What is Strategy?

Strategy is a method or plan chosen to bring about a desired future, such as achievement of a goal or solution to
a problem.
Strategy is the art and science of planning and marshalling resources for their most efficient and effective use. The term is
derived from the Greek word for generalship or leading an army.
Strategy is a high level plan to achieve one or more goals under conditions of uncertainty.
Strategy becomes ever necessary when it is known or suspected there are insufficient resources to
achieve these goals.
Strategy is also about attaining and maintaining a position of advantage over adversaries through the
successive exploitation of known or emergent possibilities rather than committing to any specific fixed
plan designed at the outset.
Henry Mintzberg from McGill University defined strategy as "a pattern in a stream of decisions" to contrast
with a view of strategy as planning while Max McKeown (!""# argues that "strategy is about shaping the
future" and is the human attempt to get to "desirable ends with available means".
Key Concepts for Strategic Management and
Organizational Goals
Strategic management is the process in which an organization develops and implements plans
that espouse the goals and objectives of that organization. The process of strategic management
is a continuous one that changes as the organizational goals and objectives evolve. Small
businesses engage in strategic management to ensure that they adapt to trends and external
changes such as globalization. Several key concepts characterize strategic management and the
development of organizational goals.
Goal Setting
At the core of the strategic management process is the creation of goals, a mission statement,
values and organizational objectives. rganizational goals, the mission statement, values and
objectives guide the organization in its pursuit of strategic opportunities. !t is also through goal
setting that managers make strategic decisions such as how to meet sales targets and higher
revenue generation. Through goal setting, organizations plan how to compete in an increasingly
competitive and global business arena.
Analysis Strategy Formation
Analysis of an organization"s strengths and weaknesses is a key concept of strategic
management. ther than the internal analysis, an organization also undertakes external analysis
of factors such as emerging technology and new competition. Through internal and external
analysis, the organization creates goals and objectives that will turn weaknesses to strengths. The
analyses also facilitate in strategizing ways of adapting to changing technology and emerging
markets.
Strategy Formation
Strategy formation is a concept that entails developing specific actions that will enable an
organization to meet its goals. Strategy formation entails using the information from the
analyses, prioritizing and making decisions on how to address key issues facing the organization.
Additionally, through strategy formulation an organization seeks to find ways of maximizing
profitability and maintaining a competitive advantage.
Strategy Implementation
Strategy implementation is putting the actual strategy into practice to meet organizational goals.
The idea behind this concept is to gather all the available and necessary resources re#uired to
bring the strategic plan to life. rganizations implement strategies through creating budgets,
programs and policies to meet financial, management, human resources and operational goals.
$or the successful implementation of a strategic plan, cooperation between management and
other personnel is absolutely necessary.
Strategy Monitoring
A final concept is monitoring of the strategy after its implementation. Strategy monitoring entails
evaluating the strategy to determine if it yields the anticipated results as espoused in the
organizational goals. %ere, an organization determines what areas of the plan to measure and the
methods of measuring these areas, and then compares the anticipated results with the actual ones.
Through monitoring, an organization is able to understand when and how to adjust the plan to
adapt to changing trends.
STRATEGIC MANAGEMENT
Strategic management analyzes the major initiatives taken by a company's top
management on behalf of owners, involving resources and performance in internal
and external environments.
[1
!t entails specifying the organization's mission, vision
and objectives, developing policies and plans, often in terms of projects and
programs, which are designed to achieve these objectives, and then allocating
resources to implement the policies and plans, projects and programs. " balanced
scorecard is often used to evaluate the overall performance of the business and its
progress towards objectives. #ecent studies and leading management theorists
have advocated that strategy needs to start with stakeholders expectations and use
a modi$ed balanced scorecard which includes all stakeholders.
Overview
Strategic management is a level of managerial activity below setting goals and above tactics.
Strategic management provides overall direction to the enterprise and is closely related to the
field of rganization Studies. !n the field of business administration it is useful to talk about
&strategic consistency& between the organization and its environment or &strategic consistency.&
According to Arieu '())*+, &there is strategic consistency when the actions of an organization are
consistent with the expectations of management, and these in turn are with the market and the
context.& Strategic management includes the management team and possibly the ,oard of
-irectors and other stakeholders.
&Strategic management is an ongoing process that evaluates and controls the business and the
industries in which the company is involved. assesses its competitors and sets goals and
strategies to meet all existing and potential competitors. and then reassesses each strategy
annually or #uarterly /i.e. regularly0 to determine how it has been implemented and whether it
has succeeded or needs replacement by a new strategy to meet changed circumstances, new
technology, new competitors, a new economic environment., or a new social, financial, or
political environment.&
/(0/10
Strategic 2anagement can also be defined as &the identification of
the purpose of the organisation and the plans and actions to achieve the purpose. !t is that set of
managerial decisions and actions that determine the long term performance of a business
enterprise. !t involves formulating and implementing strategies that will help in aligning the
organization and its environment to achieve organisational goals.&
Various approaces o! strategic management
Strategic management can depend upon the size of an organization, and the proclivity to change
of its business environment. These points are highlighted below3
" global%transnational organization may employ a more structured strategic
management model, due to its size, scope of operations, and need to
encompass stakeholder views and re&uirements.
"n '() *'mall and (edium )nterprise+ may employ an entrepreneurial
approach. ,his is due to its comparatively smaller size and scope of
operations, as well as possessing fewer resources. "n '()'s -). *or general
top management+ may simply outline a mission, and pursue all activities
under that mission.
/hittington *0111+ highlighted four approaches to strategic management.
,hese are -lassical, 2rocessual, )volutionary and 'ystemic approaches.
(intzberg stated there are prescriptive *what should be+ and descriptive
*what is+ approaches. 2rescriptive schools are 3one size $ts all3 approaches
that designate 3best practice3 while descriptive schools describe how
strategy is implemented in speci$c contexts.
4o single strategic managerial method dominates, and remains a subjective and context5
dependent process.
