Strategy Driven Organizational Performance and Change
Strategic decisions are the results of the strategic decision-making process; a strategic decision is the means by which management intentions are realized. Strategic decision-making is an ongoing cognitive process triggered by strategic "issues" and developments - events of strategic relevance, that must be resolved if the organization is to achieve its mission. An organization may believe that the strategic issue will be relatively easy to resolve or extremely difficult or even impossible to resolve (or somewhere in between). The degree of difficulty should not the focus, but rather the focus should be on the degree to which the issue is an obstacle to the organization achieving its mission.
Strategic Decision-Making Process
Strategic decision-making in concerned with how strategic decisions are made and implemented (Elbanna 2006). The strategic decision-making process can be categorized into two (2) broad types of decision-making processes: rational - bounded rationality - and political. The rational process is bounded by a decision maker's cognitive limits as well as scarce organizational resources. The rational process is based on bounded rationality which causes a decision maker to settle for a "good enough" solution (Simon, 1955).
Decision-making process involves several activities that take place at different times. The decision-maker has to perceive and understand problems; once perceived, solutions/ideas must be formulated then choices have to be made about a particular solution/idea which is then implemented. These activities are organized into the following phases:
Strategic decision-making is typically more complex, novel (new) and open-ended (Mintzberg, Raisinghani and Theoret, 1976), and is characterized by independent elements that by definition cannot be formulated, let alone solved, independently of one another.' (Mitroff and Emshoff, 1979:1). Strategic decision-making involves "issue" comprehension, concepts structuring, and concepts formulation into cause-effect relations. While the cause-effect relations are based on logical and deductive reasoning, the issues comprehension that triggers it, involves choice of assumptions which is to some extent, is arbitrary and inductive in nature. It is important that managers understand that their choice of assumptions is arbitrary and influenced by their beliefs, and might not accord with reality; so strategic decisions logically flowing from bad/erroneous assumptions can lead to failure.
A major problem in strategic decision making is predicting the future of the organization in achieving its mission, and its environment and matching the characteristics of the organization to the environment. The mission defines the kinds of things the organization wants to achieve - the role the organization will play in the business environment as defined by its products (goods and services) the organization will provide and for whom.
Strategic decisions are the outputs of strategic decision-making process; they affect the overall positioning and direction of the organization. Strategic decisions may be classified as "unstructured"; these are decisions that require the decision maker to provide judgment, evaluation and insights into the problem definition. They are novel (new), important and non-routine; there is no well understood or agreed upon procedure for making them; and 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. They can be characterized by the strategic issues, events, and factors that trigger them. Some examples of these riggers include: decrease in sales growth, new product entry by competitor, a request for action event from executive management, or simply regular planning cycle. Examples of strategic decisions categorized by decision areas include:
Strategic decisions affect and change the direction of the whole business/organization, and are long-term in their impact. Strategic decisions always represent risk because they deal with the future and changes in behavior of organizations and institutions which cannot be predicted with any degree of certainty. Strategic decisions are more complex than operational control decisions; (e.g., which jobs to schedule into production, etc.), or management control decisions (e.g., where to hold a company's picnic, etc.), or customer choice decisions (e.g., selecting a particular brand of tooth paste, etc.). They are different from operational and management control decisions which are "structured/semi-structured in that they are repetitive, routine, and involve a definite procedure for handling, so that they don't have to be treated each time as if they were new.
Quality of Strategic Decisions and Decision-Making
The quality of a strategic decision is defined in terms of the gap between expected outcomes and the actual outcomes achieved. The outcomes of strategic decisions are usually contingent on their effects on the behavior of other actors affected by the actions deriving from the decisions and the cause-effect relationships between decisions, actions, effects, and decision outcomes. The nature of strategic decisions make it possible 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, customers’ utility for a product/service, and managers’ perceptions of the customers’ perceptions of quality for that product/service to be inversely related. These beliefs influence the choice of assumptions underlying the manager’s strategic decisions and determine decision success/failure.
