Managing Finances And Strategic Decision Making

To what extent is it useful to view the management of strategy within an organization as a process?

Introduction

The business world is becoming more and more competitive. This has arisen due to the fact that there are many substitute products for any given industry or market. For example, all detergents basically do the same thing; they aid in washing clothes. However, there are very many types of detergent to the extent that a company has to set itself apart in a unique manner if it is going to gain a competitive advantage. One of the ways through which the company can and should strive to set itself apart is through strategy. Strategy will differentiate good companies from great companies. Whether strategy is a process or an emergent thing is up for debate. In strategy exploration, two chief viewpoints on the creation of plans exist: the foremost school comprehends strategy creation as a preparation task while the other contends that tactics are often unplannable but arise from training (e.g., Mintzberg and Waters, 1985). By now, there is an accord that strategy making resides on a range from deliberate to nascent policy making where most approaches are completed in a mixed way. Numerous sets of eventuality features have been recommended to elucidate the inspirations on the policy-making mode, i.e., on whether strategies are made in a more planned or a more developing way. Thus, this paper shall evaluate the extent to which it is useful to view the management of strategy within an organization as a process.

Collective View of Strategy

Whereas there are two different views of what strategy is and how it comes about, there is a collective view of what it is made of. Collectively, strategy is viewed as long-term strategic planning to define goals which to allocate resources. Strategy is seen to consist of antecedents, processes, and outcomes. Moreover, it consists of strategists, issues and opportunities and actions. In relation to strategists, the origin and experience of the strategists affect the outcomes. Hutzschenreuter and Kleindienst (2006), note that the place of origin of the strategy accounts for different process characteristics. It makes sense that different people will have a different mode of doing things and that the processes through which they choose to carry out the strategies will be different. Decisions are made by individuals; thus the process through which decisions are made is highly influenced by an individual’s personal attributes (Hutzschenreuter and Kleindienst, 2006). The strategist may refer to a single individual or to a group of individuals. Therefore, attributes such as homogeneity of the group, size, and secrecy are all part of the strategist part of the process. Experience is also a critical characteristic that is involved with the strategist. Experience in coming up with strategies is critical, and the more experience the strategist has, the better it is for the organization. Moreover, strategists are needed when there are issues and opportunities within the organization. Issues have a negative connotation and a strategy in this sense will be to aid the company to rise above the detrimental problem that it is experiencing. An opportunity connotes a positive change. Case in point, the company, may gain an opening to break into a new market. In such a scenario, the formulation of strategy will be to ensure that the company takes proper advantage of the opportunity that has fallen on their lap. The end of the process is that there is an outcome. The outcome may be positive or negative depending on how the strategy was applied. The main reason why strategy is needed is so that a desirable outcome may be achieved. That applies more in big organizations where there are too many moving parts for them to proceed without having a proper strategy in place. Thus, there should be strategists, issues and opportunities and actions that arise as a result of that strategy.

Part of the collective view of strategy is that there should be commitment and that the decisions quality matters. Alsdorf, Heinzer, and Ko (2012) note that decision quality matters in relation to strategy. They continue to state that decision quality is defined by two facets: process quality and people quality. Process quality refers to the frameworks that aid in the decision-making process. The process and the associated frameworks must be of high quality for high decisions quality to be achieved. The reverse is also true; weak frameworks will lead to poor decision quality. The second facet to improve the decision making pertains to the quality of people. People quality refers to the skills that the people have, governance skills, and the learning process they will have to undergo as part of the decision process. The strategist should aim to get people of high quality to aid in improving the decision quality of the process. One may have the proper frameworks in place, but without the right quality of people, the decision quality will be severely compromised. Dooley, Fryxell & Judge (2000) note that the level of commitment is very important because it is part of the larger process characteristics. The commitment to the process influences the characteristics of the process outcome. A higher commitment level to the process means that people will be more willing to give of their time and their resources and that may skew the outcome positively. Conversely, low levels of commitment may tilt the outcome of the process towards the negative. Therefore, commitment and decision quality are very important in the long run.

Current wisdom dictates that the larger a company is, the more inclined they will be towards better procedural and formalized strategies. Vancil and Lorange (1975) state the for small companies strategic planning is very simple since it tends to follow an almost informal and less continuous process. The top managers of the company will gather together, and they resolve any strategic issues and state what their next steps will be. Since it is a smaller company, managers tend to meet more frequently since they most likely reside within the same premises. However, large and diversified corporations carry out strategic planning in a different manner. Contrary to popular assumptions the larger an organization is, the less likely they are to become more complex in their strategic decision making (Mintzberg, 1973). Vancil and Lorange (1975) note that the more complex the organization, the higher the decentralization of the decision-making process. Smaller companies allow for all the decisions to be centralized, but in big companies, the decision is decentralized and usually involves very many managers on the process. In such a complex environment, there is the formulation of specialized functions and business units which causes more fragmentation and the geolocation of subsidiaries and MRCs make them more external market-oriented and shaped by the strategist origin and experience. As such, larger companies have a more fragmented approach to strategic decision making.