Four Phases of Strategic Management
Strategic management is not a static concept, but an ongoing process. The strategic management
process encompasses four distinct phases. !n order to succeed, a strategy must succeed in each
phase. !t is important, therefore, that anyone planning a business"s strategy understands these
four phases and the roles that they play.
Formulation
o Strategic management begins with the formulation phase, where the firm"s
management develops an overall strategy for achieving the firm"s objectives.
bjectives may include, for example, increasing market share or reducing costs.
The top management team typically is saddled with the responsibility of
developing the firm"s overall strategy. They may, however, seek the input of line
managers and front5line workers as they develop their strategy.
Implementation
o 6ith a clear strategy formulated, managers can then go about implementing it.
Strategies are usually implemented from the top down. To begin with, the top
management team will inform line managers about the strategic changes, and line
managers will, in turn, pass this information on to their subordinates. 2any
strategies fail due to poor implementation, but managers can avoid this by
carefully introducing the new strategy and listening to any employee concerns
about the changes.
Evaluation
o 6hen a strategy is implemented, it will hopefully be successful, but managers
cannot assume that every strategy will be. They will, therefore, need to measure
the success of a strategy. To measure this success, the strategy must be evaluated
against the firm"s goals. A gap analysis is a useful tool for evaluating the success
of a strategy. This measures the gap that exists between the desired results and a
firm"s actual results.
Mo"i#cation
o Sometimes, strategies are successful on the first attempt, but more often than not,
there is room for improvement. !f the evaluation of the strategy shows that the
firm has not achieved all its desired goals, then it is necessary to modify the
strategy. $or example, if the firm used a cost5leadership strategy to increase sales,
but the sales actually decreased, then the firm would need to modify this strategy,
perhaps using a premium5pricing strategy instead.
Te strategic management process can elp
grow your $usiness%
,he strategic management process is more than just a set of rules to follow. !t is a
philosophical approach to business. 4pper management must think strategically $rst, then
apply that thought to a process. ,he strategic management process is best implemented
when everyone within the business understands the strategy. ,he $ve stages of the process
are goal5setting, analysis, strategy formation, strategy implementation and strategy
monitoring.
Goal&Setting
,he purpose of goal5setting is to clarify the vision for your business. ,his stage consists of
identifying three key facets6 7irst, de$ne both short5 and long5term objectives. 'econd,
identify the process of how to accomplish your objective. 7inally, customize the process for
your sta8, give each person a task with which he can succeed. 9eep in mind during this
process your goals to be detailed, realistic and match the values of your vision. ,ypically, the
$nal step in this stage is to write a mission statement that succinctly communicates your
goals to both your shareholders and your sta8.
Analysis
"nalysis is a key stage because the information gained in this stage will shape the next two
stages. !n this stage, gather as much information and data relevant to accomplishing your
vision. ,he focus of the analysis should be on understanding the needs of the business as a
sustainable entity, its strategic direction and identifying initiatives that will help your
business grow. )xamine any external or internal issues that can a8ect your goals and
objectives. (ake sure to identify both the strengths and weaknesses of your organization as
well as any threats and opportunities that may arise along the path.
Strategy Formulation
,he $rst step in forming a strategy is to review the information gleaned from completing the
analysis. :etermine what resources the business currently has that can help reach the
de$ned goals and objectives. !dentify any areas of which the business must seek external
resources. ,he issues facing the company should be prioritized by their importance to your
success. .nce prioritized, begin formulating the strategy. ;ecause business and economic
situations are <uid, it is critical in this stage to develop alternative approaches that target
each step of the plan.
Strategy Implementation
'uccessful strategy implementation is critical to the success of the business venture. ,his is
the action stage of the strategic management process. !f the overall strategy does not work
with the business' current structure, a new structure should be installed at the beginning of
this stage. )veryone within the organization must be made clear of their responsibilities and
duties, and how that $ts in with the overall goal. "dditionally, any resources or funding for
the venture must be secured at this point. .nce the funding is in place and the employees
are ready, execute the plan.
Evaluation an" Control
'trategy evaluation and control actions include performance measurements, consistent
review of internal and external issues and making corrective actions when necessary. "ny
successful evaluation of the strategy begins with de$ning the parameters to be measured.
,hese parameters should mirror the goals set in 'tage 1. :etermine your progress by
measuring the actual results versus the plan. (onitoring internal and external issues will
also enable you to react to any substantial change in your business environment. !f you
determine that the strategy is not moving the company toward its goal, take corrective
actions. !f those actions are not successful, then repeat the strategic management process.
;ecause internal and external issues are constantly evolving, any data gained in this stage
should be retained to help with any future strategies.
(anaging the four phases of strategy
'o you treat strategy li(e you treat Cristmas) ;oth events tend to fall on the
same day each year and, just as most households follow a set -hristmas routine of
attending church, opening presents and eating the turkey, the annual strategic
planning timetable will have e&uivalent routines of assessing performance, agreeing
targets and developing next year=s plan.
Te pro$lem wit tis approac is tat* unli(e Cristmas* strategy "oesn+t
!ollow an annual timeta$le%'trategy is not a linear process and organisations should
de5couple the link between strategy and planning. ;y being <exible about the type of
strategy work you undertake, you can radically improve your organisation=s strategy
and ultimately its performance.
Tere are !our pases o! strategy wor( and all four phases are e&ually important
to successful strategy execution and the delivery of long5term performance.
,ase -. Strategy Agitation
Noting !ails li(e success* an" even once&success!ul strategies ero"e over
time% !f your strategy is no longer helping you achieve your goals, and yet there is little
apparent concern across the )xecutive team, the focus must be on 'trategy "gitation.
,he work re&uired is to establish a burning platform and real desire for change.
In a previous strategy role I spent my #rst si/ monts wor(ing wit te
E/ecutive team to help them understand the longer5term conse&uences of the
current strategy, and to create commitment that something should be done.