Factors Influencing Decision Quality
Some of the factors that influence the quality of strategic decisions and decision-making process include:
The viability of managers' strategic decisions depends in large part on managers' knowledge about the current situation, and probable reactions of their company, competitors, customers, and broader public. The quality of strategic decisions can be improved through use of Executive Support Systems (ESS) focusing on the information needs of senior managers to aid their decision-making. Executives are free to shape the problems as they see fit, using the system as an extension of their thinking process. ESS can help senior executives monitor organizational performance, track activities of competitors, spot problems, identify opportunities and forecast trends.
Strategy Execution Introduction
Strategy execution is a disciplined and systematic approach to managing - directing, controlling and facilitating - the day-to-day decisions and activities undertaken at all levels in the organization involving top management through middle management, and front-line managers and workers that contribute to making the implemented strategy work as intended, and turn implemented strategy into commercial/social success. Effective strategy execution involves closing the execution gap by creating "fits" between the way things are done and what it takes for effective execution, to make the strategy work as intended. The actual strategy realized from execution is the combination of the executed part of the intended strategy - what managers have set out in advance and intend to do - as part of some important strategic plan, and the executed as-needed reactions to unanticipated developments and fresh competitive pressures.
Factors Influencing Strategy Execution Success/Failure
Strategy execution can fail - not accomplishing the desired outcomes - for a myriad of reasons including the following:
All these factors are interdependent and their influences are non-deterministic; this typically, makes it very difficult for managers to comprehend the contribution of each of the factors to successful outcomes of strategy execution. Each of the factors influences execution success/failure in a different way; if an organization fails to pay proper attention to one of these factors, it can result in execution failure, therefore an organization needs a system and approach to support management of these factors and their influence on successful execution.
Effective Execution Management
Strategy execution involves change that typically takes over a long period of time, this makes it more likely that the conditions under which the strategy formulation took place will change and unforeseen circumstances may arise to derail the execution. Execution management facilitates and guides a complex mix of decisions and actions on, in doing what it takes to make the strategy work as intended. Execution involves both top-down and bottoms-up approaches. The top-down approach involves flows of corporate level strategy decisions through business level strategy decisions to strategy implementation decision and actions, and participation and communication down and across operating units. The bottom up flows of participation and communication of information up to the organization managers through feedback mechanisms.
Successful execution requires the capacity to monitor and evaluate changing environment factors and take decisive corrective action. Management needs to also understand the interactions among key execution decisions and actions, and contextual forces that create significant and persistent execution gap as measured by the Operating Model. Successful strategy execution involves decisions about managing elements of the Operating Model which is concerned with how resources are organized and operated to get critical work done. Changes to certain elements of the organization's Operating Model such as governance, accountability, or culture, and in some cases overhauling the whole structure, when a company's strategy changes. These decisions about change take place within an organizational context of power, culture, leadership, and ability to manage change. This makes it more difficult for managers to control execution.
Execution also involves more people at all levels in the organization than strategy formulation, this creates a challenge in communicating down the organization and/or across different functions relevant to the effective implementation of the strategy.
The strategy execution is a process of managing people, strategy and operations and demands ownership at all levels of management and workers at customer touch points. People must commit to and own the process and actions to control effective execution.
A strategy has to be successfully implemented and effectively executed to be of any use to an organization. Strategy implementation is key to any organization's survival and growth.
Strategy implementation is one of three co-incident stages - formulation, implementation and execution - of the strategic management process. Implementation provides the connecting loop between formulation, execution and control. The primary concerns of Strategy implementation is making the selected strategy operational throughout the entire organization. It requires the collaboration of everyone inside the organization, and on many occasions parties outside the organization. Making the selected strategy operational involves several actions and activities that must take place, including:
Strategy implementation is the responsibility of top, middle and lower/line managers focused on building capacity through projects and programs to strengthen the organization, and enable it to better deliver value to customers while meeting stakeholders expectations.
