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THE ROLE OF DATA IN STRATEGIC DECISION MAKING PROCESS

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INTERNATIONAL JOURNAL
OF CURRENT RESEARCH
International Journal of Current Research
Vol. 4, Issue, 04, pp.001-007, April, 2012

ISSN: 0975-833X RESEARCH ARTICLE

THE ROLE OF DATA IN STRATEGIC DECISION MAKING PROCESS

Stanley Kavale
Jomo Kenyatta University of Agriculture and Technology, Mombasa CBD Campus. Mombasa, Kenya

ARTICLE INFO ABSTRACT

Article History: This paper explores the role of data on the strategic decision making process. This is a desk top
Received 16th January, 2012 research study which looked at different studies done by researchers on the role of data and its role in
Received in revised form strategic decision making. The main objective of this study is to establish the roles data play in
18th February, 2012
strategic decision making. The strategic decision making process has also been identified and the
Accepted 08th March, 2012
Published online 30th April, 2012 theories underlying strategic decision making process have been explored. First it looked at the
definition of data in relation to information and knowledge. Sources of data, both internal and
Key words: external have been identified and theories of decision making; rational, incremental, political,
constructive and factual approach illustrated. From the study, it is quite clear that data has very
Role of data,
Strategic decision making process, important roles in strategic decision making. This paper concludes that data plays the roles of;
Type of paper, gaining competitive advantage, optimization of resources, cost reduction, value creation, accuracy
Research Paper. and accountability and hedging uncertainty. Thus data brings efficiency and effectiveness in the
strategic decision making process. This paper recommends that management in organizations should
attach a lot of importance to data sourcing, analysis, interpretation and use to create competitive
advantage. Further, data security should be enhanced because data is a key resource.
Copy Right, IJCR, 2012, Academic Journals. All rights reserved.

INTRODUCTION cannot be solved easily by existing procedures and may have

not previously been encountered in the same form. The
The concept of strategic data based decision making is the use strategic issues that are the subject of the decisions are
of robust data and intelligence to underpin a company’s similarly combative and can be summarized as affecting the
decisions. This is in contrast to intuition-based or ‘gut-based’ long-term direction of the organization and involving
decision making, where decisions are based on unfounded considerable change such as strategy development and
beliefs of the business and its external environment. A data- execution, mergers and acquisitions, large investments and
based approach to strategic decision making is one commonly organizational changes (Van Riel et al., 2003). Data based
advocated strategy for increasing efficiency and strategic decision making promotes accountability are part of a
competitiveness and meeting external demands for rational, linear approach to strategic decision making, in
accountability. Data-based strategic decision making is the which organizations set clear goals, collect all the information
thorough collection and objective analysis of data to make needed to objectively analyze all the possible alternative
decisions (Lassen, 2007). Over the last few years, resources strategies to reach those goals, choose the strategy that
for management information have increased with the change maximizes their chances of success, and then gather more data
of the internet from mainly a research-oriented system to one during implementation to measure their progress and refine
that has additionally become a source of relevant information the strategy (Chaffee, 1985). Otherwise, Miller, Hickson and
also for a business audience by its diverse content. Because of Wilson (2002) indicate that decision-making is important
these developments, the question is no longer whether some because it is crucial to the comprehension of how and why
required bit of information is available, but where this item organizations come to be what they are and to control what
can be found in the shortest time. More importantly, what role they do. Organizations need decisions to be made in order that
will that data play in enhancing effective and efficient they can function effectively. The major purpose of this study
strategic decision making?. Also, new methods have become is to explain the role of data when making strategic decisions
available for the task of collecting information in each step of in firms. It also seeks to identify the strategic decision making
the strategic decision-making process such as preparing for a process. The theories underlying strategic decision making
case, constructing, documenting and comparing alternatives, process is also be explored.
thus enabling faster and more comfortable choices (Choo,
2002). Decisions taken by executives of large corporations are Data, Information, Knowledge and Strategic Decision
mostly of a strategic nature; they are complex, non-routine, Making
What is the difference between data, information and
*Corresponding author: [email protected]
knowledge? Consider a document containing a table of
002 International Journal of Current Research, Vol. 4, Issue, 04, pp.001-007, April, 2012

numbers indicating product sales for the quarter. As they

stand, these numbers are Data. An employee reads these
numbers, recognizes the name and nature of the product, and
notices that the numbers are below last year’s figures,
indicating a downward trend. The data has become
Information. The employee considers possible explanations
for the product decline (perhaps using additional information
and personal judgment), and comes to the conclusion that the
product is no longer attractive to its customers. This new
belief, derived from reasoning and reflection, is Knowledge.
Thus, information is data given context, and endowed with
meaning and significance. Knowledge is information that is
transformed through reasoning and reflection into beliefs,
concepts, and mental models (Fahey and Prusak 1998).

