Strategic decisions are different
WHEN YOU DECIDE among alternative futures, you need a unique approach to decision making.
When you make tactical choices— such as which person to hire, which machine to buy, where to locate your business—you evaluate a set of clear-cut alternatives against a set of criteria, choosing the one that best meets those objectives, then assessing the risks associated with your choice.
But when making “strategic” decisions— those that involve the direction of the business—leaders need to ask, and answer, seven questions: 1) What values will we hold sacred? 2) What services and products will we offer? 3) Which customer groups will we target? (we can’t proactively serve every potential constituency.) 4) What competitive advantages will we maintain or create, ensuring that we will win in the marketplace? 5) What will serve as our primary growth engines— new products, new markets, or whole new businesses? Will we grow organically or through acquisitions? 6) Where will we focus our resources and invest time and money in plant and equipment, marketing, product development, and capability development? And 7) What financial and non-financial metrics will enable us to know if the organization is on the right path?
Answering these seven questions is decision making because it involves choice. Strategic decision-making has some unique challenges:
- Strategy is not a single decision, but a cluster of decisions that are related and must meld into a coherent whole. And yet, each has different variables.
- Because the focus is on the future, there are more unknowns.
- The alternatives are less clear and infinite in number.
- The criteria for evaluating alternatives are less obvious.
- The “visioning” dimension needs to be front and center and stimulated in ways that go beyond traditional creativity- enhancement techniques.
- Most decisions require subjective, as well as objective, evaluation criteria (e.g., We want to select people who have the necessary credentials but are also interpersonally compatible). However, the subjective factors in strategic decision making are more prominent, more emotional, and less obvious.
- The executive team can’t delegate the basic choices.
- The stakeholder population— executives, managers, employees, customers, shareholders, analysts, regulators, suppliers—is greater and more varied.
- More time passes before knowing whether the “right” decision was made.
- The implications are more profound than any operational decision, including choices that affect reporting relationships and compensation.
Our facilitation of strategic decision making has five phases:
1. Strategic intelligence gathering and analysis. The organization first needs to collect intelligence about the external environment, which includes customers, competitors, suppliers, regulators, technology providers, the economy, the job market, and other factors that could influence future success. In phase one, the team agrees on the strategic horizon, or time frame, that best fits their business and technology cycles. Its members document a set of assumptions about the future environment. Also, the team identifies the greatest external threats and opportunities and the most formidable internal strengths and weaknesses, and develops or refines a set of “basic beliefs.” These should address such areas as: the way customers and employees will be treated, the business ethics, the return that will be generated for shareholders, and the contribution that will be made to local communities.
2. Strategy formulation. In phase two the leadership team must make the “tough choices.” Building on phase one, the leadership team, supported by templates and facilitation, answer phase two questions.
3. Strategy implementation planning. Many strategies fail to be fully deployed not because of the quality of the phase two decision making, but due to weaknesses in implementation. In phase three, the executives use project definition methods to create a “strategic master project plan” that identifies all initiatives that must be launched for the vision to take root and identifies the timing and ownership. Part of this process is buttressing, combining, killing, or changing existing projects so that important initiatives are successful.
4. Strategy implementation. In phase four, the plan is carried out, with sponsorship and close monitoring by the executive team.
5. Strategy monitoring and updating. Phase five recognizes that strategies need to be dynamic. The top team monitors the strategy against the success metrics and, if necessary, changes it based on a significant event (emergence of new technology, failure of a competitor, a terrorist or climactic incident, an upturn in the economy, a new geopolitical landscape) or simply the passage of time. No decisions are more far-reaching than those related to strategy formulation. Because of their impact and complexity, they need to be made more creatively, analyzed more deeply and from more perspectives, and tested more thoroughly than even multi-million dollar operational choices. LE
ACTION: Choose and create your future.
Reprinted with permission of Executive Excellence Publishing. To subscribe call 1-800-300-3454.