,ase 0. Strategy 'evelopment
1ere tere is acceptance tat te current strategy is not wor(ing* $ut no
agreement on te $est way !orwar"* te !ocus must $e on Strategy
Development% .nly by creating clarity about the way ahead can you organise to
deliver it. 'trategy :evelopment is often seen as the beginning and end of strategy
work, and is commonly and mistakenly linked to the annual planning process.
In my e/perience $usy e/ecutives "isli(e tis pase o! wor( !or one o! two
reasons. *1+ !t ends up as endless form5$lling rather than real strategy development>
or *0+ !t is di?cult and exercises brain muscles that they are not used to exercising.
'trategy forces choices and re&uires that people really understand their own and their
colleagues= assumptions and preconceptions.
,ase 2. Strategy Management
Te purpose o! te Strategy Management pase is to create !ocus on te !ew
tings tat will create te $iggest $ene#ts. ,he $rst task is to engage with
leaders across the organisation to integrate and gain alignment to the overall direction,
to agree an approach to determine resource allocation, and to set performance
objectives and key business milestones.
Clear* consistent communication is critical to e3ective strategy management.
7rom in5depth strategy dialogues between the executive team and the senior line
managers to individual shop5<oor conversations, the executive team should be using
each opportunity to spell out the top priorities.
,ase 4. Strategy 'elivery
Te purpose o! te Strategy 'elivery pase is to e/ecute te agree" agen"a
$rilliantly. ,he speci$c focus will depend on the type of strategy pursued @ particularly
whether growth is to be delivered organically or through ac&uisitions @ and the
proposed scale of the change to the organisation.
In trut* te #rst tree stages can $e acieve" relatively 5uic(ly. !n most
organisations, a new strategy for growth can be developed that has broad, top5level
support and alignment within a A5B month period. !t is the delivery of the strategy that
becomes a lifelong work re&uiring a relentless persistence. "s (c9insey=s former
(anaging :irector, "l (c:onald, said about strategy delivery, CDever forget about
implementation, boys. !t=s what ! call the last EFG of the client puzzle.H
Te $ottom line
6y un"erstan"ing were you sit on te Strategy Focus Matri/ you will be able
to bring greater e?ciency and e8ectiveness to your strategy work. !nstead of ritualistic
form5$ling you can focus on generating and executing objectives that will enable your
organisation to deliver great results. "nd isn=t that the present you really, really want
every -hristmasI
Four Phases of Strategic Management
7ormulation
Strategic management begins with the formulation phase, where the firm's
management develops an overall strategy for achieving the firm's objectives. Objectives may
include, for example, increasing market share or reducing costs. The top management team
typically is saddled with the responsibility of developing the firm's overall strategy. They
may, however, seek the input of line managers and frontline workers as they develop their
strategy.
!mplementation
!ith a clear strategy formulated, managers can then go about implementing it.
Strategies are usually implemented from the top down. To begin with, the top management
team will inform line managers about the strategic changes, and line managers will, in turn,
pass this information on to their subordinates. "any strategies fail due to poor
implementation, but managers can avoid this by carefully introducing the new strategy and
listening to any employee concerns about the changes.
-%
)valuation
o !hen a strategy is implemented, it will hopefully be successful, but managers
cannot assume that every strategy will be. They will, therefore, need to measure the success
of a strategy. To measure this success, the strategy must be evaluated against the firm's
goals. # gap analysis is a useful tool for evaluating the success of a strategy. This measures
the gap that exists between the desired results and a firm's actual results.
(odi$cation
o Sometimes, strategies are successful on the first attempt, but more often than
not, there is room for improvement. $f the evaluation of the strategy shows that the firm has
not achieved all its desired goals, then it is necessary to modify the strategy. %or example, if
the firm used a costleadership strategy to increase sales, but the sales actually decreased,
then the firm would need to modify this strategy, perhaps using a premiumpricing strategy
instead.
Stages Of Strategic Management
The strategic management process represents a logical, systematic, and objective approach for
determining an enterprise's future direction. However, a clear separation is needed between the
managerial process by which an organization formulates, evaluates, implements, and controls the
relationships between its objectives, its strategies, and its environment.
Researchers usually distinguish three stages in the process of strategic management: strategy
formulation, strategy implementation, andevaluation and control.
Strategy Formulation
trategy formulation is the process of establishing the organization's mission, objectives, and choosing
among alternative strategies. ometimes strategy formulation is called !strategic planning.!
Strategy Implementation
trategy implementation is the action stage of strategic management. "t refers to decisions that are
made to install new strategy or reinforce e#isting strategy. The basic strategy $ implementation
activities are establishing annual objectives, devising policies, and allocated resources. trategy
implementation also includes the ma%ing of decisions with regard to matching strategy and
organizational structure& developing budgets, and motivational systems.
Strategy Evaluation And Control
The final stage in strategic management is strategy evaluation and control. 'll strategies are subject to
future modification because internal and e#ternal factors are constantly changing. "n the strategy
evaluation and control process managers determine whether the chosen strategy is achieving the
organization's objectives. The fundamental strategy evaluation and control activities are: reviewing
internal and e#ternal factors that are the bases for current strategies, measuring performance, and
ta%ing corrective actions.
Strategic Management Models
trategic management is a broader term that includes not only the stages already identified but also
the earlier steps of determining the mission and objectives of an organization within the conte#t of its
e#ternal environment. The basic steps of the strategic management can be e#amined through the use
of strategic management model.
The strategic management model identifies concepts of strategy and the elements necessary for
development of a strategy enabling the organization to satisfy its mission. Historically, a number of
framewor%s and models have been advanced which propose different normative approaches to strategy
determination. However, a review of the major strategic management models indicates that they all
include the following elements:
(. )erforming an environmental analysis.
*. +stablishing organizational direction.
,. -ormulating organizational strategy.
.. "mplementing organizational strategy.
/. +valuating and controlling strategy.
trategic management is a continuous and dynamic process. Therefore, it should be understood that
each element interacts with the other elements and that this interaction often happens simultaneously.
