Strategic Mgt n Decision Making

7/27/2019 Strategic Mgt n Decision Making

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Prof. Sushil\IITD\Session - I 1

What is Strategy?

Large-scale, future-oriented plan for

interacting with competitive environment to

achieve objectives

Companysgameplan

Framework for managerial decisions


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STRATEGY

Direction and scope of an organisation

over the long term.

Matches its resources to its changing

environment.

In particular its markets, customers or

clients. So as to meet stakeholders

expectations.


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STRATEGIC DECISIONS

Modernization

Divestment

Product Launch

Acquisition/Merger

Collaboration/Alliance

Overseas Expansion

Turnaround

Technology Transfer

Entry into New Markets

Restructuring

Reengineering


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Dimensions of Strategic Decisions

Strategic issues . . .

Require top-management decisions

Require large amounts offirms resources Affect firms long-term prosperity

Are future oriented

Usually have multifunctional or multibusiness

consequences

Require consideration offirms external environment


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What is Strategic Management?

The set of decisions and actions that

result in the formulation and

implementation of plans designed to

achieve a companys objectives.


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Critical Tasks of Strategic Management

1 Formulate the companys mission

2 Develop company profile, reflecting its internal conditions

3 Assess companys external environment

4 Analyze companys options

5 Identify most desirable options

6 Select long-term objectives and grand strategies

7 Develop annual objectives and short-term strategies

8 Implement the strategic choices

9

Evaluate success of the strategic process


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Single-Business Firms

Corporate/

business level

POM/R&D

strategies

Marketing

strategies

Human

relations

strategies

Financial/

accounting

strategies


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Multiple Business Firms

Corporate/business level

Business 1 Business 2 Business 3

POM/R&D

strategies

Marketing

strategies

Human

relations

strategies

Financial/

accounting

strategies


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Board ofDirectors

CorporateManagers

Strategic Decision Makers

BusinessManagers

FunctionalManagers

Mission,including

goals &philosophy

Ends(What is to beachieved?)

Means(How is it to beachieved?)

Long-termobjectives

Grand strategy

Annualobjectives

Short-term

strategies &

policies

Note: indicates a principal responsibility; indicates a secondary responsibili

Hierarchy of Objectives and Strategies


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Characteristics of Strategic Management

Decisions

Greater risk, cost, andprofit potential

Greater need forflexibility

Longertime horizons

Corporate-level

decisionsinvolve


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Decisions

Bridge decisions at corporateand functional levels

Are less costly, risky, andpotentially profitable thancorporate-level decisions

Are more costly, risky, andpotentially profitable thanfunctional-level decisions

Business -level

decisions


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Involve action-orientedoperational issues

Are relatively short range

and low risk

Incuronly modest costs

Functional-

level

decisions

Implement overall strategy


Decisions


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Benefits of Strategic Management

Enhances firms ability to prevent problems

Emphasizes group-based strategic decisions likely tobe based on best available alternatives

Improves understanding of employees ofproductivity-reward relationship

Reduces gaps/overlaps in activities amongemployees as their participation clarifies differencesin roles

Reduces resistance to change


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Risks of Strategic Management

Time involved may negatively impact operationalresponsibilities of managers

Lack of involvement of strategy makers in strategyimplementation may result in shirking ofresponsibility for strategic decisions

Potential disappointment of employees overunattained expectations requires managerial timeand training


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PATTERNS OF STRATEGY DEVELOPMENT

Continuity

Incremental

Flux

Transformational


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STRATEGY DEVELOPMENT

Natural Selection View

Planning View

Logical Incremental View

Cultural View

Political View

Visionary View

Integrative View


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STGRATEGIC MANAGEMENT AS A

PROCESS

Managing power and politics

Procedural rationality and justice

Role of group processes in socially negotiatingstrategy

Power of emotional and cognitive commitment in

delivery strategy

Conflict and cooperation

Pascal - `present is determined by the future not

the past.


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SCHOOLS OF THOUGHT

Interpretive framework

Political Cultural Cognitive

(The management (Shared beliefs (Mental processes)

of means) and traditions) Learning / Planning / Design

Political

Strategy formulation as a political process

where strategic aspirations are disputed, conflict exists

managers compete for scarce resources the internal political dynamic

the dynamic between the organization and its stake holders

conflict and consensus co-exist

process of negotiating action is central.


