Strategic choice is the mental process of selecting the best or most appropriate strategy from the stock of alternatives that serves the enterprise objectives.
This choice takes place in not thin air but a frame work of reference made up of variety of elements and the choice made is the product of the basic elements that work in the frame work.
Broadly speaking strategic choices are the result of elements like judgement, bargaining and analysis among other things.
This choice may be based on the individual’s judgement. When it is a group exercise, choice is made by a group where each member has his own calculations and final selection is by bargain.
It is also possible that choice of strategy is the result of systematic evaluation of alternatives based on facts analysed by experts such analysis is followed by judgement or bargaining or both.
Some of the factors affecting strategic choice are:-
1. Environmental Constraints 2. Dynamism of Market Sector 3. Intra-Organisational Factors 4. Corporate Culture 5. Industry and Cultural Backgrounds.
6. Pressures from Stakeholders 7. Impact of Past Strategies 8. Personal Characteristics 9. Value System 10. Managerial Attitude towards Risk
11. Managerial Power Relations 12. Coalition Phenomenon. 13. Time Dimension 14. Information Constraints 15. Competitors’ Reactions
16. Styles of Decision Making 17. Governmental Policies 18. Critical Success Factors and Distinctive Competencies 19. Execution Capacity and a Few Others.
Factors Affecting Strategic Choice
Factors Affecting Strategic Choice – 19 Important Factors
‘Strategic choice’ involves selecting from among several alternatives the most appropriate strategy which will best serve the enterprise objectives. To choose a good strategic option, past data, current data, forecasted data, and various other factors should be examined carefully. The selection process becomes a complex job because it is influenced by various factors.
The more important factors influencing the strategic choice are discussed here:
The dynamic elements of environment affect the way in which choice of strategy is made. The survival and prosperity of a firm depend largely on the interaction of the elements of environment—such as shareholders, customers, suppliers, competitors, the government and the community. These elements constitute the external constraints. The flexibility in the choice of strategy is often governed by the extent and degree of the firm’s dependence on the environment.
Pearce and Robinson state, “A major constraint on strategic choice is the power of environmental elements. If a firm is highly dependent on one or more environmental factors, its strategic alternatives and ultimate choice must accommodate this dependence. The greater a firm’s external dependence, the lower its range and flexibility in strategic choice.”
Well established, large companies in different industries are more powerful vis-a-vis their environments and therefore have greater flexibility in the strategic choice than their counterparts in the respective fields.
Glueck has said, “The strategic choice is affected by the relatively volatility of market sector the firm chooses to operate in.” Market forces vehemently influence the choice of strategy.
For example, a firm which obtains bulk supply of its raw materials or components in a competitive market will have greater flexibility in its strategic choice than another firm which has to depend for its supplies on an oligopolistic market.
Organisational factors also affect the strategic choice. These include organisational mission, strategic intent, goals, organisation’s business definition, resources, policies, etc. Besides these factors, organisational strengths, weaknesses, and capability to implement strategic alternatives also affect the strategic choice.
In choosing a strategic alternative, strategy makers must consider pressures from the corporate culture. They must assess a strategy’s compatibility with that culture. Every organisation has its own corporate culture. It is made of a set of shared values, beliefs, attitudes, customs, norms, etc. The successful functioning of an organisation depends on ‘strategy-culture fit’.
The strategy choice has to be compatible with firm’s culture. The strategic choice should not be out of tune with the cultural framework of the firm. The culture has substantial influence on the strategic choice. In case of mismatch between strategic choice and the cultural framework of a company, either one is to be redefined.
The management should decide to:
i. Take a chance on ignoring the culture
ii. Manage around the culture
iii. Try to change the culture to fit the strategy
iv. Change the strategic alternative to fit the culture.
Industry and cultural backgrounds affect strategic choice.
For example, executives with strong ties within an industry tend to choose strategies commonly used in that industry. Other executives who have come to the firm from another industry and have strong ties outside the industry tend to choose different strategies from what is being currently used in their industry.
Country of origin often affects preferences.
For example, Japanese managers prefer a cost-leadership strategy more than do United States managers. Research reveals that executives from Korea, the U.S., Japan, and German tend to make different strategic choices in similar situations because they use different decision criteria and weights.
The attractiveness of a strategic alternative is affected by its perceived compatibility with the key stakeholders in a corporation’s task environment. Creditors want to be paid on time. Unions exert pressure for comparable wage and employment security. Governments and interest groups demand social responsibility. Shareholders want dividends. All these pressures must be given some consideration in the selection of the best alternative.
Stakeholders can be categorized in terms of their (i) interest in the corporation’s activities and (ii) relative power to influence the corporation’s activities. Each stakeholder group can be shown graphically based on its level of interest (from low to high) in a corporation’s activities and on its relative power (from low to high) to influence a corporation’s activities.
Strategic managers should ask four questions to assess the importance of stakeholder concerns in a particular decision:
i. How will this decision affect each stakeholder, especially those given high and medium priority?
ii. How much of what each stakeholder wants is he likely to get under this alternative?
iii. What are the stakeholders likely to do if they don’t get what they want?
iv. What is the probability that they will do it?
Strategy makers should choose strategic alternatives that minimize external pressures and maximize the probability of gaining stakeholder support. Managers may, however, ignore or take some stakeholders for granted—leading to serious problems later. (Thomas Wheelen and David Hunger)
It has been noticed that the choice of current strategy may be influenced by what type of strategies have been used or followed in the past. Pearce and Robinson have said, “A review of past strategy is the point at which the process of strategic choice begins. As such past strategy exerts considerable influence on the final strategic choice.”
