Attaining Sustainable Organizational Growth and Profitability
In any business enterprise decisions can be made at varying levels in the organization. Managers at all levels in the organization must make decisions on behalf of a company. Those decisions range from simple selection and approval decisions of which there are a lot of research to very difficult decisions - strategic decisions. The term decision is used when a grocery store customer encounters an entire aisle of breakfast cereals, we say he has a decision to make. When a high school senior considers which college to attend, we say she is facing a decisions. When a poker player weighs whether to raise or fold, that's a decision, too. And when a company faces an opportunity - to enter a new market, acquire another company, or launch a new product - what is required of its management? A decision. The same term is applied to routine as well as complex deliberations, to both small-stakes bets and high-stakes commitments, and to exploratory steps as well as irreversible moves.
All these decisions have one property in common, the fact that people have to make up their minds in a great variety of circumstances. The use of the same word "decision" for deliberations in all these very dissimilar situations is a source of confusion, and makes it very difficult for people to apply any lessons learned or research knowledge in one situation to another situation.
Categorizing Decisions To Guide Decision-Making
These different types of decisions require different approaches - a framework - that provide a consistent process to help decision makers improve their decision-making. One approach is a model of decision-making based on two (2) factors that influence decision-making, namely: level of control on outcomes, and whether performance is absolute of relative. These factors define two (2) dimensions that can be organized into four categories. These categories define a structure/framework useful in categorizing decisions that lead to finding useful approaches to improve decision-making. They include the following:
Decision-makers (managers) can improve the quality of their decisions substantially, if before making any decisions they make an assessment of the type of decision(s) required for the situation at hand.
Management Decisions Types
Managers face in the course of their daily responsibilities a range of decisions that are consistent with their positions and roles in the organization. The difference between decisions at the various levels, typically, lies in the type and scope of the decision or choices made. From the point of view of management, managerial decisions can be broadly classified into these categories, namely, strategic, tactical, operational and administrative
These decisions concern making choices from alternatives courses of action based on facts, information, and value premises with the intention of moving towards a desired state of affairs.
Levels of Management Decisions
All management decisions can be related directly or indirectly to broader management functions: planning, organizing and staffing, leading, and controlling; with different management levels spending more time on certain functions than on others. The management based on positions, roles and responsibilities may be defined as follows:
The management decision levels defined in terms of positions, roles and responsibilities may have designated decision rights including decision authority associated to each position. An organization’s ability to execute well rests on its ability to make and implement the decisions that matter most.
Decision Rights and Authority
Many organizations struggle with timeliness and clarity of decision making, hampered by a broad range of factors: unclear priorities, consensus decision making, ambiguous decision roles, poor decision and meeting disciplines, siloed behaviors, or organizational structures that thwart collaboration and accountability.
Decision rights are a component of organization design, that help identify and establish "what" business decisions need to be made, both to drive the business and to drive alignment to strategy. And "who" is involved in making them and "how" the decisions will be made through operating processes.
Decision authority is the, power or obligation to make a decision and the duty to answer for its success or failure. There are six (6) common types of Decision Authority, including:
Identifying and defining decision rights helps companies to organize their decision making and execution processes by setting clear roles and accountability, and by giving those involved a sense of ownership of decisions.
Strategic decisions are those decisions taken by top management that have an influence over years, decades and even beyond the lifetime of the project. Strategic decisions are different from administrative decisions and operational decisions. Administrative decisions are routine decisions which help or rather facilitate strategic decisions or operational decisions. Operational decisions are technical decisions which help execution of strategic decisions. Strategic decisions are novel (new) - there are no well understood or agreed upon procedures for making them, important (i.e., consequential) and non-routine; and their effects 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 its environment - customers, competitors, suppliers, etc. Strategic decision-making is the means by which management intentions are realized.
Strategic decisions are the decisions that are concerned with the whole environment in which the firm operates, the entire resources and the people who form the company, and the interface between the two. Strategic decision-making is concerned with strategic choices where business executives (decision makers) can influence outcomes and success means doing better than rivals. Some examples of strategic decisions include:
Strategic decision makers such as business executives, coaches in sports, or political candidates are not like shoppers or administrators making routine choices that lead to one outcome, or another. They can influence the outcomes by the way they lead and communicate, and through their ability to inspire and encourage others. Moreover, executives are in charge of organizations that compete vigorously with others; doing better than rivals is vital for success.
Characteristics of Strategic Decisions
Strategic decisions are characterized by a number of features including:
Strategic decisions require the decision maker to provide judgment based on insights into the problem situation and choices from alternatives.
Strategic decision-making in concerned with how strategic decisions are made and implemented (Elbanna 2006). 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). It entails managing for strategic success. Strategic decision-making involves strategic thinking - the ability of the organization to plan - and leadership - the ability to influence the desired outcomes through its people, and the ability to motive the people in the organization to outperform rivals.
The strategic decision-making process involves issue comprehension, concepts structuring, and concepts formulation into cause-effect relations model. While the cause-effect relations are based on 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 mind-set (mental model), and might not accord with reality. So strategic decisions logically flowing from these assumptions if they turn out to be bad/erroneous assumptions, can lead to failure. Strategic decision-making activities that take place at different times, and may be organized into phases, such as::
A major problem in strategic decision making is predicting the future of the organization in achieving its mission, and its environment and matching the characteristics of the organization to the environment. The decision-maker has to perceive and understand problems; once perceived, solution ideas must be formulated then choices have to be made about a particular solution which is then implemented. For example, customers’ utility for a product (goods or service), and managers’ opinions of the customers’ perceptions of quality for that product (goods or service), can be inversely related. These beliefs influence the choice of assumptions underlying the manager’s strategic decisions and determine how good/bad the decision is. Erroneous assumptions can lead to bad/poor strategic choice which in turn, can lead ultimately to strategic decision failing at implementation.
Factors Influencing Strategic Decisions and Choices
A number of factors can exert decisive influence on the success of strategy decisions and choices. These may include the following:
Strategic thinking is essentially the process of determining the direction an entity (business, team, or individual) will take to achieve its long-term goals and vision. Strategic thinking involves the intentional and rational thought process that focuses on the analysis of critical factors and variables that will influence the long-term success of a business, team, or individual plan to achieve some specified objectives and goals.
Strategy execution is a disciplined and systematic approach to managing - directing, controlling and facilitating - the day-to-day decisions and activities undertaken at all levels in the organization involving top management through middle management, and front-line managers and workers that contribute to making the implemented strategy work as intended, and turn implemented strategy into commercial/social success.
Effective strategy execution involves closing the "execution" gap - the gap between actual/current strategy performance and intended desired performance. The actual strategy realized from execution is the combination of the executed part of the intended strategy - what managers have set out in advance and intend to do - as part of some important strategic plan, and the executed as-needed reactions to unanticipated developments and fresh competitive pressures. Execution involves doing things (such as making decisions and directing activities) to create "fits" between the way things are done and what it takes (how things should be done) within the context of the strategy implementation to make the strategy work as intended.
Why Organizations Fail at Strategy Execution
Strategy execution can fail - not accomplishing the desired outcomes - for myriad reasons including the inability of the organization to manage its strategy very well when faced with the following challenging situations:
The economy, competitors, the market and its challenges, and the availability of resources are not the reasons at fault, since other businesses are able to survive, grow nd thrive. The real (causal) reason can be attributed to mismanagement - inability of the business organization to manage its strategy very well. Strategy management is a function of strategic management. Strategic management is one of the most vital activities since it encompasses the business organization's entire scope of strategic decision-making.
Factors Influencing Effective Management of Strategy Execution
Successful strategy execution involves the successful transformation of the organization to better position it to deliver its mission and meet the desired outcomes. Management needs to also understand the interactions among key execution decisions and actions, and contextual forces that create significant and persistent execution gap as measured by the Operating Model. Successful strategy execution involves decisions about managing elements of the Operating Model which is concerned with how resources are organized and operated to get critical work done. Changes to certain elements of the organization's Operating Model such as governance, accountability, or culture, and in some cases overhauling the whole structure, when a company's strategy changes. These decisions about change take place within an organizational context of power, culture, leadership, and ability to manage change. This makes it more difficult for managers to control execution. Execution also involves more people at all levels in the organization than strategy formulation, this creates a challenge in communicating down the organization and/or across different functions relevant to the effective implementation of the strategy.
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 of these factors and their influence on successful execution.
Effective Execution Management
Execution management is a function of strategic management. It facilitates and guides a complex mix of decisions and actions strategy execution. The strategy execution is a process of managing people, strategy and operations and demands ownership at all levels of management and workers at customer touch points. People must commit to and own the process and actions to control effective execution. Strategy execution involves change in people that typically takes over a long period of time, this makes it more likely that the conditions under which the strategy formulation took place will change and unforeseen circumstances may arise to derail the execution. Execution involves both top-down and bottoms-up integration. The top-down integration involves cascaded flows of coordinated decisions and actions (participation and communication) through the implemented layers of corporate strategy, business strategy and operations strategy in the organization. The bottom up flows of participation and communication of information up to the organization managers through feedback mechanisms. Successful execution requires the capacity to monitor and evaluate changing environment factors and take decisive corrective action.
The success of both approaches is reinforced by functional strategy such as; marketing, finance, IT, HR, sales, etc., that appear simultaneously at all three levels of the implemented strategy hierarchy. The whole execution system/engine is synchronized by functional strategy that provide resources and capabilities to all three (3) strategy levels.
Strategy implementation is the process of making the chosen strategy operational by translating it into action plans so it can be executed successfully. Implementation provides the connecting loop between the strategic choice - selected strategic option from formulation - and execution and control. A strategy has to be successfully implemented and effectively executed to be of any use to an organization.
Key Success Factors
The primary concerns of strategy implementation is making the selected strategy operational throughout the entire organization so it can be successfully executed. Implementation requires the collaboration of everyone inside the organization, and on many occasions parties outside the organization. The key factors to take into consideration to ensure the implementation plans are feasible include the following:
These factors are generally in agreement with the key success factors or prerequisites for effective strategy implementation as identified by McKinsey.
