unit 1 - intoduction to str.mgmt
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What is Strategy?Strategy is a method orplanchosen to bringabout a desiredfuture,such as achievement of a goalor solutionto
a problem.
Strategy is the art and scienceof planningand marshalling resourcesfor their mostefficientandeffectiveuse. The term is
derived from the Greek word for generalship orleadingan army.
Strategyis a high level plan to achieve one or more goals under conditions of uncertainty.
Strategy becomes ever necessary when it is known or suspected there are insufficient resources to
achieve these goals.
Strategy is also about attaining and maintaining a position of advantage over adversaries through the
successive exploitation of known or emergent possibilities rather than committing to any specific fixed
plan designed at the outset.
Henry Mintzbergfrom McGill University defined strategy as "a pattern in a stream of decisions" to contrast
with a view of strategy as planning while Max McKeown(!# argues that "strategy is about shaping the
future" and is the human attempt to get to "desirable ends with available means".
Key Concepts for Strategic Management and
Organizational Goals
Strategic management is the process in which an organization develops and implements plans
that espouse the goals and objectives of that organization. The process of strategic managementis a continuous one that changes as the organizational goals and objectives evolve. Small
businesses engage in strategic management to ensure that they adapt to trends and externalchanges such as globalization. Several key concepts characterize strategic management and the
development of organizational goals.
Goal Setting
At the core of the strategic management process is the creation of goals, a mission statement,
values and organizational objectives. rganizational goals, the mission statement, values andobjectives guide the organization in its pursuit of strategic opportunities. !t is also through goal
setting that managers make strategic decisions such as how to meet sales targets and higher
revenue generation. Through goal setting, organizations plan how to compete in an increasingly
competitive and global business arena.
Analysis Strategy Formation
Analysis of an organization"s strengths and weaknesses is a key concept of strategicmanagement. ther than the internal analysis, an organization also undertakes external analysis
of factors such as emerging technology and new competition. Through internal and external
analysis, the organization creates goals and objectives that will turn weaknesses to strengths. The
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analyses also facilitate in strategizing ways of adapting to changing technology and emerging
markets.
Strategy Formation
Strategy formation is a concept that entails developing specific actions that will enable anorganization to meet its goals. Strategy formation entails using the information from the
analyses, prioritizing and making decisions on how to address key issues facing the organization.Additionally, through strategy formulation an organization seeks to find ways of maximizing
profitability and maintaining a competitive advantage.
Strategy Implementation
Strategy implementation is putting the actual strategy into practice to meet organizational goals.
The idea behind this concept is to gather all the available and necessary resources re#uired to
bring the strategic plan to life. rganizations implement strategies through creating budgets,
programs and policies to meet financial, management, human resources and operational goals.$or the successful implementation of a strategic plan, cooperation between management and
other personnel is absolutely necessary.
Strategy Monitoring
A final concept is monitoring of the strategy after its implementation. Strategy monitoring entails
evaluating the strategy to determine if it yields the anticipated results as espoused in theorganizational goals. %ere, an organization determines what areas of the plan to measure and the
methods of measuring these areas, and then compares the anticipated results with the actual ones.
Through monitoring, an organization is able to understand when and how to adjust the plan toadapt to changing trends.
STRATEGIC MANAGEMENT
Strategic managementanalyzes the major initiatives taken by a company's top
management on behalf of owners, involving resourcesand performance in internal
and external environments.[1!t entails specifying the organization's mission, vision
and objectives, developing policies and plans, often in terms of projects and
programs, which are designed to achieve these objectives, and then allocatingresources to implement the policies and plans, projects and programs. " balanced
scorecardis often used to evaluate the overall performance of the businessand its
progress towards objectives. #ecent studies and leading management theorists
have advocated that strategy needs to start with stakeholders expectations and use
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a modi$ed balanced scorecard which includes all stakeholders.
Overview
Strategic management is a level of managerial activity below setting goals and above tactics.
Strategic management provides overall direction to the enterprise and is closely related to thefield of rganization Studies. !n the field of business administration it is useful to talk about
&strategic consistency& between the organization and its environment or &strategic consistency.&
According to Arieu '())*+, &there is strategic consistency when the actions of an organization are
consistent with the expectations of management, and these in turn are with the market and thecontext.& Strategic management includes the management team and possibly the oard of
-irectors and other stakeholders.
&Strategic management is an ongoing process that evaluates and controls the business and theindustries in which the company is involved assesses its competitors and sets goals and
strategies to meet all existing and potential competitors and then reassesses each strategy
annually or #uarterly /i.e. regularly0 to determine how it has been implemented and whether it
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has succeeded or needs replacement by a new strategy to meet changed circumstances, new
technology, new competitors, a new economic environment., or a new social, financial, or
political environment.& /(0/10Strategic 2anagement can also be defined as &the identification ofthe purpose of the organisation and the plans and actions to achieve the purpose. !t is that set of
managerial decisions and actions that determine the long term performance of a business
enterprise. !t involves formulating and implementing strategies that will help in aligning theorganization and its environment to achieve organisational goals.&
Various approaces o! strategic management
Strategic management can depend upon the size of an organization, and the proclivity to changeof its business environment. These points are highlighted below3
" global%transnational organization may employ a more structured strategicmanagement model, due to its size, scope of operations, and need toencompass stakeholder views and re&uirements.
