Why Are Strategic Decisions Different from Other Kinds of Decisions? How? Why?

Why are strategic decisions different from other kinds of decisions? How? Why?

Strategic decisions differ from other kinds of decisions because they are broad in scale, resource intensive, long term in nature, and surrounded by uncertainties. Strategic decisions are rare and usually have no precedent to follow, they are significant, resource intensive and require a lot of commitment at all levels. In addition, strategic decisions set the standard upon which lesser decisions and future actions are based.

There are three main methods of making strategic decisions namely entrepreneurial, adaptive and planning. There is a fourth method, logical incrementalism that is largely regarded as a combination of the first three. The planning method is more rational and is thus used in most situations.

The process of strategic decision making begins with an evaluation of the organization’s current performance and governance structure, this is followed by an external and internal assessment of the organization’s environment (S.W.O.T analysis). The results of the analysis help determine problem areas, threats to defend against and opportunities to seize. An action plan or strategy is then developed, implemented and evaluated.

However, the strategic decision making process must deal with four barriers: Rate of environmental change (volatility), unpredictability of change (uncertainty), the intricacy of key decision factors (complexity), and vagueness about the current situation and potential outcomes (ambiguity).

The relevance of volatility to decision making stems from the competitive nature of the business. Organizations seek increased profit, market share or both. Even when great strategic alliances such as “the one world” alliance among air carriers are formed, it is with a view toward attaining a competitive advantage in relation to another strategic alliance.

Strategic decisions are complicated not only by the rate of change in the global environment, but by uncertainty about what the effects of even known changes are likely to be. This uncertainty results from both the complexity of systems and subsystems at the strategic level and from incomplete knowledge about the current situation. Uncertainty also arises from the competitive nature of business leaders who understand that significant competitive advantage often is gained through surprise. Therefore, decision-makers seek to conceal their strategic directions, particularly their means for achieving their directions, from their competitors.

System complexity impacts hugely on the capacity of strategic decision-makers to formulate and execute effective policy. Cause and effect relationships are difficult to see, much less assess, when there are many causes, and when many divergent effects exist. Determination of cause and effect relationships is made more difficult by uncertainty about the time lag of effects in complex systems. In addition, there may be many-linked cause and effect chains. A given initial cause may produce an effect that gives rise to a second-order effect which may, in turn, give rise to a third-order effect.

Ambiguity exists when a given event or situation can be interpreted in more than one way. System complexity contributes ambiguous meaning, as does uncertainty about the full range of factors operating in a situation. Ambiguity may also exist because the intentions of significant