Strategy Driven Sustainable Organization Growth and Profitability
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:
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.
Improving Strategic Decision and Decision-Making
The quality of strategic decisions can be improved by enabling managers and decision makers to improve:
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:
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:
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:
Decision Makers (i.e., Managers) need the decision making skills and judgment to identify and analyze factors that can affect outcomes and value delivered.
Strategy execution represents a disciplined and systematic process of directing and controlling actionable/decisive decisions and activities that make an implemented strategy work, resulting in the transformation of the organization and its institutions in order to strengthen it, and lead to sustainable growth and improved performance. Strategy execution requires the effective interplay of cooperation between the organization's strategic management system and operations management system in combining deliberate and purposeful actions demanded by the intended and planned strategy, and emergent strategy - as-needed reactions to unanticipated developments and fresh competitive pressures to realize the actual strategy.
Factors Influencing Strategy Execution Success/Failure
Strategies may fail at execution for a myriad of reasons including the following six (6) factors:
All these factors are interdependent and their influences are non-deterministic; this typically, makes it very difficult for managers to comprehend the contribution of each of the factors to successful outcomes of strategy execution. Each of the factors influences execution success/failure in a different way; if an organization fails to pay proper attention to one of these factors, it can result in execution failure, therefore an organization needs a system and approach to support management in successful execution.
Poor Leadership Style
Poor leadership is manifested in a variety of ways, including:
A strategy may be defined variously as an approach to overcoming an obstacle; or a response to a challenge. A bad strategy is a strategy that does not define an approach/means to respond to a challenge (opportunity/threat) or solve a known problem. It reflects an organization's failure to face the problem. The strategy does not align with well diagnosed strategic issue and basic problem. A good strategy is a mixture of policy and action designed to surmount a challenge/problem.
This results in failure of strategic initiatives that define major efforts required to close identified strategic gaps so the organization can make progress towards its strategic goals. Poor implementation may result in weak strategic assets that do not close the strategic gap, and since execution takes place within the context of the implemented strategy, successful execution is unlikely.
Bad Strategic Decisions
Bad decisions result in the wrong outcomes. Bad strategic decisions are strategic decisions whose outcomes result in business failure/decline. Bad decisions may result from incomplete or short-circuited decision processes.
Strategic decisions are among the main means through which management choices are actually realized. 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 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.
This results in inefficient utilization of resources such as time and labor as well as lack of capacity to managing change. Poor planning may lead to strategy execution failure resulting from: bad or unrealistic schedules for project team members resulting in waste of time and poor time management; lack of clear definition of strategy and project objectives; lack of budgetary controls leading to misuse of funds, etc.
Strategy Execution System(s)
The actual strategy of an organization is realized through combined execution of the intended strategy - what managers have set out in advance and intend to do - as part of some important strategic plan, and as-needed reactions to unanticipated developments and fresh competitive pressures to realize the actual strategy New circumstances always emerge, whether important technological developments, rivals successful new products introductions, newly enacted government regulations and policies, etc., that create enough uncertainty about the future that makes it impossible for managers to plan every strategic action in advance and pursue their intended strategy without alteration.
Organizations need a system to support managers in influencing the effectiveness of planned actions (top-down) and as-needed adaptive reactions to unforeseen conditions ("unplanned" bottom-up strategy responses) in order to improve the likelihood of successful execution:
Strategy implementation is one of three co-incident processes involves in the strategy management. Strategy implementation provides the connecting loop between formulation and execution and control. Strategy implementation is key to any organization's survival and growth; and requires the collaboration of everyone inside the organization, and on many occasions parties outside the organization. The focus of strategy implementation may be organizational change, enhanced collaboration, or enhanced supportive culture. Strategy implementation is the responsibility of top, middle and lower/line managers focused on building capacity through projects and programs to strengthen the organization, and enable it to better deliver value to customers and meeting stakeholders expectations.
In a rapidly changing world any competitive advantage a firm creates is temporary and not sustainable; this requires changes to the firm's strategic plans and changes to the corresponding implementation plans.