If the corporation has the capabilities, enterprise advantage, and business portfolio it wants its corporate strategy is implemented. If the business unit has the customers, value proposition, and skills it has chosen to have, its business strategy is also fully implemented. Technically, a strategy can never actually be fully implemented because everything that was necessarily assumed when formulating the strategy - about customers, technology, regulation, labor market, competitors, and so on - is in a constant state of flux. There will always be a gap between where the company is and what its strategy call for. Closing this gap is implementation.
Factors Influencing Successful Strategy Implementation
Strategy Implementation is fraught with challenges as evidenced by the low percentage of strategies that are effectively implemented. Strategy implementation require a number of key components to be successful, including:
All these 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.
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.
Effective Strategy Management
Successful strategy implementation provides the context for successful execution, and 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.
In a rapidly changing world any competitive advantage a firm creates is temporary and not sustainable; without systematic changes to the firm's strategy and plans so it can respond and take advantage of opportunities that emerge as a result of changes in the environment while managing emerging threats that successful execution.
Strategy execution 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 while meeting stakeholders expectations.
Typically, the implementation gap - the gap between the strategic plan and its implementation - is caused by missing integrative links such as:
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 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.
In the absence of certain cause-effect relationships or experience in how these dialectical (verbal) processes between organizations will unfold, the firm can only hypothesize about the effects 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.
Implementation Gap and Gap Analysis
Strategic gap analysis attempts to determine what a company should do differently to achieve a particular goal by looking at the time frame, management, budget and other factors to determine where shortcomings lies.
Strategy implementation involves change - closing the gap between organization's current capacity and the capacity the strategy calls for. The implementation gap can be manifested as:
Strategy implementation decisions and actions are the means through which management intentions and choices are actually realized.
A strategic issue is essentially an issue - an unresolved question (i.e., a fundamental policy question) or critical challenge needing a decision or waiting for some clarifying future event. It is strategic in that it affects or has a major impact on successfully achieving the organization's mission. It is an issue that must be resolved if the organization is to achieve its mission. An organization may believe that the strategic issue will be relatively easy to resolve or extremely difficult or even impossible to resolve (or somewhere in between). The degree of difficulty should not be the focus, but rather, the focus should be on the degree to which the issue is an obstacle to the organization achieving its mission.
Strategic issues are triggered by any one of a myriad of organizational issues or events of strategic relevance, such as:
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. 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 Diagnosis
Strategic issues diagnosis is a problem formulation process involving strategic decisions and decision-making processes to identify problems underlying strategic issues that are of strategic relevance, and deciding on potential courses of action (strategies) to pursue to resolve those problem(s). Strategic issues diagnosis defines the methods/process 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 Identification
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. The strategic issues identification step 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. It is vital that strategic issues be identified and dealt with expeditiously and effectively if the organization is to survive and prosper. 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 must clearly relate to specific strategic problems facing the organization; additionally, they must be specific to the particular organization or industry. 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.
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.
Defining problems of strategic relevance is hard because identifying these problems are difficult, partly because of complexity induced by the complicated structures of these problems, uncertainty due to incomplete information, and turbulence in the environment. Strategic issue 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 - performing better than rivals/competitors. A strategic issue problem is composed of many interrelated sub-problems, possibly from different domains, e.g., such as expressed through business architecture domains, etc.
A problem statement for a strategic issue is based on a model comprising three (3) elements:
The problem statement describes 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/Results
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.
These elements can constrain or facilitate strategic decision-making during the issues diagnosis and subsequent strategy formulation stages of strategic management. Strategic decision making requires the decision makers to provide judgement, evaluation, and insights into the problem definition.
Solutions (Strategy) Formulation
Defining solutions to strategic issues' problems is a problem solving process that results in the formulation of a set of strategic alternatives/options. A solution - option/alternative - is a set of hypothetical solution approaches to solving the problems identified from strategic issues diagnosis. Solutions lead to the generation of possible strategic objectives.
Linking Strategic Issues to Strategy Formulation and Mission
A solution may link strategic issue(s) directly to strategy formulation. The strategy derives most of its content directly from the strategic issues. This content is restated and augmented with additional information in the form of decisions - captured in a formal model - which clearly enunciates the organization's vision as to future course and direction. Formulation involves crafting appropriate strategies to respond to the strategic issues/problems, and is an intellectual and entrepreneurial endeavor. 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. A model of the strategy allows us to explore and evaluate the upside potential, the downside risk, the resource consumption and the probabilities of success for the alternatives, and select the best direction.
Strategic issues may also link to the mission - defines the future role of the organization and organization goals - general and continually intended results necessary and sufficient to satisfy the organization's concept of success. This is a two (2) relationship: (1) these may arise because of the recognition that the organization is not fulfilling the commitments made in the mission statement; (2) the content of the mission statement and goals reveals some misalignments. These lead to identification of those strategic initiatives required in the next year or so to close the gap
I am a computer scientist by education and training. My interests are in modeling complex business and social systems to foster better strategic and operations management processes in delivering value to customers while meeting the expectations of stakeholders.