Strategic decision-making is the process of charting a course based on long-term goals and a longer term vision. By clarifying your company’s big picture aims, you’ll have the opportunity to align your shorter term plans with this deeper, broader mission – giving your operations clarity and consistency.
What is Strategy Decision Making?
Strategic decision-making is the process of using a framework to identify viable options for the future, assessing their qualities and choosing the best one for your company.
Whilst strategic decision-making is a generic term, it is often applied to the process of making a decision within a wider business strategy. There are three different components to the model: horizontal, vertical and specific.
Horizontal refers to the strategy, which is the higher order, longer term decision. Vertical refers to the strategic decisions within the strategy, which is the process of turning your strategic thinking into tangible results. Last, specific refers to your individual decision making.
Why Make Strategic Decisions?
There are several reasons why you should consider making strategic decisions:
Decisions that are vision-led are more successful . They have far-reaching consequences and are usually proactive decisions that are created to provoke change. They are linked to your business metaphor and mission statements.
Decisions are the foundation on which more complex decisions are based. They allow you to be flexible and to respond to events that may change during the course of project execution.
Decisions provide focus and a sense of direction to your company. They ensure that your team is working according to a common objective. Without decisions, it is easy for management to get sidetracked and to begin setting its own, specific goals.
Steps to Strategic Decision-making
Follow these steps to make strategic business decisions:
Identify and codify your visions – you have to develop a vision in order to create a successful company. This step will give clarity to your decision making. Find the highest level decision that you can make. Think about the impact of this decision. Write out the options you have. Think about the pros and cons of each option. Use this decision to motivate and inform your team.
Think about how your decisions can motivate your team, giving them the opportunity to be creative and to do the best job that they can. When you and your team are invested and emotionally attached to a decision, you will have greater commitment, dedication and enthusiasm. This in turn will lead to a higher level of commitment and greater overall performance.
Decision Making with Decision Matrix
Decision-making is a process that can be improved through practice using the following steps:
- List down all the possible options
- Identify and assign the necessary factors for these options.
- Make a comparison of factors between different options.
- Based on common elements of different options, make your choice.
- List down the advantages and disadvantages of your choice.
- List down the implementation procedure.
- Lastly, review and reflect on all the previous steps to ensure a more effective decision making in your future.
An example is given below for better understanding.
The strategic decision matrix is based on 5 forces of competition: the bargaining power of suppliers, the bargaining power of customers, the threat of new entrants, the threat of substitute products and the threat of the new technology.
An example involving Ford:
- Make a list of all the vehicles that Ford is considering manufacturing.
- Record the necessary factors such as the location, amount of investment, investment returns, targets, and so on, for each car.
- Compare factors between different cars based on possible common elements.
- The next step is to make a comparison of each car based on the common elements of each vehicle.
- Based on this comparison, Ford will then choose to manufacture different cars.
- List down the advantages and disadvantages of the car that Ford has chosen. Add in a review and outcome of each step (if any).
- Lastly, determine the implementation process of this new product. This is crucial because implementation needs discipline, controls, and responsibilities.
Considerations in Strategic Decision-Making
The opening phases of strategic decision-making involves gathering and evaluating information. You will realise that every important business decision is made in this way, because no one decision maker has complete knowledge. Strategic decision-making is seldom the act of making a single, blanket decision.
Take, for example, the decision, “Should I lease or buy another storage room?” It would be impossible for any one person to know all the details involved in this decision, so you’ll need to seek independent evaluations of the following:
- The value of the assets themselves
- The value of the leases and repair options
- The equipment’s worth to competitors
- The cost of repair and upkeep
- The cost of equipment packages
- The historic performance of your storage room
- The additional value the storage room brings to the company
- The effectiveness of your current storage room
- The effects of outsourcing parts of the storage room
- The effect of the purchase on your overall capital outlays
This level of information research is very different from the light planning (if any) that you or other companies may have done in the past before making your final decision.
When you are looking at a complex decision, consider your options from the perspective of different stakeholders. Here’s a common event: You’re a consultant who has presented your findings regarding a project to one of your clients. They’re arguing back and forth about the best way forward, and a little while later you meet a functional manager who’s also been affected by the decision. Is she thinking about the project and the implications of the decision the same way? What about the other stakeholders – is this decision likely to impact other groups in a different way?
You should be asking yourself these questions as the decision maker because your decisions affect everyone in your organization, from the CEO down.
In order to ensure that your decisions have the maximum positive effect and the minimum negative impact, you should consider the following factors:
- The goals of your stakeholders
- The culture of your company
- Who holds the most power
- The structure of your organization
- How your decisions will affect other groups within your organization
- The success of your organization
- The internal priorities of your company
When the decisions you make with regard to change affect more than 10 percent of the workforce, it is highly recommended that you establish a change advisory board, whose purpose is to sense the atmosphere and attempt to identify potentially disruptive problems early on.
The steps to ensure that you have considered all the relevant stakeholders is:
- Identify all the stakeholders.
- Make a list of their desired outcomes.
- Make a list of their desired roles in the change process.
- Build a relationship with them.
- Keep them updated on the progress of the change.
Consider the culture of your company. If you try implementing a change that isn’t aligned with the existing culture, for example encouraging everyone in a major department to attend a teambuilding session, you’re likely to face resistance. How you deal with this is very important; this is where the rubber meets the road, and you’ll have to demonstrate your strategic leadership skills. The first rule of change management is that you need to be able to listen, to be open to the thoughts of people who don’t agree with you, and to be flexible enough to change your own mindset if that’s necessary.
Having a number of complex decisions and plan how to anticipate their potential impact. By considering alternate scenarios you will be in a better position to respond to specific issues as they arise. You should be able to deal with critical situations when they appear.
Use logic. Ideally, you’ll have had key players and stakeholders involved during the decision-making process. However, if you haven’t, ask yourself if your decision could have been influenced by the emotional or logical part of your brain.
Think about how your initial perception might have created a bias. To ensure that your plan is logical and pragmatic you should:
- Consider how you came up with the options that you’ve selected.
- Consider stereotypes you might have used.
- Consider whether the information you used might be biased.
- Think about the person who’s likely to have the opposite outlook.
- What do I stand to gain from this decision?
- How does this decision affect yourself personally?
- How will this decision effect the employees in your organization?
- How will this decision effect the external market?
- How will this decision effect your employees?
- How will this decision effect the organization’s financial status?
- How will this decision effect the quality of your product or service?
- How will your decision affect your customers?
- How will your decision affect the reputation of your organization?
Every time you make a decision you should really consider what you stand to gain and what you stand to lose. This is where you get a good grasp on how much risks you are willing to take. You should also assess the possibility of losing money. With the size of your investment at stake, you need to consider:
- The consequences of a wrong decision
- The risk of making the wrong decision
- How much effort has gone into analyzing your problem
- Whether you have the information you need
If you have a lack of information, ask yourself:
- Do I need to add anything to my investigation now?
- Do I need to remove anything from my investigation now?
Game-changer decisions. These are decisions that you’re faced with when you’re in a new situation. For example, you’re moving to a new country and you have to decide whether it makes more sense to buy a new car or bring your old car over. What do you need to do now, what do you need to do later, and what don’t you need to do? You need to ask yourself what your options and alternatives are.
- What is the best thing to do now?
- What’s the best thing for me?
- What’s the best thing for my organization?
Constraint decisions. Your decisions might be constrained by the following:
Circumstance decisions. Your decisions might be constrained by the following: