The Nature of Strategic Decisions

Although the process of creating strategy is often discussed as if it were an unconstrained design process, keep in mind that while strategists evaluate strategy, the firm is operating. This evaluation involves assessing the extent to which present strategy is meeting expectations. It may be the case that only a small part of, say, marketing strategy would have to be changed to correct a problem. In effect, then, such a change would constitute an acceptance of corporate- and business-level strategy, and also of the firm’s functional strategy set. Marketing strategy would be all that was rejected. When a firm’s performance is less than satisfactory, the reason often is a functional strategy shortcoming. One might say that a “good” business-level strategy would have been poorly implemented by part of its functional strategy set. For this simple example, a change in marketing strategy could improve performance while other levels of strategy would remain unchanged.

Alternatively, a problem with the nature of a firm’s or SBU’s business brought about by a major environmental opportunity or threat, a change in that level’s goals set, or the development of some internal capability or weakness could necessitate a business-level strategy change. The new strategy would probably include vestiges of the old along with some unfamiliar elements. In most cases a whole new functional strategy set would likely have to be designed and put into effect to implement the new business-level strategy.

More generally, one could conceivably change parts of a firm’s functional strategy set without changing business-level strategy. However, rarely would one expect to encounter the case in which a change in business-level strategy did not trigger the necessity to alter functional-level strategy in some way, at least not in a successfully managed business.

There is a risk of incorrectly identifying the strategy level at which a problem exists. A tendency exists in business to change functional-level strategies or organizational structure in a attempt to remedy any problem. Of course, if the problem existed within the firm’s corporate-or business-level strategy, for example, changing functional-level strategy would not correct it. In fact, this move would most likely aggravate the situation. The reason for this tendency is probably that functional strategy changes are potentially less disruptive than changes in the other levels. They certainly would affect fewer people than modifications at the corporate or business levels.

The results of trying to solve a business-level strategic problem with a functional-level solution is well illustrated by the “big four” U.S. automobile companies ( Ford, General Motors, Chrysler and American Motors). With overseas competitors exporting fuel-efficient automobiles to the United States, and with widely acknowledged shrinkage’s of fossil fuel supplies, they still stubbornly tried to retain their old business and corporate strategies, well into the 1970s, by changing market strategy only. A set of major environmental threats, particularly at the business level, was met by minor model changes and increased efforts to convince the car-buying public that big autos were what we all really wanted. During the 1970s and early 1980s, these companies finally began to respond to their business strategy problems with business strategy changes–major philosophical alterations in the nature of their businesses. If U.S. auto firms were to rely on small cars instead of traditional American big cars as their primary sources of growth, far-reaching changes in their functional strategy sets were also necessary. New growth rates, profit targets, market-share goals, and the like, along with related broad action plans that centered around contraction in many forms, were implemented along with new functional strategy. They included such things as cash rebates, Chrysler’s government-guaranteed loan, employee layoffs, close cooperation with UAW officials, R&D efforts focused on producing smaller, less powerful engines as a primary effort rather than as an inconvenience.  The U.S. auto firms’ strategy changes were finally implemented during a period of chaos. However, by then they were all in the red, and the doomsayers were having a heyday.

South claims that the key to successful strategic decisions is the creation of competitive advantage–selection of competitive areas within which success is clearly achievable.The Japanese have taught us that there are really two very different forms of competition: Reciprocal and strategic. Reciprocal competition is the traditional form in which companies in mature industries compete with other firms having similar strategic positions while attempting to distinguish themselves on the basis of operations. Many colleges and universities offer similar programs, with traditional facilities and are significantly different only in terms of the geographical areas within which they operate. Strategic competition, on the other hand, involves competing primarily by establishing superior strategic position. That is, the main concern of strategists is selection of a strategically advantageous posture which affords their organization a position of strength from which to do battle. Lincoln Electric Company has successfully differentiated itself on the basis of price and quality. Their industrial welding equipment is regarded as the top quality product of its kind and the firm has consistently passed along cost savings to customers in the form of low prices. As a result, Lincoln is very difficult to compete with because of its strong price position.

Following this set of ideas, then, strategic decisions are those which involve “clear and favorable differentiation from competitors,” so that one’s competitive advantage is tangible, measurable, and preservable.

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