Typically, the value delivered by enhanced and strengthened existing assets or new assets is causally and temporally separated from the successful completion of the strategic initiatives that produced those assets. Any cause-effect relationships may involve two (2) or more stages; making it difficult for managers to fully comprehend the contribution of these assets to the success/failure of the implementation and execution of the strategy. In the absence of certain cause-effect relationships or experience in how these dialectical (verbal) processes between organizations will unfold, the firm can only hypothesize about the effects 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.
Strategy implementation involves change - closing the gap between organization's current capacity and the capacity the strategy calls for. The implementation gap can be manifested as:
Strategic gap analysis attempts to determine what a company should do differently to achieve a particular goal by looking at the time frame, management, budget and other factors to determine where shortcomings lies.
Strategy implementation decisions and actions are the means through which management intentions and choices are actually realized.
Factors Influencing Strategy Implementation Success/Failure
Strategy Implementation is fraught with challenges as evidenced by the low percentage of strategies that are effectively implemented. Strategy implementation require a number of key components to be successful, including:
All these factors that influence the successful implementation of a strategy are interdependent and their influences are non-deterministic it is typically very difficult for managers to comprehend the contribution of these factors to the successful outcomes of strategy implementation making strategy implementation very hard.
Uncertainty - Effects of Uncertainty
Uncertainty creates obstacles and challenges to decision-making due to limited knowledge of current conditions and gaps in our understanding of future outcomes and affects management behavior in performing their duties such as:
Uncertainty deals with possible outcomes that are unknown; and is a major component of risk (the likelihood or scale of negative consequences).
Structure Alignment problems - the overall strategy not properly aligned (i.e., working) with the current structure; the way people and tasks/work are organized, and roles and responsibilities are assigned to people not aligned with strategy would lead to implementation gap. Structure not driven by the strategy can create obstacles to successful implementation manifested in the following ways::
The organization structure design and the degree to which it effectively enables managing complexity, coordination and control of organizational behavior is critical to effective decision-making as the decision rights cascade during strategy implementation and execution grows. Within the structure, rules, policies, and procedures are uniformly and impersonally applied to exert control over organizational members’ behaviors. .
Weak culture is by definition not supportive of the new strategy and leads to organizational behavior and performance problems that present obstacles and challenges to successful implementation. un-supportive culture is reflected in organizational behavior such as::
Execution requires supportive culture and demands ownership at all levels in the organization including management and workforce. People must commit to and own the processes and actions central to effective execution.
Strategic Human Resource Management is particularly focused on the alignment of human resources as a means of gaining competitive advantage. in terms of the adequacy of their knowledge competencies, and skills. Poor Human Resource Management is manifested in the following ways:
Changing technology can offer major opportunities for improving goal achievement, or threaten the existence of the firm. Lack of organizational capability to adapt to technology changes is reflected in the conditions and gaps:
Changing technology can offer major opportunities for improving goal achievement, or threaten the existence of the firm due to unpredictable problems
Effective Strategy Implementation
Effective strategy implementation and execution involves managing change in the organization's internal environment which then allows the organization to successfully adapt to the changing external environment in which it operates but cannot control.
In a rapidly changing world any competitive advantage a firm creates is temporary and not sustainable; without systematic changes to the firm's strategy and plans so it can respond and take advantage of opportunities that emerge as a result of changes in the environment while managing emerging threats that successful execution.
The key factors that support successful implementation and execution are the following internal environment elements:
These factors are generally in agreement with the key success factors or prerequisites for effective strategy implementation as identified by the McKinsey.
Each of the factors influences implementation outcomes (closing the gap) in a different way; if an organization fails to pay proper attention to one of these factors, it can result in implementation failure, therefore an organization needs a system and approach to support management in successful execution.
