Strategic decisions are Essence and features, methods of decision making

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

One of the most crucial aspects of leadership is strategic decisions. They determine the direction of development of the enterprise for a long time. How are decisions made and what are the pitfalls along the way?

Characteristics of strategic decisions

Strategic decisions are management decisions that are characterized by the following key features:

• Focused on the long term and lays the foundation for operational decision making and tactical activities.
• Associated with uncertainty associated with the unpredictability of changes in the external and internal environment.
• Require the involvement of a large amount of resources (financial, intellectual and labor).
• Reflect top management's vision of the future of the enterprise.
• Help the organization interact with the external environment.
• Help to align organization activities with available resources.
• Givean idea of the planned changes in the work of the enterprise.
• Highly uncertain and full of assumptions.
• Require an integrated comprehensive approach to organizing the management of the organization.
• Influence the formation of the resource base and the organization of operational activities.

Types of strategic decisions

These types of strategic decisions of the enterprise are distinguished:

• Financial - determination of methods for attracting, accumulating and spending material resources.
• Technological - determining the method of producing products or providing services.
• Commodity-market - determining the strategy of behavior in the market, production volumes and sales of products (rendering services).
• Social - determination of the quantitative and qualitative composition of the staff, features of interaction and material rewards.
• Management - methods and means of enterprise management.
• Corporate - the formation of a system of values, as well as ways to move towards the global goal of the organization.
• Restructuring - bringing the production and resource base in line with the changing strategy and market situation.

Key decision goals

The following main goals of strategic decisions can be distinguished:

• Achieving maximum profitability of work with the same set of activities. The indicators in this case are sales volumes, profit margins, growth rates of these indicators, incomeon securities, market coverage, the amount of payments to employees, improving the quality of products or services provided.
• Sustaining global policies on R&D spending, new product and service development, competitiveness, investment, human resources, social responsibility.
• Search for new directions of development, new types of products and services. This involves the development of a new policy regarding structural transformation in the organization.

Principles

The adoption of strategic decisions at the enterprise is carried out in accordance with the following principles:

• Science and creativity. In the decision-making process, the manager must be guided by the results of scientific research and modern achievements in the industry. Nevertheless, there should be room for improvisation and creativity, which determine an individual approach to solving a problematic issue.
• Purposefulness. A strategic decision should be directed towards achieving the global goal of the enterprise.
• Flexibility. It should be possible to make adjustments related to changes in the internal and external environment.
• Unity of plans and programs. Decisions made at different levels of government must be consistent and have a single direction.
• Creating conditions for implementation. Decision-making must be accompanied by the creation of conditions conducive to the implementation of plans.

Requirements for strategic decisions

The company's strategic decisions shouldmeet the following requirements:

• Soundness. Decisions should be made on the basis of well-studied reliable data both about the enterprise itself and about the external environment. This reduces the risk of false beliefs.
• Authority. A strategic decision can only be made by the person who has the right to do so. Moreover, the manager should oversee the implementation of the plan in the future and be responsible for this issue.
• Directiveness. The decision made is binding.
• No contradictions. Strategic and tactical decisions, as well as previously defined goals of the enterprise, must be fully coordinated, because they will not work in isolation from each other.
• Timeliness. From the moment the situation changes to the decision, the shortest period of time should elapse. Otherwise, due to new events, the idea may turn out to be irrelevant and unnecessary.
• Clarity and conciseness. The wording should be such that ambiguity is completely excluded.
• Optimal. The strategy should fully solve the existing problem and contribute to the achievement of goals. At the same time, its implementation should be accompanied by minimal time and material costs.
• Complexity. The decision must be made taking into account all factors and conditions specific to the internal and external environment.

Various decision-making process

Making strategic decisions involves going through the following main steps:

• Studying the problem. Managermust collect information about the state of the organization and the situation in the external environment. You should also identify problems and recognize their causes.
• Goal setting. The manager must have a clear idea of what position the organization should reach in a certain period. Criteria should also be defined by which the success of the strategy will be evaluated.
• Formulation of ideas. It is necessary to formulate several options for the strategy, which will subsequently need to be compared and the most competitive one will be selected.
• Making a strategic management decision. Produced based on the results of a comparison of previously formulated ideas.
• Implementation of the strategy. Detailed planning and implementation of the intended program.
• Evaluation of results. After some time has passed since the adoption of the strategy, the compliance of the current indicators with the planned ones is analyzed.

Difficulties in making strategic decisions

Entrepreneurial activity involves a lot of difficulties, obstacles and risks. This is especially true when it comes to the long term. In particular, the adoption of strategic management decisions is accompanied by such difficulties:

• Dynamically changing external environment can nullify corporate plans. Especially if they are not formulated in general terms, but described in detail.
• It is almost impossible to obtain information about the external environment in the quantity and quality needed for a complete comprehensive analysis.
• When managers make decisionstend to simplify the problem, which can cause some difficulties in translating ideas into reality.
• The habit of using formalized procedures greatly narrows the range of possibilities.
• Operational employees do not take part in the formation of strategic decisions by the highest level. Thus, employees are not always satisfied with the course of the enterprise, which may affect the quality of work.
• When making a decision, managers pay little attention to how it is implemented.

Solution of strategic tasks

A strategic objective is a future situation within or outside of an organization that may have an impact on the achievement of objectives. It may represent some external threat or a weakness of the enterprise itself. The solution of strategic problems is the beneficial use of the opportunity to stabilize the situation.

The concept was formulated as strategic planning developed. Initially, it was meant that the strategy would be reviewed and adjusted annually. But experience has shown that this is accompanied by large time and material costs, and therefore impractical. In addition, this leads to a lack of decisiveness on the part of senior management and an insufficiently responsible approach to planning issues. Thus, the revision of strategies began to be carried out every few years in order to identify strategic objectives. And over time, this issue was separated from planning.

Analysis methods

Analysis of strategic decisions cancarried out through the following methods:

• Comparison - comparing the value of key indicators in order to identify deviations from the planned parameters.
• Factor analysis - establishing the degree of influence of various factors on the resulting trait. The ranking of factors allows you to draw up an action plan to improve the situation.
• Index method - calculation of index indicators in order to study the state of phenomena or their elements in dynamics. Applicable to the study of complex processes that are not always measurable.
• Balance method - comparison of performance indicators in order to study their dynamics, as well as to identify mutual influence. The connection between objects is manifested in the equality of indicators.
• Method of chain substitutions - obtaining adjusted values by replacing base (planned) indicators with actual ones.
• The elimination method is the allocation of the effect of a particular factor on performance indicators. In this case, the influence of all other factors is excluded.
• Graphic method - comparison of planned or basic and reporting indicators through charts and graphs. Allows you to visualize the degree of implementation of the strategy.
• Functional cost analysis - a systematic study that is used to increase the return per unit cost for each object. The expediency of the functions performed by the object is established.

Tasks

Strategic decisions are an integral part of enterprise management. They determine the direction of activity for severalperiods ahead, and therefore need careful analysis. The objectives of the analysis are as follows:

• estimate the production plan;
• optimization of the economic program for each workshop;
• optimization of resource allocation;
• optimization of technical equipment;
• determination of the optimal size of the enterprise as a whole and its structural units;
• determination of the optimal range of products or the list of services provided;
• determination of optimal logistics routes;
• determining the feasibility of repair, reconstruction and modernization;
• comparison of the efficiency of using each unit of the resource;
• determination of economic losses that may result from the decisions made.

Levels

Planning strategic decisions is made at three levels. Their content is described in the table below.

Levels	Contents
Corporate	- distribution of resources between departments; - diversification of activities to reduce economic risks; - change in organizational structure; - decision to join any integration structures; - establishing a single orientation of units
Business	- ensuring long-term competitive advantage; - price formationpolicy; - marketing plan development
Functional	- search for an effective behavior model; - looking for ways to increase sales

Typical models

Strategic decisions of an organization can be made in accordance with the following model models:

• Entrepreneurial. One authorized person is engaged in the development and adoption of the decision. At the same time, the main emphasis is placed on potential opportunities, and problems are relegated to the background. It is important that the manager makes a strategic decision in accordance with how he personally or the founder of the enterprise sees the direction of development.
• Adaptive. The model is characterized by reactive actions on emerging problems, rather than the search for new management opportunities. The main problem with this approach lies in the fact that stakeholders promote their own vision of a way out of the situation. As a result, the strategy is fragmented, and its implementation becomes much more complicated.
• Planning. This model involves the collection of information that is necessary for a deep analysis of the situation in order to generate alternative ideas and select the optimal strategy. A solution is also being sought for emerging problems.
• Logical. Although managers are aware of the mission of the corporation, when developing strategic decisions, they prefer interactive processes in which experiments are carried out.

Types of financial strategies

Development of strategicdecisions largely affect financial issues. The success of the activity largely depends on the material support. In this regard, it is worth highlighting the following main types of financial strategies:

• Financial support for accelerated growth. The strategy aims to ensure an accelerated pace of operational work. First of all, we are talking about the production and marketing of finished products. As a rule, the use of such a strategy is associated with a high need for financial resources, as well as the need to increase current assets.
• Financial support for the sustainable growth of the organization. The main goal is to achieve a balance between limited growth in operations and the level of financial security. It is the support of the stability of these parameters that allows the efficient distribution and use of material resources.
• Anti-crisis financial strategy - ensures the stability of the enterprise at the time of overcoming the crisis of operations. The main task is to create such a level of financial security that there is no need to reduce production volumes.

Strategic decision evaluation system

Strategic decisions are a complex factor that needs to be carefully assessed to confirm feasibility and effectiveness. There are four main elements in this system:

1. Motivation. First of all, the head of the organization (or the responsible manager) should be interested in the evaluation. The desire is usually due to the fact thatthat there should be a clear link between the proposed strategy and the philosophy of the organization. Another motivating factor is the financial results that will follow the successful implementation of a competent strategy.
2. Information resources. In order for the assessment to be objective and reliable, it is necessary to have up-to-date information presented in a form that is easy to understand. It is important that an effective system for collecting and processing management data is organized at the enterprise. It is also important to have a system for predicting possible results from the implementation and implementation of a strategic decision.
3. Criteria. Evaluation of strategic decisions is carried out in accordance with a system of criteria. This is the sequence of implementation and implementation, the consistency of strategies with the requirements of the internal and external environment. It is also worth objectively assessing the feasibility of strategic plans and the main advantages compared to competing organizations.
4. Decision based on evaluation results. On the basis of the data obtained and the results of the studies carried out, the head or authorized manager must conclude on the advisability of implementing or continuing to implement the strategic decision in question.

We have analyzed the importance and goals of strategic decisions in the enterprise.