STRATEGIC DECISION MAKING
LECTURE 0 – PREPERATIONS
STRATEGY
A good strategy provides clear answers to four key questions:
1. Where do we compete?
2. What unique value do we bring?
3. What resources and capabilities do we utilize?
4. How do we sustain our unique value?
STRATEGIC MANAGEMENT
Definition of strategic management: “The field of strategic management deals with the major intended and
emergent initiatives taken by general managers on behalf of owners, involving utilization of resources, to
enhance the performance of firms in their external environments.”
GENERIC STRATEGIES
Competitive advantage: is when a company achieves higher profits than the average competitor in the product
market.
Generic strategies can be defined by two key dimensions: scope and source.
COMPETITIVE ADVANTAGE
Three types of competitive advantages: process, product, or customer.
Process: operational excellence (minimal cost, waste of convenience).
Product: product leaders have a distinctive and superior product. They tend to set new standards.
Customer: outstanding service and providing the best solution.
1
,PORTER’S FIVE FORCES MODEL – INDUSTRY ANALYSIS
EXTERNAL ANALYSIS (PEST, PESTEL, DESTEP)
SWOT ANALYSIS
2
,LECTURE 1 – INTRODUCTION
WHAT ARE STRATEGIC DECISIONS?
We make decisions all day; some need additional information, we ask advice for some decisions, some are
made on the basis of pre-existing heuristics, and we try to narrow down the number of alternatives.
Organizations are also confronted with decision-situations. The key challenge to any decision is the reduction of
uncertainty.
Strategic decisions are defined as decisions committing substantial resources, setting precedents, and creating
waves of lesser decisions; as ill-structured, non-routine and complex; and as substantial, unusual and all
pervading. Four fundamental characteristics:
1. Complexity: large numbers of aspects.
2. Uncertainty: unknown number of alternatives/solutions.
3. Rationality: try to reach a goal. (The quality of being based on or in accordance with reason or logic)
4. Control: intentionality, you are deliberate on how you want to reach the goal.
The dimensions of interdependence: interdecisional, interactor and intertemporal. The decisions that you
make are not isolated, they are connected to other decisions. So, there is co-dependence on other decisions.
Also, decisions you make now are connected to decisions in the future.
THE SDM PROCESS (STRATEGIC DECISION-MAKING PROCESS)
The SDM process is the process by which a strategic decision is
made and implemented and the factors which affect it, i.e., the
process that leads to the choice of goals and means and the
way in which means are effectively deployed.
Key assumption of SDM
The higher the degree of rationality the higher the performance
or the better the decision made. (Rationality: decisions are
based on knowledge and consistent).
Rationality is not the only important factor here, but it is
underlying.
Professionals develop tools based on decision analysis and/or
evidence-based approaches. Researchers identify the factors that increase or decrease the quality of strategic
decisions from a multidisciplinary viewpoint.
For SDM you need to look forward in time (practitioners through procedures and tools) and backward!
(Researchers through evidence).
KEY QUESTIONS OF THE COURSE
1. How can we understand variation and heterogeneity of the effects of context on SDM processes?
2. How can we understand variation and heterogeneity of the effects of context and SDM processes on
outcomes
Answers:
1. The way decision making processes unfold is subject to decision-situational factors: not every situation is
suited for an approach rooted in information gathering and analysis in relation to goals.
2. In addition, the (collaborative) interactions between participants in the SDM process and the dynamics of the
process can unfold in different ways leading to different decisions.
3
, LECTURE 2 – ORGANIZATIONAL CHARACTERISTICS AND ENVIRONMENTAL CONTEXT
ORGANIZATIONAL STRUCTURE
Dimensions of organizational structure:
Centralization
o Decision-making and evaluation of activities is concentrated on one person/department.
o High influence of managers in charge.
o Example: Apple.
Formalization
o Rules and procedures to prescribe behaviour.
o Limits ambiguity, but also members’ discretion.
o Example: amazon it focusses on efficiency.
o You see the most formalization within large organization.
Complexity
o Composed of many, usually interrelated, parts.
Horizontal and vertical differentiation (span of control), spatial dispersion (in how
many locations).
o Complicates coordination and control of decision activities.
o Example: Google (organization around projects so a lot of complexity) and Microsoft.
STRATEGIC DECISION PROCESS CHARACTERISTICS
Strategic decision process characteristics and how do the dimensions (centrality, formalization, and complexity)
influence them:
Process initiation
o How and where is the process initiated?
o Centralization: initiated by the dominant few; proactive opportunity-seeking process
o Formalization: in response to ‘problems’ detected through monitoring by the formal system
o Complexity: parochial views (narrow view) can lead to ignoring or failure to recognize
strategic issues.
Role of goals
o Individual vs. organizational level?
o Remedial (as a solution) or future-oriented?
o Precise vs. general?
o Centralization: decisions are oriented towards: “intended future domains” of dominant few.
o Formalization: precise rather than general; remedial rather than positive, future intended
o Complexity: individual goals hinder influence of organizational gaols in decision-making.
Means/ends relationship
o Will means (alternatives) displace ends (goals)? (What is more important, means or ends?)
o Centralization: goals (ends) persist, even when means change significantly.