"n () *mall and (edium )nterprise+ may employ an entrepreneurialapproach. his is due to its comparatively smaller size and scope ofoperations, as well as possessing fewer resources. "n ()'s -) *or generaltop management+ may simply outline a mission, and pursue all activitiesunder that mission.
/hittington *01+ highlighted four approaches to strategic management.hese are -lassical, 2rocessual, )volutionary and ystemic approaches.
(intzberg stated there are prescriptive *what should be+ and descriptive*what is+ approaches. 2rescriptive schools are 3one size $ts all3 approaches
that designate 3best practice3 while descriptive schools describe howstrategy is implemented in speci$c contexts.
4o single strategic managerial method dominates, and remains a subjective and context5dependent process.
Four Phases of Strategic Management
Strategic management is not a static concept, but an ongoing process. The strategic management
process encompasses four distinct phases. !n order to succeed, a strategy must succeed in each
phase. !t is important, therefore, that anyone planning a business"s strategy understands thesefour phases and the roles that they play.
Formulation
o Strategic management begins with the formulation phase, where the firm"s
management develops an overall strategy for achieving the firm"s objectives.bjectives may include, for example, increasing market share or reducing costs.
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The top management team typically is saddled with the responsibility of
developing the firm"s overall strategy. They may, however, seek the input of line
managers and front5line workers as they develop their strategy.
Implementation
o 6ith a clear strategy formulated, managers can then go about implementing it.
Strategies are usually implemented from the top down. To begin with, the top
management team will inform line managers about the strategic changes, and line
managers will, in turn, pass this information on to their subordinates. 2any
strategies fail due to poor implementation, but managers can avoid this bycarefully introducing the new strategy and listening to any employee concerns
about the changes.
Evaluation
o 6hen a strategy is implemented, it will hopefully be successful, but managerscannot assume that every strategy will be. They will, therefore, need to measure
the success of a strategy. To measure this success, the strategy must be evaluatedagainst the firm"s goals. A gap analysis is a useful tool for evaluating the success
of a strategy. This measures the gap that exists between the desired results and a
firm"s actual results.
Mo"i#cation
o Sometimes, strategies are successful on the first attempt, but more often than not,
there is room for improvement. !f the evaluation of the strategy shows that thefirm has not achieved all its desired goals, then it is necessary to modify the
strategy. $or example, if the firm used a cost5leadership strategy to increase sales,
but the sales actually decreased, then the firm would need to modify this strategy,perhaps using a premium5pricing strategy instead.
Te strategic management process can elp
grow your $usiness%
he strategic management process is more than just a set of rules to follow. !t is a
philosophical approach to business. 4pper management must think strategically $rst, then
apply that thought to a process. he strategic management process is best implemented
when everyone within the business understands the strategy. he $ve stages of the process
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are goal5setting, analysis, strategy formation, strategy implementation and strategy
monitoring.
Goal&Setting
he purpose of goal5setting is to clarify the vision for your business. his stage consists of
identifying three key facets6 7irst, de$ne both short5 and long5term objectives. econd,identify the process of how to accomplish your objective. 7inally, customize the process for
your sta8, give each person a task with which he can succeed. 9eep in mind during this
process your goals to be detailed, realistic and match the values of your vision. ypically, the
$nal step in this stage is to write a mission statement that succinctly communicates your
goals to both your shareholders and your sta8.
Analysis
"nalysis is a key stage because the information gained in this stage will shape the next two
stages. !n this stage, gather as much information and data relevant to accomplishing your
vision. he focus of the analysis should be on understanding the needs of the business as a
sustainable entity, its strategic direction and identifying initiatives that will help your
business grow. )xamine any external or internal issues that can a8ect your goals and
objectives. (ake sure to identify both the strengths and weaknesses of your organization as
well as any threats and opportunities that may arise along the path.
Strategy Formulation
he $rst step in forming a strategy is to review the information gleaned from completing the
analysis. :etermine what resources the business currently has that can help reach the
de$ned goals and objectives. !dentify any areas of which the business must seek external
resources. he issues facing the company should be prioritized by their importance to your
success. nce prioritized, begin formulating the strategy. ;ecause business and economicsituations are
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also enable you to react to any substantial change in your business environment. !f you
determine that the strategy is not moving the company toward its goal, take corrective
actions. !f those actions are not successful, then repeat the strategic management process.
;ecause internal and external issues are constantly evolving, any data gained in this stage
should be retained to help with any future strategies.
