The Nature of Strategic Decisions

Although the process of creating strategy is often discussed as if it were an unconstrained design
process, keep in mind that while strategists evaluate strategy, the firm is operating. This
evaluation involves assessing the extent to which present strategy is meeting expectations. It may
be the case that only a small part of, say, marketing strategy would have to be changed to correct
a problem. In effect, then, such a change would constitute an acceptance of corporate- and
business-level strategy, and also of the firms functional strategy set. Marketing strategy would
be all that was rejected. When a firms performance is less than satisfactory, the reason often is a
functional strategy shortcoming. One might say that a good business-level strategy would have
been poorly implemented by part of its functional strategy set. For this simple example, a change
in marketing strategy could improve performance while other levels of strategy would remain
unchanged.
Alternatively, a problem with the nature of a firms or SBUs business brought about by a major
environmental opportunity or threat, a change in that levels goals set, or the development of
some internal capability or weakness could necessitate a business-level strategy change. The new
strategy would probably include vestiges of the old along with some unfamiliar elements. In
most cases a whole new functional strategy set would likely have to be designed and put into
effect to implement the new business-level strategy.
More generally, one could conceivably change parts of a firms functional strategy set without
changing business-level strategy. However, rarely would one expect to encounter the case in
which a change in business-level strategy did not trigger the necessity to alter functional-level
strategy in some way, at least not in a successfully managed business.
There is a risk of incorrectly identifying the strategy level at which a problem exists. A tendency
exists in business to change functional-level strategies or organizational structure in a attempt to
remedy any problem. Of course, if the problem existed within the firms corporate-or businesslevel strategy, for example, changing functional-level strategy would not correct it. In fact, this
move would most likely aggravate the situation. The reason for this tendency is probably that
functional strategy changes are potentially less disruptive than changes in the other levels. They
certainly would affect fewer people than modifications at the corporate or business levels.
The results of trying to solve a business-level strategic problem with a functional-level solution
is well illustrated by the big four U.S. automobile companies ( Ford, General Motors, Chrysler
and American Motors). With overseas competitors exporting fuel-efficient automobiles to the
United States, and with widely acknowledged shrinkages of fossil fuel supplies, they still
stubbornly tried to retain their old business and corporate strategies, well into the 1970s, by
changing market strategy only. A set of major environmental threats, particularly at the business
level, was met by minor model changes and increased efforts to convince the car-buying public
that big autos were what we all really wanted. During the 1970s and early 1980s, these
companies finally began to respond to their business strategy problems with business strategy
changesmajor philosophical alterations in the nature of their businesses. If U.S. auto firms were

to rely on small cars instead of traditional American big cars as their primary sources of growth,
far-reaching changes in their functional strategy sets were also necessary. New growth rates,
profit targets, market-share goals, and the like, along with related broad action plans that
centered around contraction in many forms, were implemented along with new functional
strategy. They included such things as cash rebates, Chryslers government-guaranteed loan,
employee layoffs, close cooperation with UAW officials, R&D efforts focused on producing
smaller, less powerful engines as a primary effort rather than as an inconvenience. The U.S. auto
firms strategy changes were finally implemented during a period of chaos. However, by then
they were all in the red, and the doomsayers were having a heyday.
South claims that the key to successful strategic decisions is the creation of competitive
advantageselection of competitive areas within which success is clearly achievable.The
Japanese have taught us that there are really two very different forms of competition: Reciprocal
and strategic. Reciprocal competition is the traditional form in which companies in mature
industries compete with other firms having similar strategic positions while attempting to
distinguish themselves on the basis of operations. Many colleges and universities offer similar
programs, with traditional facilities and are significantly different only in terms of the
geographical areas within which they operate. Strategic competition, on the other hand, involves
competing primarily by establishing superior strategic position. That is, the main concern of
strategists is selection of a strategically advantageous posture which affords their organization a
position of strength from which to do battle. Lincoln Electric Company has successfully
differentiated itself on the basis of price and quality. Their industrial welding equipment is
regarded as the top quality product of its kind and the firm has consistently passed along cost
savings to customers in the form of low prices. As a result, Lincoln is very difficult to compete
with because of its strong price position.
Following this set of ideas, then, strategic decisions are those which involve clear and favorable
differentiation from competitors, so that ones competitive advantage is tangible, measurable,
and preservable.
Credit: Strategic Management-MGU