Understanding Strategic Decisions and Decision-Making in Business Organizations

Strategic 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 novel (new) - there are no well understood or agreed upon procedures for making them, important (i.e., consequential) and non-routine. Strategic decisions 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. 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. Strategic decisions require the decision maker to provide judgment based on insights into the problem situation and choices from alternatives. 

Some examples of strategic decisions include:

• Enter a new market;
• Release a new product;
• Acquire another company;
• Create new strategic asset or enhance an existing asset - e.g., design of supply chain network, selection of location of production facility, technology.
• In sports, a coach shapes the performance of athletes, melding them into effective team that can outperform the opponent.
• 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 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 are concerned with possessing new resources, organizing others, or reallocating others, or enhancing existing resources.
• Strategic decisions deal with harmonizing organization's resource capabilities with the threats and opportunities.
• Strategic decisions affect and change the direction of the whole organization, and are long-term in their impact. It is all about what management wants the organization to be like and to be about. 
•  Strategic decisions involve change.
• ​Strategic decisions are surrounded by uncertainty; they 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. 

​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 Decision-Making  
​Strategic decision-making in concerned with how strategic decisions are made and implemented (Elbanna 2006). Strategic decision-making is the means by which management intentions are realized.​ Strategic decision-making is concerned with strategic choices where business executives (decision makers) can influence outcomes and success means doing better than rivals.

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 take place at different times, and may be organized into phases, such as::

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. Strategic Choice - Strategic choice is the mental process of selecting the "best" or optimal - most appropriate solution (i.e., strategy) from the stock of alternatives that serves the enterprise's objectives. Behavioral models of decision making imply decision makers tend to settle for a "good enough" solution (March & Simon., 1981). This choice takes place in the organizational context and influenced by the decision makers beliefs, assumptions and judgments. 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. Changing beliefs is a marketing effort, and requires time, and coordinated process of communication, conversation, education, and presentation of new evidence. ​The viability of strategic choice depends in large part on managers' knowledge about the current situation, and probable reactions of their company, competitors, customers, and broader public. 
4. Implementation - This phase involves actions needed to make changes in the organizational capacity to enable it to resolve the problem.

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:

1. Decision-Making Complexity -This derives from the recursive logic of thought and actions embedded in the strategic decision-making process, and is common at the different management levels 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. To choose a good option, past data, current data, forecast data and various other factors must be examined carefully. make a good selection  
2. Uncertainty - Uncertainty is the state of having limited availability to critical information. Managers choose a strategic option on the basis of relevant data and information such as 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 mind-sets (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. Beliefs, Assumptions and Judgments - Strategic choice takes place in the organizational context and influenced by the decision makers beliefs, assumptions and judgments. 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. A belief is a conclusion about how the world works, held by an individual. Once formed, our beliefs drive our actions. While beliefs are applied by individuals, they are also formed and applied by groups. And it is in this regard that beliefs play an important role in organizational life and shaping culture. Shared organizational beliefs can impact performance in a number of ways. Most managers don’t understand that their choice of assumptions is arbitrary influenced by their beliefs and that those assumptions might not accord with reality so strategic decisions logically flowing from bad/erroneous assumptions can lead to bad/poor decisions which can, in turn, ultimately to strategy failing at implementation and execution.

​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.