Hence, it is said that ‘past strategies are often the principal architects of current strategies.’ Pearce and Robinson explain the reason in this way – “Because they have invested substantial time, resources and interest in these strategies, the strategists would logically be more comfortable with a choice that closely parallels past strategy or represents only incremental alternations.”
Henry Mintzberg says, “the past strategy strongly influences current strategic choice.” On the other hand, Barry M. Staw has remarked, “the older and more successful a strategy has been, the harder it is to replace. It is very difficult to change because organisational momentum keeps it going.”
Personal factors like own perception, views, interests, preferences, needs, aspirations, personal disposition, ambitions, etc., are important and play a vital role in affecting strategic choice. Even the most attractive alternative might not be selected if it is contrary to the attitude, mindset, needs, desires and personality of the selector/strategist himself.
Thus, personal characteristics and experience affect a person’s assessment and choice of strategic alternatives.
For example, one study found that narcissistic (self-absorbed and arrogant) type of managers favour bold actions that attract attention.
The role of value system in choosing a strategic alternative is well recognized. While evaluating the strategic alternatives, different executives may take different positions because of differences in their personal values. Guth and Tagiuri found that personal values were important determinants of the choice of corporate strategy. Similarly, value system to top management affects the types of strategy that an executive chooses.
Managerial attitude towards risk is an important factor that influences the choice of strategy. Individuals differ considerably in their attitude towards risk taking. Some are risk prone, others are risk averse.
Conceptually, one may distinguish between the following attitudes reflecting the order of risk preferences:
i. Risk is necessary for success;
ii. Risk is a fact of life and some risk is desirable; and
iii. High risk destroys enterprises and needs to be minimized.
These attitudes may vary from risk taking to strong aversion to risk, and they influence the range of available strategy choices. Pearce and Robinson have suggested that, “where attitudes favour risk, the range and diversity of strategic choice expand. High risk strategies are acceptable and desirable. Where management is risk averse, the diversity of choice is limited, and risky alternatives are eliminated before strategic choices are made. Risk-oriented managers prefer offensive, opportunistic strategies. Risk averse managers prefer defensive safe strategies.”
Those who consider some risk is desirable, balance high with low risk choices and prefer a combined strategy. Also, executives may overlook the risks involved if they perceive an opportunity with optimism, i.e., where the tradeoff between risk and return weighs heavily in favour of the gains from the potential opportunity.
Research studies have also thrown some light on the risk preferences of decision maker:
i. Older managers tend to be less prone to risk taking. (Vroom and Pahl)
ii. Individuals who deal easily with risk and uncertainty are better able to cope with complex problems than those who are risk averse. (Sieber and Lanzetto)
iii. Risk-prone decision makers limit the amount of information they consider and tend to make decisions rapidly. (Taylor and Dunnette)
Choice of strategy is also influenced by the power play among different interest groups. William Guth in his study found that strategic choice is significantly affected by interpersonal relations and power relationship among members of the top management team. Power politics is a crucial factor determining the choice of strategy.
A few research findings conclude:
i. If the chief executive is in favour of a strategic option, it may be endorsed by senior managers close to him, but one or the other managerial clique may oppose it.
ii. Lower level managers can greatly influence the choice eventually made by the chief executive.
iii. Where a participative decision-making process is in vogue, the strategic choice eventually made by top management is quite often the outcome of a lot of filtering that takes place of die alternatives at lower levels of management. For instance, strategic choices made by lower level managers may limit the strategic options considered by top management.
iv. One study made by Eugene Carter showed that while suggesting a strategic choice, different departments evaluated the strategic alternatives differently and in their own interest.
v. Ross Stanger finds that “strategic decisions in business organisations are frequently settled by power rather than by analytical maximisation procedures.”
vi. Fahey and Naravan suggest that “every organisation is a coalition of many individuals and their groups and each of them puts some kinds of pulls and pushes depending on the internal power relationship. These pulls and pushes operate in different phases of strategic decision-making.”
Cyert and March have observed another power factor that influence strategic choice. They explained that “in large organisations, subunits and individuals have reason to support some alternatives opposed by others. Mutual interest often draws certain groups together in a coalition to enhance their position on major strategic issues. These coalitions, particularly the more powerful ones, exert considerable influence in the strategic choice process.”
The time dimension also influences strategic choice in the following ways:
i. Time pressure – The ‘deadlines’ for making the decisions or choosing an option create time pressures under which managers may be forced to make a choice. In the absence of time pressure, the choice might be different. Peter Wright observes, “Under time constraint, managers put greater weight on highly negative information and considers fewer aspects of the problem”.
ii. Time frame – Here, a manager considers the short-term and the long – term implications of a choice. If the incentive compensation of managers is related to short-run earning performance, there is very likelihood that long-term strategic considerations would be ignored.
iii. Time horizon – It refers to the period of commitment that goes with it. A long-range strategy implying commitment of resources for an uncertain future is often less acceptable than one having immediate relevance.
iv. Timing of a decision – It is yet another aspect of time dimension that may determine the quality of the strategic choice. A prompt decision may be required to make the best use of an opportunity and before the competitors have time enough to capitalize it.
Pearce and Robinson suggest that “strategic choice will be strongly influenced by the match between management’s current time horizon and the lead time associated with different choices.”
