What is Strategy?

Strategy is the direction and scope of an organization in a changing business

environment through the configuration of its resources and competence with a view to
meeting stakeholder expectation.

Characteristics of Strategy

 Long term in nature: The plan can be made in a short time, but the effect or impact it has on
the organization is in the long term or in the forseeable future.
 Strategy contains elements of uncertainty
 It is directed towards the goals of the organization
 Dynamic in nature
 Strategy are normally complex
 Strategy affects the whole organization
There are basically three different levels where strategy can be formulated, they are:

 Corporate level strategy

 Business level strategy
 Functional level strategy
Today, we would be analyzing the corporate level strategies, with the other levels of
strategy to come in subsequent posts. I hope you enjoy.

Corporate level Strategy: we can simply say that corporate level strategies are
concerned with questions about what business to compete in. Corporate Strategy
involves the careful analysis of the selection of businesses the company can successful
compete in. Corporate level strategies affect the entire organization and are considered
delicate in the strategic planning process.

Characteristics of Corporate Strategy

 Corporate level strategies are formulated by the top management with inputs from middle
level management and lower level management in the formulation process and designing of
sub strategies
 Decisions are complex and affects the entire organization
 It is concerned with the efficient allocation and utilization of scarce resources for the benefit
of the organization
 Corporate level strategies are mapped out around the goal and objectives of an
organization. They seek to translate these goals and objectives to reality
 Typical examples of decisions made are decisions on products and markets
Types of corporate Strategy:
The three main types of corporate strategies are Growth strategies, stability strategies
and retrenchment.

Growth Strategy
Like the name implies, corporate strategies are those corporate level strategies
designed to achieve growth in key metrics such as sales / revenue, total assets, profits
etc.  A growth strategy could be implemented by expanding operations both globally
and locally; this is a growth strategy based on internal factors which can be achieved
through internal economies of scale. Aside from the illustration of internal growth
strategies above, an organization can also grow externally through mergers,
acquisitions and strategic alliances.

The two basic growth strategies are concentration strategies and diversification
strategies.

Concentration strategy:  This is mostly utilized for company’s producing product lines
with real growth potentials. The company concentrates more resources on the product
line to increase its participation in the value chain of the product. The two main types of
concentration strategies are vertical growth strategy and horizontal growth strategy.

Vertical growth strategy:  As mentioned above, by utilizing this strategy, the company
participates in the value chain of the product by either taking up the job of the supplier
or distributor. If the company assumes the function or the role previously taken up by a
supplier, we call it backward integration, while it is called forward integration if a
company assumes the function previously provided by a distributor.

Horizontal growth strategy: Horizontal growth is achieved by expanding operations into

other geographical locations or by expanding the range of products or services offered
in the existing market. Horizontal growth results into horizontal integration which can be
defined as the degree in which a company increases production of goods or services at
the same point on an industry’s value chain.

Diversification Strategy
Richard Rummelt, a strategy guru at UCLA Anderson School of Management, is of the
opinion that companies think about diversification strategies when growth has reached
its peak and there is no opportunity for further growth in the original business of the
company. What then is this diversification strategy we speak of? A company is
diversified when it is in two or more lines of business operating in distinct and diverse
market environments.

Two basic types of diversification strategies are concentric and conglomerate.

Concentric Diversification: This is also called related diversification. It involves the

diversification of a company into a related industry. This strategy is particularly useful to
companies in leadership position as the firm attempts to secure strategic fit in a new
industry where the firm’s product knowledge, manufacturing capability and marketing
skills it used so effectively in the original industry can be used just as well in the new
industry it is diversifying into.
Conglomerate Diversification: This is also called unrelated diversification; it involves the
diversification of a company into an industry unrelated to its current industry. This type
of diversification strategy is often utilized by companies in saturated industries believed
to be unattractive, and without the knowledge or skill it could transfer to related products
or services in other industries.

