Attaining Sustainable Organizational Growth and Profitability
Improving Decision-Making and Decisions in Business Organizations
Decision-making is the deliberative process of making choices by identifying a decision, gathering information, and assessing alternative solutions. A decision is a conclusion/determination arrived at after consideration. It is the action of deciding something or resolving a question. The term decision is used, in a variety of different circumstances, when people have to make up their minds. The situations in which people have to make decisions (make up their minds about what to do) may range over a variety of situations, including:
The same term - decision - is applied to all kinds of deliberations. 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 different kinds of deliberations in a variety of very dissimilar situations is a source of confusion, and makes it very difficult for people to apply the appropriate methods and knowledge in the right situation - situation of interest.
A Model of Decision-Making and Decision Types
Decision-making is the deliberative process of making choices by identifying a decision, gathering information, and assessing alternative solutions. Decision-making involves a series of steps taken by an individual/group to to determine the best options or course of action to meet their needs. Decision-making is influenced by a number of factors including:
These factors can be organized into a two (2) dimension model that defines four categories elements that influence decision-making. This model provides a consistent structure to help decision makers improve their decision-making, by classifying decision-making into categories based on the two (2) factors that influence decision-making. The resulting categories include:
The structure/model useful in categorizing decisions into a decision type system that can lead to finding useful approaches to improve decision-making. This type system helps decision makers distinguish between the different types of decisions - routine as well as complex deliberations, to both small-stakes bets and high-stakes commitments, and to exploratory steps as well as irreversible moves. Decision-makers 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.
Decision-Making In Business Organizations
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. Managers face in the course of their daily responsibilities, a range of decisions that are consistent with their positions and roles in the organization. For example, the management decisions based on positions, roles and responsibilities may be defined as follows:
In a business context, decision-making is a set of steps taken by managers in an organization to determine the planned path for business initiatives and to set specific actions in motion. The difference between decisions at the various levels, typically, lies in the type and scope of the decision or choices made.
Decision Rights & Authority
The management decision levels and associated positions, roles and responsibilities may have designated decision rights and decision authority associated to each position. 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. 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.
Decision authority is the, power or obligation to make a decision and accountability - the duty to answer for the success or failure of a decision. There are six (6) common types of Decision Authority, including:
An organization’s ability to execute well rests on its ability to make and implement the decisions that matter most.
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. From the point of view of management, managerial decisions can be broadly classified into these categories, namely, strategic, tactical, operational and administrative decisions.
Decision making is the means by which management's intentions are reaized.
Strategic Management Decisions and Decision-Making
Strategic management is an ongoing process of decision-making and actions through which management intentions and ideas (i.e., strategies) are formulated and realized - implemented and executed. An aspect of strategic management is concerned with managing the strategy-producing value chain of an organization. It involves the development and execution of strategies that define the corporate direction, how the company is going to grow and be profitable, etc. Strategic management process enables managers to plan and execute strategies that change the organization's behavior and capacity to, adapt to or respond to, changes in the external environment in which the company operates.
Strategic management decisions are strategic decisions; they are based on a company's mission, vision or its objectives. An example. A manager of a cat food company notices that his customers prefer higher quality and fresh food instead of cat food sold in very large quantities for a low price. Strategic management decisions link rhetoric (what people say), choices (what people decide and are willing to pay for), and actions (what people do) in shaping the nature and direction of an organization.
Strategic management decisions involve strategic thinking - the ability of the organization to plan - and strategic choice/decision-making. Strategic thinking is more about making decisions directed towards achieving defined outcomes. Strategic thinking is the ability of the organization to plan, leadership - the ability to influence the desired outcomes through its people, and the ability to motive the people in the organization to outperform rivals. Strategic thinking is active and ongoing, and is a way of understanding the fundamental drivers of a business organization. Strategic thinking requires envisioning what you want to accomplish and formulating solutions to problems. Strategic thinking represents the "why" and the "what" of the work you want to accomplish in a particular context and the whole configuration of interconnected and continuous interacting components and systems. Strategic thinking connects the organization's current state and the "to be" future state in order to bridge the differences and close the gap to gain/maintain competitive advantage.
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 decisions 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 decisions require the decision maker to provide judgment based on insights into the problem situation and choices from alternatives. The effects of 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 its environment - customers, competitors, suppliers, etc. Some examples of strategic decisions include:
For these decisions, decision makers can actively influence outcomes of strategic choices, using their abilities to make things happen, and success means doing better than rivals. Success depends on the ability of managers to influence the desired outcomes through its people, and the need/expectation to outperform rivals.
Characteristics of Strategic Decisions
Strategic decisions are different from administrative, tactical and operational 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. 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. Tactical decisions are decisions and plans that concern the more detailed implementation of the organization's business strategy.
Strategic decisions are characterized by a number of features including:
Strategic decision 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).
Strategic decision-making in concerned with how strategic decisions are made - formulated and implemented (Elbanna 2006). Strategic decision-making 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 involves more than just simply making a choice that leads to one outcome or another. Strategic decision-making is a critical skill for effective leadership in business and other organizations. The outcomes of a leader's choices significantly impacts employees, customers, the market and success of the organization. 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; success means doing better than rivals.