Availability of information is a crucial factor in the choice of strategy. Managers choose a strategic option on the basis of relevant data and information. The degree of uncertainty and risk depends upon the amount of information that is available to the strategist. The greater the amount of available information, the lesser the risk is. Hence, managers must ensure the availability of all information bearing on the strategic alternatives.
It is important to consider the competitors’ reactions, responses and capacity to react and its impact while choosing a strategic alternative.
For example, if a company decides to choose an aggressive strategy which directly affects the key competitors to react, then the company may also pursue an aggressive counter-strategy for safety. It would be unrealistic for the company not to consider that possibility.
Decision making styles also play a vital role in choice of strategy.
i. Systematic and Intuitive Styles:
Sometimes managers may use systematic procedure for making decisions. Many times top managers make strategic decisions on the basis of their intuition. A systematic managers relies on a systematic plan and process for making decisions. He defines everything. But an intuitive manager keeps the overall problem in mind, relies on hunches, jumps from one step to another and explores solution quickly.
Systematic thinkers see interrelationships, focus on areas of high leverage (best solutions) and avoid symptomatic solutions. Intuitive thinkers consider a number of alternatives simultaneously and abandon them quickly. They rely heavily on intuition, creativity and judgement. Intuitive style is more used in making ill-structured kinds of decisions.
ii. Centralised or Decentralised Styles:
Where centralised decisions are made, only top managers use their wisdom and rationality. This style is found in large corporations. Top managers can accept or reject the suggestions of lower level managers in centralised decisions. In a decentralised style lower level managers suggest their strategic choices. Also, the choices of different departments are considered.
This includes the regulations, directives, guidelines and regulations of business environment. The government plays a crucial role in setting down the priorities and projects of the business. A change in government policies may affect the future prospects of a business.
Almost every industry depends on the governmental policies to a great extent. Government reports also have a major impact on the strategic plans of the organisations. Thus governmental policies act as the most important factor that a strategist should take into account while making strategic choices.
Critical success factors are the key factors required for the success of an organisation. Distinctive competency is a specific ability possessed by an organisation. Strategists should look at specific qualities and strengths possessed by the organisation for making a strategic choice. They should also consider the critical success factors for their organisation while making a strategic choice.
Strategy choice must take into account the firm’s ability to execute the strategy. Without execution, strategy has no meaning. The strategists must consider the elements like people, skills, processes, resources, and culture of the firm. The ‘suit must fit.’ Firm’s limitations must be considered for proper execution.
Factors Affecting Strategic Choice – With Examples
Strategic choice is the mental process of selecting the best or most appropriate strategy from the stock of alternatives that serves the enterprise objectives. This choice takes place in not thin air but a frame work of reference made up of variety of elements and the choice made is the product of the basic elements that work in the frame work.
Mr. Alvar Elbing in his title “Behavioural Decisions in Organisation” says that there are seven distinct categories of elements, namely- (i) accumulated knowledge base (ii) decision making processes- emotional versus rational and individual versus group (iii) assumptions about cause and effect relations (iv) human needs (v) past experiences (vi) expectations and (vii) culture and values.
According to Mr. William F.Glueck, the strategic choices are made in the background of four selective forces namely- (i) managerial perceptions of external dependence (ii) managerial attitudes toward risk (iii) managerial awareness of past enterprise strategies and (iv) managerial power relationships and organisational structure.
Broadly speaking strategic choices are the result of elements like judgement, bargaining and analysis among other things. This choice may be based on the individual’s judgement. When it is a group exercise, choice is made by a group where each member has his own calculations and final selection is by bargain.
It is also possible that choice of strategy is the result of systematic evaluation of alternatives based on facts analysed by experts such analysis is followed by judgement or bargaining or both.
Professor Henry Mintzberg and his associates in their article “The Structure of Unstructured Decision Process” in Administrative Science Quarterly-Vol.21- June, 1976, say that choice by judgement is affected by the decision-maker’s attitudes toward past strategy, external dependence, risk, managerial power relations and lack of knowledge of the group.
Choice by bargaining is also affected by similar variables but the decision process is more complex. For choice by bargaining, the decision-making power is divided in the organisation and the issues are contentious. Choice by analysis is more likely where there is a prior agreement on objectives.
However, even choice by systematic analysis is subject to the same variables as managerial attitudes toward past strategy, risk and the like which influence.
Based on above, following are the factors that influence strategic choice, among other things:
The very survival and growth and hence, prosperity of a unit rest on its exposure to and interaction with its environment which is external. External environment is made up of its publics namely shareholders, suppliers, competitors, customers, lenders, government and the community.
These elements are the external constraints. The flexibility in the choice of a strategy, is governed by the extent of the firm’s dependence on these elements and the extent to which these constraints cooperate. Comparatively, those organisations which are well settled, deep rooted and large in industries are much more powerful as against their counterpart namely, the environment.
They enjoy greater flexibility and leeway in strategic choice. For example, a company which gets bulk supply of inputs raw-material and component parts in a highly sensitive market has greater degree of flexibility in strategic choice as compared to the company which depends for its inputs on a market which is monopolistic.
The strategies of competitors in any area of business will have impact on choice of a strategy. What financial or production or marketing, or personnel strategies the firm is to follow will depend on what competitors are doing.
A shareholder holding majority of shares, has say in strategy the company is to formulate because his preferences cannot be ignored. Customers are the real decision makers whose likes and dislikes cannot be thrown to winds. Changing governmental policies will have to be respected. Again, it is community in which company is working decides what company should do and should not do.
Coming to the ground realities, these external factors need not cut down the flexibility of strategic choice. In case the company minds each and view of these external forces, there is no end. Here, the proverb of Arabs works- “You will never cross the street if one is afraid of barking dogs.”
That is, it is the perception and interpretation of the phenomenon by the executives or the strategists who are to choose the alternatives. These perceptions and interpretations differ widely from executive to executive or group of executives for that matter.
In one situation say the company executives take competition as something ‘very strong’ so much so that they reject the strategy of combat or resisting the competitor’s strategy. In a company, the executives may take the Competitors reaction as a challenge and come out with a very innovative and winning strategy instead. Thus, positive perception and interpretation will make the executives bolder and risk taking than otherwise.
In essence the strategists are to note three things regarding the external environment:
(i) The organisation’s strategic choice is limited by the extent to which it is dependent on its constituents.
(ii) The organisation which has more dependence on its external environment for its inputs has limited strategic alternatives.
(iii) The strategic choice is affected by the relative volatility of the environment.
The in house forces play a significant role. Let us confine to only decision making process. In a highly controlled or centralised company, it is the top management which has the total power to configure the strategic choice.
That is, the decision—strategic decision—made is by centralised management, is quick and non-diluted, as against a company which has participative management that results in diluted strategic decision. The research study proves beyond doubt that lower level managers suggested strategic choices were likely to be accepted than with-held suggestions.
The strategic choice has the tinge of departmental self-interest. Greater the uncertainties of the environment, larger are the number of criteria developed to make strategic choice. Another very important variable is that of managerial power relations. It is normally found that the major decisions are influenced by the power play among interest groups that differ widely.
Even the strategic choice is influenced by this variable. In case an influencing chief executive is in favour of a strategic choice which also benefits other top management members, it may be endorsed easily by other senior member. This happens when unity prevails.
However, this can be opposed in case there is power politics or power game as we find in Indian Parliamentary affairs. The research findings shown clearly that it is power-politics and interpersonal relations are responsible for 30 to 50 per cent of the strategic choices are influenced by this element.
In a nutshell, the decision makers are to remember that- (i) Bargaining is used when power for making decisions is divided within the organisation (ii) Greater is the agreement on organisational objectives, greater is the availability of documented data and staff specialists (iii) Even if the analysis is based on various facts, is filtered because of certain variables of attitude (iv) The impact of lower level managers on strategic choice influences the choice of strategy.
The constructive role that is played by the value system in decision making by managers cannot be underestimated. Value system is the frame work of personal philosophy that rules and affects the individual reactions and responses to any situation the person in exposed.
Values are essentially a bunch of attitudes, beliefs and feelings of a person as individual and as a group member. Attitudes are the positive or negative, good or bad, desirable or undesirable stands taken or a view point formed. Say, smoking is good or bad, desirable or undesirable. The beliefs are feelings that support one’s stand.
According to Hindutva husband is God and, therefore, the wife shall salute him before going to bed and leaving bed early morning; sneezing in odd number is good and even number is bad; black cat crossing the road from right to left and left to right, the second being a good omen and so on.
Feelings are perceptions prevailing in mind about anything. Value system is constantly changing. This is what we call as generation gap. The value systems are developed by the managers founded on their education, experience and the information they get on their jobs.
According to Mr. William D.Guth and Renato Tagiuri managers have six major value orientation- Theoretical- an orientation toward truth and knowledge; Economic- an orientation toward what is useful and powerful; Political- an orientation toward power; Aesthetic- an orientation toward form and Harmony; Social- an orientation toward love of people; Religious- an orientation toward unity in the universe.
While evaluating the strategic choice, executives have differing sets of values which are respected and accepted by group and personal sets of values which interact in giving weightage. The research findings have proved that Americans are the best business people, Japanese are the best imitators and innovative, Britishers are conventional in their approach and Indians are the best cheats.
To use the words of Mr. George England “Successful—American managers are more pragmatic, dynamic, and interactive and achievement oriented value, while the less successful ones are in favour more static and passive values.”
Coming to another expression, of the six above orientations, American executives lean more toward economic, theoretical and political values than the other values. Thus, the business values and personal bias have deep influence on choosing the strategic option.
Managerial attitude towards risk is yet another significant factor that affects the’ choice of a strategy. Basically, risk is a perception. Risk is an attitude or a mind-set. Risk is the function of likelihood and impact. Risk involves both likelihood and impact. Risk is a possible loss both financial and non-financial which is subject to occurrence of an event which may or may not happen.
Risk is, thus, contingent. Hence, the managerial decision is guided by the attitude of the decision- maker towards risk. Based on this “attitude towards risk”, decision-makers can be of three types namely, Risk lover, Risk Averse and Risk neutral.
Then one may distinguish between the following attitudes reflecting the order of risk preferences- 1. Risk is necessary for success 2. Risk is a fact of life and some risk is desirable and 3. High risk destroys enterprises and needs to be minimised as given by Professor William F.Glueck.
By nature executives who are risk lovers go in for high returns, high growth, less stable markets as there is direct relationship between risk and the reward. These people prefer to be pioneers, innovators, early birds. On the other hand, the risk averse or people who want to take least risks are those who want to be followers than leaders and challengers, they prefer stable conditions, low returns and go in for safer options.
