Every business has a goal. The outlined mission, vision, and objectives that guide the business towards its goals are all part of strategic decision making. As the business executes these plans, they can often be subject to change as expected outcomes vary. This is also part of decision making and what helps build up businesses to the size they become.
For small businesses to grow into medium-sized and larger corporations, strategic decision making is vital. This is because they take a long view and are thus useful in guiding business growth. They can help guide their performance and boost chances of success. In the current state of the economy, small businesses are struggling more than ever to survive. Many businesses are failing, making it key to consider how and why strategy benefits the survival of this sector.
There are stages to making decisions. Information is gathered to gain an understanding of a perceived problem and how it can be solved. Taking into consideration other factors like time and resource constraints, a decision is made on which solution to pursue.
There are three main categories of decisions that business management takes. These types of decisions include:
When looking at why is strategy important to business, we consider the long view. They are major decisions that guide the organization as a whole or in large part. They have the strongest impact on the goals of the business and are arrived at by the highest level of management. The nature of these decisions is often unstructured, with the outcomes a result of management’s perception, judgment, and evaluation of the problem and applicable factors.
These decisions relate directly to efforts being made to execute strategic decisions. They are undertaken by middle-level management that is responsible for designing workflows, acquiring and allocating resources, and setting up distribution channels.
Operational decisions are concerned with the day-to-day activities of the organization that are managed by lower-level management. They have a short term and repetitive life cycle. They are very specific in nature and retain a high degree of certainty. Though their scope is smaller, their success does have an impact on the strategic and tactical decisions made at higher levels.
Importance of Strategic Decision Making
As indicated above, it is clear that the importance of strategy lies in helping to chart the course of the business. It is the source from which tactical and operational decisions spring forth, giving the organization direction and consistency. Let’s look at the specific reasons this long term thinking and planning matters.
1. Align short term objectives with long term goals
As said, strategic decision-making is a guide that breaks down into smaller parts that are tactical and operational decisions. In this way, every smaller action undertaken within the business remains geared towards achieving the overall strategic goals decided upon by top management.
To help promote chances of success it is best to outline strategic goals in a specific, measurable, attainable, relevant, and timely manner. Also referred to as the SMART criteria, this approach helps give focus and clarity to your decision making.
2. Bridge between deliberate and emergent strategy
Deliberate strategy is what businesses plan for right from the start. It is the formal planning that businesses undertake to achieve expected outcomes. Emergent strategy results from the business encountering unexpected outcomes. To contend with these unexpected outcomes, the business is then forced to formulate new plans or strategies or modify old ones to overcome the crisis.
Strategic decision making is often focused on deliberate strategic planning that is aimed at achieving specified goals and objectives. The emergent strategy however helps to strengthen the overall strategic decision-making process by making it more flexible and capable of surviving tough times. It encourages innovation and dynamism.
3. Major source of organizational learning
As mentioned earlier, a key aspect of the strategic decision-making process is information gathering. Organizational learning benefits from this as a greater understanding of both internal and external factors that impact the business is gained. This understanding then helps to guide resource allocation so that the business can better achieve the desired competitive advantage for success in its niche.
With more organizational learning, the business also acquires more knowledge and experience. When properly retained and shared within the organization, this knowledge can do much to help achieve organizational goals. Hence the need to promote a learning culture that will benefit both individuals within the organization and the organization as a whole.
4. Allows organizations to be proactive
When we look at why is strategy important, we must view it as an ongoing process. There is a constant review of internal and external factors and adjustments made to goals and plans. It encourages businesses to be proactive instead of reactive to situations. They can quickly modify their strategies as the market within which they operate fluctuates.
Being flexible in this manner helps businesses to retain and grow their competitive advantage. This consistent monitoring of the environment makes businesses able to spot problems early on and take whatever necessary action is needed to survive or even thrive.
5. Increases operational efficiency
Strategic decision making gives the business clear direction. Strategy importance trickles down to tactical and operational decision making and planning. It defines the goals the entire organization must focus on and provides the necessary resources for this achievement to be made possible.
Detailing the budgetary requirements for various departments, activities, and individuals helps make realizing objectives not just easier, but also efficient. It ensures that down to the lowest levels, every player has the tools and resources they need to accomplish their designated tasks.
Why Consider Strategic Management?
Strategic management is the action plan that allocates necessary resources needed for the business to achieve set out goals. It provides direction in developing detailed plans whose ultimate goal is to give the organization a competitive advantage.
There are several steps to strategic management. They typically begin with an analysis of the internal and external environment of the business. A SWOT analysis of these environments is ideal in understanding just how the business compares to its competitors. This information gathering then helps to define strategic intent. These are the objectives and goals that should be defined as per the SMART approach.
With the goals and objectives defined, the business can then move on to implementation. These actionable activities can include:
- Development of structures
- Allocation of resources
- Communication of strategy
- Change management
- Acquiring project management skills
- Acquiring technologies
Strategy evaluation is an ongoing process that is needed to determine if the results of implementation have achieved the desired goals. From here the organization can decide whether to stay the course or make changes to better respond to the changing environment they are operating in.
The main importance of strategic management is to guide decision making and help the business in maximizing its profits. These functions can however be further defined as follows.
- Forward Thinking
- Resource allocation
- Strengths & Weaknesses (SWOT analysis)
- Environmental impact
Within the processes undertaken in strategic management, businesses will have to perform these functions for the successful execution of strategic planning.
Executing Strategic Planning
Strategic decision making in small and mid-sized organizations is significantly complicated because of limited resources given by their organizational structure. Their size also means they lack the capacity to take advantage of any economies of scale. It is likely that in the form in which they are operating now, they will find it harder to sustain the economic pressure from competitors. This is the most important reason behind the bankruptcy of many small and mid-sized organizations.
At MicroAgility we support businesses in undertaking strategic management by carrying out comprehensive research and evaluation of environmental factors both within and outside the organization. this helps businesses to better determine what opportunities and threats they face in their niche that should be considered when carrying out strategic decision-making processes. At MicroAgility, we believe that the best strategic decisions are based on accurate data and analysis, which we can help provide to give your business the competitive edge it needs to achieve and surpass organizational goals.