Strategic Management: Theories, Context, Usage

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Table of Contents

Introduction
Stakeholders Involved in the Decision-Making Process
Factors Affecting the Decision-Making Process
The Process of Decision Making: Major Suggestions
Conclusion
References

Introduction

Strategic management is one of the primary keys to organisations’ proper performance and a sufficient level of competitiveness in the market. Strategic decision making is a challenging but vital process that ensures companies’ focus on major goals, profitability, and the interests of certain stakeholders (Morden, 2016). In simple terms, successful businesses develop long-term plans based on certain goals, as well as internal and external factors (Rezaee, 2019). This paper includes a brief discussion of the peculiarities of the decision-making process and its implications for modern organisations.

Stakeholders Involved in the Decision-Making Process

Strategic management can be implemented in different ways depending on the structure and culture of an organisation. For instance, in large public companies with a considerable level of the hierarchy, strategic decisions are mainly made by top management (Morden, 2016). Apart from executives, non-executive directors can also be engaged as these people tend to ensure the adherence to certain standards and goals. One of the major roles of these stakeholders is to make sure that executives make ethical decisions that promote shareholders’ interests. When it comes to privately-owned businesses, top managers or the owners (or both) make such decisions. Linear companies with a low level of hierarchy diverse groups can be involved in strategic management, although the final decisions are still made by the top management.

It has been acknowledged that decision-makers are affected by various factors, but personal aspects are often defining in this process. People tend to defend their own interests, which has an impact on their behaviours and even strategic decision making (Greve & Zhang, 2017). If these interests are not consistent with the ones of the shareholders or the strategic agenda of the organisation, major issues associated with low performance and profitability can emerge. The primary strategy ensuring successful decision making is the establishment of effective communication channels that facilitate collaboration.

Clearly, decisions are also based on the knowledge, beliefs, and expertise of the decision-maker. Strategic management is often shaped by the chosen leadership style and vision of those who make decisions (Marquis & Raynard, 2015). Strategic plans encompass the features of business models and approaches that are preferable for managers (De Smet, Lackey, & Weiss, 2017). The ways different ideas interact and power is distributed within the organisation also influence strategic planning.

Factors Affecting the Decision-Making Process

Apart from certain interests, internal and external factors influence the way strategic decisions are made. The institutional theory explains the peculiarities of the factors that have an impact on made strategic decisions (Moré, Telles, Marinho, & Corrêa, 2016). Internal aspects having an influence on decision-makers include organizational structure, standards, and culture, available resources, and collaboration within the organisation. The political environment within companies is often seen as the most influential factor (Gutiérrez‐Rincón, 2014). Decisions are shaped by the ways different groups’ interests are addressed, as well as the methods of conflict management. As mentioned above, effective communication is critical as the management of conflicts, as well as collaboration, can be effective if people use appropriate communication channels and patterns.

The availability of resources is another central terrain considered by decision-makers. Executives have to make sure that the developed plans will be implemented properly, which depends on the resources that can be accessible in certain periods of time (Moré et al., 2016). For instance, if a company has a plan to penetrate a new market, it has to have sufficient resources to achieve this goal. The company will need an appropriate amount of inventory, effective logistics, and human resources to address the established objectives. If any of these areas is improperly managed, the organisation is unlikely to gain the planned share of a new market. In order to address this challenge, managers should assess the availability of resources at every stage of the implementation of the strategic plan. The accumulation of resources at the initial stages of plan realisation can be necessary. The current business environment characterised by stiff competition and rather scarce resources makes it critical to prioritise and analyse the ways resources interact as well.

External factors play an important role in the decision-making process, which has to be taken into account by managers. For instance, one of the primary spheres to consider when developing strategic plans is the peculiarities of the economic and political models existing in the country (Greve & Zhang, 2017). The Chinese market can be seen as an illustrative example of the importance of these domains. Companies had to adapt to the emerging business environment during the transition of the economy from socialism to capitalism. The organisations that managed to adapt to the new agenda survived and occupied leading positions in China. It is necessary to note that such major shifts can take place in many countries, so it is important to pay attention to all these details.

State regulations are influential factors as companies have to comply with rules and standards to operate in certain markets. New restrictions are imposed in some industries and countries, which affects strategic planning and decision making. In order to mitigate the risks associated with changeable institutional factors, companies should become responsible corporate citizens (Barrena Martínez, López Fernández, & Romero Fernández, 2016). Adherence to the highest ethical standards will ensure the ability of organisations to adapt and remain within the scope of existing laws and rules.