Age factor also plays decisive role. The old managers tend to take no extra risk unlike young people who are yet to make mark. Those who deal with risk and uncertainty easily are able to face successfully the complex problems than those who are risk averse. Risk prone decision makers limit the amount of information and make decisions quickly as if it is an impulsive task.
It is worthwhile to note that attitude toward risk is ever changing. It varies in accordance with the dynamics of business or environmental conditions. Take a situation of fast deteriorating business conditions where executives will have to be bold and go is for risk strategies to make the show to go on.
They may totally forget about risk when they predict and calculate an opportunity with full optimism. Where trade-off between risk and return are in their favour.
Future has its roots in the past. To this, past strategy is no exception. That is, choice of the current and the future is influenced by the past strategy due to number of reasons. The foundation for formulation of new strategies is the past strategy.
In the light of the past strategy, the strategist either might not have thought of altering it or it is also possible that the strategists might have taken the things lightly and might not have thought of alternatives with the seriousness that they deserve due to inertia.
Personal involvement of the decision maker with the past strategy will continue to do so. Thus, the present and future strategies will be influenced by personal involvement. One cannot afford to lose sight of the research findings of Professor. Mintzberg and his associates.
The research findings say-
1. The older and more successful a strategy, the harder it is to change. The present strategy stems from a past strategy developed by a single, powerful leader. This original and tightly integrated strategy is a major influence on later strategic choices.
2. Once a strategy gets under way it becomes exceedingly difficult to change, and the bureaucratic momentum keeps it going. It becomes a sort of ‘push-pull’ phenomenon; the original decision- maker pushes the strategy, when lower management pulls along.
3. When the past strategy begins to fail because of changing conditions, the enterprise reacts and grafts new sub- strategies on to the old and only later seeks out a new strategy.
4. If the environment changes even more radically, then the enterprise begins to seriously consider other alternative strategies which might have been previously suggested but ignored.
Similarly, it is the nature of firms that determines to what extent past strategies influence the present or future strategy choice. According to Reymonds E Miles and Charles C. Snow, the firms are four categories as defenders, prospectors, analysers and reactors. “Defenders” are those firms which penetrate in a narrow market product domain and guard it.
They emphasize more on cost effectiveness, centralised control, intensive planning and put less emphasis on environmental scanning. “Prospectors” are the firms that use broad planning approaches, broad environmental scanning, decentralised controls, and reserve some resources utilised for future use.
They go on searching new products markets on regular basis. “Analysers” are those firms that he between the defenders and prospectors. That is, analysers act some times as defenders and sometimes as prospectors. That is they are sitting on the fence.
“Reactors” are the firms that realise that fact that their environment is changing but fail to relate themselves with the changing environment. Hence, they should act is any one of the ways as defenders or prospectors or analyses or face extinction.
If at all, one is to exile from the influence of the past strategy, the only alternative is to dethrone the past management. In fact, Professors Glueck and Jauch quite bluntly state “Strategic change is less likely if the new executives are promoted from within, and it is least likely if the existing management group remains in power.”
It is because the old strategy of the old or existing people at the top which is flowing in the blood so much so that they are charmed by the old strategy.
Yet another very important factor in the process of strategic decision making is the time dimension of strategic choice.
This time dimension has four elements which one cannot ignore, these are:
(i) Time pressure,
(ii) Time frame,
(iii) Time horizon and
(iv) Timing of the decision.
(i) Time Pressure:
Decisions are to be taken within the dead line. This dead line is set by higher ups which cannot be questioned. It is these deadlines which generate time pressure within which the managers are forced to make the right choice. For instance, say that there is an offer of acquisition by another company.
The strategists because of the time pressure or a deadline which gives hardly 36 hours, they may accept thinking that such acquisition might reduce the losses because further continuation leads to further deterioration. It is equally true that, acquisition being a very important decision, the strategist may not take decision and post pone it as it warrants ins and outs of proposed acquisition.
(ii) Time Frame:
Time frame refers to time frame of the decision in question. That is, the short-term and long-term implications of a choice. It depends on the reward system that is prevailing in an organisation.
In case the reward system of the firm is associated with achievement of short-term goals, the choice is to gains for short term gains ignoring the long-run gains of the proposed choice. Instead, if the rewards are associated with long-term achievements, there is every possibility of ignoring short-run gains.
(iii) Time Horizon:
This part of time dimension speaks of the period of commitment that goes with it. We have already conversant with stable growth strategy and diversification strategy. It is the strategy in question that decides the time horizon. For example, stability strategy warrants immediate action and the fruits start bearing very early.
Instead, if it is a diversification strategy the decision is not immediate as the fruits of diversification are available in due course of time rather than immediate future. Thus, a long-range strategy that calls for commitment of resources for an uncertain future is less acceptable than that of one having immediate relationship.
That is ‘Law of Delay’ devised by Mr. C. Northcote Parkinson applies. That is, the longer a decision can be delayed, the lower the probability that it will ever be accepted. Much depends on the strategists.
(iv) Timing of Decision:
Timing of a decision determines the strategic choice. It is the timing of the decision that determines the effectiveness of it. It is well known “stitch in time saves nine” which applies. For instance, a prompt and timely decision is a must to exploit the opportunity which is open to the firm.
It should be encashed well before the competitors have hand at it. Again, a decision to enter a new market is going to be in favour of the firm which cannot be delayed. If so the competitors waiting will not wait for you. Thus, delay makes year to lose the golden opportunity on which you can care your future success.