(anaging the four phases of strategy'o you treat strategy li(e you treat Cristmas);oth events tend to fall on the
same day each year and, just as most households follow a set -hristmas routine of
attending church, opening presents and eating the turkey, the annual strategic
planning timetable will have e&uivalent routines of assessing performance, agreeing
targets and developing next year=s plan.
Te pro$lem wit tis approac is tat* unli(e Cristmas* strategy "oesn+t
!ollow an annual timeta$le%trategy is not a linear process and organisations should
de5couple the link between strategy and planning. ;y being
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deliver it. trategy :evelopment is often seen as the beginning and end of strategy
work, and is commonly and mistakenly linked to the annual planning process.
In my e/perience $usy e/ecutives "isli(e tis pase o! wor( !or one o! two
reasons.*1+ !t ends up as endless form5$lling rather than real strategy development>
or *0+ !t is di?cult and exercises brain muscles that they are not used to exercising.
trategy forces choices and re&uires that people really understand their own and their
colleagues= assumptions and preconceptions.
,ase 2. Strategy Management
Te purpose o! te Strategy Management pase is to create !ocus on te !ew
tings tat will create te $iggest $ene#ts. he $rst task is to engage with
leaders across the organisation to integrate and gain alignment to the overall direction,
to agree an approach to determine resource allocation, and to set performance
objectives and key business milestones.
Clear* consistent communication is critical to e3ective strategy management.
7rom in5depth strategy dialogues between the executive team and the senior line
managers to individual shop5
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Te $ottom line
6y un"erstan"ing were you sit on te Strategy Focus Matri/you will be able
to bring greater e?ciency and e8ectiveness to your strategy work. !nstead of ritualistic
form5$ling you can focus on generating and executing objectives that will enable yourorganisation to deliver great results. "nd isn=t that the present you really, really want
every -hristmasI
Four Phases of Strategic Management
7ormulation
Strategic management begins with the formulation phase, where the firm'smanagement develops an overall strategy for achieving the firm's objectives. Objectives mayinclude, for example, increasing market share or reducing costs. The top management teamtypically is saddled with the responsibility of developing the firm's overall strategy. Theymay, however, seek the input of line managers and frontline workers as they develop theirstrategy.
!mplementation
!ith a clear strategy formulated, managers can then go about implementing it.Strategies are usually implemented from the top down. To begin with, the top managementteam will inform line managers about the strategic changes, and line managers will, in turn,pass this information on to their subordinates. "any strategies fail due to poorimplementation, but managers can avoid this by carefully introducing the new strategy andlistening to any employee concerns about the changes.
-%
)valuation
o !hen a strategy is implemented, it will hopefully be successful, but managerscannot assume that every strategy will be. They will, therefore, need to measure the successof a strategy. To measure this success, the strategy must be evaluated against the firm'sgoals. # gap analysis is a useful tool for evaluating the success of a strategy. This measuresthe gap that exists between the desired results and a firm's actual results.
(odi$cation
o Sometimes, strategies are successful on the first attempt, but more often thannot, there is room for improvement. $f the evaluation of the strategy shows that the firm hasnot achieved all its desired goals, then it is necessary to modify the strategy. %or example, if
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the firm used a costleadership strategy to increase sales, but the sales actually decreased,then the firm would need to modify this strategy, perhaps using a premiumpricing strategyinstead.
Stages Of Strategic Management
The strategic management process represents a logical, systematic, and objective approach fordetermining an enterprise's future direction. However, a clear separation is needed between themanagerial process by which an organization formulates, evaluates, implements, and controls therelationships between its objectives, its strategies, and its environment.
Researchers usually distinguish three stages in the process of strategic management: strategyformulation, strategy implementation, andevaluation and control.
Strategy Formulation
trategy formulation is the process of establishing the organization's mission, objectives, and choosingamong alternative strategies. ometimes strategy formulation is called !strategic planning.!
Strategy Implementation
trategy implementation is the action stage of strategic management. "t refers to decisions that aremade to install new strategy or reinforce e#isting strategy. The basic strategy $ implementationactivities are establishing annual objectives, devising policies, and allocated resources. trategyimplementation also includes the ma%ing of decisions with regard to matching strategy andorganizational structure& developing budgets, and motivational systems.
Strategy Evaluation And Control
The final stage in strategic management is strategy evaluation and control. ll strategies are subject tofuture modification because internal and e#ternal factors are constantly changing. "n the strategyevaluation and control process managers determine whether the chosen strategy is achieving theorganization's objectives. The fundamental strategy evaluation and control activities are: reviewinginternal and e#ternal factors that are the bases for current strategies, measuring performance, andta%ing corrective actions.
Strategic Management Models
trategic management is a broader term that includes not only the stages already identified but alsothe earlier steps of determining the mission and objectives of an organization within the conte#t of itse#ternal environment. The basic steps of the strategic management can be e#amined through the useof strategic management model.
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The strategic management model identifies concepts of strategy and the elements necessary fordevelopment of a strategy enabling the organization to satisfy its mission. Historically, a number offramewor%s and models have been advanced which propose different normative approaches to strategydetermination. However, a review of the major strategic management models indicates that they allinclude the following elements:
(. )erforming an environmental analysis.
