Topic 3 strategic decision making


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Topic 3 strategic decision making

  1. 1. TOPIC 3: STRATEGIC DECISION MAKING A STRATEGIC DECISION A strategic decision is one that deals with the long-run future of an entire organization. Strategic 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. WHAT MAKES A DECISION STRATEGIC? A strategic decision is; 1. RARE-Strategic decisions are unusual and typically have no precedent to follow 2. CONSEQUENTIAL-Commit substantial resources and demand a great deal of commitment from people at all levels 3. DIRECTIVE-Set precedents for lesser decisions and future actions throughout an organization MODES OF STRATEGIC DECISION MAKING. According to Mintzberg, there are three typical approaches or modes of strategic decision making; 1. Entrepreneurial Mode-Strategy is made by one powerful individual. The major focus is on opportunities. Strategy is guided by the founder’s own vision The dominant goal is growth of the business Example…, founded by Jeff Bezos
  2. 2. 2. Adaptive Mode(muddling through) Characterized by reactive solutions to existing problems There is no proactive search for new opportunities There is much bargaining on priorities Strategy is fragmented and developed to move a corporation forward incrementally. Common in universities, large hospitals, government agencies and large corporations. 3. Planning Mode Involves systematic gathering of appropriate information for; situation analysis, generation of feasible alternative strategies Rational selection of the most appropriate strategy Includes both proactive search for new opportunities and the reactive solution of existing problems 4. Logical Incrementalism (Added later by Quinn) Can be viewed as a synthesis of the planning, adaptive, and to a lesser extent the entrepreneurial mode. Top management has a clear idea of the firm’s mission and objectives but chooses to use an interactive process. They probe the future, experiment and learn from a series of partial (incremental) commitments.
  3. 3. Strategy is allowed to emerge out of debate, discussion and experimentation. This mode is useful in a rapidly changing environment and where it is crucial to build consensus and develop needed resources before committing an entire organization to a specific strategy. THE STRATEGIC DECISION MAKING PROCESS. N.B .The planning mode in most situations (which includes the basic elements of the strategic management process) is more rational and thus a better way to make strategic decisions. It is more analytical and less political and more appropriate for dealing with complex, changing environments. THE 8-STEP STRATEGIC DECISION MAKING PROCESS 1. Evaluate current performance results in terms of; Return on investment, profitability, etc. Current mission, objectives, strategies and policies 2. Review corporate governance I.e. performance of the firm’s board of directors and top management. 3. Scan and assess the external environment To determine the strategic factors that pose opportunities and threats
  4. 4. 4. Scan and assess the internal corporate environment To determine the strategic factors that are strengths (esp. core competences) and weaknesses 5. Analyze strategic (SWOT) factors so as to; Pinpoint problem areas Review and revise the corporate mission and objectives, as necessary 6. Generate, evaluate and select the best alternative strategy In light of the analysis conducted in step 5. 7. Implement selected strategies Via programs, budgets and procedures 8. Evaluate implemented strategies Via feedback systems, and the control of activities to ensure their minimum deviation from plans THE STRATEGY MAKERS The ideal strategic management team includes decision makers from all three organizational levels; The corporate The Business The Functional
  5. 5. They are; 1. The Chief executive office (CEO) 2. The product managers (heads of various businesses) 3. The heads of functional areas such as;  Finance  Marketing  Procurement  Production  Human resource  etc In addition the team obtains input from the operatives or lower-level managers and supervisors. Planning departments, often headed by a corporate vice president for planning, in large organizations Medium – sized firms often employ at least one full-time staff member to spearhead strategic data- collection efforts. In small firms or less progressive larger firms, strategic planning is often spearheaded by an officer or a group of officers designated as a planning committee. RESPONSIBILITIES OF TOP MANAGEMENT IN THE STRATEGIC PLANNING PROCESS They Shoulder broad responsibilities for all the major elements of strategic planning and management. They develop the major portions of the strategic plan and reviews, and evaluate and counsel on all other portions. They develop environmental analysis and forecasting
  6. 6. They establish business objectives They develop business plans prepared by staff groups Responsibilities of the chief executive officer (CEO) Plays a dominant role in the role in the strategic planning process Giving long-term direction to the firm The CEO is ultimately responsible for the firm’s success and the success of its strategy For them to achieve this, they must be strong- willed, company-oriented individuals with self-esteem. They often resist delegating authority to formulate or approve strategic decisions The CEO is highly involved in the implementation process and together with the managers, they work as a team to drive the process forward. The CEO provides the required leadership to influence the employees towards the vision and the mission of the organization. RISKS OF STRATEGIC MANAGEMENT The time that managers spend on the strategic management process may have a negative impact on operational responsibilities Managers must be trained to minimize that impact by scheduling their duties to allow the necessary time for strategic activities If the formulators of strategy are not intimately involved in its implementation, then the plan may not work. To minimize the effects of these risks strategy managers must be trained to anticipate and respond to the disappointment of participating subordinates over unattained goals and objectives.
  7. 7. Sensitizing managers to these possible negative consequences and preparing them with effective means of minimizing such consequences will greatly enhance the potential of strategic planning.