Written by: Ivan Serrano
What is Strategic Decision Making
Businesses regularly run into issues that need to be solved quickly and effectively. The decisions made to resolve these issues can oftentimes have a major impact on the overall direction of a company. Because these decisions can play such a major role in the success of a business, it is important to have a structured approach to the decision-making process.
Strategic decision making is the process of understanding how different business decisions influence the daily operations of a company and using that understanding to decide on the next best steps for the organization. This form of decision making is different from operational management which is concerned with the day-to-day decisions managers must make for a company. Strategic decisions require managers to consider the future of the company and how its short and long-term goals fit into that vision. Strategic decisions often involve a high degree of uncertainty and can be difficult or impossible to reverse. This is why many managers entrust the decision-making process to a third-party professional. An example of this would be a business seeking the advice of an acquisitions consultant when purchasing another organization or commercial space.
Stages for Making a Strategic Decision
There are three distinct stages to strategic decision making: analysis, decision, and implementation. These stages are cyclical, meaning that once implementation has been completed businesses should immediately begin the analysis stage again. This will allow you to evaluate the effectiveness of the decision that has just been implemented and consider what future issues may come as a result of this decision.
Analysis
The primary concern of the analysis phase is to understand the organization’s current position. This includes identifying all of the relevant issues facing the company, both internal and external, and the business’s capability to effectively respond to them. The analysis made during this phase should be supported by data and be actionable.
1. Decision
The purpose of this phase of the strategic management process is to decide upon a strategic way to respond to the problems facing the organization. Carefully consider all of the data gathered during the analysis phase and brainstorm actionable plans supported by this data. It would be wise to formulate a unique set of options, each with its own strengths. The final strategy you choose to implement could be one of these options or a combination of them. Remember to always consider the long-term ramifications when making a strategic decision.
2. Implementation
The final phase of the strategic decision-making process is implementation. After you have decided on the best strategy to tackle the issues facing your business, it is time to put them into action. Be sure to involve any relevant people in the implementation phase. This includes managers, team leaders, shareholders, and business partners. If implementing this decision will affect the company on a wide scale, then prepare employees for the upcoming changes. Remember that the job isn’t over once the decision has been implemented. Analysis should begin again immediately after implementation. This will allow your company to evaluate the effectiveness of the strategy it has decided upon and consider how it will affect the future of the company.
3. How to Identify the Problem
A business may consider strategic management when it is faced with two different situations: opportunities and necessities. A necessity is a challenge that can cause major issues for a company if it is not responded to properly. Let’s take the example of a hypothetical car dealership. If there is an economic recession and the price of cars becomes too high for the average person, then the dealership must adapt or face the possibility of going out of business. The dealership could try pricing cars lower, focusing their efforts on selling used cars or cheaper models, or cutting down on their labor force. But the dealership has to make a decision in order to stay in business.
An opportunity is a situation wherein a business is not necessarily under a major threat, but they do have a chance at growing their business. For instance, let’s say a fashion brand recognizes that a certain pair of shoes they are carrying is falling out of favor compared to another shoe. This isn’t necessarily a major threat to the shoe retailer, but it does provide them with an opportunity to be ahead of the competition. They could capitalize on this new trend they have noticed and stock the more popular shoe quicker than the competition.