Stability Strategy
Stability strategies are mostly utilized by successful organizations operating in a
reasonably predictable environment. It involves maintaining the current strategy that
brought it success with little or no change. There are three basic types of stability
strategies, they are:

 No change Strategy: When a company adopts this strategy, it indicates that the company is
very much happy with the current operations, and would like to continue with the present
strategy. This strategy is utilized by companies who are “comfortable” with their competitive
position in its industry, and sees little or no growth opportunities within the said industry.
 Profit Strategy: In using this strategy, the company tries to sustain its profitability through
artificial means which may include aggressive cost cutting and raising sales prices, selling
of investments or assets, and removing non-core businesses. The profit strategy is useful in
two instances:
1. To help a company through tough times or temporary difficulty; and
2. To artificially boost the value of a company in the case of an Initial Public Offering (IPO)
 Pause/ Proceed with caution Strategy: This strategy is used to test the waters before
continuing with a full fledged strategy. It could be an intermediate strategy before
proceeding with a growth strategy or retrenchment strategy. The pause or proceed with
caution strategy is seen as a temporary strategy to be used until the environment becomes
more hospitable or consolidate resources after prolonged rapid growth.
Retrenchment Strategies
Retrenchment strategies are pursued when a company’s product lines are performing
poorly as a result of finding itself in a weak competitive position or a general decline in
industry or markets. The strategy seeks to improve the performance of the company by
eliminating the weakness pulling the company back. Examples of retrenchment
strategies are:

 Turnaround Strategy: This strategy is adopted for the purpose of reversing the process of
decline. This strategy emphasizes operational efficiency and is most appropriate at the
beginning of the decline rather than the critical stage of the decline.
 Divestment Strategy: Divestment also known as divestiture is the selling off of assets for the
different goals a company seeks to attain. This strategy involves the cutting off of loss
making units, divisions or Strategic Business Units (“SBU”).
 Liquidation Strategy: Liquidation strategy is considered a last resort strategy, it is adopted
by company’s when all their efforts to bringing the company to profitability is futile. The
company chooses to abandon all activities totally, sell off its assets and see to the final
close and winding up of the business.
Business Level Strategy – Definition, Types & Examples
Goal-setting is one thing but making a plan or a layout to achieve those goals is another
thing. In fact, ambitions without a strategy are just like music without rhythm. The same
is the case with business; you simply cannot “win” without a solid plan-of-action- a
business-level strategy.

Yes, you may have heard this term before, but today, we are going to discuss it in detail.
We will go through different types of business-level strategy, and how corporations
apply them to achieve their organizational goals. As usual, let’s start with the basics!

Table of Contents
What is a Business Level Strategy?
Business-level strategy, in simple words, is a layout, plan, or roadmap that helps a
business to provide value to the customers and gain a competitive advantage by
making the best use of its core competencies.

The business-level strategy you choose will have a decisive role in establishing your
position in the market. In fact, it is the foundation of your ultimate organizational goals.
A business-level strategy may be of different types, but it must always consider three
integral elements;

 Customer satisfaction/happiness (providing value to the customers)

 Developing and maintaining a competitive advantage.
 Avoiding a competitive disadvantage.
 A strong ROI – making profits.
The business-level strategy may vary for the same organization’s different business
units (strategic business units). In such a situation, every strategic business unit (SBU)
will have its own business-level strategy.

Now, every business unit may not follow the same strategy as other units. That is
because every SBU serves a different audience and even may belong to a different
industry. Keeping that in mind, every SBU may follow a different type of business-level
strategy. Our next section is all about the various types of business-level strategies.

Types Of Business-Level Strategies

As we mentioned earlier, a business-level strategy mainly focuses on developing a
competitive advantage. Now, there are different ways to do that, and we are going to
discuss them one by one.

Cost Leadership Strategy

This one is probably the most common type of business-level strategy. There are no
simple words to say that but price is one of the most important factors in a consumer’s
purchase decision. Following a cost leadership strategy, a business tries to
manufacture its product(s) or service(s) at a lower cost than its competitors.