Antecedents affect the business and the strategist and have an effect on the overall process. Hutzschenreuter and Kleindienst (2006) note that the process characteristics of strategic decisions are influenced highly by external and internal forces. Internal processes comprise of many things, but the size of the company is a key factor. As shown above the larger the company, the more decentralized their strategic decision making and the smaller the company more centralized their decision making. External forces also play a very important role in the process, and they usually relate to the environmental and strategic context in which the organization operates. According to Hutzschenreuter and Kleindienst (2006), organizations in environments that are uncertain have a very small margin for error. In such situations, the strategist will focus on the speed of decision making based on intuition and other subjective means rather than carrying out comprehensive research on the issue. Moreover, the process will be affected by the overall strategy that the firm is utilizing. Environment determines strategy through a dominant logic that’s built and evolved over time and derived from competitor aggressiveness, strategic positioning and likelihood of strategic reorientation. Additionally, decisions and strategies are shaped by the model of the strategist vs. objective information (Hutzschenreuter and Kleindienst 2006). Moreover, it is important for socialization to occur amongst the strategists. According to Falcione & Wilson (1988), organizations that have stronger socialization amongst strategists tend to rise above organizations that have relatively weaker socialization. Socialization leads to improvement in quality, creativity, and speed. Thus, it is important for organizations to encourage socialization amongst strategists since it will lead to better positive effects in the process.

Emergent Strategies

Some authors state that it is possible that strategies are not deliberate; rather they arise in an organization without them being consciously intended. According to Lewis (2002), strategy is more flexible than planning; thus it does not arise from deliberate, conscious effort. Mintzberg (1975) argues that it is not possible for managers within an organization to set goals and then give guidance on how the goals are going to be achieved. He posits that the strategy to reach those goals tends to grow from the company and it is unplanned. According to Slevin and Covin (2015), emergent strategies are irregular, and they have a short time-frame. They argue that emergent strategies cannot be maintained for a long time since they were not planned for. They simply appeared as an opportunistic response to environmental conditions. As such, they can neither be sustained for a long time nor be planned for. The moment plans start being applied to maintain and sustain the emergent strategy, it crosses the divide, and it becomes a deliberate and planned strategy. While it may have begun as an unplanned reaction to opportunities and issues in the environment, it may transition into a deliberate plan if management desires to maintain the momentum that has been generated by the emergent strategy.

Moreover, emergent strategies allow the business to adapt to ever-changing environmental factors. According to Andersen and Nielsen (2010), emergent strategies can only be effective when power is delegated to people who are on the lower levels of the organization. The very concept of emergent strategy means that there will not be time to pass information up the command chain and wait for information to come down the chain concerning what should be done concerning the issue. As such, it is important for people on the lower rungs of the organizational ladder to receive enough power to make decisions as the environmental factors continue to change and adapt. That will mean that managers can take faster responsive action to avert a crisis or to seize an opportunity that would otherwise have not been accessed if the decision had to be accessed from the top-level managers. Additionally, through the delegation of important facets of the communication process, costs on communication are reduced as well as information processing costs and that may lead to better- and well-informed decisions being made. Andersen and Nielsen (2010) argue that deliberate, planned actions set the ground for emergent strategies. Deliberate and planned strategies lead to the formulation of frameworks that aid in the application of the plan. When an emergent strategy appears in the process, they are integrated into the existing model, and that helps in increasing their efficacy in the long run. Therefore, there is a place in the strategic decision-making process for emergent strategies since they help offset some of the advantages that come with deliberate strategic planning.

The Impact of Politics and Power on Determining Strategies

Company politics have an impact on determining strategies. According to Lewis (2002), organizational politics has always been viewed as a taboo discussion because many organizations are built on principles of participation and collaboration. Moreover, politics has not been discussed in literature because organizations stress that their decision making is based on rational decision-making processes and models. The concept of company politics has to be discussed with the context of power. Power, in and of itself is amoral; it is not a thing or an act, but in the context of an organization it relates to resources, the potential for change and the capacity to make the changes. Pfeffer (1981) notes that politics are the acts which people engage in so that they can get power; that definition applies in political fields as much as it applies in the organization. As such, politics and power are intertwined. One sees a reflection of politics in organizations since people do not disclose their sources of power. If one discloses their source of power and they have none, it will make them look weak, and if they have many sources of power, they may earn the envy of others who will then seek to diminish their power. Managers are advised not to reveal their sources of power. Therefore, while politics is a taboo subject in organizations, it abounds in businesses under the name of power which is a sanitized version.

