Strategic Decision Making | Meaning, Importance & Examples - Lesson | (2024)

There are ways to make strategic decisions effectively. These ways are as follows:

Identifying the Need

This is the first way of making an effective strategic decision. This process involves defining the need and understanding if it requires immediate attention. Then, there is the evaluation of the company's objective and the identification of what need will be met by the decision.

Collecting Evidence or Information

This step requires seeking information regarding the organization's needs. This information can be collected from stakeholders or through research. The individuals coming up with the strategic decision need to check on possible missing areas in their research before proceeding.

Finding Alternatives

This step requires the development and analysis of options. These options must be chosen and evaluated wisely so that the company will understand the possible issues that might arise in case the suggested changes or strategies are implemented. Also, a prediction should be made concerning alternative solutions to ensure that the scenario has been considered from every angle and that no issues might arise later that will surprise the company.

Choosing the Best Alternative after Weighing them

After weighing the alternatives,including consideration of facts and data, the company will select the one they think works best for their business.

Taking Action

This step involves a planned development to implement the chosen business strategy. During this step, resources for the implementation should be allocated to ensure success in the implementation stage.

Reviewing the Action

This step ensures that the implemented decision was successful. If it was unsuccessful, another decision or solution could be implemented to improve the odds of the strategy succeeding.

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In the strategic decision-making process, there are groups of people that are responsible for making the decisions. These people include the following: shareholders, a board of directors, and managers. Managers take a lot of responsibility in the strategic decision groups. The roles of managers in making strategic decisions are planning, risk management, collaboration, crisis management, and coaching.

An illustration of the roles of managers in making the strategic decision is in planning and risk management. During planning, managers identify the resources and specific times that are necessary to create the decision. Also, they identify the potential risks associated with the decision and point out solutions to avoid those risks.

Managers are vital in strategic decision groups as they assist in realizing the strategic decision. Because they play a large role, there is a potential chance that they will make a decision that derails entire decision-making process.

Example 1

Company AB wants to make a decision on the amount of money to give each of its shareholders. They realize that they need the involvement all the key stakeholders for this strategic decision to be made. The CEO organizes a meeting with the board of directors and management to deliberate the share of revenue that can be allocated to shareholders based on the profits made. They agree unanimously on a pay out of $10 per share.

Example 2

A manager at Company XY faces challenges with resource utilization. The manager decides to call all the departmental heads for a meeting to discuss the way forward. The team formulates a plan to utilize resources effectively and manage any inherent risks that can occur. Further, there is emphasis on cost minimization and profit maximization. The manager in this case has made a strategic decision by working with their team members.

Managers play a key role in making strategic decisions

Strategic Decision Making | Meaning, Importance & Examples - Lesson | (1)

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Strategic decisions examples are varied. For instance, when a company wants to launch a new product, considering factors like the cost of making the product and the target market is strategic decision making. However, deciding on what employees to put on that project is not a strategic decision but rather operational. Consequently, knowing the size, shape, and number of the product to produce is in line with making a strategic decision while deciding who will be in charge of the product is an administrative decision.

Company A wants to make a decision on whether to introduce a new product into the market. They are producers of body oils, and there is a new scent that has been fascinating their older demographic of clients. The CEO, board of directors, and managers consider the target market and whether this particular scent will be a worthwhile area in which to invest. Their decision either to invest in the scent or abstain from including it in their line of products would be an example of a strategic decision.

If company A decides to include in the scent in their line of products, they will then make a decision on how the employees will start testing the market through campaigns, marketing, and sale of the new product. This is an operational decision.

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Strategic decision-making refers to choosing the best way to achieve a goal. These decisions are mostly used in competitive companies to give them an advantage in the market. Strategic decisions are important aspects of a company's decision making process since they play a major part in securing a company's future. Mission and vision play an integral role in making strategic decisions. Also, managers play a vital role in the process of making strategic decisions because they are a key part of making administrative and operational decisions. Managers fall under the strategic decision group tasked with decision making.

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Video Transcript

Strategic Decision Making

Managers of successful businesses do more than simply find a way to make money and sell stuff. Not only do they handle the day-to-day tasks of selling, they also think of the big picture and make decisions that will get the company to where it wants to go. This is called strategic decision making, where decisions are made according to a company's goals or mission. This type of decision making guides the choices that are made, aligning them with the company objective. It requires out-of-the-box thinking as managers need to consider future scenarios that may or may not happen. It's these scenarios that will determine in which direction a company will go.

For example, the manager of a dog food company notices that dog owners want more quality and fresh foods rather than kibble that lasts 10 years on the shelf, even if those kibbles provide a similar nutritional value. The company's mission statement is to be the best company that sells the healthiest dog food. To align the company with the changing needs and wants of its customers, the manager decides to shift the company's products to focus more on freshness. Yes, this means a reduced shelf life, but it does mean a higher profit margin because dog owners are more than willing to pay more for fresh quality foods.

The Mission

The biggest part of strategic decision making is the company's mission. It's the mission that guides the types of goals the managers will set for the company.

For example, if the dog food company's mission was to be the number one supplier of cheap dog food, then using fresh ingredients wouldn't be top of its priority list. Instead, finding cheaper ingredients, with a longer shelf life, would be more in line with that mission. See how the decisions can vary so drastically based on the company's mission?

Having a company mission actually helps you in your strategic decision making. Without it, you have no guidance. But with it, you know what direction you should take your thoughts and actions.

To reach this mission, managers also need to reassess their actions from time to time. Going back to the dog food company example, managers will look at sales data perhaps after a month of selling the new healthy and fresh dog food products. If sales are increasing and look promising, then this direction is a good one. But if sales are lacking, then it means that a new way of reaching the company's mission needs to be made. Perhaps, instead of focusing on fresh foods, the company can focus on higher quality ingredients that more closely imitate a dog's natural diet.

Managerial Input

As you can see, managers have a pretty big responsibility when it comes to making decisions for the company. Looking at the dog food company example, if it wasn't for the manager choosing to shift the company's focus to quality and freshness instead of shelf life, the company might have failed in meeting their mission statement.

In order for managers to make these kinds of decisions, much thought needs to take place. Managers need to think about, and even imagine, future possible scenarios. For the dog food example, the manager needed to think of what would happen to the company if they switched to fresher foods that need to be eaten within a week. You can imagine how this kind of thinking isn't easy. There is no basis to go off of. It's all new. It takes courage on the part of the manager because there is risk involved. If the manager makes a mistake, the business might fail. On the other hand, if the manager doesn't take this risk, then the business could also fail because consumers' tastes change.

Additionally, managers must think about what the competition is doing. The manager of the dog food company needs to look at the other dog food companies. Are they advertising new products or are they changing how they advertise their current products? Is the competition getting mean and making negative comments about the manager's company? You have to stay one step ahead of the competition and anticipate what they're going to do.

Other Decisions

The decisions made as part of strategic decision making are different than other decisions managers have to make. Strategic decision making affects the company's growth and its ability to fulfill its mission. Other decisions, such as choosing which supplier to go with or how to file taxes, don't really affect the company's mission.

Lesson Summary

Let's review.

Strategic decision making are decisions that are made according to a company's goals or mission.

It takes courage for a manager to implement strategic decision making. These decisions could take the company into new directions that may or may not succeed. Managers need to think outside the box, as they think of new possibilities for the business and how these possibilities may play out.

Managers need to reassess decisions to see if they have been successful. If, after a month, the company doesn't see benefits from the changes, then new decisions will have to be considered in order to keep the company headed in the right direction and in line with its mission.

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Strategic Decision Making | Meaning, Importance & Examples - Lesson | (2024)
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