Strategic Decisions - A Means For Realizing Management Choices

Strategic Decisions
Strategic decisions are a form of managerial decisions that deal with situations characterized by high complexity - they 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.

Strategic decisions can be identified by the strategic 'issues', events or factors that trigger them. These triggers may include observed issues such as decrease in sales or sales growth, a new product entry by competitor(s); and events such as request for action from executive management, or simply a regular planning cycle. Some ​examples of strategic decisions include:

1. Decisions in New Business Investments - (e.g., acquisitions, mergers, Joint Ventures, New Company Establishment).
2. Decisions in Investment in Capital Equipment, New Facility or New Capability.
3. Decisions in Investment in Marketing - (e.g., New Products Introduction, New Marketing Channels, New Markets, etc.).
4. Decisions in Investments in Internal Organization Systems - (e.g., internal reorganization, investments in new information Systems, etc.).

The quality - good/bad - of a strategic decision is based on the outcomes of a that strategic decision which are usually contingent on the effects on the behavior of other actors affected by the decisions' actions. 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. These cause-effect relationships between decisions, decision outcomes, and effects on other actors' behavior make strategic decisions-making messier and more complex than operations decisions. Strategic decisions, when compared to 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.) are indeed 'messes' (Ackoff, 1974); they 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 Process
Strategic decision-making is an ongoing cognitive process which involves "issue" comprehension, concepts structuring, and concepts formulation into cause-effect relations model, and whose outcomes are usually contingent on the behavior of other actors (individuals or organizations) affected by the decision’s outcomes. 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. 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/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. 

Strategic Decision Complexity
The recursive logic of thought and actions embedded in the strategic decision-making process is common to different levels of management functions and processes, each of which deals with different problems and relies on different sources of knowledge. 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). 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.

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. 
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Improving Strategic Decision and Decision-Making
The quality of strategic decisions can be improved by enabling 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.  

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 decision model allows the elaboration of each decision with its set of connected intended actions and their effects on actors whose behavior are assumed to be impacted by the successful implementation and execution of the actions.

Strategic Decisions and Strategic Risk
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 risks arise from executive decisions concerning the organization’s objectives, and the potential risks of failing to achieve those objectives. These risks can be categorized as follows:

• Business Risks - These are risks that derive from the decisions that the board takes about the products or services that the organization supplies. They include risks associated with developing and marketing those products or services, economic risks affecting product sales and costs, and risks arising from changes in the technological environment which impact sales and production. 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.

 

• Environment Risks - 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. 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.

 

• Organization Risks - Strategic risk levels link in with how the whole organization is positioned in relation to its environment and are not affected solely by what the directors decide. Competitor actions will affect risk levels in product markets and technological developments may mean that production processes, or products, quickly become out-of-date.

Challenges of Strategic Decision-Making
Strategic decisions are long-term in their impact; they affect and change the direction of the whole business/organization. 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 challenges of strategic decision-making include:
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​Complexity
In the context of strategy execution, complexity refers to challenges to understanding an issue due to lack of information and lack of insight into the problem domain due to:

• Uncertainty - This may derive from:

1.  lack of complete knowledge about the organization's external environment and the impact of environmental factors on the performances of potential strategies/strategic choices; e.g., launching a new innovative product into existing/new market; 
2. Doubts about how organizational values should guide the decision or choice of action.

•  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..
• Social Complexity - This may derive from:

1. Differing Mental Models - Managers and decision makers having differing individual mental models (or mindsets) influence 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.
2. Cognitive conflict - 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.  

​Decision Makers (i.e., Managers) need the decision making skills and judgment to identify and analyze factors that can affect outcomes and value delivered.