*. +stablishing organizational direction.
. -ormulating organizational strategy.
. "mplementing organizational strategy.
/. +valuating and controlling strategy.
trategic management is a continuous and dynamic process. Therefore, it should be understood thateach element interacts with the other elements and that this interaction often happens simultaneously.
The major models differ primarily in the degree of e#plicitness, detail, and comple#ity. Thesedifferences derive from the differences in bac%grounds and e#periences of the authors. ome of thesemodels are briefly presented below.
"ndrew=s (odel
!n 1EBJ, Kenneth Andrewsdeveloped a simple model. his model includes the
choice of a strategy, but ignores implementation and control. !n 1EK1,Andrews
formulated a more complete model that included implementation, but it still ignores
a strategic control and evaluation.
Gluec(7s Mo"el
William F. Glueckdeveloped several models of strategic management based on the general
decision5making process.
The phases of this model are as follows3
* Strategic managements elements3 &...to determine mission, goals, and values of the firm and
the key decision makers.&
* nalysis and diagnosis3 &...to search the environment and diagnose the impact of the threats
and opportunities."
* Choice3 ...to consider various alternatives and assure that the appropriate strategy is chosen."
* !mplementation3 "...to match plans, policies, resources, structure, and administrative stylewith the strategy.&
* "#aluation3 &...to ensure strategy and implementation will meet objectives."
As major contribution to the strategic management process, 7lueck considered two elements3&enterprise objectives& 'the mission and objectives of the enterprise,& and &enterprise strategists&
'who are involved in the process+.
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2oreover, 7lueck broke down the planning process into analysis and diagnosis, choice,
implementation, and evaluation functions. This model also treats leadership, policy, and
organizational factors.
%owever, 7lueck omitted the important medium5 and short5range planning activities of strategy
implementation.
$he Schendel and %ofer Model
Dan chendel and !harles oferdeveloped a strategic management model, incorporating bothplanning and control functions.
Their model consists of several basic steps3
'&+ goal formulation,
''+ environmental analysis,
'(+ strategy formulation,
')+ strategy evaluation,
'+ strategy implementation, and
'++ strategic control.
According to Schendel and %ofer, the formulation portion of strategic management consists of at
least three subprocesses3
,en#ironmental analysis,
,resources analysis-
, and #alue analysis.
8esource and value analyses are not specifically shown, but are considered to be included under
other items 'strategy formulation+.
Te Tompson An" Stric(lan" Mo"el
#hompson and tricklanddeveloped several models of strategic management.
According to Thompson and Strickland strategic management is an ongoing process3 ¬hing isfinal and all prior actions and decisions are su/0ect to future modification.&
This process consists of five major five ever5present tasks3
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&. -eveloping a concept of the business and forming a vision of where the organization needs to
be headed.
'. 9onverting the mission into specific performance objectives.
(. 9rafting a strategy to achieve the targeted performance.
). !mplementing and executing the chosen strategy efficiently and effectively.
. :valuating performance, reviewing the situation, and initiating corrective adjustments in
mission, objectives, strategy, or implementation in light of actual experience, changing
conditions, new ideas, and new opportunities.
#hompson and tricklandsuggest that the firm"s mission and objectives combine to define&What is our /usiness and 1hat 1ill it /e;& and &1hat to do no1& to achieve organization"s
goals. %ow the objectives will be achieved refers to the strategy of firm.
!n general, this model highlights the relationships between the organization"s mission, its long5
and short5range objectives, and its strategy.
Korey2s Model
2odern theorist and writer, 3erzy Korey,Krzeczo1s4i- founder and President Canadian
School of Management, have proposed an integrated model of strategic management.
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6hat !s Strategic -ecision 2aking;by Lregory Mamel, :emand (edia
ne of the essential parts of creating and running a small business is creating a mission or
vision for the business and a set of goals the company aims to achieve. trategic decision
making, or strategic planning, describes the process of creating a company's mission and
objectives and deciding upon the courses of action a company should pursue to achieve
those goals.ponsored Nink
;rain )xercises
!mprove (emory and "ttention with ;rain Lames by cientists
www.lumosity.com
trategic 2lanning ;asics
trategic decision making is an ongoing process that involves creating strategies to achieve
goals and altering strategies based on observed outcomes. 7or example, the managers of a
pizza restaurant might have the objective of increasing sales and decide to implement a
strategy of o8ering lower prices on certain products during o8 hours to attract more
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customers. "fter a month of pursuing the new strategy, managers can look at sales data for
the month and evaluate whether the strategy resulted in increasing sales and then choose
to keep the new price scheme or alter their strategy.
/ "nalysis
" / analysis is a common strategic planning tool that managers can use to examine
internal and external factors that may in
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%ringing together the internationally renowned +S expertise in $ecision Sciences research& we adopt a hands2onapproach to teaching& with simulations and exercises to sensitise you to decision scenarios and behavioural biases.1ou will gain confidence in your analytic and intuitive skills in decision making and learn how to apply the keyprinciples and frameworks in practice.