The major models differ primarily in the degree of e#plicitness, detail, and comple#ity. These
differences derive from the differences in bac%grounds and e#periences of the authors. ome of these
models are briefly presented below.
"ndrew=s (odel
!n 1EBJ, Kenneth Andrews developed a simple model. ,his model includes the
choice of a strategy, but ignores implementation and control. !n 1EK1, Andrews
formulated a more complete model that included implementation, but it still ignores
a strategic control and evaluation.
Gluec(7s Mo"el
William F. Glueck developed several models of strategic management based on the general
decision5making process.
The phases of this model are as follows3
* Strategic managements elements3 &...to determine mission, goals, and values of the firm and
the key decision makers.&
* nalysis and diagnosis3 & ...to search the environment and diagnose the impact of the threats
and opportunities."
* Choice3 ...to consider various alternatives and assure that the appropriate strategy is chosen."
* !mplementation3 "...to match plans, policies, resources, structure, and administrative style
with the strategy.&
* "#aluation3 &...to ensure strategy and implementation will meet objectives."
As major contribution to the strategic management process, 7lueck considered two elements3
&enterprise objectives& 'the mission and objectives of the enterprise,& and &enterprise strategists&
'who are involved in the process+.
2oreover, 7lueck broke down the planning process into analysis and diagnosis, choice,
implementation, and evaluation functions. This model also treats leadership, policy, and
organizational factors.
%owever, 7lueck omitted the important medium5 and short5range planning activities of strategy
implementation.
$he Schendel and %ofer Model
Dan chendel and !harles "ofer developed a strategic management model, incorporating both
planning and control functions.
Their model consists of several basic steps3
'&+ goal formulation,
''+ environmental analysis,
'(+ strategy formulation,
')+ strategy evaluation,
'*+ strategy implementation, and
'++ strategic control.
According to Schendel and %ofer, the formulation portion of strategic management consists of at
least three subprocesses3
, en#ironmental analysis,
, resources analysis-
, and #alue analysis.
8esource and value analyses are not specifically shown, but are considered to be included under
other items 'strategy formulation+.
Te Tompson An" Stric(lan" Mo"el
#hompson and trickland developed several models of strategic management.
According to Thompson and Strickland strategic management is an ongoing process3 &nothing is
final and all prior actions and decisions are su/0ect to future modification.&
This process consists of five major five ever5present tasks3
&. -eveloping a concept of the business and forming a vision of where the organization needs to
be headed.
'. 9onverting the mission into specific performance objectives.
(. 9rafting a strategy to achieve the targeted performance.
). !mplementing and executing the chosen strategy efficiently and effectively.
*. :valuating performance, reviewing the situation, and initiating corrective adjustments in
mission, objectives, strategy, or implementation in light of actual experience, changing
conditions, new ideas, and new opportunities.
#hompson and trickland suggest that the firm"s mission and objectives combine to define
&What is our /usiness and 1hat 1ill it /e;& and &1hat to do no1& to achieve organization"s
goals. %ow the objectives will be achieved refers to the strategy of firm.
!n general, this model highlights the relationships between the organization"s mission, its long5
and short5range objectives, and its strategy.
Korey2s Model
2odern theorist and writer, 3erzy Korey,Krzeczo1s4i- founder and President Canadian
School of Management, have proposed an integrated model of strategic management.
<orey"s model consists of three discrete major phases3
'&5 preliminary analysis phase-
6'5 strategic planning phase-
6(5 strategic management phase.
$urther, <orey states that the systematic planning consists of at least four continuous
subprocesses3
6&5 planning studies,
6'5 re#ie1 and control,
6(5 feasi/ility studies, and
6)5 feasi/ility studies.
The planning is ongoing process, thus all these subprocesses are integrated and they are
interacted each other. creating the fully dynamic model.
<orey"s model incorporates both planning and control functions. 2oreover, it describes not only
long5range strategic planning process, but also includes elements of medium and short range
planning.
<orey"s model is based on existing models. but it differs in content, emphasis, and process.
This model adds several facets to the planning process that the reader has not seen in other
models. Some of these are3 development of educational philosophy, analysis of the value
systems, review of community orientation and social responsibilities, definition of planning
parameters, planning studies, and feasibility studies.
7sing Kory8s model for strategic planning pro#ides /oth ne1 direction and ne1 energy to
the organization.
Schematic Model
This model was developed by $eter Wright, !harles $ringle and %ark &roll '=>>?+. !t consists
of five stages3
&. nalyze the en#ironmental opportunities and threats.
'. nalyze the organization8s internal strengths and 1ea4nesses.
(. "sta/lish the organizational direction9 mission and goals.
). Strategy formulation.
*. Strategy !mplementation.
+. Strategic Control.
The model begins with an analysis of environmental opportunities and threats. The organization
is affected by environmental forces. but the organization can also have an impact upon its
environment.
The organization"s mission and goals are linked to the environment by a dual arrow. This means
that the mission and goals are set in the context of environmental opportunities and threats.
The next arrow depicts the idea that strategy formulation sets strategy implementation in motion.
Specifically, strategy is implemented through the organization"s structure, its leadership, and its
culture.
Then, the final downward arrow indicates that the actual strategic performance of the
organization is evaluated.
The control stage is demonstrated by the feedback line that connects strategic control to the other
parts of the model.
6hat !s Strategic -ecision 2aking;
by Lregory Mamel, :emand (edia
.ne of the essential parts of creating and running a small business is creating a mission or
vision for the business and a set of goals the company aims to achieve. 'trategic decision
making, or strategic planning, describes the process of creating a company's mission and
objectives and deciding upon the courses of action a company should pursue to achieve
those goals.