Typically, the implementation gap - the gap between the strategic plan and its implementation - is caused by missing integrative links such as:
A strategic issue is essentially an issue - an unresolved question (i.e., a fundamental policy question) or critical challenge needing a decision or waiting for some clarifying future event. It is strategic in that it affects or has an major impact an successfully achieving the organization's mission. A strategic issue is an issue that must be resolved if the organization is to achieve its mission. Strategic issues are triggered byany one of the following problem areas:
In order for an issue to be raised and resolved effectively, the organization must be prepared to deal with the conflicts associated with the issue. Strategic issues by definition embody conflicts. These conflicts may be over ends (what); means (how); philosophy (why); location (where); timing (when); and who might be helped or hurt by the different ways of resolving the issue (who).
Strategic Issues Diagnosis
Strategic issues diagnosis is a problem formulation process involving strategic decisions and decision-making processes to identify problems underlying strategic issues that are of strategic relevance, and deciding on potential courses of action (strategies) to pursue to resolve those problem(s). Strategic issues diagnosis defines the methods/process for identifying strategic issues and problems facing the organization. Deciding how to solve the problem, i.e., strategy development, creates the need for more information and analysis. Strategic issues identification focuses organizational attention on what is truly important for the survival, prosperity and effectiveness of the organization - and provides useful advice on how to achieve these aims.
The strategic issues identification step focuses organizational attention on what is truly important for the survival, prosperity and effectiveness of the organization - and provides useful advice on how to achieve these aims. It is vital that strategic issues be identified and dealt with expeditiously and effectively if the organization is to survive and prosper. An organization that does not address its strategic issues may be unable to head off threats, and unable to capitalize on important opportunities, or both.
Strategic issues must clearly relate to specific strategic problems facing the organization; additionally, they must be specific to the particular organization or industry. Analysis is the process of organizing and presenting information in an analytical way/manner that assists in better defining the problem scope or narrowing down its causes so that solutions may be more effectively created. This includes such things as determining what caused the problem, why does it continue to exist, will it go away on its own, how long has it existed, how serious is it, how soon does it have to be solved, and what internal and external factors contribute to the problem.
Problem analysis requires you to build a model of the problem, collect some data and information to test your hypotheses and assumptions underlying the problem to even discover what the real problems are to solve. The process is akin to an "empirical discovery loop" that enables systematic discovery and formulation of problems in complex real world situations such as strategy and policy making. Deciding how to solve a problem once its been stated creates the need for more information and data gathering, and analysis and synthesis.
Defining problems of strategic relevance is hard because identifying these problems are difficult, partly because of complexity induced by the complicated structures (composed of many interrelated sub-problems, possibly from different domains, e.g., such as expressed through business architecture domains, etc.) of these problems, uncertainty due to incomplete information, and turbulence in the environment. Strategic problems are cross-functional in nature and have major long-term consequences for the organization's success because they impact the organization's competitive position.
A statement (model) of a strategic issue should contain three (3) elements:
The problem definition/statement is comprised of the problem scope, variables and factors, and narrows the assumptions of cause-effect relationships so that potential solutions may be more effectively explored.
Strategic Issues Diagnosis Outputs
The substantive outputs of strategic issues diagnosis are assumptions, cause-effects understanding (beliefs), predictive judgments, and symbolic language labels. These elements facilitate decision-making during the strategy (solution) development stages of strategic planning.
These elements can constrain or facilitate decision-making during the issues diagnosis and subsequent strategy formulation stages of strategic management. Strategic decision making requires the decision makers to provide judgement, evaluation, and insights into the problem definition.
Defining solutions to strategic issues' problems is a problem solving process that results in a set of strategic alternatives/options. A solution option/alternative is a set of hypothetical solutions to the problems identified from strategic issues diagnosis that lead to the generation of possible strategic objectives.
Formulating/crafting appropriate strategies to respond to the strategic issues/problems is an intellectual and entrepreneurial endeavor. It often requires you to build a model of the problem, collect some data and information to test your hypotheses and assumptions underlying the problem to even discover what the real problems are to solve. A model of the strategy allows us to explore and evaluate the upside potential, the downside risk, the resource consumption and the probabilities of success for the alternatives, and select the best direction.