Cost leadership strategy works better when you are targeting a mass market, and your
customers are price-sensitive. The firm (practicing this strategy) will focus on reducing
costs at all levels, including procurement, production, packaging, storing, distributing,
etc.
Tips On How to Achieve Cost Leadership
 Use the firm’s resources in an efficient way.
 Accurate and timely demand forecasting of your products or services.
 Achieving economies of scale with the help of mass production.
 Keep investing in the latest technologies to work smarter.
Differentiation Strategy
As the name clearly suggests, differentiation strategy, in a sense, is the opposite of cost
leadership. Differentiation strategy mainly focuses on creating a competitive advantage
by offering a unique product or service. This uniqueness can be due to the design,
features, specifications, or anything that differentiates the product from rivals’ products
in the market.
Differentiation strategy is suitable for both mass markets as well as a narrow market.
The “motto” of differentiation strategy is “quality over cost,” but it doesn’t mean a
business cannot sell a unique product at a lower cost. In fact, this would be a perfect
combination of cost leadership and differentiation strategy.

Although differentiation strategy can help a business to become the industry leader, it is
only effective as long as a firm keeps offering something unique and unprecedented.

How To Achieve Differentiate Your Brand/Product

 Make innovation your “best friend.”
 Keep improving the product performance.
 Offer value to your customers according to their preferences and taste.
 Set your product price based on your customers’ purchasing power and product features.
Integrated Low-Cost/Differentiation
As we discussed in the previous section, a firm can integrate two strategies (integrated
low-cost/differentiation) according to its business needs. This strategy focuses on
developing a competitive advantage by offering something unique and reducing the
overall manufacturing/operational costs as well. As a matter of fact, integrated low-
cost/differentiation is the need of the hour because of changing global consumer
trends.
Now, this can be confusing for many of us, so we are going to explain it with the help of
a real-world example- Southwest Airlines.
This is how the company operates and achieves its goals.

Low-Cost
Segment Differentiation Segment

Shorter
flight
routes   Higher employee dedication level

Utilizing
secondary
airports More focus on achieving customer happiness/satisfaction

Operating
with only
aircraft
model
(Boeing
737) Different flights services for business class (i.e., faxes and phones)

No
reserved
seats  

No flight
meals  

15-minute
turnaround
time.  

Tips On How to Implement Low-Cost/Differentiation Strategy

 Choose a specific niche (micro-niche)
 Cut unnecessary expenses (in the above-mentioned example, there is no point in offering
flight meals for shorter routes)
 Keep adding new features to your offerings.
Focus Strategy
Focus strategy, as the name suggests, is helpful for businesses that want to target a
specific (and smaller) segment of the market. The company following this approach
mainly considers three things while selecting a niche;
  The target market must have a considerable size.
 The chances of potential growth are on the higher side.
 The competitors don’t have a considerable effect on the firm.
Focus strategy can be further classified into two categories;

1. Focused differentiation
2. Focused low-cost
Focused Differentiation
A firm following this strategy works on a very specific niche/subset of the market that
has enough potential for profitability. The main focus is to create a competitive
advantage by offering a product that is difficult to substitute/replace. Most importantly,
the firm concentrates on “unattended” or vacant market areas and builds a competitive
advantage.

Focus Low-Cost
Focus Low-cost is just like the focused differentiation approach. That is, this approach
also targets a particular niche, but the firm also focuses on achieving economies of
scale.

Generally, smaller firms (those who cannot offer multiple products simultaneously) opt

for this option. The idea is to provide maximum value to the customer but reduce the
overall costs at all levels.
Tips To Implement Focus Strategy
 Select a very specific niche that couldn’t get the attention of industry leaders,
differentiators, or cost leaders.
 Highly efficient use of resources.
 Constant innovation and improvement to create and maintain a competitive advantage.
Examples of Business Level Strategies
Amazon
Amazon is an ideal example of a cost leadership strategy. This global giant has literally
wiped out any competition or hurdle in its way. Here is how;

 Amazon achieved economies of scale as the company doesn’t have any brick-and-mortar

stores. They have warehouses, and they sell online.
 The company maximizes its operational efficiency through advanced networking and
computing technology.
 Amazon has automated the majority of its operations, such as purchasing process,
scheduling process, etc.
Apple
A global industry leader and a member of the “Big Five” (tech companies), Apple Inc is a
perfect example of product differentiation. Apple has earned unprecedented fame and
respect in the tech industry with its products such as iPad, iPod, Macintosh line
computers, and the iconic iPhone. The company differentiated itself because of;

 Its unique, elegant, and minimalist product designs.