Flaws in strategic decision making:McKinsey Global Survey results
Irrational thinking doesnt just affect individual economic decisions; it affects
corporate strategic planning as well. These results highlight the practices of
companies that have made successful strategic decisionsand also reveal
what the same companies have gotten wrong.
Since its inception nearly three decades ago, behavioral economics has upset the pristine premise of
classical economic theory&the view that individuals will always behave rationally to achieve the best
possible outcome. Today its clear that the vagaries of individual and group psychology can cause
irrational decision making by both individuals and organi(ations, resulting in less than ideal outcomes.
)ven the bestdesigned strategicplanning processes dont always lead to optimal decisions. # recent
survey by "c*insey attempts to assess the fre+uency and intensity of the most common managerial biases
in companies. Specifically, we asked executives about a single recent strategic decision at their companies
that had a clearly satisfactory or unsatisfactory outcome, focusing on the role that various biases may have
played.1
$ts evident from the results that satisfactory outcomes are associated with less bias, thanks to robust
debate, an objective assessment of facts, and a realistic assessment of corporate capabilities. # few clear
paths to making successful decisions also are apparent. ut even when a decision had a satisfactory
outcome, executives note several areas where their companies arent all that effective, such as aligningincentives with strategic objectives and forecasting competitors reactions.2#lso notable is that companies
that typically make good decisions focus more on their own ability to execute than other companies do,
regardless of the outcome of the particular decision described in the survey.
When all goes well
"ost companies work hard to make their strategic decisionmaking processes as rigorous as possible. #nd
when executives are satisfied with the outcome of their decisions, they tend to rate their companies
processes highly in terms of practices that avoid many biases, though some do creep in -)xhibit /.3
0ompanies that reach satisfactory outcomes do so in a few different ways, and three distinct themes
emerge from executives responses. The first theme is assessment1 at companies with satisfactory
outcomes, executives give their processes high marks for forecasting demand and competitor reaction,
assessing their own capabilities, and tailoring their evaluation approach to the specific decision.
The second theme is process1 executives at companies with satisfactory outcomes rate their processes
highly when it comes to seeking contrary evidence and ensuring that decision makers had all the critical
information, giving dissenting voices the floor, reviewing the business case thoroughly even though senior
executives were strongly in favor, and ensuring that truly innovative ideas reached senior managers.
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Nevels of decision making$ecisions are made at different levels in an organisation4s hierarchy5
Strategic decisions are long2term in their impact. /hey affect and shape the direction of
the whole business. /hey are generally made by senior managers. /he managers of the bakeryneed to take a strategic decision about whether to remain in the cafe business. +ong2termforecasts of business turnover set against likely market conditions will help to determine if itshould close the cafe business.
/actical decisions help to implement the strategy. /hey are usually made by middle
management. 6or the cafe& a tactical decision would be whether to open earlier in the morningor on Saturday to attract new customers. Managers would want research data on likelycustomer numbers to help them decide if opening hours should be extended.
perational decisions relate to the day2to2day running of the business. /hey are mainlyroutine and may be taken by middle or )unior managers. 6or example& a simple operationaldecision for the cafe would be whether to order more coffee for next week. Stock and sales datawill show when it needs to order more supplies.
*s these examples show& decisions at all levels need data. * business creates a trail ofdata. /his includes data on sales& employee costs and payments. 7n a large company&such as /esco& millions of data items are created every day against thousands of costand sales headings. /his data can provide a picture of trends& which the business canuse in its forward planning.6inancial accountants use recorded data to prepare the accounting statements for abusiness. very company (large and small# has a duty to keep accounting records andmust prepare annual accounts that report on the performance and activities of thecompany during the year. 6inancial accountants must ensure these accounts areaccurate and prepared in accordance with accounting rules and conventions.Management accountants need to understand these formal accounting documents.8owever& because their role involves the analysis and application of data& they mustalso be familiar with business strategy and risk management. Management accountants
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use internal data (like a balance sheet# and external data (such as market information#to assess effects on the business and drive better informed decision making.
Strategic Decisions - Definition and Characteristics
Strategic decisions are the decisions that are concerned with whole environment in which the firm operates& the entireresources and the people who form the company and the interface between the two.
Characteristics/Features of Strategic Decisionsa. Strategic decisions have ma)or resource propositions for an organi0ation. /hese decisions may be
concerned with possessing new resources& organi0ing others or reallocating others.b. Strategic decisions deal with harmoni0ing organi0ational resource capabilities with the threats and
opportunities.
c. Strategic decisions deal with the range of organi0ational activities. 7t is all about what they want theorgani0ation to be like and to be about.
d. Strategic decisions involve a change of ma)or kind since an organi0ation operates in ever2changing
environment.
e. Strategic decisions are complex in nature.
f. Strategic decisions are at the top most level& are uncertain as they deal with the future& and involve a lot ofrisk.
g. Strategic decisions are different from administrative and operational decisions. *dministrative decisions areroutine decisions which help or rather facilitate strategic decisions or operational decisions. perationaldecisions are technical decisions which help execution of strategic decisions. /o reduce cost is a strategicdecision which is achieved through operational decision of reducing the number of employees and how wecarry out these reductions will be administrative decision.
