Copyright Interactive Design Labs 2005 - 2018
An organization is a social unit of people that is structured and managed to meet a need or pursue collective goals. All organizations have a management structure that determines relationships between the different activities and the members, and subdivides and assigns roles, responsibilities and authority to carry out different tasks. Organizations are open systems, they affect and are affected by their environment.The recursive logic of thought and actions embedded in the management process is common to different levels of decisions, each of which deals with different problems and relies on different sources of knowledge.
Strategic Decisions & Decision-Making
Strategic decision-making is a type of strategic management process that is open-ended, and ongoing cognitive process. It is a cognitive process involving "issue" comprehension, concepts structuring and concepts formulation into cause-effect relations model. While the cause-effect relations are deductive reasoning constructs, the issues comprehension involves choice of assumptions which is to some extent arbitrary and inductive in nature.
Strategic decisions are a form of managerial decisions that deal with situations for which the desirability of the range of possible alternative courses of action cannot be assessed exhaustively relying on ‘packaged’ knowledge (at least in a reasonable time frame). The complexity of the situation demands that we take ‘short cuts’ that we can identify only if we have experience dealing with similar problems. Decision makers need then to engage in a cognitive process that demands them to create new solutions based on old experiences in the form of heuristics (rules of thumb, common sense, intuition or educated guesses).
Strategic decisions involve matters for which the ‘theory’ inspiring them is far from suitable for programming or even for the application of the heuristics of the expert. These decisions concern situations characterized by their high complexity, as they relate to problems with multiple and related dimensions and their high uncertainty; as they are characterized by the independent behavior of different actors, making it very difficult to choose the best course of action analytically.
In the absence of certain cause-effect relationships or experience in how these dialectical processes between organizations will unfold, the firm can only hypothesize about the implications of different possible initiatives and learn more about them through interaction with other actors such as competitors, regulators, customers, suppliers, and partners in its competitive landscape. In these situations, managers face the extremely difficult problem in making decisions that demand a long-term perspective, committing the firm in the long run within a competitive landscape that is unlikely to stand still.
Strategic decisions are among the main means through which management choices are actually realized. They are difficult or expensive to reverse because they substantially alter (and irrevocably so in the short run) the relationships between the decision makers' organization and customers, competitors, etc. The decision's outcomes are usually contingent on effects - the behavior of other actors affected by the decisions and outcomes. These recursive relationships between decisions, decision outcomes, and effects on other actors' behavior make strategic decisions messier and more complex than operations decisions.
Strategic decisions always represent a risk because these decisions deal with the future and uncertainty. The organization can never predict the future with any degree of certainty. The nature of strategic decisions make it possible for example, for decision makers e.g., managers within an organization, to have widely varying and incorrect beliefs about environmental factors such as market facts, for example:
These beliefs influence the choice of assumptions underlying the manager’s strategic decisions and determine decision success/failure. Most managers don’t understand that their choice of assumptions is arbitrary influenced by their beliefs and that they might not accord with reality so strategic decisions logically flowing from bad/erroneous assumptions can lead to bad/poor decisions which can in turn lead to poor/bad decisions and ultimately to strategies failing at execution.
Strategic risks arise from executive decisions concerning the organization’s objectives, and the potential risks of failing to achieve those objectives. These risks are categorized as follows:
The business assumptions we make and the risks we introduce to the organization during strategic planning. In fact, the assumptions we base strategies upon can mushroom into grave risks and show-stopper impediments down the line – appearing out of nowhere when the business attempts to execute to a seemingly well-laid plan.
Operational Decisions & Decision-Making
Operations management focuses on carefully managing the processes to produce and distribute products and services. Operations Management (OM) decisions are concerned with the running of the day-to-day operations of a business or other organization as effectively and efficiently as possible.
Operations decisions are based on ideas with very precise and established relationships between them enabling the firm to find, given certain premises, programmed, algorithmic solutions through formal analysis or computational methods. They can be expressed as a firm’s standard operating procedures (SOP) such as invoicing, issuing salary notifications, or problems of optimization such as setting a stock policy. In all these cases, problems are simple enough to enable us to find “one best” solution, given certain premises, out of the exhaustive exploration of all the space of possible solutions.
Operational decisions relate to the daily operations of an organization. These decisions result in the countless interactions that take place daily in the creations and delivery of value to customers. Operational decisions should have measurable results such as higher revenues, increased profits, increased productivity and customer satisfaction. Operational decisions help move organizations towards their strategic goals.
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or external events. Operational risk can arise from technology failures, human and technical errors in financial models and reporting or other internal control systems deficiencies. Operational risk can also arise from fraud perpetrated by internal employees or by external sources.
Strategic decisions and decision-making when compared to operational decision-making and decisions (e.g., which jobs to schedule into production, etc.) or mundane management decisions (e.g., where to hold a company's picnic), or customer choices decisions (e.g., selecting a particular brand of tooth paste, etc.) are indeed messier (Ackoff, 1974). They are more complex, novel, and open-ended (Mintzberg, Raisinghani and Theoret, 1976) and are characterized by independent elements that cannot be formulated independently of one another, let alone solved.
I am a serial technology entrepreneur and computer scientist interested in model-driven analysis and evaluation of strategy, its formulation, implementation and execution, to better inform strategic decision-making, and improve organization performance and ensure sustainable growth.