Strategic Decisions - A Means For Realizing Management Choices

Introduction
The success of business organizations depend on the strategic and operational decisions made by management and individual key personnel in the organization. Strategic and operational decisions address different aspects of the organization. Strategic decisions affect the overall direction of the organization, whereas operational decisions affect day-to-day activities in operations.

Strategic Decisions and Decision-Making Process
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. The recursive logic of thought and actions embedded in the strategic decision-making common to different levels of management processes, each of which deals with different problems and relies on different sources of knowledge. These recursive relationships between decisions, decision outcomes, and effects of other actors' behavior make strategic decisions messier and complex.

Strategic decision-making processes 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 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 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. The complexity of the situation demands that we take ‘short cuts’ that we can identify only if we have experience dealing with similar problems. 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.

Strategic Decisions
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 are among the main means through which management choices are actually realized. Strategic decisions 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.

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 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.

Strategic decision's outcomes are usually contingent on effects - the behavior of other actors affected by the decisions and outcomes. These recursive relationships between decisions, decision outcomes, and effects on other actors' behavior make strategic decisions 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 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
Strategic risks arise from executive decisions concerning the organization’s objectives, and the potential risks of failing to achieve those objectives.  These risks are 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.

Realizing Strategic Decisions - Operations Management and Decisions
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 decisions help move organizations towards their strategic goals. 

​Operational decisions relate to the daily operations of an organization. The countless interactions that take place in the organization on a daily basis represent the result of operational decisions. These decisions can therefore bog down an organization and make it ineffective. Strategic decisions provide the context for operational decisions, ensuring that they are consistent with strategy. 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:

• 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.

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
Strategic decisions when compared to operational decisions (e.g., which jobs to schedule into production, etc.) or mundane management decisions (e.g., where to hold a company's picnic), or customer choices decisions (e.g., selecting a particular brand of tooth paste, etc.) are indeed messier (Ackoff, 1974). They are more complex, novel, and open-ended (Mintzberg, Raisinghani and Theoret, 1976) and are characterized by independent elements that cannot be formulated independently of one another, let alone solved. Strategic decisions typically involve high degree of uncertainty, high stakes, complex situations, major resource implications, and long-term consequences.

Strategic decisions and decision-making can be improved and made to work most effectively through analytic decision models and visualization to enable systematic integration of each decisive strategic decision (with connected network of actions) with others in the context of the organization as system. This provides the support for enabling managers and decision makers to:

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