The strategic decision-making involves the following:
Strategic decision-making is the means by which management intentions are realized (formulated and implemented). Strategic decision-making is inextricably linked to strategic planning because it concerns the distribution of resources and the company's long-term direction.
Strategic decision-making activities 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 underlying identified issues; 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 strategic decisions-making and strategic 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 Implementation Planning and Execution
Strategy implementation and execution are coincident functions strategy implementation, an aspect of strategic management. Strategy implementation is an action-oriented process for building a capable organization that can make the selected planned/formulated strategy work as intended, through execution of the initiatives in those plans to realize the actual strategy. There are two (2) aspects to strategy implementation: implementation planning, and execution.
Strategy Implementation Planning
Strategy implementation planning is one way by which an organization's objectives, strategies, and policies are put into action through development of initiatives (programs and projects), budgets and procedures. Strategy is implemented through the use of projects, programs and portfolios. Portfolios structure investments in line with strategic initiatives and objectives, whilst balancing, aligning and scrutinizing capacity and resources. Strategic initiatives are the means through which a company translates its goals and vision into practice. They are the specific actions or goals an organization adopts to bring its vision to life. They are the first tangible objectives of your strategy, and are crucial to the execution of the strategy and the organizations development. Programs combine business-as-usual with projects and steady state activity dictated by strategic priorities. Projects are transient endeavors that bring about change and achieve planned objectives. Together, they combine to deliver the beneficial change required to implement, enable and satisfy the strategic intent of the organization. Some examples of strategy implementation include: developing and executing a new marketing plan to help increase sales of the company's products to consumers.
Strategy execution is the implementation of a strategic plan in an effort to reach organizational goals. It comprises the daily structures, systems, and operational goals that set your team up for success. Strategy execution makes the implemented strategy work as intended, and turn strategy implementation plan into organizational success. Execution involves doing things to create "fits" between the way things are done and what it takes to make the strategy work as intended. (how things should be done) within the context of the strategy implementation. Successful strategy execution involves decisions about managing changes to appropriate elements of the organization's Operating Model. The operating model is concerned with how resources are organized and operated to get critical work done. Changes to elements of the organization's Operating Model may include: 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.
Challenges to Successful 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 challenging situations such as:
These challenges are not the reasons at fault, since other businesses are able to survive, grow and thrive. The real (causal) reason can be attributed to mismanagement - inability of the business organization to manage its strategy very well.
Factors Influencing Execution Success/Failure
Effective strategy execution management 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 (deliberate) strategy - what managers have set out in advance and intend to do - as part of some important strategic plan, and emergent strategy - the executed as-needed reactions to unanticipated developments and fresh competitive pressures. 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.
Managing organizational change requires a system of controls - a tool designed by managers to help them monitor and evaluate the progress of activities directed towards executing the organization's implemented strategy. Some of the factors that influence execution success/failure include:
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.
Strategy Implementation Management
Strategy execution management is a process of managing people, strategy and operations. Strategy execution management 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 carryout the ongoing pursuit of a strategy and complete it.
Strategic managers create control systems to monitor the quality of products. Strategic control systems provide managers with the tools to regulate and govern their activities. In strategic control, managers first select strategy and organization structure, and then create control systems to evaluate and monitor the progress of activities directed towards implementing and executing strategies. Finally, they adopt corrective actions through adjustments in the strategy if variations are detected.
Strategic control systems provide managers the tools to regulate and govern their activities through both proactive (feed forward) and reactive (feedback) mechanisms. Proactive control systems help in keeping an organization on track, anticipating future events and responding to opportunities and threats. Reactive control systems help detect deviations after events have occurred and then take corrective actions. Strategic control systems further help managers achieve superior efficiency, quality, innovation and responsiveness to customers. Strategic control systems can also help in encouraging employees to think about innovation. Strategic control systems make employees more responsive to customers through monitoring and evaluating employees' behavior and contact with customers.
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. An important task of managers is to design strategic control systems for successfully implementing and executing a strategy.
Strategic Management - Strategy Implementation and Execution
A strategy has to be successfully implemented and executed to be effective and of any use to an organization. Strategy implementation is an aspect of strategic management; it 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.
Strategy implementation is an action-oriented plan of activity that revolves around the management of people, resources, and business processes. Strategy implementation require a number of key components to be in place to be successful. Successful implementation depends on the following:
Effective 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.
Factors Influencing Successful Strategy Implementation
Strategy Implementation is fraught with challenges as evidenced by the low percentage of strategies that are effectively implemented. Successful implementation is influenced myriad of factors including: 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 Implementation and Management
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 while meeting stakeholders expectations.
A strategy is implemented 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 (corporate and business) strategy calls for. Closing this gap is implementation.
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. The implementation gap can be manifested as:
Typically, the gap between the strategic plan and its implementation - is caused by missing integrative links such as:
Strategy implementation involves change - closing the gap between organization's current capacity and the capacity the strategy calls for. 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 implementation decisions and actions are the means through which management intentions and choices are actually realized. 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 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.
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. The identification and prioritization of strategic issues sets the strategic focus for the development of strategies.
The strategic issue is derived from the facts and data provided by the external and internal analysis and its synthesis through the SWOT model. 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.