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Subject COMMERCE

Paper No and Title 12: STRATEGIC MANAGEMENT

Module No and Title 2: THE STRATEGIC MANAGEMENT PROCESS

Module Tag COM_P12_M2

COMMERCE PAPER NO. 12: STRATEGIC MANAGEMENT

MODULE NO. 2: THE STRATEGIC MANAGEMENT PROCESS
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TABLE OF CONTENT

1. Learning Outcomes
2. Introduction
3. Characteristics of Strategic Decisions
4. Mintzberg’s Modes of Strategic Decision Making
5. Summary

COMMERCE PAPER NO. 12: STRATEGIC MANAGEMENT

MODULE NO. 2: THE STRATEGIC MANAGEMENT PROCESS
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1. Learning Outcomes

After Studying this module, we shall be able to:

 Know about the characteristics of a strategic decision
 Understand Mintzberg’s modes of strategic decision making
 Would be able to understand the strategic decision process

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2. Introduction
A strategic decision is defined as being “important, in terms of the actions taken, the
resources committed, or the precedents set” (Mintzberg, Raisinghani and Theoret 1976
p.246). The task of formulating, implementing and executing the company’s
objectives requires strategic decisions that make the company sustain in the industry as
well as stand above its competitors. The strategic decisions are at the very core of every
organization. They form the very baseline on which an organization stands. Strategic
decisions are concerned with creating an overall environment in which the organization
can operate and create an interphase between its resource set and the human capital.
Strategic decisions are often confused with organizational and working decisions. It
differs from the two. Administrative choices are repetitive decisions which help or
somewhat enable strategic decisions or operative decisions. Operational decisions, on the
other hands, are technical decisions which help execution of strategic decisions. To
decrease cost is a planned decision which is attained through operational decision of
reducing the number of employees and how we carry out these reductions will be
administrative decision Strategy is the direction and scope of an organization over
the long term, which helps in achieving advantage for the organization through its
configuration of resources within a dynamic environment, to meet the market needs and
fulfil stakeholder expectations.

3. Characteristics of Strategic Decisions

 Rare: Strategic decisions are exceptional and normally have no preference to

follow i.e. they are unequalled and are immensely vital for the organization.
 Consequential: Strategic decisions constrain considerable resources and demand a
great deal of obligation from the human resources at all levels.
 Directive: Strategic Decisions set precedents and serve as exemplar for lesser
decisions and future actions throughout the organization.

The above stated characteristics can be further fragmented into other umpteen
characteristics. These include:

 Long term direction:

Strategic decisions are likely to affect the long-term direction of an organization. They
provide the organization with the direction for long term and make the organization more
futuristic towards setting a layout for accomplishing the goal that the organization thrives
to achieve ultimately. They deal with the future of the organization. Strategic decisions
are irrevocable.

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 Complex and uncertain in nature:

This is the feature that distinguishes strategic management from management in general.
Strategic decisions usually involve a higher degree of uncertainty. It involves taking
decisions regarding the future which has an element of uncertainty attached to it.
Managers taking the decisions might not always be sure about the perceptions that they
are following while making these decisions. Strategic decisions demand
an integrated approach to managing the organization. It is not like functional decisions
whereby a problem can be sorted by one particular expert. There are different
perspectives that need to be looked upon while deciding upon a problem. Managers need
to cross functional and operational boundaries to deal with strategic problems and come
to accord with other managers having different interests and different ways to look into
things. This might lead to the problem of integration which almost exists in all
management decisions but is very particularly troublesome for strategic decisions. Also,
strategic decisions involve major changes in organizations. Not only is it problematic to
decide upon and plan such changes, it is even more problematic to implement such
changes. Strategic management, therefore, involves a higher order of complexity than
operational tasks.

 Affected by values and expectations of top stakeholders

The values and expectations of those who have power in and around the organization
have a great deal in influencing the strategic decisions. Strategy, in some or the other way
reflects the attitudes and beliefs of its stakeholders. The beliefs and values of these
stakeholders are bound to have a direct influence on the organization.

