Strategic Issues Diagnosis and Strategic Problem 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 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:

1. Description - The issue should be described succinctly, preferably in a single paragraph. The issue itself should be framed as a question the organization can do something about.
2. Factors - Factors that make the issue a fundamental policy question should be listed. In particular, what is it about mandates, mission, values or internal strengths and weaknesses, and external opportunities and threats that make this a strategic issue?
3. Consequences - The organization should state the consequences of failure to address the issue. A review of the consequences will inform judgments of just how strategic, or important various issues are. 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. 

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.

• Assumptions - Assumptions are premises, conditions, events or attributes that are or must be taken as 'given' or true by any individual or group in exploring a strategic issue or problem. They are those data points, facts, or beliefs which in the view of individuals represent elements of the world around them. 
• Cause-effect understandings - In the course of resolving an issue or problem individuals generate understandings of how various events/conditions and concepts relate together in a causal manner. These beliefs are like the causal links which comprise cognitive maps except that they are specific to a particular strategic problem/issue.
• Predictive judgments - Predictive judgments are judgments that involve assessments of future events surrounding a strategic issue or problem. Some examples include: Estimates of the likely effects of changes in such variables as marketing expenditures; definition of market boundaries; cash flow projections based on current or desired portfolio; R&D expenses and investment intensity on performance in ROI, cash flow, and/or market share.
• Symbolic Elements - Language and label for defining domain concepts. 

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:

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.