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STRATEGIC MANAGEMENT

LESSON 5: CHARACTERISTICS OF STRATEGIC DECISIONS


Strategic Decision-Making
Strategic management is characterized by its emphasis on strategic decision-making. As an organization grows bigger and becomes complex with higher degree of uncertainty, decisionmaking also becomes increasingly complicated and difficult. Strategic decisions have to deal essentially with the long-term future of the organization and have three important characteristics. 1. Rare Strategic decisions are not common and have no precedents. 2. Consequential Strategic decisions involve committing substantial resources of the company and hence a high degree of commitment from persons at all levels. 3. Directive Strategic decisions can serve as precedents from less important decisions and future actions of the organisations10. lead player Maruti Suzuki to come out with new models and discard/slow down production of non-moving and old models. Sometimes organizations may adopt a fourth mode, called the logical incrementalisation mode. This is a synthesis of all the three modes of strategic decision-making listed above. Quninn12 describes logical incrementalisation as: An interactive process in which the organization probes the future, experiments and learns from a series of partial (incremental) commitments rather than through global formulation of total strategies. As already explained, strategic decisions involve an interface between an organization and its external environment. This is in contrast to operating decisions, which are more frequent. The effects of strategic decisions permeate throughout the organization at all levels for a considerable length of time since it involves committing substantial amount of resources of the organization. Sometimes this is referred to as a non-selfgenerating decision, implying that though strategic decisions may be few in number, the organization should always be aware of the need to make such decisions. Hence, it is essential to put a mechanism in place to take strategic decisions. This is more so in the case of Indian organizations with the onset of liberalization. Table 1.1 provides a comparison of the operating and strategic decisions. As may be seen from the table, the organizations short-term survival is affected by its operating and administrative efficiency. Its success or failure in the long term depends on right strategic decision-making, i.e. it depends on doing the right things rather than on doing the things right.

Mintzberg Model
According to Mintzberg, the modes of strategic decisions making are: 1. Entrepreneurial Mode Formulation of strategy is done by a single person in this mode. The focus is on opportunities. Strategy is guided by the founders vision and is characterized by bold decisions. In the Indian set-up, we can cite the case of Wipro Infotech as an example of this mode of strategy formulation. 2. Adaptive Mode This mode of decisions making is referred to as muddling through. It is characterized by reactive solutions rather than a proactive search for new opportunities. We can again cite the example of Wipro Infotech introducing the sale of customWhat ized Personal Computers in response to Dell Computers entering the Indian market. How 3. Planning Mode This mode of decision-making involves systematic information gathering for situational analysis, generating alternate strategies and selection of the appropriate strategy. As could be inferred, this mode includes both the proactive mode and the reactive solutions to current problems. For example, entry of MNCs into the automotive markets in India has made the
Operating Decisions Effective

Strategic decisions

Clear I Clear strategy and effective operations have contributed to success in the past and will contribute to success in the future

Unclear II Unclear strategy but effective operations have contributed to success in the past but success in the future is doubtful IV Unclear strategy and ineffective operations have meant failure in the past and will be so in the future

Ineffective

III Clear strategy but ineffective operations have sometimes worked in the past in the short run, but increasing competition makes success doubtful in the future
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