 Considers factors in the firm’s external environment

Strategy involves matching the activities of an organization to the environment in which

it operates. Strategic decisions deal with agreeing structural resource proficiencies with
the threats and opportunities so as to attain the maximum. Strategy can also be seen
as 'stretching' an organization’s resources and competencies to generate opportunities or
capitalize on them. It is not just about contradicting environmental threats and taking
benefit of environmental opportunities but almost matching organizational means to these
threats and opportunities. There would be little point in trying to take advantage of some
new opportunity if the resources needed were not available or could not be made
available, or if the strategy was rooted in an inadequate resource-base

 Resource Implications:

Strategic decisions require an organization to reconfigure its resource set and human
resources and to harmonize them in a manner that would assist in implementing the
strategic decision in the most viable way. Strategic decisions have implications on
decisions as to how and when the resources are to be obtained, organized and allocated.
Strategies want to be measured not only in terms of the range to which the current

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resource-base of the organization is favorable to the

environmental opportunities but also in terms of the extent to which resources can be
made available and controlled to develop a future strategy. Strategic decisions have major
resource propositions for an organization. These decisions may be concerned with having
new resources, organizing means or reallocating resources.

 Defines the scope of firm:

The scope of activities defines the way in which managers understand the boundaries of
the organization. Strategic decisions are likely to be concerned with the scope of an
organization’s activities: It is very much material to know the scope of activities that an
organization operates to know the boundaries of those who are managing the
organization. Does (and should) the organization concentrate on one area of activity, or
does it have many? The issue of scope of activity is fundamental to strategic decisions. It
is to do with what they want the organization to be like and to be about. The strategic
decisions, not only defines the scope of the organization, but also draw its characteristics
from its scope of the organization.

 Affect operational decision: Strategic decisions are dissimilar from administrative

and operational decisions.

Corporate-level decisions are often characterized by greater risk, cost, and profit
potential; greater need for flexibility; and longer time horizons. Such decisions
include the choice of businesses, dividend policies, sources of long-term financing,
and priorities for growth.

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Functional-level decisions implement the overall

strategy formulated at the corporate and business levels. They involve action-oriented
operational issues and are relatively short range and low risk. Functional-level
decisions incur only modest costs because they are dependent on available resources.
Business-level decisions help bridge decisions at the corporate and functional
levels. Such decisions are less costly, risky, and potentially profitable than corporate-
level decisions, but they are more costly, risky, and potentially profitable than
functional-level decisions
Strategic issues require top-management decisions.
Strategic issues require large amounts of the firm’s resources. (Useful Web site:
www.whirlpoolcorp.com)
Strategic issues often affect the firm’s long-term prosperity (see Exhibit 1-1).
Strategic issues are future oriented.
Strategic issues usually have multifunctional or multibusiness consequences.
Strategic issues require considering the firm’s external environment.

The differences between Strategic, Administrative and Operational decisions can be

summarized as follows-

Strategic Decisions Administrative Decisions Operational Decisions

Strategic decisions are long- Administrative decisions Operational decisions are

term decisions. are taken daily. not frequently taken.

These are considered where These are short-term These are medium-period
The future planning is based Decisions. based decisions.
concerned.

Strategic decisions are taken These are taken These are taken in
in Accordance with according to strategic and accordance with strategic
organizational mission and operational Decisions. and administrative
vision. decision.

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These are related to overall These are related to These are related to
Counter planning of all working of employees in production.
Organization. an Organization.

These deal with These are in welfare of These are related to

organizational Growth. employees working in an production and factory
organization. growth.

4. MINTZBERG’S MODES OF STRATEGIC DECISION MAKING

The three most typical approaches, or modes, of strategic decision making are
entrepreneurial, adaptive, and planning (a fourth mode, logical incrementalism, was
added later by Quinn):
- Entrepreneurial mode: Strategy is made by one powerful individual. The focus is on
opportunities; problems are secondary. Strategy is guided by the founder’s own vision of
direction and is exemplified by large, bold decisions. The dominant goal is growth of the
corporation. Amazon.com, founded by Jeff Bezos, is an example of this mode of strategic
decision making. The company reflected Bezos’ vision of using the Internet to market
books and more. Although Amazon’s clear growth strategy was certainly an advantage of
the entrepreneurial mode, Bezos’ eccentric management style made it difficult to retain
senior executives.
- Adaptive mode: Sometimes referred to as “muddling through,” this decision-making
mode is characterized by reactive solutions to existing problems, rather than a proactive
search for new opportunities. Much bargaining goes on concerning priorities of
objectives.
Strategy is fragmented and is developed to move a corporation forward incrementally.
This mode is typical of most universities, many large hospitals, a large number of
governmental agencies, and a surprising number of large corporations. Encyclopaedia
Britannica Inc., operated successfully for many years in this mode, but it continued to
rely on the door-to-door selling of its prestigious books long after dual-career couples
made that marketing approach obsolete. Only after it was acquired in 1996 did the
company change its door-to-door sales to television advertising and Internet marketing.
The company now charges libraries and individual subscribers for complete access
to Brittanica.com and offers CD-ROMs in addition to a small number of its 32-volume
print set.
- Planning mode: This decision-making mode involves the systematic gathering of
appropriate information for situation analysis, the generation of feasible alternative
strategies, and the rational selection of the most appropriate strategy. It includes both the

