STRATEGIC DECISION MAKING

Introductions Strategic Decision Making

Meaning and Definition of Strategic Decision Making The act of selecting between two or more options is known as a decision. A strategic decision is a chosen alternative which influences the major factors that decide whether the organisation's strategy is successful or not. In contrast, a tactical decision influences the daily execution of steps involved in the attainment of organisational strategic goals. Strategic decisions are defined as the decisions which are related to the entire working environment where the firm operates its resources, the people who form the firm and the relationship between the two. The process of choosing the best alternative from the prevailing conditions for making the decisions which provide long-term impact on the organisational performance is referred to as "strategic decision-making”. For example, the development of a new product or replacing old machines with new ones to improve the product or service. 

Definitions

"Decision-making is the selection based on some criteria from two or more possible alternatives".

“Strategic decisions are important, in terms of the actions taken, the resources committed, or the precedents set".

“Strategic decisions those infrequent decisions made by the top leaders of an organisation that critically affect organisational health and survival”.

Many times in business organisations, managers fail to make the right decision at the right time. This enables the competitors to grab the opportunity and intensify the problem which converts into a major crisis for the organisation. Therefore, it is important to take a decision at the right time and implement it once the problems are analysed. In simple terms, decision-making means arriving at a conclusion and implementing it instantly.

Nature of Strategic Decision Making 

• Impacts the Long-term Direction:- The long-term direction of an organisation is largely affected by the strategic decisions. Such decisions are usually taken to help the organisation to attain some advantage. 
• Concerned with the Scope of an Organisation's Activities:- Strategic decisions are always related to the scope of activities of an organisation. 
• Issue of Scope of Activity is Fundamental to Strategic Decisions:- For strategic decisions, the issue of the scope of activity is very important. Since the scope defines the boundaries of the organisation for managing it effectively, it is directly concerned with the manager's vision and mission towards the organisation. 
• Matching Organizational Activities:- Strategic decisions are also concerned with matching organisational activities with the environment where it functions. 
• Influences Operational Decisions:- Operational decisions can be influenced by the strategic decisions to 'set off waves of lesser decisions'. 
• Complex in Nature:- Generally, strategic decisions are complex in nature. It can be said that the level of complexity differentiates strategic management from other aspects of organisational management. There should be at least three reasons for this complexity.  
• High Level of Uncertainty:- The level of uncertainty is high in strategic decisions. The decisions might be taken based on views regarding the future, the exact prediction of which is not possible for the managers. 
• An Integrated Approach is needed:- To manage the organisation effectively, an integrated approach is needed by strategic decisions. These are not similar to functional problems where single area expertise or perspective can explain or solve the problems. 
• Involve Key Organisational Change:- Strategic decisions bring in major organisational changes. These changes are not only difficult to decide and plan but they are even more challenging to implement. Thus, the level of complexity involved in strategic management is much more than other operational tasks. 
• Implication:- Strategic management makes sure that strategy is put into action and it is implemented through an action plan.

Levels of Decision 

Mostly, managers are defined by their way of decision-making. For making exceptional decisions, it is necessary for a manager to have sound judgment and to be objective. The company, its profit, employees and the success of managers all are greatly influenced by the wise decisions. Although managers at all level can take decisions, the most critical decisions are made by the top management. It is very important to obtain feedback from other managers during the decision-making process. A manager who makes the right decisions is known as an effective leader. In an organisation, decisions can be made at different levels, such as: 

1. Top Management's Strategic/Critical Decisions:-  Such decisions have a long-term effect. The impact and outline the strategy of the entire business which is usually made by top management. Managers must make decisions in an organised way. The Chief Executive Officer or the Board of Directors are considered as the top managers of a company. All the critical decisions regarding strategic planning and development of the organisation are made by them. These managers are also responsible for deciding the launch of a product and handling a major crisis. In addition to this, they identify competitors, decide upon mergers and acquisitions, define a company's corporate vision, create a budget and determine the long-term organisational objectives. For analysing the organisation's strengths and weaknesses comprehensively, a CEO can work undercover as an entry-level executive.
2. Middle-Level Management Decisions/ Tactical Decisions:- The organisational strategies are implemented through these decisions which are generally made by middle-level managers. The non-critical decisions are mostly taken by middle-level managers. The top management always encourages the middle-level managers to make the right decisions. If a topmost manager is an effective leader then he allows his middle-level managers to make decisions and supports them without interfering in it. The various jobs of middle-level managers include taking tactical decisions, managing the regional markets and making plans to attain short-term organisational goals. In addition to this, middle management is also eligible to make decisions on marketing a new product, interacting and handling lower-level management and discussing the organisational issues with the top management. It is the responsibility of the middle-level managers to design a strategy for achieving the inter-departmental goals. 
3. Lower-Level Management Decisions/Operational Decisions:- These decisions are related to the daily operational activities of the business. Such activities are held in routine and can be taken up by middle-level or lower-level managers. The most common mistake done by managers is that they hear or see only those things which they want to. They should try to make the decisions keeping in mind a clear picture. Here, the supervisors or team leaders may decide on issues related to employees such as overtime, promotions, pay rates, training, hiring or termination of employees. A lower-level supervisor can also make decisions on rewarding the most efficient employee of the month or offer this award in the form of incentives like gift vouchers or holiday packages.