Factors Influencing Strategy Implementation Success/Failure
Strategy implementation involves closing the gap between organization's current capacity development and the capacity development that the strategy calls for. And because of the rapid and on-going changes in the business position and technology the implementation is never fully completed.
Strategy implementation fails for a myriad of reasons including the six (6) factors discussed below. All these factors are interdependent and their influences are non-deterministic; this typically, makes it very difficult for managers to comprehend the contribution of each of the factors to successful outcomes of their strategy implementation decisions.
This is a capability the management of the organization must possess at decent levels to enable the organization's leaders and management to effectively organize, coordinate and communicate the organization's direction and vision to the workforce and keep them motivated and committed to achieve the mission and strategic objectives and goals.
Failure to properly perform the leadership functions can lead to the following:
Information Availability and Accuracy
This is the organization capacity to provide information system of processes and information flows that link the organization together and make accurate information available in a timely manner to support effective decision-making, communication and learning. Inadequate information systems capacity leading to poor Information Flows and availability of accurate information to support fast and accurate progress tracking, timely intervention, and corrective action at the right time and place.may result in obstacles to successful implementation because of the degradation in certain management functions such as:
Uncertainty - Effects of Uncertainty
Uncertainty is a state of having limited knowledge of current conditions or future outcomes. Uncertainty deals with possible outcomes that are unknown; and is a major component of risk (the likelihood or scale of negative consequences). Uncertainty creates obstacles and challenges to decision-making due to limited knowledge of current conditions and gaps in future outcomes; and is manifested in management behavior such as:
Risk is a certain type of uncertainty that involves the real possibility of loss.
The structure and operating principles as well as governance of the organization becomes more complex and critical to manage. Structure Alignment problems - the overall strategy not properly aligned (i.e., working) with the current structure; the way people and tasks/work are organized, and roles and responsibilities are assigned to people not aligned with strategy would lead to implementation problems. Weak structure can create obstacles to successful implementation manifested in the following ways::
The structure enables strategic alignment which enables effective cascading of objectives, goals, and decision rights to the appropriate people (actors) in the organization with the capability and capacity to perform the actions at the right time and place to accomplish the requisite goals and objectives.
Organization structure provides an explanation of the decision-making process and clarifies the roles and responsibilities, allocation of human resources (the way people and tasks/work are organized and roles and responsibilities are assigned to people), and the enabled level of flexibility to respond to unexpected circumstances. The organization structure design and the degree to which it effectively enables managing complexity, coordination and control of organizational behavior is critical to effective decision-making as the decision rights cascade during strategy implementation and execution grows. Within the structure, rules, policies, and procedures are uniformly and impersonally applied to exert control over organizational members’ behaviors. .
Organizational culture is the collective behavior of humans who are part of an organization, and the meanings they attach to their actions. Culture includes the organizational values, visions, norms, working language, systems, symbols, beliefs and habits. Culture manifests itself in the particular way things are done in an organization including how decisions are made. It affects who gets hired, how they get trained (formally or informally), what behaviors get rewarded, who gets promoted, and virtually all organizational procedures and administrative protocols.
Organization culture defines the particular way the organization solves problems of survival through adaptation to external environment and internal integration which is supportive of the strategy. Weak culture is by definition not supportive of the new strategy and leads to organizational behavior and performance problems that present obstacles and challenges to successful implementation. unsupportive culture is reflected in organizational behavior such as::
Execution requires supportive culture and demands ownership at all levels in the organization including management and workforce. People must commit to and own the processes and actions central to effective execution.
Human resources are the people that comprise the workforce including managers of an organization, and the adequacy of their competencies, knowledge and skills. Human resources represent one the category of assets employed by an organization to create and deliver products and services to customers. Poor Human Resource Management is manifested in the following ways:
Human resource management is a function concerned with ensuring that the organization obtains and retains the skilled, committed and well-motivated workforce it needs. Strategic Human Resource Management is particularly focused on the alignment of human resources as a means of gaining competitive advantage. Strategic Human Resource Management is particularly focused on the alignment of human resources as a means of gaining competitive advantage in terms of the adequacy of their knowledge competencies, and skills.
Technological trends include not only the glamorous invention that revolutionizes the lives of the actors in the organization and its environments, but also the gradual painstaking improvements in methods, in materials, in design, in application, unemployment, and the transportation and commercial base nd their diffusion into new industries and efficiency. The rate of technological change varies considerably from one industry to another.
Changing technology can offer major opportunities for improving goal achievement, or threaten the existence of the firm. Lack of organizational capability to adapt to technology changes is reflected in the conditions and gaps:
Changing technology can offer major opportunities for improving goal achievement, or threaten the existence of the firm due to unpredictable problems
Factors Supporting Effective Strategy Implementation
Effective strategy implementation and execution involves managing change in the organization's internal environment which then allows the organization to successfully adapt to the changing external environment in which it operates but cannot control. The key factors that support successful implementation and execution are the following internal environment elements:
These factors are generally in agreement with the key success factors or prerequisites for effective strategy implementation as identified by the McKinsey.
Organization capacity development can be measured in terms of changes in the enabling environment, organizational, and individual levels.
Each of the factors influences implementation outcomes (closing the gap) in a different way; if an organization fails to pay proper attention to one of these factors, it can result in implementation failure, therefore an organization needs a system and approach to support management in successful execution.
The factors that influence the successful implementation of a strategy are interdependent and their influences are non-deterministic it is typically very difficult for managers to comprehend the contribution of these factors to the successful outcomes of strategy implementation making strategy implementation very hard.
A strategic issue is a fundamental policy question or critical challenge affecting an organization's mandates, mission, values, stakeholders, resources, structure, processes, management, or product or service levels and mix, clients, users or payers, cost, financing, management or organizational design. It is vital that strategic issues be identified and dealt with expeditiously and effectively if the organization is to survive and prosper.
Strategic issues identification focuses organizational attention on what is truly important for the survival, prosperity and effectiveness of the organization - and provides useful advice on how to achieve these aims. In order for an issue to be raised and resolved effectively, the organization must be prepared to deal with the conflicts associated with the issue. An organization that does not address its strategic issues may be unable to head off threats, and unable to capitalize on important opportunities, or both.
Strategic Issues Diagnosis
Strategic issues diagnosis is a problem formulation process involving strategic decisions and decision-making processes to identify problems underlying strategic issues and of strategic relevance, and deciding on potential courses of action (strategies) to pursue to resolve the problem(s). Strategic issues diagnosis provides the the methods for identifying strategic issues and problems facing the organization. Deciding how to solve the problem, i.e., strategy development, creates the need for more information and analysis.
Strategic issues by definition embody conflicts. These conflicts may be over ends (what); means (how); philosophy (why); location (where); timing (when); and who might be helped or hurt by the different ways of resolving the issue (who). Strategic issues must clearly relate to specific strategic problems facing the organization; additionally, they must be specific to the particular organization or industry.
Strategic Issues Problem Analysis
Analysis is the process of organizing and presenting information in an analytical way/manner that assists in better defining the problem scope or narrowing down its causes so that solutions may be more effectively created. This includes such things as determining what caused the problem, why does it continue to exist, will it go away on its own, how long has it existed, how serious is it, how soon does it have to be solved, and what internal and external factors contribute to the problem.
Defining problems of strategic relevance is hard because identifying these problems are difficult, partly because of complexity induced by the complicated structures (composed of many interrelated sub-problems, possibly from different domains, e.g., such as expressed through business architecture domains, etc.) of these problems, uncertainty due to incomplete information, and turbulence in the environment. Problem analysis requires you to build a model of the problem, collect some data and information to test your hypotheses and assumptions underlying the problem to even discover what the real problems are to solve. The process is akin to an "empirical discovery loop" that enables systematic discovery and formulation of problems in complex real world situations such as strategy and policy making. Deciding how to solve a problem once its been stated creates the need for more information and data gathering, and analysis and synthesis.
