adapt the organization to new or changing demands and challenges. Hence, leadership action is seen as intentional, driven by an evaluation of its expected consequences. In practice, however, there is a general individual and organizational tendency to favor the present over the future (Levinthal and March, 1993). Thus, keeping a promise might be difficult, because reneging on a promise can be the tempting or “rational choice” in the short-term. Important aspects of myopia have to do with emotions that allow short-term temptation at the expense of long-term interest. When there are competing goals in an action (or problem-solving) situation, goals related to short-term aspects (such as “to feel good/better”) are likely to win since they are directly tied to emotions that push long-term aspects of the situation into the background. The mechanisms of such a development involve the motivational power of loss (see Kahneman et al., 1991). If leaders who have a high level of discretion perceive a “golden opportunity” for a quick and sizable gain, they are likely to pursue it. If, however, pursuit of this opportunity is barred because it goes against a standing agreement or promise, then the very idea of having to miss out on such an opportunity creates a strong feeling of loss. Unless the long-term goal is very strong, it will give way to a short-term goal in which feeling better is dominant. Feeling better means avoidance of the feeling of loss, and the most likely action to achieve this is to take advantage of the golden opportunity.

A related aspect of myopia has to do with emotions associated with impulsive needs (Elster, 1979, 1986). For example, the top leadership might have unbridled discretion and good intentions regarding a long-term goal. However, freedom of choice allows emotions and “weakness of will” (related to impulsive needs, curiosity, and interests in a situation) to influence short-term considerations. This impact can make it difficult to persist in the good intentions and prevent the fulfillment of the desired long-term goal. In other words, emotion-based acting in the short run may trap the leadership in ways that prevent the leadership from following good intentions in the long run.

The described threats to the leadership’s optimal level of discretion reflect a negative view of organizational constraints. Taking organizational rules and routines as a point of departure, I will argue that such a view is only partly true.

Organizational rules and routines as instruments of stability and change

On the one hand, it is true that organizational rules and routines might be a source of stability and inflexibility. On the other hand, it is also true that rules and routines might be a source of change: rules adapt to experience and change when experience changes (Levitt and March, 1988); rules have an inherent capability to generate change merely by its ongoing performance (Feldman and Pentland, 2003); and rules are associated with dynamic capabilities (Teece, 1997; Zollo and Winter, 2003). Thus, organizational rules and routines are vital constituents of organizational learning because they may retain lessons learned in the past and they may adapt to change when experience changes. As such, they are necessary for the intelligent adaptation of organizations to new demands (Espedal, 2008; Levitt and March, 1988).

Rules and routines as instruments of stability might be a limitation, but it might also be a necessity. Most discussion in the literature has focused on one side: how rules may hamper freedom of choice. Much less attention has been paid to the other side, namely, how commitment to rules might be necessary individual and contextual conditions when the leadership pursues adaptiveness.

Rules and routines as instruments of stability might be important because a rule-driven, uncorrupt, and predictable system (bureaucracy) may better orchestrate rationality, growth, and adaptiveness than more informal and loose systems do (Teece et al., 1997). Such a system might also be a source of security and efficiency, or as Leavitt (2003) points out, “hierarchies deliver real practical and psychological value. On a fundamental level, they don’t just enslave us; they also fulfill our deep needs for order and security. And they get big jobs done” (p. 101). Thus, stability (associated with agreement on the rules of the game, keeping promises, etc.) is important because organizational life is based on accountability, confidence, credibility, and predictability.

Rules as instruments of stability might also be important for establishing binding mechanisms that safeguard organizational interests and long-term objectives in the short-term. Organization theorists argue that leaders may choose actions that would be beneficial to themselves but harmful to the organizations, or they may choose action that would favor short-term temptation at the expense of long-term interest. By binding to an appropriate rule, the top leadership can overcome such threats. The leadership develops commitment to a rule and does not respond to impulsive needs, local feedback, etc. In this way, the leadership implements restrictions on discretion and future decision-making power by shaping the preferences underlying choices by constraints. The leadership uses binding mechanisms to enforce a long-run will on the impulsive self to ensure that their rational will prevail in forthcoming periods, that is to say precommitment to a rule of appropriateness imposes constraints upon the “weakness of will” that looks the leadership into long-range commitments.