4
LECTURE 0 – PREPERATIONS
STRATEGY
A good strategy provides clear answers to four key questions:
1. Where do we compete?
2. What unique value do we bring?
3. What resources and capabilities do we utilize?
4. How do we sustain our unique value?
STRATEGIC MANAGEMENT
Definition of strategic management: “The field of strategic management deals with the major intended and
emergent initiatives taken by general managers on behalf of owners, involving utilization of resources, to
enhance the performance of firms in their external environments.”
GENERIC STRATEGIES
Competitive advantage: is when a company achieves higher profits than the average competitor in the product
market.
Generic strategies can be defined by two key dimensions: scope and source.
COMPETITIVE ADVANTAGE
Three types of competitive advantages: process, product, or customer.
Process: operational excellence (minimal cost, waste of convenience).
Product: product leaders have a distinctive and superior product. They tend to set new standards.
Customer: outstanding service and providing the best solution.
1
,PORTER’S FIVE FORCES MODEL – INDUSTRY ANALYSIS
EXTERNAL ANALYSIS (PEST, PESTEL, DESTEP)
SWOT ANALYSIS
2
,LECTURE 1 – INTRODUCTION
WHAT ARE STRATEGIC DECISIONS?
We make decisions all day; some need additional information, we ask advice for some decisions, some are
made on the basis of pre-existing heuristics, and we try to narrow down the number of alternatives.
Organizations are also confronted with decision-situations. The key challenge to any decision is the reduction of
uncertainty.
Strategic decisions are defined as decisions committing substantial resources, setting precedents, and creating
waves of lesser decisions; as ill-structured, non-routine and complex; and as substantial, unusual and all
pervading. Four fundamental characteristics:
1. Complexity: large numbers of aspects.
2. Uncertainty: unknown number of alternatives/solutions.
3. Rationality: try to reach a goal. (The quality of being based on or in accordance with reason or logic)
4. Control: intentionality, you are deliberate on how you want to reach the goal.
The dimensions of interdependence: interdecisional, interactor and intertemporal. The decisions that you
make are not isolated, they are connected to other decisions. So, there is co-dependence on other decisions.
Also, decisions you make now are connected to decisions in the future.
THE SDM PROCESS (STRATEGIC DECISION-MAKING PROCESS)
The SDM process is the process by which a strategic decision is
made and implemented and the factors which affect it, i.e., the
process that leads to the choice of goals and means and the
way in which means are effectively deployed.
Key assumption of SDM
The higher the degree of rationality the higher the performance
or the better the decision made. (Rationality: decisions are
based on knowledge and consistent).
Rationality is not the only important factor here, but it is
underlying.
Professionals develop tools based on decision analysis and/or
evidence-based approaches. Researchers identify the factors that increase or decrease the quality of strategic
decisions from a multidisciplinary viewpoint.
For SDM you need to look forward in time (practitioners through procedures and tools) and backward!
(Researchers through evidence).
KEY QUESTIONS OF THE COURSE
1. How can we understand variation and heterogeneity of the effects of context on SDM processes?
2. How can we understand variation and heterogeneity of the effects of context and SDM processes on
outcomes
Answers:
1. The way decision making processes unfold is subject to decision-situational factors: not every situation is
suited for an approach rooted in information gathering and analysis in relation to goals.
2. In addition, the (collaborative) interactions between participants in the SDM process and the dynamics of the
process can unfold in different ways leading to different decisions.
3
, LECTURE 2 – ORGANIZATIONAL CHARACTERISTICS AND ENVIRONMENTAL CONTEXT
ORGANIZATIONAL STRUCTURE
Dimensions of organizational structure:
Centralization
o Decision-making and evaluation of activities is concentrated on one person/department.
o High influence of managers in charge.
o Example: Apple.
Formalization
o Rules and procedures to prescribe behaviour.
o Limits ambiguity, but also members’ discretion.
o Example: amazon it focusses on efficiency.
o You see the most formalization within large organization.
Complexity
o Composed of many, usually interrelated, parts.
Horizontal and vertical differentiation (span of control), spatial dispersion (in how
many locations).
o Complicates coordination and control of decision activities.
o Example: Google (organization around projects so a lot of complexity) and Microsoft.
STRATEGIC DECISION PROCESS CHARACTERISTICS
Strategic decision process characteristics and how do the dimensions (centrality, formalization, and complexity)
influence them:
Process initiation
o How and where is the process initiated?
o Centralization: initiated by the dominant few; proactive opportunity-seeking process
o Formalization: in response to ‘problems’ detected through monitoring by the formal system
o Complexity: parochial views (narrow view) can lead to ignoring or failure to recognize
strategic issues.
Role of goals
o Individual vs. organizational level?
o Remedial (as a solution) or future-oriented?
o Precise vs. general?
o Centralization: decisions are oriented towards: “intended future domains” of dominant few.
o Formalization: precise rather than general; remedial rather than positive, future intended
o Complexity: individual goals hinder influence of organizational gaols in decision-making.
Means/ends relationship
o Will means (alternatives) displace ends (goals)? (What is more important, means or ends?)
o Centralization: goals (ends) persist, even when means change significantly.
4