'ponsored Nink
;rain )xercises
!mprove (emory and "ttention with ;rain Lames by 'cientists
www.lumosity.com
'trategic 2lanning ;asics
'trategic decision making is an ongoing process that involves creating strategies to achieve
goals and altering strategies based on observed outcomes. 7or example, the managers of a
pizza restaurant might have the objective of increasing sales and decide to implement a
strategy of o8ering lower prices on certain products during o8 hours to attract more
customers. "fter a month of pursuing the new strategy, managers can look at sales data for
the month and evaluate whether the strategy resulted in increasing sales and then choose
to keep the new price scheme or alter their strategy.
'/., "nalysis
" '/., analysis is a common strategic planning tool that managers can use to examine
internal and external factors that may in<uence the ability to achieve goals. " '/.,
analysis involves creating a list of a businesses strengths and weaknesses and the external
threats and opportunities it faces. !dentifying strengths, weaknesses, opportunities and
threats can help managers create strategies to exploit strengths or minimize weaknesses to
take advantage of opportunity and avoid threats.
-ost5;ene$t "nalysis
" cost5bene$t analysis is a strategic decision making tool that can help managers choose
between two or more di8erent courses of action. !n a cost5bene$t analysis, managers
estimate the amount of revenue they expect a certain project to generate and the expected
costs of pursuing the project. ;y estimating the costs and bene$ts associated with several
di8erent projects, managers can determine which project is expected to produce the
greatest bene$t.
.utside "dvice
/hile entrepreneurs and small business owners may be experts in their chosen industry,
they are often not experts in actually managing businesses. ;usiness owners often seek
outside help to aide in the strategic decision making process. ,he 4.'. 'mall ;usiness
"dministration says that mentors can be a vital source of advice for small business owners.
'ome businesses hire professional consultants to help them make strategic decisions.
Strategic Decision Making for
Management
$ecision making is a fundamental skill for any successful executive. %ut decisions at strategic level are hard to make&
re'uiring large amounts of resources and commitments& which may be irreversible. (xecutives face multiple& often
conflicting& strategic ob)ectives& which are difficult to balance& particularly in the presence of risk and uncertainty.
*t the +ondon School of (conomics we have a deep understanding of this difficult process and have designed a
course to help you excel in decision making. Senior managers fre'uently find great benefit and en)oyment from
taking Strategic Decision Making and aspiring managers prepare themselves significantly for future leadership roles.
,hy has this course en)oyed such success to date- .ur instructors have worked with top level executives for years
in refining their decision making capabilities and understand that the decisions you face are uni'ue and therefore
cannot rely on generic decision making tactics. /raditional courses on decision making fail managers by neglecting
the uni'ue context of the organi0ation. Similarly& managers are fre'uently disappointed by popular literature in the
field that fails to acknowledge the ability to refine analytic and intuitive abilities.
.ur approach is focused on enhancing your strategic decision making capabilities as a manager within your specific
context. /hroughout the week you will practice in making challenging decisions in a controlled environment and gain
essential feedback on your progress. 1ou will be prepared for any decision scenario 2 when confronted with strategic
choices& when searching for decision opportunities& and when designing strategies 3 under varying levels of pressure.
%y the end of the week your analytic and intuitive abilities will be notably improved to make strategic decisions under
any conditions.
%ringing together the internationally renowned +S( expertise in $ecision Sciences research& we adopt a hands2on
approach to teaching& with simulations and exercises to sensitise you to decision scenarios and behavioural biases.
1ou will gain confidence in your analytic and intuitive skills in decision making and learn how to apply the key
principles and frameworks in practice.
Flaws in strategic decision making:
McKinsey Global Survey results
Irrational thinking doesnt just afect individual economic decisions; it afects
corporate strategic planning as well. These results highlight the practices of
companies that have made successful strategic decisionsand also reveal
what the same companies have gotten wrong.
Since its inception nearly three decades ago, behavioral economics has upset the pristine premise of
classical economic theory&the view that individuals will always behave rationally to achieve the best
possible outcome. Today it's clear that the vagaries of individual and group psychology can cause
irrational decision making by both individuals and organi(ations, resulting in less than ideal outcomes.
)ven the bestdesigned strategicplanning processes don't always lead to optimal decisions. # recent
survey by "c*insey attempts to assess the fre+uency and intensity of the most common managerial biases
in companies. Specifically, we asked executives about a single recent strategic decision at their companies
that had a clearly satisfactory or unsatisfactory outcome, focusing on the role that various biases may have
played.
1
$t's evident from the results that satisfactory outcomes are associated with less bias, thanks to robust
debate, an objective assessment of facts, and a realistic assessment of corporate capabilities. # few clear
paths to making successful decisions also are apparent. ,ut even when a decision had a satisfactory
outcome, executives note several areas where their companies aren't all that effective, such as aligning
incentives with strategic objectives and forecasting competitors' reactions.
2
#lso notable is that companies
that typically make good decisions focus more on their own ability to execute than other companies do,
regardless of the outcome of the particular decision described in the survey.
When all goes well
"ost companies work hard to make their strategic decisionmaking processes as rigorous as possible. #nd
when executives are satisfied with the outcome of their decisions, they tend to rate their companies'
processes highly in terms of practices that avoid many biases, though some do creep in -)xhibit ./.
3
0ompanies that reach satisfactory outcomes do so in a few different ways, and three distinct themes
emerge from executives' responses. The first theme is assessment1 at companies with satisfactory
outcomes, executives give their processes high marks for forecasting demand and competitor reaction,
assessing their own capabilities, and tailoring their evaluation approach to the specific decision.
The second theme is process1 executives at companies with satisfactory outcomes rate their processes
highly when it comes to seeking contrary evidence and ensuring that decision makers had all the critical
information, giving dissenting voices the floor, reviewing the business case thoroughly even though senior
executives were strongly in favor, and ensuring that truly innovative ideas reached senior managers.
Nevels of decision making
$ecisions are made at different levels in an organisation4s hierarchy5
Strategic decisions are long2term in their impact. /hey affect and shape the direction of
the whole business. /hey are generally made by senior managers. /he managers of the bakery
need to take a strategic decision about whether to remain in the cafe business. +ong2term
forecasts of business turnover set against likely market conditions will help to determine if it
should close the cafe business.