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/he differences between Strategic& *dministrative and perational decisions can be summari0ed as follows2
Strategic Decisions Administrative Decisions Operational Decisions
Strategic decisions are long2term decisions. *dministrative decisions are takendaily.
perational decisions are not fre'taken.
/hese are considered where /he futureplanning is concerned.
/hese are short2term based$ecisions.
/hese are medium2period baseddecisions.
Strategic decisions are taken in *ccordancewith organi0ational mission and vision.
/hese are taken according to strategicand operational $ecisions.
/hese are taken in accordance witstrategic and administrative decisi
/hese are related to overall 9ounter planningof all rgani0ation.
/hese are related to working ofemployees in an rgani0ation.
/hese are related to production.
/hese deal with organi0ational Growth. /hese are in welfare of employees
working in an organi0ation.
/hese are related to production an
factory growth.
Decision making
Purposeful selection from among a set of alternatives in light of a given objective. Decisionmaking is
not a separate function of management. !n fact, decisionmaking is intertwined with the other
functions, such as planning, coordinating, and controlling.These functions all re"uire that decisions be made. #or e$ample, at the outset, management must
make a critical decision as to which of several strategies would be followed. Such a decision is often
called a strategicdecision because of its longterm impact on the organi%ation.&lso, managers must
make scores of lesser decisions, tactical and operational, all of which are important to the
organi%ation's wellbeing.
Decision making is a vital component of small business success. Decisions that are based ona foundation of knowledge and sound reasoning can lead the company into longterm
prosperity( conversely, decisions that are made on the basis of flawed logic, emotionalism,
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or incomplete information can "uickly put a small business out of commission )indeed, baddecisions can crippleeven big, capitalrich corporations over time*. &ll businesspeople
recogni%e the painful necessity of choice. #urthermore, making these choices must be donein a timely fashion, for as most people recogni%e, indecisionis in essence a choice in and of
itself+a choice to take no action. ltimately, what drives business success is the "uality ofdecisions, and their implementation. Good decisions mean good business.
The concept of decision making has a long history( choosing among alternatives has alwaysbeen a part of life. -ut sustained research attention to business decision making hasdeveloped only in recent years. ontemporary advances in the field include progress in such
elements of decision making as the problem conte$t( the processes of problem finding,
problem solving, and legitimation( and procedural and technical aids.
The Elements of Decision Making
THE PROBLEM CONTEXT.&ll decisions are about problems, and problems shape conte$t
at three levels. The macrocontextdraws attention to global issues )e$change rates, fore$ample*, national concerns )the cultural orientations toward decision processes of different
countries*, and provincial and state laws and cultures within nations.Themesocontextattends to organi%ational cultures and structure.The microcontextaddresses the immediate decision environment+the organi%ation's
employees, board, or office.Decision processes differ from company to company. -ut all companies need to take these
three conte$t levels into consideration when a decision needs to be made. #ortunately,economical ways to obtain this information are available and keep the cost of preparing for
decisions from becoming prohibitive.PROBLEM FINDIN !ND !END! "ETTIN.&n important difficulty in decision making is
failure to act until one is too close to the decision point+when information and options aregreatly limited. /rgani%ations usually work in a 0reactive0 mode. Problems are 0found0 only
after the issue has begun to have a negative impact on the business. 1evertheless,processes of environmental scanning and strategic planning are designed to perform
problem reconnaissance to alert business people to problems that will need attention downthe line. Proactivity can be a great strength in decision making, but it re"uires a decision
intelligence process that is absent from many organi%ations.2oreover, problem identification is of limited use if the business is slow to heedor resolve
the issue. /nce a problem has been identified, information is needed about the e$act natureof the problem and potential actions that can be taken to rectifyit. nfortunately, small
business owners and other key decision makers too often rely on information sources that0edit0 the data+either intentionally or unintentionally+in misleading fashion. !nformation
from business managers and other employees, vendors, and customers alike has to beregarded with a discerningeye, then.
¬her kind of information gathering reflects the array and priority of solution preferences.
3hat is selected as possible or not possible, acceptable or unacceptable, negotiable or non
negotiable depends upon the culture of the firm itself and its environment. & third area ofinformation gathering involves determining the possible scope and impact that the problemand its conse"uent decision might have. 4nowledge about impact may alter the decision
preferences. To some e$tent, knowledge about scope dictates who will need to be involved
in the decision process.Problem Solving
Problem solving+also sometimes referred to as problem management+can be divided intotwo parts+process and decision. The process of problem solving is predicated on the
e$istence of a system designed to address issues as they crop up. !n many organi%ations,
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there does not seem to be any system. !n such businesses, owners, e$ecutives, andmanagers are apparently content to operate with an ultimately fatalistic philosophy+what
happens, happens. -usiness e$perts contend that such an attitude is simply unacceptable,especially for smaller businesses that wish to e$pand, let alone survive. The second part of
the problem management e"uation is the decision, or choice, itself. Several sets of elementsneed to be considered in looking at the decision process. /ne set refers to the rationales
used for decisions. /thers emphasi%e the setting, the scope and level of the decision, andthe use of procedural and technical aids.R!TION!LE"./rgani%ational decision makers have adopted a variety of styles in their
decision making processes. #or e$ample, some business leaders embrace processes wherein
every conceivable response to an issue is e$amined before settling on a final response,while others adopt more fle$ible philosophies. The legitimacy of each style varies in
accordance with individual business realities in such realms as market competitiveness,business owner personality, acuteness of the problem, etc.
"ETTIN".ertainly, some entrepreneurs5owners make business decisions without asignificant amount of input or feedback from others. 6omebased business owners without
any employees, for e$ample, are likely to take a far different approach to problemsolvingthan will business owners who have do%ens of employees and5or several distinct internal
departments. The latter owners will be much more likely to include findings of meetings,
task forces, and other information gathering efforts in their decision making process. /fcourse, even a business owner who has no partners or employees may find it useful to seekinformation from outside sources )accountants, fellow businesspeople, attorneys, etc.*
before making important business decisions. 0Since the owner makes all the key decisionsfor the small business, he or she is responsible for its success or failure,0 wrote David
4arlson inAvoiding Mistakes in Your Small Business.02arketing and finance are two ofseveral areas in which small business owners fre"uently lack sufficient e$perience, since
they previously worked as specialists for other people before they started their ownbusinesses. &s a result, they generally do not have the e$perience needed to make well
informed decisions in the areas with which they are unfamiliar. The demands of running andgrowing a small business will soon e$pose any achillesheel in a president5owner. !t is best
to find out your weaknesses early, so you can develop e$pertise or get help in these areas.0
"COPE !ND LE#EL.#inally, attention must be paid to problem scope and organi%ationallevel. Problems of large scope need to be dealt with by top levels of the organi%ation.
Similarly, problems of smaller scope can be handled by lower levels of the organi%ation. Thisis a failing of many organi%ations, large and small. Typically, top level groups spend much
too much time deciding lowlevel, lowimpact problems, while issues of high importance andorgani%ational impact lingeron without being addressed or resolved.
PROCED$R!L !ND TECHNIC!L!ID".!n recent years, a number of procedural and
technical aids have been developed to help business managers in their decision makingprocesses. 2ost of these have taken the form of software programs that guide individuals or
groups through the various elements of the decision making process in a wide variety ofoperational areas )budgeting, marketing, inventory control, etc.*. 7eadership seminars and
management training offer guidance in the decision making process as well.O$TCOME.3hatever decision making process is utili%ed, those involved in making the
decision need to make sure that a response has actually been arrived at. &ll too often,meetings and other efforts to resolve outstanding business issues adjournunder an
atmosphere of uncertainty. Participants in decision making meetings aresometimes unsureabout various facets of the decision arrived at. Some meeting
participants, for e$ample, may leave a meeting still unsure about how the agreeduponresponse to a problem is going to be implemented, while others may not even be sure what
the agreedupon response is. !ndeed, business researchers indicate that on many occasions,meeting participants depart with fundamentally different understandings of what took place.
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!t is up to the small business owner to make sure that all participants in the decision makingprocess fully understand all aspects of the final decision.
IMPLEMENT!TION.The final step in the decision making process is the implementation ofthe decision. This is an e$tremely important element of decision making( after all, the
benefits associated with even the most intelligent decision can be severely compromised ifimplementation is slow or flawed.
#actors in Poor Decision 2akingSeveral factors in flawed decision making are commonly cited by business e$perts, includingthe following8 limited organi%ational capacity( limited information( the costliness of analysis(
interdependencies between fact and value( the openness of the system)s* to be analy%ed(
and the diversity of forms on which business decisions actually arise. 2oreover, timeconstraints, personal distractions, low levels of decision making skill, conflict over business
goals, and interpersonalfactors can also have a deleteriousimpact on the decision makingcapacities of a small )or large* business.
& second category of difficulties is captured in a number of common pitfalls of the decisionprocedure. /ne such pitfallis 0decision avoidance psychosis,0 which occurs when
organi%ations put off making decisions that need to be made until the very last minute. &second problem is decision randomness. This process was outlined in the famous paper
called 0& Garbage an 2odel of /rgani%ational hoice0 by ohen, 2arch and /lsen. They
argued that organi%ations have four roles or vectors within them8 problem knowers )peoplewho know the difficulties the organi%ation faces*8 solution providers )people who canprovide solutions but do not know the problems*( resource controllers )people who do not
know problems and do not have solutions but control the allocation of people and money inthe organi%ation* and a group of 0decision makers looking for work0 )or decision
opportunities*. #or effective decision making, all these elements must be in the same roomat the same time. !n reality, most organi%ations combine them at random, as if tossing them
into a garbage can.Decision drift is another maladythat can strike at a business with potentially crippling
results. This term, also sometimes known as the &bilene Parado$ in recognition of a famousmodel of this behavior, refers to group actions that take place under the impression that the
action is the will of the majority, when in reality, there never really was a decision to take
that action.Decision coercion, also known as groupthink, is another very well known decision problem.