One of the effective instruments to evaluate the potential effects of internal and external factors is Porter’s five forces model. This tool enables managers to identify the most influential aspects and the ways they may interact (Morden, 2016). Decision-makers should pay attention to each of the forces and analyse the most appropriate alternatives. Based on this analysis, a strategic plan can be developed. The implementation of this plan should be facilitated by a regular re-evaluation of the major forces affecting the organisation. Decision-makers can also minimise potential risks regarding their strategic plans by conducting the PESTLE analysis that focuses on the assessment of primary external factors.

The Process of Decision Making: Major Suggestions

When working on a strategic plan, the manager has to consider several aspects and undertake certain steps. The preparatory stage involves a thorough analysis of the distribution of power within the organisation and the way employees communicate and collaborate. It is advisable to ensure that the interests of shareholders (or owners in privately-owned companies) are the central priority, and the strategic plan is appropriate for meeting these people’s needs (Greve & Zhang, 2017). Managers should also ensure that effective conflict management practices are employed and organisational culture is strong.

During the planning process, managers should make sure that all decision-makers are actively involved in the development of the strategic plan. This process should be grounded on the thorough analysis of internal and external factors that have an impact on the organisation (Rezaee, 2019). As mentioned above, such tools as Porter’s five forces and PESTLE can equip managers with the information needed to develop and an effective plan (Morden, 2016). Once the plan is developed, it should be negotiated with all decision-makers of people in power. The most important characteristics for an effective plan are full details, flexibility, and it should also be evidence-based. The plan should be consistent with the company’s culture and the existing regulations. In order to ensure its adherence to the rules and norms that ay emerge, companies need to become more responsible in terms of their environmental and social input. Corporate social responsibility is an effective method to ensure the effectiveness of the organisation’s strategic plan.

At the implementation stage, it is critical to balance adherence to the plan and flexibility. Organisations have to operate in rather a changeable business, social, and political environment, which is specifically true for emerging markets (Marquis & Raynard, 2015). These potential changes are likely to interfere with the implementation of the strategic plan, so a certain degree of flexibility is beneficial. However, it is essential to focus on the major stakeholders’ interests, which will ensure the profitability and appropriate performance of the company (Negulescu, 2014). The evaluation of the effectiveness of the plan and its viability is the final step to undertake. Decision-makers should assess the efficiency of the chosen methods and practices employed to achieve specific goals under certain circumstances. This analysis will help decision-makers in the future when some factors influencing the organisation’s performance emerge.

Conclusion

On balance, strategic management is one of the central and most challenging endeavours as many factors need to be assessed, and a thorough plan should be developed. Strategic planning is essential for companies as it enables organisations to focus on the organisational goals and major stakeholders’ interests, which is needed to ensure companies’ profitability and competitiveness. Fortunately, several theoretical frameworks and business tools can help managers to make evidence-based and effective strategic decisions. When developing and implementing the strategic plan, it is critical to concentrate on the interests of the major stakeholders, thorough analysis, and the highest ethical standards.

References

Barrena Martínez, J., López Fernández, M., & Romero Fernández, P. M. (2016). Corporate social responsibility: Evolution through institutional and stakeholder perspectives. European Journal of Management and Business Economics, 25(1), 8-14. Web.

De Smet, A., Lackey, G., & Weiss, L. M. (2017). Untangling your organization’s decision making. McKinsey Quarterly. Web.

Greve, H. R., & Zhang, C. M. (2017). Institutional logics and power sources: Merger and acquisition decisions. Academy of Management Journal, 60(2), 671-694. Web.

Gutiérrez‐Rincón, V. (2014). Beyond the internal dynamics of organizational responses to conflicting institutional demands. Estudios Gerenciales, 30(133), 376-383. Web.

Marquis, C., & Raynard, M. (2015). Institutional strategies in emerging markets. The Academy of Management Annals, 9(1), 291-335. Web.

Morden, T. (2016). Principles of strategic management (3rd ed.). London, England: Routledge.

Moré, R. P. O., Telles, R., Marinho, S. V., & Corrêa, F. H. C. (2016). Institutional theory of strategic capacity and competitive advantage: Theoretical view of the information technology industry in Brazil. International Journal of Business Management and Economic Research, 7(3), 671-679.

Negulescu, O. H. (2014). Using a decision-making process model in strategic management. Review of General Management, 19(1), 111-123.

Rezaee, Z. (2019). Business sustainability, corporate governance, and organizational ethics. Hoboken, NJ: John Wiley & Sons.

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