By binding to a rule, or by taking certain courses of action that are very costly to change, the top leadership can also avoid strategic opportunism or prevent manipulation from opportunistic actors (Kydland and Prescott, 1977; Schelling, 1960, 1985). The leadership adopts a rule, follows it, pays no attention to other actors’ opportunistic behavior, and acts without regard for short-run consequences in an adaption process. In other words, the leadership develops self-control (the sacrifice of an immediate advantage for a long-run advantage) in order to protect intended organizational adaption from pressure associated with opportunistic, local feedback. Hence, discretion and good intentions alone will not be enough to follow through on intentions; leaders who have discretion will need to bind themselves in some further way to fulfill their intentions. Therefore, binding mechanisms in terms of commitment to appropriate rules and norms might be a necessary precondition for achieving long-term goals. Leaders follow a rule and discipline themselves through a sense of self that allows them to achieve a desired end that might otherwise be attainable only with difficulty. Thus, the basis for leadership action is the logic of appropriateness—the fulfillment of an identity and the obligations and norms associated with it (March, 1994). For example, the fulfillment of an identity may tell the leader that keeping promises is about a rule of appropriateness. Keeping promises (via duty ethics) is an important leadership issue, dealing with a fundamental moral principle that touches everyday organizational life. Without some degree of truthfulness and reliability in organizations, actors would not be able to act and interact. From this view, the logic of appropriateness speaks about the importance of obligations and rules rather than the importance of expectations of future consequences for the objectives of the actor, and it suggests that achieving long-term goals is affirmed by an act of will rather than an act of discretion.

Over time, the top leadership might have the freedom and opportunity to choose binding rules. The leadership can choose to bind itself in a way that is appropriate in ruling in or ruling out different kinds of constraints. For example, the leadership may create and follow rules that allow one of the following: imagination that constitutes the ability to refuse to accept the constraints of reality; foolishness that allows deviation from conventions; slack that might reduce conflict and increase search; and joy that allows playful enthusiasm (March and Weil, 2005). When issues such as imagination, slack, and joy are managed through rules, it might be possible to create organizations so as to bind the members to becoming involved and achieving beneficial personal and organizational development. However, certain types of personal growth and certain emotional satisfactions can arise only as by-products of activities that are undertaken for other ends (Elster, 1983). That is, elements of joy, surprise, crisis, conflict, etc. that may enhance both positive and negative emotional experiences, by definition do not lend themselves to planning or precommitted activities. Thus, learning is an outcome of a process that is both willed and not willed. Over time, the top leadership might also have the freedom and opportunity to choose a new logic of action, but such a choice is a mindful rather than a mindless cognitive activity (Langer et al., 1978). When leaders are mindful, they have an investigative attitude to what has been established and an exploratory attitude to what might be new and forthcoming. In contrast, when leaders are mindless, they have an unreflective acting (which might be efficient) on the basis of an established, formalized mindset, that is, mindlessness is associated with the rhetoric of leadership that requires leaders to pretend that goals and routines are clear and straightforward. Mindless performance may allow learning within a mindset but suggests a failure to change this mindset. It is a failure to see, to take note of, to be attentive to, and to discover errors in one’s own reasoning. Thus, mindfulness is important, but it is very difficult to achieve (Argyris, 1999).

The freedom to choose determinants (rules and logic of action) may indicate second-order discretion. Hence, it might save unbridled discretion at a higher level—while being perceived from the outside as precommitment or binding.

The theoretical discussion reveals that discretion is important for leading change. The question is, however, how do top leaders, as change agents, think about discretion as a condition for leading change? The data for answering this question are from in-depth interviews with 12 top leaders who had long experience from change processes.

Data collection and data interpretation

The theoretical discussion represents an introduction, a sketch of ideas that might be relevant to understanding how discretion impacts exploration and adaptiveness. From this perspective, I used the theoretical base as a point of departure for pilot study that might provide suggestions for further work in this area.

The data collection was as follows: I selected 12¹ CEOs—based on the following criteria: (1) all of them had experience from leading change in organizations and (2) all of them had been participants in discussions about leading change (in the media, at conferences, at seminars, etc.). Thus, the sources of empirical evidence that might provide ideas for further work are from semi-structured interviewed conducted with a selected group of central agents in discussions about leading change. Each of the (tape-recorded) informant interviews took about 1 h and was carried out at the respective work-sites of the informants. The focus was on the following issues: (1) how and to what extent was managerial discretion important for top leaders as change agents? (2) why was managerial discretion important? and (3) how was discretion related to (a) learning and knowledge sharing and (b) choice and implementation of choices in change processes? The analysis of the data followed more or less directly. The aim was to identify mechanisms that subsumed the many arguments/views contained in the interviews. The following aspects emerged as the most important discretion-related mechanisms that had impacts upon the top leaders’ as change agents:

–Discretion matters to leading change for motivational reasons.