/actical decisions help to implement the strategy. /hey are usually made by middle
management. 6or the cafe& a tactical decision would be whether to open earlier in the morning
or on Saturday to attract new customers. Managers would want research data on likely
customer numbers to help them decide if opening hours should be extended.
.perational decisions relate to the day2to2day running of the business. /hey are mainly
routine and may be taken by middle or )unior managers. 6or example& a simple operational
decision for the cafe would be whether to order more coffee for next week. Stock and sales data
will show when it needs to order more supplies.
*s these examples show& decisions at all levels need data. * business creates a trail of
data. /his includes data on sales& employee costs and payments. 7n a large company&
such as /esco& millions of data items are created every day against thousands of cost
and sales headings. /his data can provide a picture of trends& which the business can
use in its forward planning.
6inancial accountants use recorded data to prepare the accounting statements for a
business. (very company (large and small# has a duty to keep accounting records and
must prepare annual accounts that report on the performance and activities of the
company during the year. 6inancial accountants must ensure these accounts are
accurate and prepared in accordance with accounting rules and conventions.
Management accountants need to understand these formal accounting documents.
8owever& because their role involves the analysis and application of data& they must
also be familiar with business strategy and risk management. Management accountants
use internal data (like a balance sheet# and external data (such as market information#
to assess effects on the business and drive better informed decision making.
Strategic Decisions - Definition and Characteristics
Strategic decisions are the decisions that are concerned with whole environment in which the firm operates& the entire
resources and the people who form the company and the interface between the two.
Characteristics/Features of Strategic Decisions
a. Strategic decisions have ma)or resource propositions for an organi0ation. /hese decisions may be
concerned with possessing new resources& organi0ing others or reallocating others.
b. Strategic decisions deal with harmoni0ing organi0ational resource capabilities with the threats and
opportunities.
c. Strategic decisions deal with the range of organi0ational activities. 7t is all about what they want the
organi0ation to be like and to be about.
d. Strategic decisions involve a change of ma)or kind since an organi0ation operates in ever2changing
environment.
e. Strategic decisions are complex in nature.
f. Strategic decisions are at the top most level& are uncertain as they deal with the future& and involve a lot of
risk.
g. Strategic decisions are different from administrative and operational decisions. *dministrative decisions are
routine decisions which help or rather facilitate strategic decisions or operational decisions. .perational
decisions are technical decisions which help execution of strategic decisions. /o reduce cost is a strategic
decision which is achieved through operational decision of reducing the number of employees and how we
carry out these reductions will be administrative decision.
/he differences between Strategic& *dministrative and .perational decisions can be summari0ed as follows2
Strategic Decisions Administrative Decisions Operational Decisions
Strategic decisions are long2term decisions. *dministrative decisions are taken
daily.
.perational decisions are not fre'uently
taken.
/hese are considered where /he future
planning is concerned.
/hese are short2term based
$ecisions.
/hese are medium2period based
decisions.
Strategic decisions are taken in *ccordance
with organi0ational mission and vision.
/hese are taken according to strategic
and operational $ecisions.
/hese are taken in accordance with
strategic and administrative decision.
/hese are related to overall 9ounter planning
of all .rgani0ation.
/hese are related to working of
employees in an .rgani0ation.
/hese are related to production.
/hese deal with organi0ational Growth. /hese are in welfare of employees
working in an organi0ation.
/hese are related to production and
factory growth.
Decision making
Purposeful selection from among a set of alternatives in light of a given objective. Decisionmaking is
not a separate function of management. !n fact, decisionmaking is intertwined with the other
functions, such as planning, coordinating, and controlling.
These functions all re"uire that decisions be made. #or e$ample, at the outset, management must
make a critical decision as to which of several strategies would be followed. Such a decision is often
called a strategic decision because of its longterm impact on the organi%ation.&lso, managers must
make scores of lesser decisions, tactical and operational, all of which are important to the
organi%ation's wellbeing.
Decision making is a vital component of small business success. Decisions that are based on
a foundation of knowledge and sound reasoning can lead the company into longterm
prosperity( conversely, decisions that are made on the basis of flawed logic, emotionalism,
or incomplete information can "uickly put a small business out of commission )indeed, bad
decisions can cripple even big, capitalrich corporations over time*. &ll businesspeople
recogni%e the painful necessity of choice. #urthermore, making these choices must be done
in a timely fashion, for as most people recogni%e, indecision is in essence a choice in and of
itself+a choice to take no action. ,ltimately, what drives business success is the "uality of
decisions, and their implementation. Good decisions mean good business.
The concept of decision making has a long history( choosing among alternatives has always
been a part of life. -ut sustained research attention to business decision making has
developed only in recent years. .ontemporary advances in the field include progress in such
elements of decision making as the problem conte$t( the processes of problem finding,
problem solving, and legitimation( and procedural and technical aids.
The Elements of Decision Making
THE PROBLEM CONTEXT. &ll decisions are about problems, and problems shape conte$t
at three levels. The macrocontext draws attention to global issues )e$change rates, for
e$ample*, national concerns )the cultural orientations toward decision processes of different
countries*, and provincial and state laws and cultures within nations.
Themesocontext attends to organi%ational cultures and structure.
The microcontext addresses the immediate decision environment+the organi%ation's
employees, board, or office.
Decision processes differ from company to company. -ut all companies need to take these
three conte$t levels into consideration when a decision needs to be made. #ortunately,
economical ways to obtain this information are available and keep the cost of preparing for
decisions from becoming prohibitive.
PROBLEM FINDIN !ND !END! "ETTIN. &n important difficulty in decision making is
failure to act until one is too close to the decision point+when information and options are
greatly limited. /rgani%ations usually work in a 0reactive0 mode. Problems are 0found0 only
after the issue has begun to have a negative impact on the business. 1evertheless,
processes of environmental scanning and strategic planning are designed to perform
problem reconnaissance to alert business people to problems that will need attention down
the line. Proactivity can be a great strength in decision making, but it re"uires a decision
intelligence process that is absent from many organi%ations.