Strategic Issues and Problem Statements
Strategic problems are cross-functional in nature and have major long-term consequences for the organization's success because they impact the organization's competitive position. A statement (model) of a strategic issue should contain three (3) elements:
The problem model defines the problem scope, variables and factors, and narrows the assumptions of cause-effect relationships so that potential solutions may be more effectively explored.
Strategic Issues Diagnosis Outputs
The substantive outputs of strategic issues diagnosis are assumptions, cause-effects understanding (beliefs), predictive judgments, and symbolic language labels. These elements facilitate decision-making during the strategy (solution) development stages of strategic planning. Assumptions and cause-effect understandings, tacitly accepted or consciously explicated, are crystalized in the form of predictive judgments.
These elements which are substantive outputs of diagnosis can constrain or facilitate decision-making during the issues diagnosis and subsequent strategy formulation stages of strategic management.
Defining Solutions to Strategic Issues
Defining solutions to strategic issues is a problem solving process that results in a set of strategic alternatives/options – a set of hypothetical solutions to the problems identified from strategic issues diagnosis. Formulating appropriate strategies to respond to strategic issues/problems is difficult. It often requires you to build a model of the problem, collect some data and information to test your hypotheses and assumptions underlying the problem to even discover what the real problems are to solve.
Strategic decision-making involves choice of assumptions which is influenced by the decision makers beliefs which determine the success/failure of the decision. The nature of strategic decisions make it possible for managers within an organization to have widely varying and incorrect beliefs about environment factors such as market facts (e.g., customers' utility for a firm's product/service, and mangers' perceptions of the customers' perceptions of quality for the product/service to be inversely related). Managers must 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.
Benefits of Modeling Strategic Issues Diagnosis
Strategic issues diagnosis has a number of benefits including:
What is an Organization?
A model of the organization can be defined as a 4-tuple, composed by a set of goals and objectives, a set of (direct internal) sub-organizations, a set of institutional relationships, and a set of external organizations.
An organization as a system is a set of interacting or interdependent functional entities and individuals/groups of individuals forming an integrated whole. It can be one organization, a set of organizations, population groups or individuals. Organization systems are “open”, social systems. Open systems are systems that continuously interact with their environments through acquisition of input, production of output, and exchange of information; they survive and grow by continuously adapting to their environment. An organization is a system in that it is greater than the sum of its parts. How it performs cannot be calculated by adding up all the work arrangements - like departments - with the resources and processes that connect it all together.
Organizations are social systems that depend on norms and rules - policies. Policies are recognized descriptions which act as enforcement mechanisms to restrain individual behavior and regulate all sorts of organizational interactions such as delegation, dependency relationships with internal/external organizational entities as well as defining concepts within the organizational setting.
Organization as Social Systems
Organizations as social systems are configurations of "actors" (human systems or people) connected to each other to compose a system with a common purpose and a set of objectives. The central conceptual modeling construct in modeling social systems in real world situations is the "actor". It is an abstraction which is used to refer to people (the active elements/entity) that is capable of independent action. In creating social network models of real world situations, we adopt as a premise that the social world is unknowable and uncontrollable with respect to the behavior of "actors" (human agents, individual or groups of individuals). Social systems are essentially goal-seeking, information feedback systems.
Organization System Sructures
The organization structure defines the arrangement of accountability, authority and responsibility of a group of people in a hierarchy, and network of functional and business units, and the governance relations between these units. The organization structure is designed to enhance communication and information flow among organization system elements (people or groups of people) that comprise the organization social system. Within the structure, rules, policies, and procedures are uniformly and impersonally applied to exert control over members’ behaviors.
Organizational structures are the manifestation of strategic orientations and regulate information flows, decision making, and patterns of behavior, that is, the “internal allocation of tasks, decisions, rules, and procedures for appraisal and reward, selected for the best pursuit of a strategy. Structures develop due to the need to organize behavior in a meaningful way and provide orientation for organizational members to set actions that comply with organizational strategy, organizational culture, and, as a result, accepted patterns of behavior. The structure is comprised of organization units that organize activity within these units (business units, bureaus, teams, or departments) in which people perform specialized functions such as manufacturing, sales, IT, human resource management, accounting/finance, etc. People who perform similar functions (tasks) are clustered together.