 Amazing and extremely useful product features.
 Different pricing strategy; Apple sells its products at higher prices because the company
provides unparalleled value.
Happy Socks
The Swedish-based eCommerce company, Happy Socks has expanded its services to
90 different countries. The company focuses on a differentiation strategy (product
differentiation) by offering unique features in their products. In fact, every clothing item
they launch turns into a fashion trend. Apart from that, their exquisite packaging is
another differentiating factor.

IKEA
Regarding the integrated low-cost/differentiation strategy, IKEA would be the perfect
example of this business practice. The company invests a lot in automation, logistics,
and its designers. IKEA offers Products that you won’t get anywhere else and that too at
low cost.

How to Implement business Level Strategy

Implementation of a business-level strategy needs a lot of homework and consists of
different steps, which are;

 Identify and Understand Your Market. First things first, a firm needs to identify a target
market and understand its dynamics. Is the firm going to target a specific niche or a
mass-market? How does the market work? Is there enough growth potential? What type
of customers does the business have to deal with?
 Know Your Customers’ Needs. Once the company selects a target market, it is time to
have a better understanding of its target audience’s needs. The company’s think tank
needs to answer few questions such as, what exactly do our customers need? Do they
prefer quality or quantity? Are they willing to accept innovation? Are they ready to pay for
innovation?
 Brainstorm How to Satisfy their Needs. Once you know Who you are serving and What you
are serving, it is time to decide How you will do that. In this step, you will have to make
decisions about your vendors, distributors, suppliers, logistics, etc.
 Conduct a Competitors Analysis. One thing which you cannot skip is analyzing your
competitors. What are they doing? How are they doing it? What strategy are they
following? What are their weaknesses? What are the industry gaps you can target? Where
can you build a competitive advantage of your own?
 Assign Tasks to Concerned Department. Any corporation succeeds only if there is strong
coordination between its departments. The senior management must integrate different
 departments and assign them tasks with a specific timeline. Yes, it is important to set
individual goals for every department, but it is essential that all the organizational
departments work hand in hand.
 Review the Outcomes on Regular Intervals. Any business-level strategy would be
incomplete without regular evaluation. A business needs to make sure that management,
employees, and departments are doing what they are supposed to do. If something is not
working according to the plans, find the loopholes and fix them.

Everything you need to know about the different approaches to strategic decision making. Strategic
decision making is the core of strategic management.

Therefore, it is desirable to understand the nature of strategic decision making. Strategic decision is a
major choice of an action concerning committing of resources with a view to achieve organizational
objectives.

Strategic decision-making process is so strategic that each firm has its own approaches to these strategic
decision-making. Good many alternative approaches have come into practice because each firm is
unique or strategic.

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The differences mainly arise due to, the extent of formalisation of decision making process, move from
formalised and structured to informal and unstructured, process, managerial power relationship-from
the dominant role of the strategist to dilution of different interest groups; nature of management-
ranging from highly complex and variable to simple and stable; the philosophy of management-ranging
from highly traditional to sophisticated ultramodern thinking and application.

Strategic decision making process is complex and intriguing. Various researchers and authors have
studied and described the manner in which such decision-making takes place. These different
approaches have also been categorised by a few authors.

A number of approaches have been put forward to clarify how strategic decisions are made.

They are:- 1. Rational-Analytical Approach 2. Entrepreneurial Approach 3. Intuitive-Emotional 4.

Adaptive Approach 5. Planning Approach 6. Political-Behavioural Approach 7. Administrative Approach
8. Incremental Approach 9. Satisfying Approach 10. Combination Approach.

Approaches to Strategic Decision Making: Rational-Analytical, Entrepreneurial, Political-Behavioural and

a Few Others

Approaches to Strategic Decision Making – 4 Most Common Approaches

A number of approaches have been put forward to clarify how decisions are made.

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The following are the most common approaches:

1. Rational-analytical approach,
2. Intuitive-emotional approach,

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3. Political-behavioural approach, and

4. Administrative approach

Approach # 1. Rational-Analytical Approach:

Rational-analytical approach assumes that the decision maker is a ‘unique actor who behaves
intelligently and rationally’. He is fully aware of all available feasible alternatives and considers all the
alternatives as well as the consequences and chooses the alternative that secures the maximum gain.