Information is something that changes the state of its recipient

or, more specifically, the knowledge state. A slight variation is Fig I: Sources of business intelligence (Brenner, 2005)
to say that information is what determines a decision or allows
a choice to be made. Making a decision represents a change of The Process of Strategic Decision Making
state (from undecided to decided) on the part of the decision
maker (Meadow & Yuan, 1997). It is a message understood by Many studies in strategic management take the position that
the recipient and which changes that person's knowledge base executives reach strategic decisions after a structured process
(Choo, 2002). Knowledge generally is based on information. of careful consideration of circumstances, alternatives and
This raises the question of how the upgrading of information consequences. Information on matters such as competition,
to knowledge has been achieved in the industrial environment. markets, technologies and the societal environment affecting
Van Riel et al. (2003) call the development of rational the organization specifies the implications of the feasible
knowledge a deductive and analytical logical process. The alternatives for the decision to be made and plays a crucial
decision-maker follows a series of predetermined and role in obtaining the parameters of these alternatives. Making
communicable steps that transform given external or internal decisions presupposes that adequate information is available
information according to these rules of logic. Reasoning is that enables an executive director or a board of directors to
thus seen as the processing of selected cognitive content, using reach the best possible decision under the circumstance
the logic of causality: an intentional, constructive, rule-based (Hammond, Keeney and Raiffa, 2006). The strategic decision
and conscious activity. The building blocks of this analytical making process is a seven step engagement that starts with
or rational knowledge are pieces of information or judgments. problem definition, criteria definition and generation of
Strategic decision-making has been described as a dynamic alternatives, evaluation of alternatives, choice of the best
capability in which managers pool their various businesses, alternative, implementation of the chosen alternative and
functional, and personal expertise to make the choices that follow up. The strategic decision process (on average) takes
shape the major strategic moves of the firm. Mintzberg and the above indicated steps. This process is affected by amount,
Theoret (1976) define a decision as a specific commitment to accuracy and reliability of data, both the internal and the
action, usually a commitment of resources and a decision external the environmental factors; key of it being the
process as a set of actions and dynamic factors that begins available resources since strategic decision making is a long
with the identification of a stimulus for action and ends with term plan. Others include the level of education, risk
the specific commitment to action. propensity, size of firm and the level of aggressiveness.

Sources of Data Theories of Decision Making

Fact-based decision making encompasses data gathered both Several models have been put forward to explain the decision
internally and externally to a company and both are making theory when faced with alternatives. They are the
complementary. Figure 1 below highlights the main sources of rational choice theory, incremental theory, political theory,
intelligence from a company’s external environment, with the constructive theory and the factual approach.
key sources being competitors and customers. Competitors
usually hold the greatest value because they are firms that, by Theories of Rational Choice
definition, serve similar customers with a similar offering and
represent the greatest threat to a business. For fact-based The rational choice model assumes that decision makers have
decision making to be truly effective, it is imperative that clear goals, have all the data they need to analyze multiple
companies have access to the most relevant and granular alternatives, and that they desire to maximize the effectiveness
quality information; enabling an understanding of not only of their institution by making the optimum choice (Eisenhardt
what competitors and customers have been doing in the past & Zbaracki, 1992). In particular, linear strategy models call
but also what they are doing now and what their plans are for for organizations to set out broad strategic goals and to
the future. Whether sources are external or internal, care is to operationalize them by making decisions - about budget
be taken so that only data that is relevant, timely and accurate allocation and personnel, for instance - that are in tune with
is considered (Brenner, 2005). those objectives (Pisel, 2008). SWOT (strengths, weaknesses,
opportunities and threats) analysis is one example of a tool
that can be used in this approach. This tool requires an
003 International Journal of Current Research, Vol. 4, Issue, 04, pp.001-007, April, 2012

institution to gather information internally about its strengths process of dialogue, which is shaped by the experiences and
and weaknesses and to scan the external environment for data world views of the decision makers and the context in which
about threats and opportunities, and then objectively assess they operate (Dutton, 1993). Understanding humans, in other
how competitive it is given these factors. The goal is to use words, may explain as much about decision making as
rational analysis of data to improve the institution’s position understanding data (Dowd, 2005). Constructivist theories, in
by matching strengths to opportunities and by protecting it contrast, argue that decisions to act can precede analysis when
from internal weaknesses and external threats (Trainer, 2004). a situation is so uncertain that passively.

