Understanding Strategic Decisions and Decision-Making

Introduction
Strategic decisions are the 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. ​They 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 customers, competitors, etc. ​Strategic decision-making is the means by which management intentions are realized. It entails managing for strategic success.

Strategic Decisions
Strategic decisions belong to the category of strategic management decisions in which decision-makers can actively influence the expected outcomes, and success means doing better than your rivals. Strategic decisions require the decision maker to provide judgment based on insights into the problem situation and choices from alternatives. ​Strategic decisions affect and change the direction of the whole business/organization, and are long-term in their impact. 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. 

Examples of strategic decisions
In business, examples may include decisions to:

• Enter a new market;
• Release a new product;
• Acquire another company;
• Create new strategic asset or enhance an existing asset.

In sports, a coach shapes the performance of athletes, melding them into effective team that can outperform the opponent.

And in politics, a candidate must inspire donors, build an organization, attract and motivate campaign workers, and ultimately persuade voters (shape outcomes).  A winning political campaign depends on smart assessment of rivals, as well as the ability to mobilize supporters, often in the face of long odds. 

​Strategic Decision-Making  
Strategic decision-making in concerned with how strategic decisions are made and implemented (Elbanna 2006). ​Strategic decision-making involves activities that may be organized into the following phases:

1. Intelligence - This phase encompasses gathering relevant information to inform identifying the problems occurring in the organization. The information indicates why, where, and with what effects a situation occurs.
2. Design - This phase deals with developing appropriate and possible solution alternatives to the problems identified in the intelligence phase.
3. Choice - This phase deals with selecting a "best" or optimal solution. Behavioral models of decision making imply decision makers tend to settle for a "good enough" solutions (March & Simon., 1981).
4. Implementation - This phase involves actions needed to make changes in the organizational capacity to enable it to resolve the problem.

The strategic decision-making process involves issue comprehension, concepts structuring, and concepts formulation into cause-effect relations. 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 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 strategic thinking - the ability of the organization to plan - and the ability to influence the desired outcomes through its people, and the need/expectation to outperform rivals. Strategic thinking is 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. 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.


Why Strategic Decision-Making is Hard
​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). ​ 

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. This involves several activities that take place at different times. The decision-maker has to perceive and understand problems; once perceived, solutions/ideas must be formulated then choices have to be made about a particular solution/idea which is then implemented. 

Factors Influencing Strategic Decision Quality
The nature of strategic decisions make it possible for decision makers e.g., managers within an organization, to have widely varying and incorrect beliefs about environmental factors which can influence decision quality. Some of the factors that influence the quality of strategic decisions and decision-making process include:

1. Decision-Making Complexity -This derives from the recursive logic of thought and actions embedded in the strategic decision-making process, and is common to strategic decision-making at different levels of management functions and processes in the organization. Each of which deals with different problems and relies on different sources of knowledge. Decision makers need to engage in a cognitive process, in the form of heuristics - rules of thumb, common sense, intuition or educated guesses - to create new solutions based on old experiences. 
2. Uncertainty - Uncertainty is the state of having limited knowledge of current conditions or future outcomes - possible outcomes that are unknown. The effects of uncertainty create obstacles and challenges to strategic decision-making due to limited knowledge of current conditions and gaps in knowledge of future outcomes. 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.
3. Decision Complexity - Decision complexity derives from: the inter-relationship among choices. For example, the strategic decision to enter a new market will require a major allocation of resources across different parts of the organization such as marketing, finance, operations, etc. This in turn will lead to the consideration of other strategic choices associated with the primary strategic decision, resulting in cascading decisions which is a source of complexity. 
4. Social Complexity - Social complexity derives from Managers and decision makers having differing individual mental models (or mindsets) of the world which then influences how people approach resolving the issues and problem; how these issues relate and impact perceived implications in relation to the strategic choices open to them. Differences in mental models may also lead to cognitive conflict among decision makers due to possible differences in the individual manager's comprehension and interpretation of issues can lead to disagreements among decision makers and/or individual managers' about the strategic choices to pursue. This manifests itself in managers doubts about how organizational values should guide the decision or choice of action.
5. Assumptions - Most managers don’t understand that their choice of assumptions is arbitrary influenced by their beliefs and that they might not accord with reality so strategic decisions logically flowing from bad/erroneous assumptions can lead to bad/poor decisions which can in turn lead to poor/bad decisions and ultimately to strategies failing at execution.

​The viability of managers' strategic decisions depends in large part on managers' knowledge about the current situation, and probable reactions of their company, competitors, customers, and broader public. For example, customers’ utility for a product/service, and managers’ opinions of the customers’ perceptions of quality for that product/service, can be inversely related. These beliefs influence the choice of assumptions underlying the manager’s strategic decisions and determine decision success/failure.

​Improving Quality of Strategic Decisions
Strategic decision makers - such as executives, entrepreneurs and leaders - are not like shoppers picking a product or investors choosing a stock, simply making a choice that leads to one outcome or another over which they have no influence. As executive leaders or entrepreneurs they can influence the outcomes, and their choices are successful only if they are better than the competition's or rival's.

Executive leadership and entrepreneurs can improve the quality of their strategic decisions if before making any decision, they make an assessment of the type of decision for the situation at hand. Executives are free to influence the outcomes as they see fit. They can use decision models focusing on the information needs of senior managers to aid their decision-making practices. An ESS can help senior executives monitor organizational performance, track activities of competitors, spot problems, identify opportunities and forecast trends.