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CULTURAL

The strategy is ultimately expressed through the culture of an

organization

Cultural web

control systems

rituals and routines

symbols

stories

organizational structure

power structure

shared beliefs developed into organizational recipes reinforced

by tradition, habit, stories, ideology

central focus for change- strategy is about changing culture.


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Bounded rationality

The challenge is that of creating a

mental frameworkfor strategic action

COGNITIVE


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LEARNING, PLANNING AND DESIGN

SCHOOLS

Learning

Strategy formulation and enacting are concurrent

Concrete experiences are the basis for observation and reflection,

which enable the formation of abstracts concepts

Strategy making and its realization together create a sequence of

platforms for strategic change and organizational achievement

Planning

Developing explicit plans which are decomposed into sub-

strategies and programs

It favours seeing organizations as bureaucracies where centralplayers are planners.


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LEARNING, PLANNING AND DESIGN

SCHOOLS

Contd...

Design

Seeking strategic fit through an external and internal appraisal

which is central to a sequence of steps: classification of organizational mandates, of organizational

mission,

situational strategic analysis

identification of strategic issues

strategy formulation

implementation


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STRATEGIC MANAGEMENT PROCESS

Strategic Learning and Unlearning

Strategic Intent

Strategy Evolution

Strategic Resonance


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Strategic Analysis

Strategic Choice

Strategy Implementation


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Strategic Situation Analysis

Strategic Capability Analysis

Strategic Process Evolution

Strategy Implementation and Impact


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Environmental Analysis

Internal External

Establishing Organizational Direction- Vision

- Mission

- Objectives

Strategy Formulation Strategy Implementation

Strategic Control


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Strategic Management ModelCompany mission

& socialresponsibility

Long-termobjectives

Generic & grand strategies

Short-termobjectives; reward

system

Functional

tactics

Policies that empower

action

Restructuring, reengineering & refocusing the

organization

Strategic control & continuous improvement

External

Environment Internal analysis

Strategic analysis & choice

Legend

Major impact

Minor impact

Feedba

ck

Fe

edback

Possible?

Desired?


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Components of the Strategic Management

Model

Mission

Specifies unique purpose of company

Identifies scope of operations

Describes product, market, and technological areas of

emphasis Reflects values and priorities of decision makers

Expresses approach to social responsibility efforts

Internal Analysis

Depicts quantity and quality of companys financial, human,

and physical resources Assesses companys strengths and weaknesses

Contrasts past successes and concerns with current

capabilities to identify future capabilities


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External Environm ent

Consists of all conditions and forces affecting firms

strategic options, typically beyond its control

Includes three interactive segments - operating, industry,

and remote environments

Strategic Analys is and Choice

Involves simultaneous assessment of external environment

and internal analysis to identify range of attractive options

Incorporates screening process based on mission togenerate possible and desired opportunities

Results in selection of options from which a strategic choice

is made


Model


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Long-term Object ives

Profitability

Return on investment

Competitive position Technological leadership

Productivity

Employee relations

Public responsibility Generic and Grand Strategies

Low cost

Differentiation

Focus


Model


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Short-term Object ives and Ac t ion Plans

Translate generic and grand strategies into action

Identify specific functional tactics to be taken in the near term

Establish a clear time frame for completion Create accountability

Specify one or more immediate objectives as outcomes of the

action

Funct ional Tact ics

Involve identifying activities unique to the function to help buildcompetitive advantage

Specify detailed statements of means to be used to achieve

short-term objectives


Model


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Pol ic ies that Empow er Act ion

Include broad, precedent-setting decisions that substitute

for repetitive or time-sensitive decision making

Often increase managerial effectiveness by empowering

discretion of subordinates in implementing strategies Restructuring, Reengineering, and Refocusing the

Organizat ion

Involves an internal focus - getting work done efficiently

and effectively to make the strategy work

Organizational structure Leadership

Culture

Reward systems


Model


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Strategic Contro l and Cont inuou s Impro vement

Control

Tracks a strategy during implementation

Detects problems

Involves making necessary adjustments

Continuous improvement

Provides another approach to strategic control

Allows an organization to respond more proactively and

timely to rapid developments


Model


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Implications of the Strategic Management

Process

Changes in any one component will affect othercomponents

Recognition of the sequential nature of strategyformulation and implementation

Necessity of feedback from institutionalization,

review, and evaluation to early stages of process

Must be viewed as dynamic, involving constantchanges in interdependent strategic activities


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Lack of

Structure

Risk

Conflict

Uncertainty

Characteristics Of Managerial

Decisions


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Decisions

(cont.)Lack of structure the usual state of affairs in managerial decision

making

programmed dec is ions- decisions that havebeen encountered and made in the past

have objectively correct answers

are solvable by using simple rules, policies, or

numerical computations

nonprogrammer dec is ions- new, novel,

complex decisions having no proven answers

decision maker must create or impose a method for


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Comparison Of Types Of Decisions

Programmed Decisions Nonprogrammer Decisions

Problem

Procedure

Business

example

Frequent, repetitive, routine.

Much certainty regarding

cause and effect relationships.

Dependence on policies,

rules, and definite procedures.

Periodic reorders of inventory.

Novel, unstructured. Much

uncertainty regarding cause and

effect relationships.

Necessity for creativity, intuition,

tolerance for ambiguity, creative

problem solving.

Diversification in new products

and markets.

Ch t i ti Of M i l


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Decisions (cont.)

Uncertainty and risk

certainty- have sufficient information to predict

precisely the consequences of ones actions

uncertainty- have insufficient information toknow the consequences of different actions

cannot estimate the likelihood of various

consequences of their actions

r isk- available information permits estimation of

the likelihood of various consequences

probability of an action being successful is less than

100 percent, and losses may occur

Ch t i ti Of M i l


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Conflict

opposing pressures from different sources

occurs at two levels

psychological conflict - individual decision makers:

perceive several attractive options

perceive no attractive options

conflict between individuals or groups

few decisions are without conflict


Decisions (cont.)

Th St Of D i i M ki


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Identifying anddiagnosing

the problem

Generating

alternative

solutions

Evaluating

alternatives

Evaluating

the decision

Implementing

the decision

Making the

choice

The Stages Of Decision Making

S Of D i i M ki


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Stages Of Decision Making

Identifying and diagnosing the problem recognize that a problem exists and must be

solved

problem - discrepancy between current state and: pastperformance

currentperformance of other organizations

fu tureexpected performance

decision maker must want to resolve the problem andhave the resources to do so

Generating alternative solutions

ready -made so lut ions- ideas that have been

tried before

St Of D i i M ki ( t )


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Stages Of Decision Making (cont.)

Evaluating alternatives

determining the value or adequacy of the

alternatives

predict the consequences that will occur if thevarious options are put into effect

managers should consider several types of

consequences

success or failure of the decision will affect the

track record of the decision maker

con t ingency p lans- alternative courses of

action that can be implemented based on how



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Making the choice

maximize- a decision realizing the best

possible outcome

requires searching thoroughly for a complete range ofalternatives

each alternative is carefully assessed

compare one alternative to another

sat isf ies- choose an option that is acceptablealthough not necessarily the best or perfect

compare the choice with the goal, not against other

options

search for alternatives ends when an oka solution is



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Implementing the decision

those who implement the decision must:

understandthe choice and why it was made

be commit tedto its successful implementation

cant assume that things will go smoothly during

implementation

ident i fy potent ial prob lems

ident i fy po tent ia l oppo rtuni t ies

always expect the unexpected

St I Th I l t ti Pl


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List the resources and

activities required to

implement each step

Estimate the time needed

for each step

Determine how things will

look when the decision

is fully operational

Implementation

Plan

Order the steps necessaryto achieve a fully

operational decision

Assign responsibility foreach step to specific

individuals

Steps In The Implementation Plan



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Evaluating the decision

collecting information on how well the decision is

working

evaluation is useful whether the feedback ispositive or negative

if decision appears inappropriate, the process

cycles back to the first stage

The best decision

nothing can guarantee a best decision

must be confident that the proceduresused are

likel to roduce the best decision iven the

B i T Eff ti D i i M ki


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Barriers To Effective Decision Making

Psychological biases

biases that interfere with objective rationality

i l lus ion of con tro l- a belief that one can

influence events even when one has no controlover what will happen

f ram ing effects- how problems or decision

alternatives are phrased or perceived subjective influences can override objective facts

discoun t the future- weigh short-term costs

and benefits more heavily than longer-term

costs and benefits



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(cont.)

Time pressures

todays economy places a premium on acting

quickly and keeping pace

in order to make timely and high-qualitydecisions one must:

focu s on real-t ime information

involve peop le more effect ively and eff ic ient ly

rely on trusted experts

take a realistic view of conflict

Social realities

many decisions result from intensive social

Pros And Cons Of Using A Group To


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Potential Advantages

1. Larger pool of information

1. More perspectives andapproaches

3. Intellectual stimulation

3. People understand the

decision

5. People are committed to

the decision

Pros And Cons Of Using A Group To

Make Decisions

Potential Disadvantages

1. One person dominates

1. Satisfying

1. Groupthink - team spirit

discourages disagreement

1. Goal displacement - new

goals replace original goals

M i G D i i M ki


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Leadership1. Avoid domination

2. Encourage input

3. Avoid groupthink

and satisfying

4. Remember goals

Effective Group

Decision Making

Constructive Conflict1. Air legitimate

differences

2. Stay task-focused

3. Be impersonal

4. Play devils advocate

Managing Group Decision Making

Creativity

1. Brainstorm

2. Avoid criticizing

3. Exhaust ideas

4. Combine ideas



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Leadership style

leader should attempt to minimize process-

related problems

leader should: avoid dominating the discussion

encourage less vocal members to express

themselves

mitigate pressures for conformity

stay alert to groupthink and satisfying

prevent group from losing sight of the primary

objective



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(cont.)

Constructive conflict a certain amount ofconst ruc t iveconflict should

exist

cogni t ive con f lic t- issue-based differences inperspectives or judgments

a constructive type of conflict

can air legitimate differences of opinion and develop

better ideas

affect ive con f l ict- emotional disagreement

directed toward other people that is likely to be

destructive conflict



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(cont.)

Encouraging creativity

creativity is essential to survival and involves:

creation- bringing a new thing into being

synthesis- joining two previously unrelated thingsmodif icat ion- improving something or giving it new

application

to become creative one must:

recognize creative potential in little opportunities

obtain sufficient resources

escape from work once in awhile and read widely

brainstorming- group generates ideas about a

Organizational Decision Making


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Organizational Decision Making

Constraints on decision makers organizations cannot do whatever they wish

MarketHuman

Financial

Constraints

LegalOrganizational

Organizational Decision Making (cont )


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Organizational Decision Making (cont.)

Models of organizational decisionprocesses

bounded rat ional ity- decision makers cannot

be truly rational because: they have imperfect, incomplete information about

alternatives

the problems they face are so complex

human beings cannot process all the information towhich they are exposed

time is limited

people in the organization have conflicting goals

when the conditions above hold erfectl



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Models of organizational decision processes(cont.)

incremental model- major decisions arise

through a series of smaller decisions piecemeal approach to larger solutions

coali t ional model- groups with differing

preferences use power and negotiation to

influence decisions

used when people disagree about goals or compete

for resources

garbage can model- a chaotic process leading



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Negotiations and politics

negotiations necessary to galvanize the

preferences of competing groups and individuals

organizational pol i t ics- people try to influencedecisions to promote their own interests

use power to pursue hidden agendas

create common goals- helps to make decisionmaking a collaborative rather than a competitive

process

Decision making in a crisis

stress and time constraints make decisions less


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Mistaken Assumptions: How Not To

Handle Crisis ManagementWe dont have a crisis.We can handle a crisis.

Crisis management is a luxury we cant afford.

If a major crisis happens, someone else will rescue us.

Accidents are just a cost of doing business.Most crises are the fault of bad individuals; therefore, theres not much

we can do to prevent them.

Only executives need to be aware of our crisis plans; why scare our

employees or members of the community?

We are tough enough to react to a crisis in an objective and rationalmanner.

The most important thing in crisis management is to protect the good

image of the organization through public relations and advertising

campaigns.

Plan For Crisis Management


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Plan For Crisis Management

Evaluation and

Diagnostic Actions

Communication

Actions

Strategic

Actions

Crisis

Management

Technical and

Structural Actions

Psychological and

Cultural Actions



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Emergent strategies

the strategy that evolves from all the activities

engaged in by people throughout the

organization result from dynamic processes in which people

engage in discovery, implement decisions, and

reconsider the initial decision after discovering

new things by chance

emergent strategies may start at any

organizational level

emergent strategies are generally the result of

Emergent Strategies


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Choice

Set objectives

Generate options Evaluate and select

acceptable, feasible,

suitable option

Discovery

Systematic gathering

and analysis of

the facts

Monitoringoutcomes of

actions

Action

Implementing

chosen option

Correcting

deviations fromfrom plan

Emergent Strategies

Documents

Strategic Mgt n Decision Making