Theories of Incremental Decision Making The Factual Approach to Strategic Decision Making

Hammond et al., (2006) is Lindblom’s (1979) argument that This model certifies that effective decisions are based on the
the human brain does not have the processing capability to analysis of data and information. The key benefit is informed
optimize choice among multiple alternatives. His model of decisions - an increased ability to demonstrate the
incremental decision making posits instead that leaders tend to effectiveness of past decisions through reference to factual
consider just a few options that differ only slightly from the records. Increased ability to review, challenge and change
status quo, simplifying the process considerably. Some opinions and decisions is key. Applying the principle of
scholars have argued that incremental decision making is factual approach to decision making typically leads to
particularly appropriate for explaining the behavior of ensuring that data and information are sufficiently accurate
organizations whose goals are unclear (Tarter & Hoy, 1998). and reliable, making data accessible to those who need it,
The incremental model is helpful when there is disagreement analysing data and information using valid methods and
within an institution over the methods used to pursue certain making decisions and taking action based on factual analysis,
objectives (Bulger, 2003). Whether an organization faces balanced with experience and intuition (Bulger, 2003).
uncertainty about means or ends, it may be easier for its
leaders to agree to modify current policies rather than consider
decisions that could bring major change. Of even greater
significance, minimizing the number of alternatives
considered greatly reduces the amount of data that must be
gathered and analyzed before making a decision. This helps
harried decision makers to “muddle through” when there is not
enough time for all the steps called for in the rational choice
model (Tarter & Hoy, 1998). Current arguments are that the
incremental approach is likely to become more common as
environmental dynamism, turbulence and unpredictability
increases (Sellers, 2005).

Political Theories of Decision Making

This theory argues that multiple individuals and groups within

an organization are involved in making choices and that their
interests, values, and goals will often conflict (Mignot-Gerard, Fig II: Decision Making Process in relation to rationality (Tarter
2003). In this model, decisions are the product of bargaining & Hoy 1998)
and competition among these actors with varying levels of
power, rather than an optimization calculation (Tarter & Hoy, ROLE OF DATA IN STRATEGIC DECISION MAKING
1998). Information is a tool in a competition for power instead
of evidence to help make an objective judgment (Dean & The ability to make quick, well-informed decisions is critical
Sharfman, 1996). Those without information will engage in to competitiveness and growth for small and large companies
political tactics - such as forming alliances or spying - to alike. In recent years, most companies have seen the amount
acquire it (Taylor, 1990). Actors may look only for evidence of customer and company data in legacy systems, desktops,
that supports their own position or undermines their servers and intranets increase dramatically. Yet a lack of
adversaries’ and once gained they may hide, manipulate, or integration between systems makes it nearly impossible for
release it selectively to influence decisions. The Advocacy companies to use the valuable data within disparate systems to
Coalition Framework captures this reality that people in their advantage. In many cases, instead of relying on hard data
different coalitions will interpret the same piece of evidence based on historical trends to drive strategic direction, decision
quite differently, leading to suspicion regarding the motives of makers rely heavily on experience, limited - sometimes
the ‘perverse’ interpretation of evidence by opponents. outdated - information and intuition. The following roles of
Competing actors, therefore, may seek the control of data data in the strategic planning process are evident in most
gathering, analysis, and dissemination channels to establish scholarly work;
their view as the dominant one (Narayanan & Fahey 1982).
Role in Optimizing Decision Processes
Constructivist Theories of Decision Making
Using integrated, coherent views of data is essential as it is
Constructivist decision making theories represent another synonymous to making strategic decisions based on hard facts.
alternative to the rational choice model. Constructivist theories For example, to evaluate factors driving sales across products,
posit that reality is socially constructed. This occurs through a regions and time frames, decision makers need facts to
004 International Journal of Current Research, Vol. 4, Issue, 04, pp.001-007, April, 2012