Organizations have to change in order to grow. Typically, organizations change as a result of their strategies to re-position themselves and adapt or react to changes in external factors that create market opportunities and/or threats. Change is a certainty so business managers must actively engage in a process that identifies change in the environments and modifies organizational behavior to best take advantage of this change. Organizational change invariably involves change in people's behavior and relationships in the internal/external environments of the organization. Change in the internal environment factors involve those factors that are influenced by how the company is run, or decisions that introduce conditions inside an organization that forces a change. Managers however, do have some control over how the business reacts to changes in the external environment through management of the internal environment factors which is to some extent are controllable and changeable through the strategic management process. Change in the external environment involve external environment factors that are not controllable by the organization; these include business competitors, changes to law, general economic conditions, etc. All businesses have internal and external environments in which they exist and operate; organization change invariably involve change in these environments' factors such as described above.
Internal Environment and Factors
The internal environment is defined by the set of internal factors resulting from either the way the business is run, or decisions made, or both. The factors resulting from how the business is run include: business reputation and image, credit worthiness, etc. The factors resulting from business decisions include:
Internal factors can be controlled directly or indirectly; but changing these factors usually involves indirect costs such as lost productivity for example, while new employees are being trained, some direct costs such as a penalty for terminating a lease before it expires. The performance of an organization is influenced by factors or elements in the internal and/or external environments that shape the behavior as well as determine the strengths and weaknesses of the organization that are relevant to its survival and growth.
External Environment Factors
The external environment is defined by external factors such as characterized by PESTEL factors e.g., tight lending conditions, government regulations and competition. These factors are uncontrollable, and can be modeled as the institutional relations between the business and the external organization/entity of interest to the business, but are not directly controlled by it.
The external environment is modeled as a network of "External Entity" actors and their goal dependency relations with the business organization. The external entity abstraction is an abstraction over the concept of influencer in Motivational Modeling and can denote concepts such as regulators, competitors, market forces, customers, technology, etc. The category of external entities (influencers) is large and inclusive. Every business has hundreds of potential influencers. Influences can be political, economic, ecological, societal, and technology. There will always be too many influencers to model. The decision as to what influencers to model is determined by the influencers that impact the organization's strategies and tactics, and affect the achievement of goals and objectives of the organization.
Managing Organizational Change
An organization can be defined as a 4-tuple, composed by a set of goals and objectives, a set of (direct internal) sub-organizations, a set of institutional relationships, and a set of external organizations.
Organization System Structures
The organization structure defines the arrangement of accountability, authority and responsibility of a group of people in a hierarchy, and network of functional and business units, and the governance relations between these units. The organization structure is designed to enhance communication and information flow among organization system elements (people or groups of people) that comprise the organization social system. Within the structure, rules, policies, and procedures are uniformly and impersonally applied to exert control over members’ behaviors.
Organizational structures are the manifestation of strategic orientations and regulate information flows, decision making, and patterns of behavior, that is, the “internal allocation of tasks, decisions, rules, and procedures for appraisal and reward, selected for the best pursuit of a strategy. Structures develop due to the need to organize behavior in a meaningful way and provide orientation for organizational members to set actions that comply with organizational strategy, organizational culture, and, as a result, accepted patterns of behavior. The structure is comprised of organization units that organize activity within these units (business units, bureaus, teams, or departments) in which people perform specialized functions such as manufacturing, sales, IT, human resource management, accounting/finance, etc. People who perform similar functions (tasks) are clustered together.
Organizations as Systems
An organization as a system is a set of interacting or interdependent functional entities and individuals/groups of individuals forming an integrated whole. It can be one organization, a set of organizations, population groups or individuals. Organization as systems are “open”, social systems.