2oreover, problem identification is of limited use if the business is slow to heed or resolve
the issue. /nce a problem has been identified, information is needed about the e$act nature
of the problem and potential actions that can be taken to rectify it. ,nfortunately, small
business owners and other key decision makers too often rely on information sources that
0edit0 the data+either intentionally or unintentionally+in misleading fashion. !nformation
from business managers and other employees, vendors, and customers alike has to be
regarded with a discerning eye, then.
&nother kind of information gathering reflects the array and priority of solution preferences.
3hat is selected as possible or not possible, acceptable or unacceptable, negotiable or non
negotiable depends upon the culture of the firm itself and its environment. & third area of
information gathering involves determining the possible scope and impact that the problem
and its conse"uent decision might have. 4nowledge about impact may alter the decision
preferences. To some e$tent, knowledge about scope dictates who will need to be involved
in the decision process.
Problem Solving
Problem solving+also sometimes referred to as problem management+can be divided into
two parts+process and decision. The process of problem solving is predicated on the
e$istence of a system designed to address issues as they crop up. !n many organi%ations,
there does not seem to be any system. !n such businesses, owners, e$ecutives, and
managers are apparently content to operate with an ultimately fatalistic philosophy+what
happens, happens. -usiness e$perts contend that such an attitude is simply unacceptable,
especially for smaller businesses that wish to e$pand, let alone survive. The second part of
the problem management e"uation is the decision, or choice, itself. Several sets of elements
need to be considered in looking at the decision process. /ne set refers to the rationales
used for decisions. /thers emphasi%e the setting, the scope and level of the decision, and
the use of procedural and technical aids.
R!TION!LE". /rgani%ational decision makers have adopted a variety of styles in their
decision making processes. #or e$ample, some business leaders embrace processes wherein
every conceivable response to an issue is e$amined before settling on a final response,
while others adopt more fle$ible philosophies. The legitimacy of each style varies in
accordance with individual business realities in such realms as market competitiveness,
business owner personality, acuteness of the problem, etc.
"ETTIN". .ertainly, some entrepreneurs5owners make business decisions without a
significant amount of input or feedback from others. 6omebased business owners without
any employees, for e$ample, are likely to take a far different approach to problemsolving
than will business owners who have do%ens of employees and5or several distinct internal
departments. The latter owners will be much more likely to include findings of meetings,
task forces, and other information gathering efforts in their decision making process. /f
course, even a business owner who has no partners or employees may find it useful to seek
information from outside sources )accountants, fellow businesspeople, attorneys, etc.*
before making important business decisions. 0Since the owner makes all the key decisions
for the small business, he or she is responsible for its success or failure,0 wrote David
4arlson in Avoiding Mistakes in Your Small Business. 02arketing and finance are two of
several areas in which small business owners fre"uently lack sufficient e$perience, since
they previously worked as specialists for other people before they started their own
businesses. &s a result, they generally do not have the e$perience needed to make well
informed decisions in the areas with which they are unfamiliar. The demands of running and
growing a small business will soon e$pose any achilles heel in a president5owner. !t is best
to find out your weaknesses early, so you can develop e$pertise or get help in these areas.0
"COPE !ND LE#EL. #inally, attention must be paid to problem scope and organi%ational
level. Problems of large scope need to be dealt with by top levels of the organi%ation.
Similarly, problems of smaller scope can be handled by lower levels of the organi%ation. This
is a failing of many organi%ations, large and small. Typically, top level groups spend much
too much time deciding lowlevel, lowimpact problems, while issues of high importance and
organi%ational impact linger on without being addressed or resolved.
PROCED$R!L !ND TECHNIC!L!ID". !n recent years, a number of procedural and
technical aids have been developed to help business managers in their decision making
processes. 2ost of these have taken the form of software programs that guide individuals or
groups through the various elements of the decision making process in a wide variety of
operational areas )budgeting, marketing, inventory control, etc.*. 7eadership seminars and
management training offer guidance in the decision making process as well.
O$TCOME. 3hatever decision making process is utili%ed, those involved in making the
decision need to make sure that a response has actually been arrived at. &ll too often,
meetings and other efforts to resolve outstanding business issues adjourn under an
atmosphere of uncertainty. Participants in decision making meetings are
sometimes unsureabout various facets of the decision arrived at. Some meeting
participants, for e$ample, may leave a meeting still unsure about how the agreedupon
response to a problem is going to be implemented, while others may not even be sure what
the agreedupon response is. !ndeed, business researchers indicate that on many occasions,
meeting participants depart with fundamentally different understandings of what took place.
!t is up to the small business owner to make sure that all participants in the decision making
process fully understand all aspects of the final decision.
IMPLEMENT!TION. The final step in the decision making process is the implementation of
the decision. This is an e$tremely important element of decision making( after all, the
benefits associated with even the most intelligent decision can be severely compromised if
implementation is slow or flawed.
#actors in Poor Decision 2aking
Several factors in flawed decision making are commonly cited by business e$perts, including
the following8 limited organi%ational capacity( limited information( the costliness of analysis(
interdependencies between fact and value( the openness of the system)s* to be analy%ed(
and the diversity of forms on which business decisions actually arise. 2oreover, time
constraints, personal distractions, low levels of decision making skill, conflict over business
goals, and interpersonal factors can also have a deleterious impact on the decision making
capacities of a small )or large* business.
