Strategic Issue Diagnosis and Strategy Formulation

Introduction
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 level and mix. Strategic issues diagnosis is a problem formulation process involving strategic decisions and decision-making processes to identify problems of strategic relevance and deciding on potential courses of action to pursue.

Strategic Issues Diagnosis Modeling
Identifying problems of strategic relevance and formulating appropriate strategies to respond to these 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. 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. The substantive outputs of the strategic issues diagnosis processes including assumptions, cause-effect understandings, and predictive judgments can constrain or facilitate decision-making during the issues diagnosis and subsequent strategy formulation stages of strategic management.

Analytical models of the diagnosis substantive outputs include elements such as assumptions, cause-effect understandings, and predictive judgments as well as symbolic output of elements such as domain language and labels. Assumptions and cause-effect understandings, tacitly accepted or consciously explicated, are materialized in the form of predictive judgments. Some examples of predictive judgments include:

• Estimates of the likely effects of changes in such variables as marketing expenditures.
• R&D expenses and investment intensity on performance in ROI, cash flow, and/or market share.
• Cash flow projections based current or some desired portfolio.
• Definition of market boundaries.

Predictive judgment elements provide the basis for formulating problems with strategic relevance.

Solving The Problem - Strategy Formulation
Deciding how to solve the problem, i.e., strategy development, creates the need for more information and analysis, and simulation. In most organizations and enterprises strategy development involves the identification and formulation of strategies at three levels i.e., corporate, business/competitive, and functional levels. and the implementation and execution of selected strategies from the formulated options/alternatives. Strategy formulation 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.

In order to deliver value, a strategy has to enable change and adaptation of the organization to a problem; this requires that there are known problems to be solved. Yet identifying these problems is hard, 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.

The Value of Modeling Strategic Issues Diagnosis
Modeling strategic issues diagnosis has a number of benefits including:

1. Improving the viability of strategic decisions by improving decision makers' knowledge about external environment factors and possible reactions of environment actors (stakeholders) such as customers, competitors, and broader public (i.e., society, regulators, community, investors - the world). .
2. Improving managers' capacity to overcome the cognitive burden/overload associated with the inter-relationships among strategic decisions and outcomes.
3. Improving managers' understanding of the fact that their choice of assumptions is arbitrary and might not accord with reality, and exposing strategic decisions that logically flow from bad or erroneous assumptions to risk of leading to bad or poor decisions.
4. Improving managers' awareness of individual differences in strategic choices due to differences beliefs and assumptions leading to better negotiated strategic decisions.