analyze the sales process. Once data is available, integrated Role in Reducing Costs
and accurate, the decision processes are optimized so that it is By using reliable data, firms have been able to remove and or
fast and spends fewer resources. Optimum resource utilization reduce bottlenecks in the strategic decision making process.
is facilitated by informed choices. It is this quality of data that This facilitates in the allocation of scarce resources hence use
optimizes the strategic decision making process (Hammond et the resources properly thus reducing costs associated with
al, 2006). inefficiency. Costs associated with forgone choices
(opportunity costs), are also reduced.
Role in Improving Regulatory Compliance
Role in Reduction of Uncertainty or Risks
Astute organizations compile data from across the business to
achieve a single version of the truth to help improve the ability In situations of great uncertainty, reliable data may be scarce.
to comply with government regulations. Data guides the The rationalist approach seeks to erase that uncertainty
decision makers when they are complying with statutory and because it assumes that good decisions rest upon a well-
regulatory bodies. It sets the standards to be followed to keep informed understanding of what is happening. This
within legal and regulatory frameworks. understanding is gained through thorough data collection and
objective analysis of the data. This data clears the benefit of
Role in Helping Decisions Become More Nimble doubt and the resultant confidence is a motivation for success
(Trainer,2004).
To optimize opportunities, businesses often need to make
quick, calculated decisions. Many of today’s most successful Role in Adding Value to Existing Products or Services
organizations rely on a data warehouse to provide them with
critical information such as cash position, product and Data is a source of power. This power, when used properly
customer profitability, and even insight into products that are leads to branding. Branding, when well managed leads to
likely to be purchased together. Data warehouses offer positioning; the psychological placement of products and
competitively priced data solutions designed to help services in the minds of customers. This whole process creates
companies of all sizes analyze and use information to make new value through information bases existing products and
better decisions. Such data warehouses form foundations and services (Porter, 1980).
make decisions that enables firms to easily build solutions that
integrate data, so employees can make decisions based on Role in Identifying the Right Decisions
complete, near-real-time data without burdening the IT team
or breaking the bank! This leaves firms more astitute and Decision making is about picking the best alternative faced
nimble since they use reliable data (Dowd, 2005). with choices. Data helps in the evaluation of alternatives so
that the best practical alternative is adopted. A business’
Role in Gaining Competitive Advantage performance is fundamentally linked to its ability to make the
right decisions, whether it relates to developing new products,
Data based strategic decision making brings a competitive entering and exiting markets, making acquisitions and
edge which in turn leads to leverage. Failure to make the right disposals, or prioritizing and executing performance
decisions may result in loss of competitive advantage, loss of improvement initiatives (Lassen, 2007).
market share and a decline in profitability. It is critical that
companies and individuals involved in business and strategic Role in Support Entry into New Markets
planning have access to the best possible intelligence about the
external environment they operate in. By better understanding Astute firms need to identify the most attractive markets for
their markets, customers and competitors, companies can them to target as well as the best market entry model to
better place themselves to develop the right strategies and employ. This may require an assessment framework for each
ultimately outperform their peers. Underpinning the market segment by understanding the market size, growth and
development of successful strategies is an understanding of profit potential as well as key drivers and trends. This data
the marketplace, identifying markets that represent provides insight into the critical success factors required to
opportunities for companies and positioning the business enter and compete in each of the markets. This enables the
(internally and externally) to take advantage of these assessment of competitors and capabilities to understand how
opportunities. Conversely, as strategy is about optimizing the affirm is positioned relative to the rest of the industry.
use of finite resources, a company will also need to identify
which markets to avoid and exit in order to maximize the Role in Developing New Proposition
return on its investments and assets. Choo, (2002) calls this
‘environmental scanning’. “The organisation that has Data enables decision makers to develop stronger prepositions
developed early insight on how the industry and markets are based on robust insights. Across many industries, shifts in
moving will have a competitive edge. Unfortunately, messages technology and changes in the regulatory landscape are
and signals about events and trends in the environment are lowering the barriers to entry and creating new opportunities
ambiguous and are subject to multiple interpretations. As a as well as threats for companies. Together with the emergence
result, a crucial task of management is to discern the most of new business models, customer behavior is also evolving;
significant changes, interpret their meaning, and develop the way they choose, the way they buy, what it takes to gain
appropriate responses. It this rare quality data that gives a firm their loyalty. All this results in an increasingly complex and
a competitive edge (Porter, 1980). dynamic environment for companies to operate in.
005 International Journal of Current Research, Vol. 4, Issue, 04, pp.001-007, April, 2012

