Strategic Decisions - A Means For Realizing Management Choices

Introduction
The success of business organizations measured in terms of survival and  achieving sustainable growth is dependent on the soundness of their strategic decisions, and the capacity to act on these decisions in a timely manner. 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. Strategic decision-making involves "issue" comprehension, concepts structuring, and concepts formulation into cause-effect relations model. 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. Strategic decision-making is an ongoing cognitive process whose outcomes are usually contingent on the behavior of other actors (individuals or organizations) affected by the decision’s outcomes. 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 among the main means through which management choices are actually realized

Challenges to Strategic Decision-Making
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. 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 we take ‘short cuts’ that we can identify only if we have experience dealing with similar problems.

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/or strengthened assets is causally and temporally separated from the successful completion of the strategic initiatives (resulting from strategic decisions) that produced those assets, through cause-effect relationships that may involve two (2) or more stages; making it difficult for managers to fully comprehend the contribution of these assets to the strategy implementation/execution success or failure. 

For strategic decision-making process to work most effectively each decision must be decisive with its set of related actions and activities integrated seamlessly and holistically integrated with other decisions within the organization through the organizations governance and control mechanisms as well as the Operations Systems, as the strategic decisions are the main means through which management choices are actually realized..

Understanding Sound Strategic Decisions
Strategic 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. Examples of strategic decisions include:

1. New Business Investment Decision - (e.g., acquisitions, mergers, Joint Ventures, New Company Establishment).
2. Investment in capital equipment or new capability.
3. Investment in the marketing domain - (e.g., New Products Introduction, New Marketing Channels, etc.).
4. Internal Organization Investments - (e.g., internal reorganization, investments in new information Systems, etc.)

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). 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).

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 ither 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 are assumptions are monitored.
• their negotiations with other decision makers through shared understanding.  
  

Strategic decisions provide the context for operational decisions, ensuring that they are consistent with strategy.

The outcomes of strategic decisions are usually contingent on effects - the behavior of other actors affected by the decisions' actions. These recursive relationships between decisions, decision outcomes, and effects on other actors' behavior make strategic decisions messier and more complex than operations decisions.

Understanding Strategic Risks
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.

Understanding Operations Decision-Making and Decisions
Operational decisions relate to the daily operations of an organization and help move organizations towards their strategic goals. The countless interactions that take place in the organization on a daily basis represent the result of operational decisions, and their sheer volume can therefore bog down an organization and make it ineffective.

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. Operational decisions because of their frequency and the time constraints can be expressed  as a firm’s standard operating procedures (SOP) such as in:

• Production
  
• Invoicing,
  
• Issuing salary notifications, or
  
• Problems of optimization, i.e., 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. These decisions result in the countless interactions that take place daily in the creations and delivery of value to customers.

Operations management focuses on carefully managing the processes to produce and distribute products and services that realize strategic decisions to capitalize on opportunities. Operations Management decisions are concerned with the running of the day-to-day operations of a business or other organization as effectively and efficiently as possible.

Operational Risks
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.

Summary
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. These recursive relationships between decisions, decision outcomes, and effects on other actors' behavior make strategic decisions-making messier and complex.

The quality of strategic decisions can be improved by improving the strategic decision-making process, to make it work more effectively through analytic decision models and visualization of each decision with its elaborated set of connected intended actions and their effects - actors whose behavior are assumed to be impacted by the successful implementation and execution of the actions.

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.