–It is the perceived discretion that matters.

–Discretion matters to knowledge sharing for motivational reasons.

–It is difficult for top leaders as change agents to have both discretion and power.

In the following, the discretion-related mechanisms are illustrated through generic statements that summarize the essence of the responses from the informants. Because these “quotations” are codified statements that can be attributed to shared views and meanings (each of the respondents had arguments that could be subsumed under each of the mechanisms), they are presented without a further source statement in the text.

Findings

Discretion matters to leading change for motivational reasons

All of the top leaders understood and justified their role as change agents in instrumental terms. That is, organizational development and change was seen as a process that required action which was in accordance with the logic of expected consequences. This logic was a strong ideology, permeating their thinking to such an extent that behaving appropriately was acting in accordance with the consequentialist logic. Associated with this logic, they argued that a high level of autonomy was important for their role as a change agent. This importance, however, was related to the motivational bases for their acting:

I have ideas which I want to bring about in the organization in order to adapt the organization to new and changing demands. Autonomy and freedom assists me in this goal … It motivates me and allows me to take pride in my work.

All of the top leaders understood and justified their role as change agents in instrumental terms. In contrast to their espoused view, however, they focused on the pleasure and satisfactions they gained from acting and interacting in change processes rather than on the outcomes of such processes: “What motivate me is the excitement of creativity, the excitement of making decisions and having influence, the excitement of risk, and the joy of solving conflicts, the joy of involvement, and the joy of commitment.”

It is the perceived discretion that matters

Determined by organizational routines, formal control systems, and job-related demands, top leaders as change agents may have formal managerial discretion. The findings illustrated that it might be a disconnection between expectations for and the reality of leading change. That is, the perceived discretion might be higher or lower than the formal discretion, and it was the perceived discretion that mattered to decision making and acting:

I can increase my autonomy in change processes when I come aware of newpossibilities and new courses of action that lie within the zone of acceptance of powerful interests.

Moving up the organizational hierarchy increases my formal autonomy. At the same time, I may come aware of new forces, constraints, and frames that affect my ability to systematically follow through on my intentions … On the one hand, increased freedom should be good for leading change. On the other hand, awareness and increased understanding (of uncertainty, complexity, and ambiguity) might not be good for my action orientation.

Discretion matters to knowledge sharing for motivational reasons

All of the top leaders as change agents understood and justified knowledge sharing in instrumental terms, but the findings illustrated that discretion mattered to knowledge sharing for fundamental motivational reasons:

Knowledge sharing is important in change processes. It contributes to the ways in which the process is coordinated and controlled to improve outcomes.

Knowledge sharing enables coordination that is accomplished by unobtrusive signal and information flow – we all know what we are going to do and I can free up time for other activities, such as exploration and learning.

I find knowledge sharing most interesting, enjoying, and stimulating when I have autonomy and freedom to explore and exploit knowledge. Sense making and learning are important in situations and contexts which allow autonomy and these aspects impact my motivation to engage in knowledge sharing.

It is difficult for top leaders as change agents to have both discretion and power

Top leaders as change agents need discretion in order to make choices but they also need power in order to implement choices in change processes. Leadership research, which has focused on the positive effects of discretion, suggests that there is a positive relationship between discretion (freedom, autonomy) and power (influence): Discretion is the freedom of choice and the power to act according to one’s own judgment (Hambrick, 2007). The top leaders as change agents, however, had experienced that there might be a tension between autonomy and power. Thus, all of respondents had faced a dilemma: On the one hand, freedom and autonomy depended on the extent to which they were not socially embedded or constrained by social networks. On the other hand, power and control depended on the extent to which they were embedded in complex, social networks. Thus, the top leaders as change agents experienced social embeddedness as a necessity and as a limitation in change processes.