An organization is a system in that it is greater than the sum of its parts. How it performs cannot be calculated by adding up all the work arrangements - like departments - with the resources and processes that connect it all together.
Actors represent the perspectives and objectives of the individuals themselves responsible and accountable for implementing the organization design and strategy through their behavior. Actors are taken to be inherently autonomous, i.e., their behaviors are not fully controllable, or are they perfectly knowable. Although the behavior of actors is not perfectly knowable or fully controllable, they are nonetheless not completely random. The behavior of actors can be explained and rationalized through the motivations and intentions attributed to actors.
Organization System Behavior
The behavior of an organization is usually guided by its strategic and tactical goals. The performance of the organization can be expressed through goal-based performance indicators and measures. Behavior and performance unfolds as observable manifestations (phenomena) of predefined strategies as regulated by organizational structures. This domain puts into effect patterns of behavior, derived from strategies and structures. It makes an organization’s existence as a market player visible.
Organizational System Dynamics
Organizations are dynamic social systems which are a collection of people with a common purpose. The dynamics of social systems are expressed in terms of the intentional properties of the actors that comprise the system, and the interaction relationships between these actors rather than the actual behavior of the actors. An intentional description of actors' behavior offers a way of characterizing actors that respects the autonomy premise underlying the actor concept.
Organization System Interactions
Interactions between actors can occur to satisfy goals that are either common to actors or global goals which pertain to the society (organization) as a whole and lay outside the scope of any one individual actor. Considering sub-organizations as a kind of structured logical actor, interactions among the sub-organization units can be viewed as a way of realizing society goals.
Generally, strategy refers to how - means by which - a given objective will be achieved. Strategy in the general sense is concerned with the relationships between ends and means; that is, between the results we seek and the resources at our disposal. Strategy is concerned with formulating and then carrying out courses of action intended to attain particular objectives by mobilizing organization's resources - deploying the resources at the organization's disposal. Tactics is concerned with formulating and then carrying out courses of action intended to attain particular objectives by employing (utilizing) the mobilized and deployed resources deployed from implementing the strategy.
Strategy as Layered Concept or Types
The term "strategy" is an overloaded and varied concept; essentially, when people use the word “strategy” in a business setting, they are expressing concerns/interest in one of a layered concept that exists at least three (3) levels such as corporate strategy, business and competitive strategy, and functional strategy.
The term "strategy" is an overloaded in everyday business conversations, because most people including professional practitioners do not bother to explicitly establish their point of view into what is essentially a layered concept that exists at least three (3) levels such as corporate strategy, business and competitive strategy, and functional strategy. Essentially, business strategy enacts corporate strategy and defines how the business and its members should evolve in order to achieve long-term success.
The concept of viewpoint is a device that helps in developing a robust and successful strategy by enabling approaches to highlighting problems that would undermine an intended strategy at implementation and execution. The viewpoints or approaches as proposed by Mintzburg include:
Decision makers or managers start with a given perspective, conclude that it calls for a certain position, and sets about achieving it by way of a carefully crafted plan. Over time things change; a pattern of decisions and actions marks movement from starting point to destination end-point (goal). This pattern of decisions and actions is called "realized pattern" or "emergent" strategy. The actual strategy of an organization is the combination of the executed parts of deliberate strategy and emergent strategy.
Roles/Functions of strategy
Strategy in a business organization is about how the organization seeks to survive and prosper within its environment over the long-term. Strategy provides an organization with an offensive device to compete against competitors and guides their actions when faced with a range of choices. Strategy plays a number/variety of roles in organization's success, including:
Strategy is a significant determinant on a company's success or failure, in addition to the significance of competence of its managerial leadership.
I am a computer scientist interested in modeling complex business systems, and strategic management processes to drive analysis and evaluation of strategic decision making and decisions. Specifically, I am interested in the use of modeling to improve organization managers shared understanding of strategy and its influence of organizational behavior and change. And how this understanding informs management's decisions and actions in effectively managing strategy formulation, implementation and execution,