& second category of difficulties is captured in a number of common pitfalls of the decision
procedure. /ne such pitfall is 0decision avoidance psychosis,0 which occurs when
organi%ations put off making decisions that need to be made until the very last minute. &
second problem is decision randomness. This process was outlined in the famous paper
called 0& Garbage .an 2odel of /rgani%ational .hoice0 by .ohen, 2arch and /lsen. They
argued that organi%ations have four roles or vectors within them8 problem knowers )people
who know the difficulties the organi%ation faces*8 solution providers )people who can
provide solutions but do not know the problems*( resource controllers )people who do not
know problems and do not have solutions but control the allocation of people and money in
the organi%ation* and a group of 0decision makers looking for work0 )or decision
opportunities*. #or effective decision making, all these elements must be in the same room
at the same time. !n reality, most organi%ations combine them at random, as if tossing them
into a garbage can.
Decision drift is another malady that can strike at a business with potentially crippling
results. This term, also sometimes known as the &bilene Parado$ in recognition of a famous
model of this behavior, refers to group actions that take place under the impression that the
action is the will of the majority, when in reality, there never really was a decision to take
that action.
Decision coercion, also known as groupthink, is another very well known decision problem.
!n this flawed decision making process, decisions are actually coerced by figures in power.
This phenomenon can most commonly be seen in instances where a business owner or top
e$ecutive creates an atmosphere where objections or concerns about a decision favored by
the owner5e$ecutive are muted because of fears about owner5e$ecutive reaction.
!mproving Decision 2aking
-usiness consultants and e$perts agree that small business owners and managers can take
several basic steps to improve the decision making process at their establishments.
Improve the setting. /rgani%ing better meetings )focused agenda, clear "uestions, current
and detailed information, necessary personnel* can be a very helpful step in effective
decision making. &void the garbage can( get the relevant people in the same room at the
same time. Pay attention to planning and seek closure.
Use Logical Techniques. Decision making is a simple process when approached in a logical
and purposeful manner. Small businesses that are able to perceive the problem, gather and
present data, intelligently discuss the data, and implement the decision without succumbing
to emotionalism are apt to make good ones that will launch the firm on a prosperous
course.
valuate decisions and decision making patterns. 9valuation tends to focus the attention,
and make individuals and teams more sensitive to what they are actually doing in their
decision making tasks. 9valuation is especially helpful in today's business environment
because of the interdependency of individuals and departments in e$ecuting tasks and
addressing goals.
!etermine appropriate levels o" decision making. -usiness enterprises need to make sure
that operational decisions are being made at the right level. 4eys to avoiding
micromanagement and other decision making pitfalls include8 giving problems their proper
level of importance and conte$t( addressing problems in an appropriate time frame( and
establishing and shifting decision criteria in accordance with business goals.
Cha%acte%istics of "t%ategic Decision Making
1. 'trategic decisions are likely to a8ect the long-term direction of
an organisation.
0. 'trategic decisions are normally about trying to achieve
some advantage for the organisation.
A. 'trategic decisions are likely to be concerned with the scope of an
organisations activities6 :oes *and should+ the organisation
concentrate on one area of activity, or does it have manyI ,he issue
of scope of activity is fundamental to strategic decisions because it
concerns the way in which those responsible for managing the
organisation conceive its boundaries. !t is to do with what they want
the organisation to be like and to be about.
O. 'trategy is to do with the matching of the activities of an
organisation to the environment in which it operates.
J. 'trategy can also be seen as 'stretching' an organisation's
resources and competences to create opportunities or capitalise on
them. !t is not just about countering environmental threats and
taking advantage of environmental opportunities> it is also about
matching organisational resources to these threats and
opportunities. ,here would be little point in trying to take advantage
of some new opportunity if the resources needed were not available
or could not be made available, or if the strategy was rooted in an
inade&uate resource5base.
B. 'trategic decisions therefore often have major resource
implications for an organisation. !n the 1EF1s a number of 49 retail
$rms had attempted to develop overseas with little success and one
of the major reasons was that they had underestimated the extent
to which their resource commitments would rise and how the need
to control them would take on &uite di8erent proportions. 'trategies,
then, need to be considered not only in terms of the extent to which
the existing resource5base of the organisation is suited to the
environmental opportunities but also in terms of the extent to which
resources can be obtained and controlled to develop a strategy for
the future.
K. 'trategic decisions are therefore likely to afect operational
decisions, to Pset o8 waves of lesser decisions=.
F. ,he strategy of an organisation will be a8ected not only by
environmental forces and resource availability, but also by
the values and expectations of those who have power in and around
the organisation. !n some respects, strategy can be thought of as a
re<ection of the attitudes and beliefs of those who have the most
in<uence on the organisation. /hether a company is expansionist or
more concerned with consolidation, and where the boundaries are
drawn for a company=s activities, may say much about the values
and attitudes of those who in<uence strategy 55 the stakeholders of
the organisation. ,he beliefs and values of these stakeholders will
have a more or less direct in<uence on the organisation.
.verall, if a de$nition of strategy is re&uired, these characteristics
can provide a basis for one. Strategy is
te direction an"scope o! an organisation over te long
term* wic acieves advantage !or te organisation
troug its con#guration o!resources witin a
canging environment* to meet te nee"s o! markets an"
!ul#l stakeholder e/pectations%
'trategic decisions are, then, often complex in nature6 it can be
argued that what distinguishes strategic management from other
aspects of management in an organization is just this complexity.
,he complexity arises for at least three reasons. 7irst, strategic
decisions usually involve a high degree of uncertainty6 they may
involve taking decisions on the basis of views about the future which
it is impossible for managers to be sure about. 'econd, strategic
decisions are likely to demand an integrated approach to managing
the organization. 4nlike functional problems, there is no one area of
expertise, or one perspective that can de$ne or resolve the
problems. (anagers, therefore, have to cross functional and
operational boundaries to deal with strategic problems and come to
agreements with other managers who, inevitably, have di8erent
interests and perhaps di8erent priorities. ,his problem of integration
exists in all management tasks but is particularly problematic for
strategic decisions. ,hird, as has been noted above, strategic
decisions are likely to involve major change in organizations. Dot
only is it problematic to decide upon and plan those changes, it is
even more problematic actually to implement them. 'trategic
management is therefore distinguished by a higher order of
complexity than operational tasks.