What is Strategic Decision?
Strategic decision refers to the identification, evaluation, and selection of the best strategy that increases the likelihood of achieving organizational goals. Strategic decisions are directive, rare, and consequential.
Decision-making is the selection of the best one out of the pool of available alternatives. And, while making a decision, a number of factors are taken into consideration. Similarly, strategic decision-making is a selection of the best one out of the pool of available strategic alternatives to achieve organizational goals and objectives most effectively. And, for this, environment analysis, future forecasting, and strategies evaluation are done.
Strategic decisions are made by the top-level, they determine the scope and direction of the organization and always aim at achieving a competitive advantage. They are guided by organizational policies, available resources, insights into strategies, long-term objectives, and competitiveness of the firm.
Furthermore, strategic management emphasizes making strategic decisions. It deals with knowing organizational objectives, resource availability, customers to be served, and competitors to be faced. It is made by top-level management and equally influences operational-level activities.
Strategic decision definitions:
- “Strategic decisions deal with the long-run future of an organization and are rare, consequential and directive.” – Wheeler and Hunger
- “Strategic decisions are means to achieve ends. These decisions encompass the definition of the business; products and market to be served, functions to be performed, and major policies needed for the organization to execute these decisions to achieve objectives.” – Jauch and Glueck
Characteristics of Strategic Decision
A strategic decision is a process of selecting the best strategy for an organization to achieve a competitive advantage against the competitors. The characteristics or features of strategic decisions are mentioned below.
An organization’s long-term course is determined by strategic decisions. To put it another way, they give a road plan for future operations in an unpredictable environment. Strategic decisions have far-reaching effects. It also aimed to meet the organization’s long-term objectives.
Big decisions, such as strategic ones, require a lot of thought. They’re only made once in a while because they’re so extensive and need so many resources. They are critical for an organization’s long-term growth and development. They differ from routine decisions, which are made on a regular basis.
Strategic decisions are the actions and decisions taken for achieving the long-run goal of an organization. Hence, they are result-oriented or consequential.
Competitive advantage is the advantage a firm gets comparatively high over its competitors. Strategic decisions are always directed to get a competitive advantage standing competitive with competitors. It enables firms to be competent, sustain, and grow in a competitive environment.
Strategic decisions are concerned with preserving strategic fit, which is defined as the alignment of an organizational structure, policies, resources, and competencies with market prospects. An organization’s competitive advantage is enhanced through strategic fit.
Strategic decisions define an organization’s scope. They are concerned with the actions that an organization will carry out. In other words, they describe an organization’s product and market.
Top Management Oriented
Because strategic decisions are so important to a business, they are made by top management with input from middle and lower management. As a result, top management dedication and competency are required for strategic decision-making to be effective.
Involve Resource Management
The deployment of resources over a long period of time is a key component of strategic decisions. As a result, the long-term effectiveness of strategic decisions is heavily reliant on the availability and management of resources.
Because strategic decisions are made to take advantage of opportunities in the environment, they are dynamic in nature. They are designed to defend the organization from hazards posed by the environment. They’re also uncertain, complicated, and risky.
Strategic decisions are long-term decisions. They involve resources and efforts significantly. Hence, unlike operational decisions, they can not be reversed easily.
Strategic Decision Vs. Operational Decision
On the other hand, while strategic decisions are fundamental and directional, operational decisions primarily affect day-to-day activity. Strategic decisions have longer-term consequences, but operational decisions have immediate consequences.
Strategic decisions influence the entire organization and are made in an uncertain and ambiguous environment, whereas operational decisions are specialized in production, human resources, marketing, and finance.
The strategic decision can be differentiated from the operational decision in the following ways.
Strategic decisions are big decisions and affect the whole organization or a large part. And, operational decisions are regular decisions and affect only a part of the organization.
Strategic decisions set the direction for the organization over the medium to long-term whereas operational decisions direct the organization for a short period usually less than one year.
Strategic decisions involve making choices and committing resources in ways that cannot be reversed easily, on the other hand, operational decisions can be reversed in a reasonable way.
Why Making Strategic Decisions is Important?
Under strategic management, a number of decisions are taken. They draw a long-term roadmap of the organization. The importance of strategic decision making can be discussed below:
Strategic decisions help organizations become more effective by balancing their goals and resources. Organizational effectiveness results in strategic advantages, which lead to long-term growth and development.
Improvement in Operational Capability
Despite the fact that strategic decisions are long-term, they have a major and direct impact on operational activity. They affect operational decisions because they are linked to resource allocation and work procedures. As a result, they aid in the establishment of operational effectiveness.
Strategic decisions are always made with the goal of gaining a competitive edge in mind. Serving higher-value products at a reasonable price can provide a competitive advantage, which is ensured by strategic decisions. It eventually contributes to the organization’s long-term goals.
In strategic management, resource management is critical. Strategic decisions guarantee that resources are available when they are needed, that they are allocated appropriately to various units, and that management is effective. Effective resource management improves the capability and effectiveness of an organization.
Individuals and groups with direct or indirect concerns about the organization’s performance are referred to as stakeholders. When an organization’s performance meets or surpasses its expectations, stakeholders continue to support it. The goal of strategic decisions is to satisfy the interests of all stakeholders.
The goal of strategic control is to ensure that the organization is employing appropriate strategies for the external environment, process, and competitive advantages. It guarantees that initiatives are implemented effectively on an ongoing basis.
Strategic control is also used to assess how focused a company is on the needs for implementing its strategies. Effective strategic control is aided by strategic decisions.
Hence strategic decision is a long-term decision an organization takes to fulfill its long-term goals through proper evaluation of strategic alternatives. It’s goal-directed and future-oriented. An effective strategic decision ensures to implement strategy effectively and achieves the competitive gain in an improved manner and ultimately sustains in long run.