Modes of Strategic Decision Making 

There are certain strategic decisions which are only undertaken by the sole authority that has far-sightedness and a high convincing power like an influential CEO or a dynamic entrepreneur. Other than this, some strategic decisions are formed based on incremental choices which drive the organisation more towards one direction than the other after some time. According to Henry Mintzberg, the three modes of strategic decision-making are adaptive, entrepreneurial, and planning. The fourth mode, i.e., logical incrementalism was later added by Quinn. These four modes are discussed below in detail:-

• Entrepreneurial Mode:- In this approach, the strategy is formulated by a single person. This mainly focuses on the opportunities which are directed by the founder's vision and are held by powerful decisions. Here, opportunities are considered first and problems are kept secondary. The most important goal is the growth and development of the organisation. The real-world examples of this strategy formulation are Wipro and Infotech.

• Adaptive Mode:- This approach is also known as "muddling through". Unlike entrepreneurial mode, here the search for opportunities is ignored and the main focus is on reactive solutions. For example, Wipro and HCL became responsive by selling customised Personal Computers only after Dell Computers were introduced in the markets of India. A lot of bargaining that occurs is concerned with the priorities of the organisational objectives. As a result, the prevailing strategy is fragmented and the most suitable strategy is developed which would take the organisation ahead incrementally. Generally, this model is adopted by many hospitals, government agencies, universities and also by various organisations. 

• Planning Mode:- The planning mode includes the systematic collection of information for situational analysis, development of alternative strategies and selection of appropriate strategy. This mode is both proactive and reactive to the current problems. For example, Maruti Suzuki started introducing new models and abandoned the production of non-moving and old models, when MNCs entered into Indian automotive market.

• Logical Incrementalism Mode:- This is the fourth mode of strategic decision-making which combines all the other three modes of decision-making. According to Quinn, "Logical incrementalism is an interactive process in which the organisation probes the future, experiments and learns from a series of partial (incremental) commitments rather than through global formulation of total strategies.”

Broadly, it is an added mode of decision-making, which can be described as the combination of other modes mentioned above. Here, the mission and objectives of an organisation are crystal clear to the top management. But while formulating the strategies, it selects "an interactive process where the organisation explores the future, experiments and learns from a series of partial (incremental) commitments rather than through global creation of overall strategies”. Even though the mission and objectives are pre-defined, the strategy can be formed out of several discussions, debates and experiments.

Strategic Decision Making Process 

Planning Process:- The process and behaviour that leads the activities and directions of an organisation to achieve the pre-defined goals in pre-defined timeframe are known as planning. The planning process aims to promote the organisational mission continuously. For example, to be socially constructed, intuitively improvised, politically negotiated and shaped through emergent behaviours. Seven factors are involved in the process of strategic planning: 

• Decision Parameters:- The measurable factors like manpower, material, marketing, method, and machine are functions which form boundaries for strategic decision-making are referred to as decision parameters. 

• Decision Criteria:- Decision criteria are the measurement standards, rules or tests for assessing the feasibility of activities regarding their effectiveness. These are specific measurable goals which are derived from the strategic objectives. \

• Decision Conditionality:- These are the factors which condition or enforce the restriction on the effectiveness of organisational activities. The strategic decisions are affected by both internal and external environmental factors. 

• Decision Alternatives:- Decision alternatives are defined as the choices between two options or courses of action. In a decision-making process, when a decision-maker chooses a course of action from the given alternatives, this decision is known as 'choice'. 

• Technical Model:- Technical model has been derived through the use of the scientific methodology. Usually, an organisation subconsciously or consciously compares the known alternatives that are derived from subjective probabilities to test the feasibility of each alternative on the grounds of all the objectives and their subjective sides also. 

• Technological Model:- This model is a strategic choice which is associated with the value-adding system of organisation. 

• Correction Factor:- The process of strategic planning should be such that the outcome of the implemented decision is equivalent to the organisational objectives. This is the main reason behind its occurrence.

Programming System:- Once the strategic action is planned it should be programmed. Programming is defined as a system of opportunities, services, and projects which are sequenced to assist economical and timely strategic action. There must also be a clear schedule of resources which are required for performing the programmed services, opportunities, and projects. The organisation acts as a 'taker' of programming activities at the individual and organisational levels in all decision-making situations. Depending on the demand for strategic decision-making, an organisation can choose the most appropriate programming or even adopt ‘reprogramming' for itself. 