The strategic choice of a strategy option is bound to reflex in the competitors’ reaction. Therefore, a wise strategist places himself in the shoes of the competitor or competitors to know where exactly the shoe bites. Only after studying the reactions, he may be able to take correct decision than ignoring the impact of competitor reaction.
Much depends on your market position. That is, whether you are leader, challenger, follower or nicher. Say, both your firm and your arch-rival firm are challengers. In this case, it is quite possible that your competitor may take your strategic option as very aggressive and makes the competitor to have counter strategy to overpower you.
Say, you reduced the price of your branded product, then other company might reduce equally and give some addition incentive in kind. If you are a follower, then the strategy of follow the suit operates. We know the case of price war going on between arch rivals namely Hindustan Lever and Proctor and Gamble.
If the first company has reduced the price of Surf Excel from Rs.85 to 70 for a half kilo pack, Proctor and Gamble has done so in case of Arial. Later, Surf Excel has been introduced with new proposition.
The followers say Nirma and others being followers, have no choice than to follow the suit without option. Thus, the competitor’s reaction has far reaching impact on the choice of a strategy.
When it is a question of choice rather rational choice, the quality and quantity of information decide the strategy choice. The choice or strategic decision that is based on facts, the considered opinions other sources of information written as oral are more sound and acceptable that is, the degree of risk and uncertainty depends on the amount and quality of information made available to the decision makers.
There is inverse relationship between the available information and the degree of accuracy of strategic choice. That is, the greater the amount of high quality information, lesser the risk and uncertainty. The decision maker is a risk-prone or a risk averter or risk neutral.
Risk prone and risk averters need the information to decide whether to take or not the calculated risks which are unavoidable in the world of business. Hence, the decision makers need a package of relevant information to analyse and interpret and act. The information is not easily available which costs in terms of treasure, time and talent.
Factors Affecting Strategic Choice (Objectives of the Firm)
Given the objectives of the firm and given a set of strategic alternatives, corporate planners have to make the final strategic choice for achieving the corporate objectives in the best possible manner. This decision is the most crucial decision that the planners have to take. This phase of decision process is also known as selection phase. Any error on the part of the decision-makers may affect the business activities of the firm in an ineradicable way. We propose to present this subject from the point of view of actual decision-makers.
It is clear that to make a strategic choice one has to evaluate the strategic alternatives in respect of some selective measures and compare these evaluation results to pick up the best possible course of action. Choice of strategy is, in this sense, dependent on choice of selective measures of evaluation. Since the ultimate aim of the planners is to meet the corporate objectives, the selective measures should be in close consistency with the corporate objective.
For example, if profit maximization is the objective of the firm then expected profit should necessarily be a measuring instrument. Alternatively, if objective is to maximize sales and maintain a minimum profit, selective measures should necessarily include expected sales and expected profit. Choice of these measures can make lot of difference in the ultimate choice of the strategy.
It has been observed from the past experiences that following factors mostly regulate the choice— decisions of selective measures, and directly or indirectly influence the strategic choice:
1. Managerial perception of external dependence.
2. Managerial inclination towards past strategies.
3. Risk taking attitude of the managers.
4. Managerial power relationships.
5. Influence of lower-level managers.
6. Organizational culture.
7. Organizational politics.
The way of looking of the corporate planners towards external dependency largely affects the strategic choice of the firm. No firm can work in isolation. It is dependent on external entities and external environment. For example, survival and growth of a firm largely depends on the roles played by its competitors. Strategic choice of a firm may vary with the degree of dependency. But this state of dependency may not be objectively measurable.
It is the perception of the top management that defines the state of dependency. Consider the case where profit maximization is the objective of the firm and the expected profit is the selective measure. Given these two, i.e., the objective and the measure, there may be many strategic choices, each being optimum in some sense. If the perception about dependency on competitors is such that the management likes to unconditionally maximize its profit, there will be one set of strategic decision.
It will be an optimum monopolistic decision given the managerial perception of minimum dependency. If the perception of dependency is such that the management wants to lead in the product field assuming others to follow, optimum strategic choice will be based on profit maximization under the reaction curves of the competitors. Thus, the firm will behave like a Stakelberg firm assuming others to be of Cournot type in an oligopolistic market.
Here, dependency is acknowledged but competitors are assumed to be followers. In another situation, the management may perceive high degree of dependency on a competitor and may like to act as a follower of that competitor. Then the conditional profit maximization of the firm will follow the path of reaction curve and incorporation of the decision of the market leader in the same.
One may refer to Henderson and Quandt (1980) for initial exposure and also to the works of Wolf and Smeers (1997), Sherali et al., (1983). Thus, managerial perception of external dependence can affect the strategic choice in a significant way even under a mathematically rigid micro economic setup with expected profit as the sole measure of efficiency.
In fact, more dependent a firm is on its external entities less flexible will be its strategic choice. In other words, perception of external dependence restricts the range of strategic choice of a firm. Unfortunately, dependencies are not always objectively measurable.
This is because market data do not speak for themselves. Managers interpret facts and figures and take subjective decision about dependence. A stronger firm may consider itself as competitively weak and a weaker firm may consider itself as competitively strong. Thus, the second one can stretch itself beyond its present resources.
According to Hamel and Prahalad (1993), abundant resources alone won’t keep an industry giant on top when its hungrier rival practices the strategic discipline of stretch. Thus, the weights, which the two firms assign to various strategic alternatives, may markedly vary even though they may operate in the same product Held, facing the same environmental opportunities and threats.