Companies no longer compete with the regional players and increase the accuracy of those decisions. (Bailey & Alfonso,
marketplaces have become global. Customers now source 2005). Romero et al., (2005), in advocating on a culture of
goods and services from around the world and will only buy evidence argue that decisions based on data should replace
from those that can best address their needs, not just from those grounded in politics, favoritism, guesswork, or anecdotal
those who are closest to them. There may be nothing new information. Fitzgibbon (2003) asserts, “…if our intuitions
here, but these shifts are happening all the time and this is yet were accurate we would scarcely need research, we will have
another issue that successful companies must understand and every thing we have to make decisions. Accounting for them
tackle. The recent global downturn has added yet a further would be so easy. This is as a result of thorough feed back
need for fact-based decision making. Companies and investors mechanism instituted by key stake holders for decision makers
now place less emphasis on past performance as a guide for to account for every bit of decision they make and implement.
the future. This suggests that, particularly in the current
climate, companies need to understand the new reality and Role in Quality Decisions
how best to react to the present and plan for the future. The
increasing dynamics within markets and industries also means The quality of the process of strategic decision-making is
that there are now more opportunities for companies to grow, contingent on the quality of the supporting information.
whether they seek to do so by launching new products, Quality is often considered to be a subjective attribute, but as
targeting new customer groups, developing new propositions shown by the International Organization for Standardization
or expanding into new geographies. The winners will be those (ISO, 2008) it can indeed be quantified. Pirsig (1974) phrases
who identify such opportunities and position themselves to this as “the whole purpose of scientific method is to make
take full advantage (Fahey and Prusak 1998). valid distinctions between the false and the true…., to
eliminate the subjective, the unreal, imaginary elements from
Role in Maximization of the Utility of the Organization one’s work so as to obtain an objective, true picture of reality.
When one says that ‘Quality’ is merely subjective, this implies
Information is central to the rational choice model. Dean and that quality is imaginary and can therefore be disregarded in
Sharfman (1993), in fact, define rationality as the gathering any serious consideration of reality”. But quality is also a way
and analysis of data to make decisions. This perspective of defining conformance to specifications and in this way,
assumes that information, interpreted objectively, will lead to quality does become a concrete, measurable quantity. This, to
choices that maximize the utility of an organization. Gayawali, a very greater extend, is a key role of data.
Stewart and Grant (1997) argue that the availability of quality
data can lead to organizational learning, which in turn yields Role in Economic Development
better decisions. In contrast, a lack of data hinders decision
making. Proper use of available data facilitates maximization The Australian Library and Information Association (1996),
of company resources. advocates the development of an informed society that can
partake and participate in skilled decision-making. Accurate,
Role in Timeliness and Accuracy of Decisions relevant and timely information is the key ingredient to
effective decision-making. Australia's long-term economic
Howard (2001) asserts that the goal is to “…reduce the development is dependent on its ability to use information to
decision maker’s uncertainty…” . Similarly, Seybert (1991) make decisions that enable growth, progress and productivity.
sees the job of research as improving decision making by The library profession contributes to an informed society by
supplying timely and accurate data. Although Pisel (2008) acquiring, organising, archiving, retrieving, using,
acknowledges that some uncertainty is to be expected, he synthesising and analysing information and thereby
argues that a rational strategic planning process can deal with empowering users so that they can utilise this information in
this by making assumptions. However, such assumptions their strategic decision-making processes. This is associated
should be as few as possible and be logical and grounded in with empowered strategic decision makers who make sound,
reality. Data based strategic decision making seems to be more rational and economically viable decisions. This increases the
founded on reality, accuracy and timeliness. welfare of both the decision makers and all other stakeholders.

Role in Information Management

Role in Organizing, Sensing and Diagnosing Problems
The flow of information within companies is regulated by
Data helps organizations to sense problems in its environment, procedures for information management. In some cases, this
diagnose the causes, judge the potential solutions, and then implies a system for knowledge management. The procedure
assess the effectiveness of decisions. The rationalist emphasis for serving the company Board with information is part of
on gathering and objectively interpreting information is these procedures. Some companies outsource the searching for
anchored in scientific, positivist modes of thinking. Sanderson information to specialized information services companies, but
(2003) explains that this approach has its origin in a comment was that “this is sometimes not effective when the
enlightenment perspectives. This quality of data is like an oil questions and issues cannot be made explicit and unequivocal.
measuring stick. It detects when the oil level is past a given This would result in an overload of irrelevant information”.
threshold. Thus data assists in information management in the
organization (Seybet, 1991).
Role in Accountability
Role in Management of Change
Demands for accountability by stake holders leaves strategic
decision makers with no option apart from using data to Changes in the environment have brought changes in the way
information is used in companies. In some instances,
006 International Journal of Current Research, Vol. 4, Issue, 04, pp.001-007, April, 2012

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