Performing Modalities:- Once the decision regarding the programming is finalised, the next step is to determine the execution of the specific elements of strategic decision-making. However, the programming provides the fundamental heuristic operations, but still, specific actions are required to be performed for attaining the desired outcome. 

Profitability Factor:- An organisation can competitively execute its strategic decision-making with the help of sound planning, effective performance and well-organised programming. While the profitability level of the firms' strategic initiatives is dependent on their institutional systems, the organisations who wish to go global must take into account the validity of the institutional systems and their effects and if required they can adopt re-institutionalisation. 

Developmental Growth:- The decision-making process is decided based on the reoccurrence of regular schedules. The decision-makers believe that repetition will provide a constant level of profitability therefore they repeat the most profitable strategic decision-making process programmatically. Alternatively, repetition is rare in the emerging markets and if done then the profits are sustainable. In such markets, the technological endowments of organisations are less refined. Thus, it is convenient for other firms (whether local and overseas) to acquire, replicate and replace these endowments.

Issues in Strategic Decision Making 

Contextual Issues:- Many researchers and writers have issues regarding the ambiguous and fluid nature of the prevailing business environment. This has created doubt upon the effectiveness of the strategic decisionmaking process as it does not consider such factors. Another critical issue in the business environment is complex. In addition to this, fluidity is not just about to change rather it also denotes unpredictability and instability. Therefore, the strategic decision-makers need to make sure that the contextual issues are addressed in the models or methods they are adopting. At last, it can be said that using the simple, neat, orderly and rational model will not be of much use in the current scenario. 

Personality/Style:- One of the important factors to be considered in strategic decision-making is the style and personality of the decision-maker. Different people have different viewpoints therefore decisions vary from person to person. Like, some people rely on data, some people have self-belief and take decisions on their own, and some people go with their intuitions and do remarkably well, while others depend on other's opinions. There are situations where conflicts are managed effectively and in other cases, it is covered up which often results in harming the organisation and its decisions as a whole. Such personality and style issues must be categorised while making and implementing the strategic decision-making process. This enables the organisation to run smoothly and without facing any problems regarding personality/style.

Effects of Biases:- Another major issue that must be taken into account is the business of people who are a part of the decision-making process. Research usually identifies three kinds of bias:

↣ Causal Attribution:- In this type of bias, a person takes the credit of good results and blames others for bad results. This leads to misinterpretation of information and hinders the overcoming of situations. 

↣ Escalating Commitment:- It is the trend of lining up a large number of resources deliberately towards the course of action which is not sound. Wasting good money post bad money is something that happens frequently but most decision-makers do not confess it easily.

↣ Distorted Re-Collections:- Often it is heard that "if memory serves". Inappropriately, it does not do that many times. Memories are not only selective, but they are also even distorted sometimes. It makes little difference whether it happens intentionally or unintentionally. But, since not much of the thoughts and plans are jotted down on paper, it is important for the memory to remain intact and for the decision-makers to take care of the distorted recollections. These biases can be guarded in a few ways and also by putting them in use by strategic decision-makers. 

Role of Values:- The role of values is very similar to personality/style. Values are promoted by the leaders and redirected in their actions. These set of values outline the issues which are to be addressed in the strategic decision-making process. These will also be showing up while designing substitutes, the course of action using which they are judged, and the final procedure that is to be followed. In such a case, it is advisable to formulate a strategic decision-making process to carefully analyse the organisational values. 

Role of Consensus:- According to many researcher and writers, consensus plays an important role in the strategic decision-making process. This is because consensus provides the best proof of commitment towards the decision, in the absence of which the decisions are carried out ineffectively. Other than this, the challenging process of striving towards the fulfilment of commitment not only yields commitment but also improves decisions. Notably, striving to achieve consensus means that neither harmony is needed nor authority is handed over. It is ultimately the decision-maker who makes the final decision. 

However, strategic decisions cannot be conveniently taken by a single person having an autocratic approach as he would not be aware of each and every detail that is required for making a strategic decision of an organisation. Therefore, consensus plays a significant role in strategic decision-making in most of the organisations. 

Nature of Strategic Decisions:- As discussed earlier, strategic decisions are referred to as complex, ambiguous, fluid and uncertain. Strategic decisions have some outlining features which are as follows:

• Direction:- Strategic decisions modify or approve the direction of the organisation. 
• Finance:- Strategic decisions also have few financial implications. It is an issue of “betting the company” in certain cases. 
• People:- People having key roles in an organisation are highly impacted by the strategic decisions which affect their morale, commitment and motivation. 
• Risk:- At last, strategic decisions have a considerable amount of risk. In this case, the results are uncertain and involve high-end threats.