Strategic Decisions - A Means For Realizing Management Choices

Strategic Decision Making
Strategic decision-making is an ongoing cognitive process triggered by "issues"  and events of strategic relevance. The strategic decision-making process is distinct from other decision making processes such as: consumer choice problem (e.g., selecting a particular brand of tooth paste) or a mundane managerial decision (e.g., where to ho;d the company picnic), and operations decisions; (e.g., which jobs to schedule into production, etc.). Strategic decisions are typically more complex, novel and open-ended (Mintzberg, Raisinghani and Theoret, 1976), and are 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 determines the objectives, resources and policies of the organization.  One characteristic of a strategic managerial decision making that differentiate it from other types of decision making is the particular setting or context. The context for strategic decision making is comprised of the following elements:

1. Decision trigger mechanism - There are many possible triggers, such as: an observed decrease in sales, a new product entry by a competitor, a request for action from a higher level manager, or regular planning cycle. In addition, the outcome of a prior decision could itself trigger a new decision-making process.
2. The managers (decision makers) overall mental market model which includes, mental models of context and market responses, and decision rules. Context Response Model defines a set of possible actions a manager can take , i.e., setting a new actual price; and the manager's estimate of factors that the manager believes are affected by his/her actions (i.e., customer perceptions of our price, competitor's price, etc.) which in turn affect the outcome measures. Market Response Model defines manager's anticipated outcome measures (i.e., sales, profits, etc., at some future time).
3. The decision,
4. ​The "True" Market Model.

When faced with the task of making a strategic decision, the manager may use his/her mental model of the situation and environment in concert with a set of decision rules to arrive at a particular decision. Managers make strategic decisions within a business environment comprising the organization and its relationship to customers, competitors, and the broad public; and these decisions affect a number of other players such as customers, competitors, etc.. Moreover, the reaction of these other players normally affect the final decision outcome. These other players may include customers, competitors, and broad public (i.e., society, regulators, investors, etc.). A major problem with strategic decision-making is predicting the future of the organization and its environment and matching the characteristics of the organization to the environment. Strategic decision-making is more than a set of rules to follow; these decisions are novel, important and non-routine; there are no well understood or agreed upon procedures for making them. It requires the decision makers to provide judgement, evaluation, and insights into the problem definition. Strategic decision-making involves "issue" comprehension, concepts structuring, and concepts formulation into cause-effect relations. While the cause-effect relations model is a deductive reasoning model, the issues comprehension that triggers it, involves choice of assumptions which is to some extent arbitrary and inductive in nature. 
 
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.

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 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.


Strategic Decisions
Strategic decisions are the output of strategic decision-making process. Strategic decisions affect the overall positioning and direction of the organization; they are different from operational decisions which affect day-to-day activities in operations to implement the strategic decisions. ​Strategic decisions are more complex than operations decisions; (e.g., which jobs to schedule into production, etc.), or mundane managerial 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.). Strategic decisions affect and change the direction of the whole business/organization, and are long-term in their impact. 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 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. ​The cause-effect relationships between decisions, actions, effects, and decision outcomes.

​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. The risks associated with strategic decision-making are strategic risks which arise from executive decisions concerning the organization’s objectives, and the likelihood (measure of risk) of failing to achieve those objectives. These risks can be categorized as follows:

Factors Influencing Sound Strategic Decisions
Some of the factors that influence the quality of strategic decisions and create challenges to effective decision-making include:
 

1. Decision-Making Process Complexity -This derives from the recursive logic of thought and actions embedded in the strategic decision-making process, and is common to strategic decision-making at different levels of management functions and processes in the organization; each of which deals with different problems and relies on different sources of knowledge. Decision makers need to engage in a cognitive process, in the form of heuristics - rules of thumb, common sense, intuition or educated guesses - to create new solutions based on old experiences. 
2. Effects of Uncertainty - Uncertainty is the state of having limited knowledge of current conditions or future outcomes - possible outcomes that are unknown. Uncertainty creates obstacles and challenges to strategic decision-making due to limited knowledge of current conditions and gaps in future outcomes. 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. The uncertainty and complexity of the situation demands that decision-makers take ‘short cuts’ that they can identify only if they have experience dealing with similar problems.
3. Decision Complexity - This may derive from: the inter-relationship among choices. For example, the strategic decision to enter a new market will require a major allocation of resources across different parts of the organization such as marketing, finance, operations, etc. This in turn will lead to the consideration of other strategic choices associated with the primary strategic decision, resulting in cascading decisions which is a source of complexity. 
4. Social Complexity  - This may derive from Managers and decision makers having differing individual mental models (or mindsets) of the world which then influences how people approach resolving the issues constituting a problem; how these issues relate and impact perceived implications in relation to the strategic choices open to them. Differences in mental models may also lead to cognitive conflict among decision makers due to possible differences in the individual manager's interpretation of issues;  is reflected in disagreements among decision makers and/or individual managers' about the strategic choices to pursue. This manifests itself in managers' doubts about how organizational values should guide the decision or choice of action.
5. ​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, 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. 
6. 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.
   

​Decision Makers (i.e., Managers) need the decision making skills and judgment to identify and analyze factors that can affect outcomes and value delivered. 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 (resulting from the strategic decisions to implement and execute a given strategy) 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.

The decision complexity relate to problems with multiple and related dimensions and their high uncertainty, for which the desirability of the range of possible alternative courses of action cannot be assessed exhaustively, at least in a reasonable time frame, relying on ‘packaged’ knowledge; making it very difficult decision makers to choose the best course of action analytically, due to high complexity and uncertainty and independent behavior of the different actors involved in these strategic decisions.

Improving Strategic Decisions and Decision-Making
The quality of strategic decisions can be improved by improving the strategic decision-making process, to make it work more effectively through decision models and visualization. The visual analysis enables managers and decision makers to improve:

•  their understanding of the influence of their decisions on environmental factors and other decisions,
•  their capacity to handle the cognitive burden associated with the inter-relationships among strategic choices,
• their awareness of the arbitrary nature of their choice of assumptions and ensure these assumptions are monitored.
• their negotiations with other decision makers through shared understanding.