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proactive search for new opportunities and the reactive

solution of existing problems. IBM under CEO Louis Gerstner is an example of the
planning mode. When Gerstner accepted the position of CEO in 1993, he realized that
IBM was in serious difficulty. Mainframe computers, the company’s primary product
line, were suffering a rapid decline both in sales and market share. One of Gerstner’s first
actions was to convene a two-day meeting on corporate strategy with senior executives.
An in-depth analysis of IBM’s product lines revealed that the only part of the company
thatwas growingwas services, but itwas a relatively small segment and not very
profitable. Rather than focusing on making and selling its own computer hardware, IBM
made the strategic decision to invest in services that integrated information technology.
IBM thus decided to provide a complete set of services from building systems to defining
architecture to actually running and managing the computers for the customer—
regardless of who made the products. Because it was no longer important that the
company be completely vertically integrated, it sold off its DRAM, disk-drive, and laptop
computer businesses and exited software application development. Since making this
strategic decision in 1993, 80% of IBM’s revenue growth has come from services.
- Logical incrementalism: A fourth decision-making mode can be viewed as a synthesis
of the planning, adaptive, and, to a lesser extent, the entrepreneurial modes. In this
mode,top management has a reasonably clear idea of the corporation’s mission and
objectives, but, in its development of strategies, it chooses to use “an interactive process
in which the organization probes the future, experiments and learns from a series of
partial (incremental) commitments rather than through global formulations of total
strategies.” Thus, although the mission and objectives are set, the strategy is allowed to
emerge out of debate,
discussion, and experimentation. This approach appears to be useful when the
environment is changing rapidly and when it is important to build consensus and develop
needed resources before committing an entire corporation to a specific strategy. In his
analysis of the petroleum industry, Grant described strategic planning in this industry as
“planned emergence.” Corporate headquarters established the mission and objectives but
allowed the business units to propose strategies to achieve them.

Some strategic decisions are made in a flash by one person (often and entrepreneur or a
powerful CEO) who has a brilliant insight and is quickly able to convince others to adopt
his or her idea. Other strategic decisions seem to develop out of a series of incremental
choices that over time push the organization more in one direction than other. According
to Henry Mintzberg, the three most typical approaches, or mode of strategic decision
making are entrepreneurial, adaptive and planning.

i. Entrepreneurial mode
 -Strategy is made by one powerful person
 -Focus on opportunities and problems are secondary

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 -Strategy is guided by the founder’s own vision of

direction and is exemplified by large, bold decisions
 - Dominant goal is growth of organization
Example: Chaudhary Group, Bhat Bhateni.

ii. Adaptive mode

 This decision making mode is characterized by reactive solution to existing
problems, rather than proactive search for new opportunities
 Focuses on existing problems rather than searching for new opportunities
 Strategy is fragmented and it is developed to move the organizational
incrementally
Examples: colleges, hospitals, government agencies etc

iii. Planning mode:

 This mode involves systematic gathering of information for situational analysis,

the generation of feasible alternatives strategies and the rational selection of the most
appropriate strategy
 It includes both proactive search for new opportunities and the reactive solution to
existing problems
Example: Hewlett Packard

5. SUMMARY
. Strategic decisions are concerned with creating an overall environment in which the
organization can operate and create an interphase between its resource set and the human
capital

Strategy is the direction and scope of an organization over the long term, which helps in
achieving advantage for the organization through its configuration of resources within a
dynamic environment, to meet the market needs and fulfil stakeholder expectations.

 Rare: Strategic decisions are exceptional and normally have no preference to

follow i.e. they are unequalled and are immensely vital for the organization.
 Consequential: Strategic decisions constrain considerable resources and demand a
great deal of obligation from the human resources at all levels.
 Directive: Strategic Decisions set precedents and serve as exemplar for lesser
decisions and future actions throughout the organization.

COMMERCE PAPER NO. 12: STRATEGIC MANAGEMENT

MODULE NO. 2: THE STRATEGIC MANAGEMENT PROCESS