Political players (managers) are motivated by influencing resources either to drive their success to be successful and, to get bigger positions (company resourced) or more of the company resources to which there are less aggregated as one looks at the senior management pyramid. Lewis (2002) states that many managers may be averse to politics within the organization due to their pluralist nature. Many managers have been trained in theories of management in which people are encouraged to pull together and which are pluralist in nature. Additionally, the term “politics” carries the connotation of underhanded gimmicks that people have to carry out if they want to keep power. According to Morgan (1997) organizations are basically political systems in which people pursue their own needs and interests. People are constantly competing for scarce resources in the form of promotion and bigger positions in the company, and that shows that politics are intertwined with the basic organizational structure. However, all is not doom and gloom since politics gives people access to the power and the resources needed to make strategic decisions.

Organizational politics aid in building coalitions that will drive influence and resource allocation. According to Lewis (2002), the manager will need to consolidate his own power base or gain the support of more powerful people in the organization. People in the managerial positions already occupy positions of power, and that puts them in a position to determine the organizational structure and subsequently the allocation of resources. Basically, the utilization of politics determines who will be the strategist in the organization. Once the strategist has been selected as defined by organizational politics, the process and the outcomes will be defined by the idiosyncrasies of the strategist. Additionally, organizational politics aid in setting up control metrics and socialize relative performance negatively or positively to defend results or make results look better. Control metrics in strategic planning act as signposts that reveal whether the implementation of the plan is going according to plan. The one in the position of power will decide which control metrics will be used more so if it is an emergent strategy. Through the socialization of relative performance, the results will appear negative or positive. The individual in power will have the influence to do so. Furthermore, politics and power will determine who will control the rational decision-making structures to drive influence and allocation of resources using leaders and, or consultants. The one who will determine the decision-making structures and the allocation of resources will be the one who will influence and determine the strategies. Thus, the key impact of politics and power in the context of strategic decision making is that it influences who will become the strategist.

Results and Who’s Winning?

Thus far the results show that management strategy is more of a process in small firms while it may be emergent in big firms where decision making is not centralized. The key decision makers of small firms tend to be under the same roof; thus decision making is centralized and more of a process. However, in big firms, decision making is decentralized which makes strategic management more emergent rather than a process. Power is decentralized meaning that different managers can make decisions based on issues and opportunities as they emerge. Therefore, in small firm’s strategic management is more of a process while in big firm’s strategic management is emergent.

Key Success Factors or Winning Formulas

There are a number of key success factors that must be taken into consideration. First, adequate resources and budgets should be procured (HEC Paris, 2016). Resources and budgets may make or break the strategic implementation process. Enough resources should be procured not only to aid the strategy in taking off but also one that will maintain the strategy for a long time. Second, strategists. The right strategists should be selected to come up with the strategy. If possible, strategists that have experience coming up with strategy should be selected. Third, people and processes. People with the right credentials to help in rolling out the strategy and proper quality processes should be put in place since they are key determining factors of the success of the strategy.

Conclusion on Market vs. Strategic Planning

Strategic planning is very important for a company. It helps the organization rise above any issue that may arise and to take hold of opportunities. As seen above there are two schools of thought concerning the nature and process of strategic planning. One school of thought posits that strategic planning is a process that requires deliberate effort. The other school of thought argues that strategic planning cannot be done deliberately it can only occur in response to issues and opportunities that were not foreseen. Both schools of thought agree that strategy is a long-term strategic plan to define goals against which to allocate resources and it consists of antecedents, processes, and outcomes. The level of commitment and the decision quality was found to have an overall effect on the strategy. Decision quality revolved around processes and people with higher quality levels of processes and people showing a commensurate rise in decision quality which in turn has effects on strategic planning. Some argue that the bigger an organization gets, the more streamlined its processes to become. However, based on the information revealed above the strategic decision making within an organization is more decentralized. The decentralization occurs especially in conglomerates that have subsidiaries that are far from the company headquarters. There are too many moving parts; thus it is better for the decision-making process to be decentralized; different managers have power over different parts of the process. Within a small company, it was found that the process is more centralized since all key decision-making personnel tends to work in the same building. Politics and power were found to have an impact on determining strategies. Politics and power determined who had control over resources and the decision-making process which in turn determines who the strategist will be. Therefore, to answer the question of to what extent is it useful to view the management strategy as a process. The answer is that it depends on the school of thought that one subscribes to. If one believes management strategy is a process, they are more likely to view it as a process. If one does not believe that management strategy is not a process, they are less likely to view it as a process. However, there is room for both views. The concreteness of planned strategy should be applied with the dynamism and adaptive nature of emergent strategy. By applying both, they will offset each other’s strengths and weaknesses. As such management strategy should be viewed as both a process and dynamic, unpredictable thing.

References

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