Strategic Decisions and Decision-Making

Overview - Strategic Decisions and Decision-Making
A strategic decision is the product of the strategic decision-making process; it 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 issue will be relatively easy to resolve or extremely difficult or even impossible to resolve (or somewhere in between). The degree of difficulty is 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. The mission defines the kinds of things the organization will do -the role the organization will play in the business environment as defined by the products - goos and services - the organization will provide and for whom.

Strategic Decision-Making 
Strategic decision-making determines the objectives, resources, and policies of an organization. A major problem at this level of decision making is predicting the future of the organization and its environment and matching the characteristics of the organization to the environment. ​One characteristic of a strategic 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 related to strategic issues, such as: an observed decrease in sales, a new product entry by a competitor, a request for action from a higher level manager, regular planning cycle, or the outcome of a prior decision.
2. The managers (decision makers) overall mental model , i.e., mental market model - which includes mental models of context responses 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 decisions - These are decisions can be classified as unstructured. These are decisions in which the decision maker must provide judgment, evaluation and insights into the problem definition. These decisions are novel (new), important and non-routine; there is no well understood or agreed upon procedure for making them.
4. ​The "True" Environment Model - the real world conditions and facts.

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. 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 logical and deductive reasoning, the issues comprehension that triggers it, involves choice of assumptions which is to some extent 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. 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
Strategic decisions are the outputs of strategic decision-making process; they affect the overall positioning and direction of the organization. Strategic decisions are "unstructured" in that the decision maker must 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:

1. Investments Decisions in Creating New Business - e.g., Joint Ventures, Starting a new company, etc.
2. Investment Decisions in Building New Facilities or New Capability 
3. Investment Decisions in Marketing - e.g., New Products/Services Introduction, Developing New Marketing Channels, etc.
4. Investment Decisions in Internal Systems Development - e.g., New Information Systems, Internal Organization Structure (RE)Design, etc.
5. Investment Decisions in Initiatives to Grow Company - e.g., Revenues,  Number of Customers, Market Share, etc.

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​Strategic decisions affect and change the direction of the whole business/organization, and are long-term in their impact. 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:

1. Decision-Making 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. Uncertainty - Uncertainty is the state of having limited knowledge of current conditions or future outcomes - possible outcomes that are unknown. The effects of uncertainty creates obstacles and challenges to strategic decision-making due to limited knowledge of current conditions and gaps in knowledge of 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.
3. Decision Complexity - Decision complexity derives 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  - Social complexity derives from Managers and decision makers having differing individual mental models (or mindsets) of the world which then influences how people approach resolving the issues and 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 comprehension and interpretation of issues can lead to 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. Assumptions - 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.

​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.