Strategy Dynamics Briefing 64: Types of strategic decision

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The briefings to this point have set out the main dynamic structures that determine organizations’ performance. The next few briefings examine how decisions steer those structures and how to design policies (decision-rules) that can build and sustain the resources required for strong performance. First, though, it is helpful to clarify the different kinds of strategic decisions. A logical approach is to follow a more or less chronological sequence over the life of an organization, although these questions cannot be treated in complete isolation from each other:

1. Whether to take part. The first question arises before the organization even exists – whether it is a good idea even to get involved at all. This question naturally arises for every new business idea that enthusiastic entrepreneurs come up with, but applies equally to new business opportunities discovered by established firms. Competitive conditions in an industry can conspire to make profitable participation, or even survival, extremely difficult, so it is advisable at least to identify whether any viable business might be possible. It is not so simple, however, that we can merely examine the soundness of similar enterprises already in existence, or write out a plausible model for how a putative enterprise might operate — we have to see a path from start-up to that future state.

2. Choosing a strategy for taking part. The first question cannot in practice be separated from this second issue. The question of whether to compete in a market can only be answered in the context of some concept of what that business actually looks like. This is where the two broad questions of strategy choice arise — where to compete? (who to serve, with what products and services) and then how to compete? Only when the options under these two headings have been defined and evaluated is it possible to answer with confidence the first question of whether to take part at all.

A further question at this point is whether the people involved with the business idea are actually capable of bringing it about. It is widely accepted amongst venture capital providers that it is safer to back people with a weak business idea but strong managerial ability, leadership qualities and personal commitment, rather than investing in a great business idea pursued by people lacking those qualities. Nevertheless, the high failure rate amongst new ventures suggests there is room for much better evaluation of business ideas themselves, an issue for which strategy dynamics is ideally suited.

3. Designing a likely path to success. Whilst it may be possible to describe, even in some detail, a future business operation that could operate successfully, there remains a challenge to define a realistic path by which that business could be started, developed and grown to create that ultimate vision. When a business venture fails to fulfill the hopes of its backers and managers, there is no reliable, objective way to know whether the business vision was never feasible, whether the organization was poorly led, or whether its development was badly planned and implemented. But given the dynamic complexities we have previously seen for even simple business systems, it is likely that both non-feasibility and erroneous implementation feature significantly in many failures.

4. Steering strategy through time. This is a continuation of the previous issue, except that rather than focusing on the effectiveness of business development, we are now concerned with on-going guidance of an existing enterprise as it faces changing challenges. Competitive conditions are rarely stable, being subject to numerous changes initiated by other participants in the industry as well as the exogenous factors described in Briefing 45. Strategic management must therefore encompass the full range of significant decisions that continue to require attention, and the policies that guide those decisions.

5. Whether to extend or revise the strategy. This is essentially a repeat of the first two questions — whether to compete and if so with what strategy — except that now we are looking at adding to an already existing enterprise. Should we enter a new market, extend our product range, develop a service offer alongside our product sales, and so on? This issue covers all kinds of possible changes to the business system currently in existence. It therefore includes any changes to the three principal elements of strategy choice—who to serve, with what products and services, and how. For clarity, we will leave changes to policies and decisions under the heading of “steering strategy,” although these two issues may well arise together.

Until next time…

 

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Strategic management in non-business cases

As has been the case in previous briefings, many of the issues in this list apply, with little modification, to strategic challenges in public services and voluntary organizations. A public service initiative may, for example, prove both to be feasible to operate and to possess a viable strategy for bringing it about. The case of zero-tolerance policing first brought to prominence in New York City offers such an example, where acting strongly against minor infringements brought down the rates of more serious crimes. Replicating the policy in other cities has sometimes worked, but sometimes failed, either because the structure of the crime “industry” did not possess the same characteristics as in New York, or else because the policy was not implemented correctly.

Strategic Management Dynamics book coverVoluntary organizations too may be started with good motives and optimism amongst their founders, and either succeed or fail, depending on whether there is a feasible model for winning the necessary funding, finding the right staff, and capturing enough uptake by the organization’s hoped – for beneficiaries. Failure is often not as apparent as in corporate settings, with voluntary groups struggling on through the goodwill of its participants, in spite of there being no prospect of meaningful success.

This briefing summarises material from chapter 8 of Strategic Management Dynamics, pages 515-517.

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