Actors represent the perspectives and objectives of the individuals themselves responsible and accountable for implementing the organization design and strategy through their behavior. Actors are taken to be inherently autonomous, i.e., their behaviors are not fully controllable, or are they perfectly knowable. Although the behavior of actors is not perfectly knowable or fully controllable, they are nonetheless not completely random. The behavior of actors can be explained and rationalized through the motivations and intentions attributed to actors.
Organization System Behavior
The behavior of an organization is usually guided by its strategic and tactical goals. The performance of the organization can be expressed through goal-based performance indicators and measures. Behavior and performance unfolds as observable manifestations (phenomena) of predefined strategies as regulated by organizational structures. This domain puts into effect patterns of behavior, derived from strategies and structures. It makes an organization’s existence as a market player visible.
Organizational System Dynamics
Organizations are dynamic social systems which are a collection of people with a common purpose. The dynamics of social systems are expressed in terms of the intentional properties of the actors that comprise the system, and the interaction relationships between these actors rather than the actual behavior of the actors. An intentional description of actors' behavior offers a way of characterizing actors that respects the autonomy premise underlying the actor concept.
Organization System Interactions
Interactions between actors can occur to satisfy goals that are either common to actors or global goals which pertain to the society (organization) as a whole and lay outside the scope of any one individual actor. Considering sub-organizations as a kind of structured logical actor, interactions among the sub-organization units can be viewed as a way of realizing society goals.
What is a Strategy?
The term "strategy" is an overloaded in everyday conversations because most people including professional practitioners do not bother to explicitly establish their point of view into what is essentially a layered concept that exists at three (3) levels such as corporate, business and competitive and functional layers. Essentially, when people use the word “strategy”, they are expressing concerns/interest in one of the layers of a layered concept; corporate strategy, business and competitive strategy, or “functional” strategy; and operations strategy .
A strategy is an integrated and externally oriented concept of how a firm will achieve its objectives - how it will successfully compete against rivals. A strategy consists of an integrated set of choices related to elements from the corporate strategy, business and competitive strategy, and implementation method choices (M&A or “functional” strategy) layers.
Levels/Layers of Strategy
The levels/layers at which strategy may exist in the organization include:
Regardless of the person using the term, and the “type” of strategy being pursued the fundamental meaning of the word with respect to strategy type remains the same. Conceptually, a strategy in any of its myriad interpretation and manifestations, in any of these layers, is about decision making,
Operational Strategy - Operations strategy binds the various operations decisions and actions in functional areas into a cohesive consistent response to competitive forces by linking firm/organization policies, programs, systems, and actions into a systematic response to the competitive/strategic priorities chosen and communicated by the corporate or business strategy. Operations strategy is the collective concrete actions chosen, mandated, or stimulated by corporate strategy. Operations strategy defines how an entire business will allocate its resources to support operations and its strategic goals. Operations strategies focus on maximizing the efficiency and effectiveness of production while minimizing operating costs.
The actual strategy of an organization is a combination of the parts of the deliberate and intended strategy that is successfully implemented and executed, and emergent strategy - "realized pattern" that was not "expressly intended" that emerged. (Mintzberg, 1994;25).
This is intended and planned strategy which is a result of the rational planning approach of strategy development. The rational planning approach (e.g., Ansoff, 1979) defines an objective in advance, describes "where we are now," and uses a prescriptive approach in which "the three (3) core areas - strategic analysis, strategy development, and strategy implementation - are linked together sequentially" (Lynch, 2000; 24).
Emergent strategy is realized pattern that was not expressly intended or planned that emerged from execution Emergent strategy is undertaken by an organization that analyzes its environment constantly and implements its strategy simultaneously (Lynch, 2000; 26).
I am a computer scientist interested in modeling of complex business systems, and model-driven analysis and evaluation of strategic management and operations management and the interplay between them. Specifically, I am interested in the use of modeling to improve understanding of strategy, its formulation, implementation and execution, and the interplay between intended strategy, emergent strategy and leaning to inform better strategic decision-making.