Over inclination of corporate planners towards past strategies of the firm results in a situation where past strategies become the starting points of the future strategic choice.
This means elimination of some strategic choices for maintenance of functional continuity. Managers, being extremely overburdened with functional responsibilities in a competitive market, fail to appreciate conceptual and operational discontinuities. They prefer to work within the extrapolated domain of the existing strategies.
Mintzberg (1972), in his study on micro and macro level planning, observed that past choices of organizational strategy strongly influence the later strategic choices, especially when the past one had been developed by an influential leader in a unique and tightly integrated way. Mintzberg used the term gestalt strategy to describe these powerful past strategies.
The other aspect of strategic momentum is best explained through push-pull phenomenon. Initially, top management pushes a strategy and later lower management pulls it along and gradually becomes attached to it. Even if that strategy fails due to environmental changes, a tendency of grafting new sub-strategies on the old one is found to be a very common practice. Only when the environmental transformation becomes unmanageable, the firm goes for a new look and listens to unheard suggestions of the earlier years.
Works of Miller and Friesen (I977, 1978) also support the hypothesis of Mintzberg (1972). Staw (1976) observed that longer amount of resource commitment for a particular strategy leads to personal involvement of the management with that strategy. Escalated commitments towards the past decisions gradually reduce the strategic choices.
Strategists start feeling personal responsibility for results. Even if the results are negative, they tend to allocate more money for remaining consistent with the earlier decisions. In case a strategic choice leads to continuous failure, the firm may have to get rid of the strategic planners to get rid of the present strategy.
This effect of past strategies on the present strategic choice is more disturbing during the stages of maturity and decline than the stages of introduction and growth. Specially, during the stage of decline, an altogether different strategy is to be searched for to arrest the rate of decline. This is equally true for the stage of maturity when new excitement is to be created in the market through a new strategic choice.
Screening of strategic alternatives takes place at the value base of the top executives and one of the most important values is the propensity to take risk. For risk taking manager, the set of alternatives is a super set of the set of alternatives generated by risk avoiding managers. Risk avoiders underestimate the strengths of the firm and overestimate the weaknesses.
In case of external environmental scanning, risk avoiders give more emphasis on threats than opportunities. As a result, strategic alternatives become only a few. The reverse situation arises for risk appreciating managers. They tend to be oriented towards strength and opportunity rather than weakness and threat.
The nature of the production field and degree of volatility may change the risk- taking attitude of the managers. In volatile industries, managers get habituated with absorbing greater risk because otherwise they have to quit the job. Similar is the case of a product field where lots of innovations take place. Executives of firms, operating in these product fields, become unknowingly risk oriented.
Risk attitudes of the managers of a firm may also vary over the years. As the organization grows in size, top management prefers to avoid risk. Hamel and Prahalad (1993) have also observed a similar tendency among the top executives of the market leaders. They pointed out that not a surfeit of resources but a scarcity of ambition bedevils market leaders. If there is scarcity of ambition, there will be low propensity to take risk.
Power relationships are key realities in the life of any business firm as pointed out by Jauch and Glueck (1988). Development of strategic alternatives and choice of strategy depend largely on managerial power relationships. If the top executive is all-powerful and floats an idea of a strategic alternative, there will be immediate acceptance and appreciation from the other executives irrespective of the merit of the suggestion.
In case an executive of the same rank moots an idea, there may be immediate opposition from a few without any qualitative assessment of the proposal. Relationships with the top manager also play crucial role in selecting SBU strategies and functional strategies.
If the top executive is having a close relationship with the head of one SBU, it may draw extra attention of the planner in respect of resource allocation and may continue to grow at the cost of other promising SBU’s. Similarly, if the top man is from the marketing discipline he may tend to overact with marketing functions and under act with other functions.
Power plays among the internal and external coalitions have already been acknowledged as an important influencer of business objective. This is equally true for strategic choices. In every organization, workers union and associations of managers and supervisory staffs try to include or eliminate some strategic alternatives and regulate the process of strategic choice. The degree of influence varies from organization to organization.
According to a study of Mintzberg et al. (1976), organizational power-plays lead to three types of situations in which strategic choices are made. Under extreme concentration of power, a choice is made in a single individual’s mind and is known as judgmental process.
And more centralized the decision making process is less documents and quantitative data are needed for decision-making. Further, need for judgement is more felt when the time to take a decision is very short. Under extreme time-pressure, decision-maker tends to apply his own judgment, ignoring the analytical and participative processes altogether.
In case the power is distributed in the hands of a few individuals, groups or coalitions, the strategic choice is made through a process of bargaining. By the term bargaining we mean decision-making under conflicting demands with each decision maker making his own judgement and trying to make it acceptable to others. Mostly past strategies, risk and external dependence figure in this discussion. The time taken for arriving at a final decision through bargaining is quite long.
In case power follows expertise and there is a prior agreement on objectives and responsibility for selection, the process of strategic choice becomes an analytical process. Analysis assumes importance under greater availability of documentary evidences and supporting data and larger commitment of resources.
For costly decisions, analysis is preferred to both judgement and bargaining. It has been observed by the researchers that the analytical process is twice quicker than the bargaining process. Unfortunately, managers mostly prefer judgement or bargaining than analysis unless staff specialists are available for doing the work. Even under analytical process, attitude of the managers play a vital role in remoulding the results of analysis.