Change involves handling problems in making and implementing difficult choices in settings in which I have to negotiate with powerful stakeholders … . Being a change agent requires that I am involved and embedded in social networks of relations, expectations, and norms. Such involvement provides influence but it also includes a loss of freedom … . I have influence if my desires are in compliance with the desires of central interests in change processes, but the social embeddedness considerably reduces my freedom … . If I wanted to attain freedom I have to stand apart from social networks, but without social ties I have no power.

The findings indicated that it was difficult for top leaders as change agents to have both discretion and power. Discretion was linked to motivation, learning, knowledge sharing, and decision making, and it was seen as a necessary precondition for acting. Implementation of decisions (acting) required power, however, and power was a complication for direction.

Conclusion

Theoretical and practical contributions

Managerial discretion is the freedom of choice within institutional, organizational, cultural, and cognitive bounds; and in the ideology of leadership which emphasizes strategy, reason, and thinking, discretion is seen as a leadership capacity that affects organizations’ ability to adapt to new and changing demands and circumstances. The aim of this article was to question this assumption. The inquiring represents an introduction, a sketch of ideas that might be relevant to understanding how discretion impacts exploration and adaptiveness.

The discussion showed that both too little and too much managerial discretion may be disadvantageous to appropriate organizational adaptiveness. Thus, in contrast to leadership research that has focused on the positive effects of managerial discretion, the findings illustrated that managerial discretion might have negative side effects.

The article brings the debate to our under-explored understanding of how discretion matters to leadership, learning, and knowledge sharing for motivational reasons. It also brings the debate to the critical, but under-explored organizational context of managerial discretion. From a context perspective, the findings illustrated some fundamental dilemmas of leadership.

First, organizational rules and routines might be both a necessity and a limitation in change processes. On the one hand, rule-following may help the leadership to act properly and hence prevent discretion allowing myopia, opportunism, and organizational misconduct in organizational change and adaption processes. On the other hand, rule-following may limit the leadership’s discretion and hence may hamper exploration in ways that prevent organizational adaptiveness.

Second, leaders’ social embeddedness might be both a necessity and a limitation in change processes. On the one hand, freedom and autonomy may depend on the extent to which top leaders as change agents are not socially embedded or constrained by social networks. On the other hand, power and control may depend on the extent to which top leaders as change agents are embedded in complex social networks. Thus, discretion and power are central to leading change but power might be a complication for discretion.

The discussion illustrated that possible solutions to these dilemmas may produce new dilemmas. The solutions will sometime solve problems and sometime create new problems. This conclusion is not only theoretically important, but it is also of practical significance: In the pursuit of organizational adaptiveness, leaders need to develop tolerance of ambiguity and uncertainty; they need to learn how to balance passion and discipline, self-interest and caring, unity and diversity, and integration and variety; they need to know that discretion and good intentions alone are not enough to follow through on their intentions; and they need to understand that leadership is a contradiction in terms: sometimes, the leadership is expected to confront and change the organization and sometimes the leadership is expected to serve as a stabilizing factor. Since some organizational characteristics have the potential to enhance the development of an optimal level of discretion while other characteristics might inhibit such development, leaders have to consider carefully how organizational characteristics impact the relationship between discretion and adaptiveness. Such acting is associated with mindfulness rather than mindlessness, but the question is: How can the leadership develop mindfulness?

As a conclusion, managerial discretion matters. It does not necessarily matter, however, in the ways in which proponents of managerial discretion want it to matter. Top leadership involves the capability to make and use judgments informed by analysis and experience (discretion). This capability, however, is subject to error; top leaders are not always right. Based on the fact that discretion implies risk: How do we handle risk? It may depend on how we think about trust or distrust. We might be willing to take the risk—if we trust the leadership.

Future research

The discussion in this article illustrated (a) both too little and too much managerial discretion may be disadvantageous to appropriate organizational adaptiveness and (b) discretion and power are central to leading change but power might be a complication for discretion. These issues are interesting suggestions for further work in the area.

Footnotes

Note

Author biography

Bjarne Espedal, is a Professor of leadership and organizational theory at NHH—The Norwegian School of Economics in Bergen. His research interests are concentrated on organizational learning and change. He has written numerous articles in journals such as Human Resource Management, the British Journal of Management, the Journal of Applied Behavioral Science, Leadership, the Journal of Organizational Change Management, European Journal of International Management, Human Resource Development Review, Journal of Leadership & Organizational Studies, Advances in Developing Human Resources, and the Journal of Change Management.

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