!n this flawed decision making process, decisions are actually coerced by figures in power.This phenomenon can most commonly be seen in instances where a business owner or top
e$ecutive creates an atmosphere where objections or concerns about a decision favored bythe owner5e$ecutive are mutedbecause of fears about owner5e$ecutive reaction.
!mproving Decision 2aking
-usiness consultants and e$perts agree that small business owners and managers can takeseveral basic steps to improve the decision making process at their establishments.
Improve the setting. /rgani%ing better meetings )focused agenda, clear "uestions, currentand detailed information, necessary personnel* can be a very helpful step in effective
decision making. &void the garbage can( get the relevant people in the same room at thesame time. Pay attention to planning and seek closure.
Use Logical Techniques.Decision making is a simple process when approached in a logicaland purposeful manner. Small businesses that are able to perceive the problem, gather and
present data, intelligently discuss the data, and implement the decision without succumbingto emotionalism are aptto make good ones that will launch the firm on a prosperous
course.valuate decisions and decision making patterns.9valuation tends to focus the attention,
and make individuals and teams more sensitive to what they are actually doing in theirdecision making tasks. 9valuation is especially helpful in today's business environment
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because of the interdependency of individuals and departments in e$ecuting tasks andaddressing goals.
!etermine appropriate levels o" decision making.-usiness enterprises need to make surethat operational decisions are being made at the right level. 4eys to avoiding
micromanagement and other decision making pitfalls include8 giving problems their properlevel of importance and conte$t( addressing problems in an appropriate time frame( and
establishing and shifting decision criteria in accordance with business goals.
Cha%acte%istics of "t%ategic Decision Making
1. trategic decisions are likely to a8ect the long-term directionof
an organisation.
0. trategic decisions are normally about trying to achieve
some advantagefor the organisation.
A. trategic decisions are likely to be concerned with the scope of an
organisations activities6 :oes *and should+ the organisation
concentrate on one area of activity, or does it have manyI he issue
of scope of activity is fundamental to strategic decisions because it
concerns the way in which those responsible for managing the
organisation conceive its boundaries. !t is to do with what they want
the organisation to be like and to be about.
O. trategy is to do with the matching of the activities of an
organisation to the environmentin which it operates.
J. trategy can also be seen as 'stretching' an organisation's
resources and competences to create opportunities or capitalise on
them. !t is not just about countering environmental threats and
taking advantage of environmental opportunities> it is also about
matching organisational resources to these threats andopportunities. here would be little point in trying to take advantage
of some new opportunity if the resources needed were not available
or could not be made available, or if the strategy was rooted in an
inade&uate resource5base.
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B. trategic decisions therefore often have major resource
implicationsfor an organisation. !n the 1EFs a number of 49 retail
$rms had attempted to develop overseas with little success and one
of the major reasons was that they had underestimated the extent
to which their resource commitments would rise and how the needto control them would take on &uite di8erent proportions. trategies,
then, need to be considered not only in terms of the extent to which
the existing resource5base of the organisation is suited to the
environmental opportunities but also in terms of the extent to which
resources can be obtained and controlled to develop a strategy for
the future.
K. trategic decisions are therefore likely to aect operational
decisions, to Pset o8 waves of lesser decisions=.
F. he strategy of an organisation will be a8ected not only by
environmental forces and resource availability, but also by
the values and expectationsof those who havepower in and around
the organisation. !n some respects, strategy can be thought of as a
re
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trategic decisions are, then, often complex in nature6 it can be
argued that what distinguishes strategic management from other
aspects of management in an organization is just this complexity.
he complexity arises for at least three reasons. 7irst, strategicdecisions usually involve a high degree of uncertainty6 they may
involve taking decisions on the basis of views about the future which
it is impossible for managers to be sure about. econd, strategic
decisions are likely to demand an integratedapproach to managing
the organization. 4nlike functional problems, there is no one area of
expertise, or one perspective that can de$ne or resolve the
problems. (anagers, therefore, have to cross functional and
operational boundaries to deal with strategic problems and come to
agreements with other managers who, inevitably, have di8erent
interests and perhaps di8erent priorities. his problem of integration
exists in all management tasks but is particularly problematic for
strategic decisions. hird, as has been noted above, strategic
decisions are likely to involve major changein organizations. Dot
only is it problematic to decide upon and plan those changes, it is
even more problematic actually to implement them. trategic
management is therefore distinguished by a higher order of
complexity than operational tasks.