Though top management makes the final strategic choice, yet lower-level managers influence the choice process in a significant way, as observed in Bower (1970). Final strategic choice is never based on all strategic alternatives. Subordinates limit the strategic alternatives at different levels by doing a lot of filtering before they go to the top.
Bower’s concept of sequential filtering had been tested by Schwartz (1973) on Digital Equipment Company and Texas Instrument Company. Schwartz found that lower- level management played important preparatory role in product innovation and also helped in risk evaluation. Lower-level managers prepared cases where risks were less and modifications were incremental in nature, rather than risky breakthroughs. As a result, top executive did not go for any major change in the product design.
Not only for product design but also for mergers and acquisitions, views of the lower-level management get reflected in the strategic choices of the top-level management. Carter (1971), in his study on six acquisition decisions, observed that lower-level managers used to suggest those strategies, which were likely to be appreciated by the top management.
Different departments were found to be evaluating strategic alternatives in different ways to achieve the maximum departmental benefit. It was also noted by Carter that in case of increased uncertainty, lower-level managers preferred greater number of criteria for appraising a strategic alternative.
The study of Guth (1976) on the participation of lower-level managers in corporate planning revealed similar situation. He observed that the views of lower-level managers were likely to be influenced by the objectives of their subunits and the strategic choice would differ from the formulation by the top manager based on his own judgement.
An organization is having a culture of its own. This organizational culture is made of a set of shared values, beliefs, attitudes, customs, norms and personalities. The successful functioning of an organization depends on strategy-culture matching. In case of a mismatch between strategic choice and the cultural framework of an organization, either one is to be redefined.
Otherwise, organizational culture may actively and forcefully start working against the organizational means. Every human being is having a basic need to make sense of his surroundings and to put control over the surroundings. These give meaning to their works. But when a strategic choice threatens the basic meaning of the work, individuals become initially defensive and latter offensive. They even try to backstab the new strategies to regain their earlier state. Thus, organizational culture strongly affects the strategic choice of an organization.
Managers, in their attempts to maintain cultural status quo, strongly resist the formulation of a strategic concept that may go against the organizational culture. It is necessary to ensure a supportive culture before planning a strategic alternative. Otherwise planning should be done to cultivate a new culture that can sustain the new strategic choice. But cultivation of a new culture requires lot of time and effort. Hence, managers allow those strategies to reach the top that require limited cultural changes.
In case of mergers or joint ventures, cultural commonality becomes an important issue. So many mergers have failed in the past because of cultural difference. Corporate planners are now conscious about the problems arising out of cultural mismatch. Many of the strategic alternatives are skipped to avoid the cultural problem during strategic implementation. According to Allarie and Firsirotu (1985), success or failure of aimed at corporate reforms wings on management’s sagacity and ability to change the firm’s driving culture in time and in tune with the required changes in strategies.
Every organization is a political organization. Only the degree of politicization varies from organization to organization. In a highly politicized organization, political manoeuvring eats away precious time, lowers down organizational objective, misuses man-hours, destroys employees’ moral and drives out talented and efficient employees. Beeman and Sharkey (1987) have pointed out many such abuses of corporate politics.
In case of lack of objective analysis, political manipulation takes the driving seat in strategic planning. Beeman and Sharkey (1987) have offered guidelines for minimization of influences of organizational politics on organizational strategic planning. According to them, the first and foremost neutralizer is the crystal clear performance evaluation and performance based rewarding system.
Minimization of resource competition among the managers can considerably reduce the political activities of an organization. This reduction can be achieved through emphasis given on external objectives. Care should also be taken to split the most dysfunctional political groups and prevent the managers from the mode of operation through personalization. If needed, executives engaged in politicized operation be removed.
Following David (1989), we may also propose the following generic approaches to neutralize the negative impacts of political influences:
i. The first generic approach is equifinality. It means equal results can be achieved through multiple ways and hence strategists should avoid confrontation. By imposing a pre-selected method, strategists do not gain much in the face of political opposition. Alternatives with greater potential for gaining political support and giving equal results should be explored.
ii. The other approach is to follow a satisfying role. According to this approach, it is better to achieve satisfying result under wide acceptance among the different power groups than to pursue an optimal but politically opposed method and failing to deliver goods.
iii. The approach of generalization also works well. Shift in focus from specific issues to general issues may reduce political resistance and help in gaining organizational acceptance.
iv. Focusing on higher order issues may help to postpone short-term interests in favour of long term ones. By focusing on the issue of survival, strategists may become successful in bringing political personalities in their fold.
v. Lastly, providence of political dialogue is an important neutralizer that takes away heat from the minds of the opposers. Managing intervening behaviour becomes easier when strategists can have more information about the objections of the political leaders.
In this age of discontinuity, power not only rests upon internal coalition groups but also rests upon external coalition groups such as groups of major customers, groups of key suppliers and groups of major shareholders.
In the present era, the board of directors is generally composed of outsiders rather than insiders. In a study covering 1,300 large companies in America, Henke (1986) has found that nearly 40 percent board members actively participate in formulation of strategic issues. Suppliers also limit the strategic choice in the backward direction and customers remoulds the alternatives mostly in the forward direction.
Time is also a key factor affecting strategic choice of an organization. In the short-run, management can read, with clarity, the requirements of the firm. But a quick change in direction is not a very easy task. In the long-run, requirements are obscured but directional adjustment are easier.