Most managers like to think of themselves as rational decision-makers. And indeed, many experts argue
that managers should try to be as rational as possible in making decisions. It rests on the assumption
that managers are logical and rational and they make decisions that are in the best interests of the
organization.

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This approach follows the process as:

(a) Decision makers have complete information about the decision situation and possible alternatives.

(b) They can effectively eliminate uncertainty to achieve a decision condition of certainty.

(c) They evaluate all aspects of the decision situation logically and rationally.

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This approach helps keep the decision maker focused on facts and logic and help guard against
inappropriate assumptions and pitfalls.

Though this approach prescribes a rational, conscious, systematic, and analytical way, yet decisions are
often made with little consideration for logic and rationality. Kepner-Tregoe, a Princeton-based
consulting firm, estimates that American company use rational decision- making techniques less than 20
percent of the time.

And even when organizations try to be logical, they sometimes fail. For example, managers at Coca-Cola
decided to change Coke’s formula after four years of extensive marketing research, taste tests, and
rational deliberation- but the decision was still wrong. On the other hand, sometimes when a decision is
made with little regard for rationality and logic, it can still turn out to be correct.

The decision maker is often not a unique actor but part of a multiparty decision situation. Decision
makers are not rational enough or informed enough to consider all alternatives or know all the
consequences. And information is costly. They make decisions with more than a maximization of
objectives but tend to “satisfice” i.e. make a decision expected to yield a satisfactory, as opposed to
“optimal” outcome. Besides, the objectives may change.

Approach # 2. Intuitive-Emotional:
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Intuition is an innate belief about something without conscious consideration. Intuitive- emotional
approach is opposed to rational decision-making. Managers sometimes decide to do something because
it feels “right”.

This feeling is not arbitrary but based on habit or experience, gut feeling, reflective thinking, and
instinct, using the unconscious mental processes. An inner sense or emotion may help managers make
an occasional decision without going through a full- blown rational-sequence of steps. Intuitive decision
maker considers a number of alternatives and options.

Proponents of this approach point out that, in many cases, judgment may lead to “better” decisions
than “optimizing” techniques. In fact, the timing of when to implement a decision based on the analysis
may require an intuitive feel for what the data are telling you.

In many cases, judgment might be preferable to relying on the analysis. Of course, all managers but
most especially inexperienced, should be careful not to rely too heavily on intuition.

Approach # 3. Political-Behavioural Approach:

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This approach suggests that real decision makers must consider a variety of pressures from other people
who are affected by their decisions. An organization interacts with different stakeholders in
interdependent exchange relationships. A stakeholder is any group or individual who can affect or is
affected by the achievement of an organization’s purpose.
Unions exchange labour for decent wages and job security. Customers exchange money for products
and services. Owners exchange capital for expressed returns on investment. Suppliers exchange inputs
for money and on-going business. Governments exchange protection and economic security for taxes.

Even competitors exchange information with one another through trade associations or other contacts.
Each stakeholder gives the organization something and expects something in return. To the extent an
organization has a favorable exchange relationship compared with other organizations and
stakeholders, it has more power.

More powerful stakeholders have more influence over decisions because the organization is more
dependent on these stakeholders. A majority stakeholder can have a greater influence on decisions
about reinvestment than if stock is widely held by many small owners.

In a labor-intensive firm, more attention may be paid to union leaders’ demands for better wages than,
to the desires of stockholders for more profit, because the union might shut the firm down.

Therefore, decision makers try their best to meet the demands of the various stakeholders. This mode of
decision-making suggests that the organization in which decision maker works limits the choices
available.

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Decisions are made when the coalitions involved in the process agree to find a solution by mutual
adjustment and negotiation in the way decisions have been made in the past. The decision maker must
consider the political implementation of the decision outcome.

Approach # 4. Administrative Approach:

Herbert A Simon was one of the first person to recognize that decisions are not always made with
rationality and logic. His administrative model holds that managers- (i) have incomplete and imperfect
information, (ii) are constrained by bounded rationality, and (iii) tried to satisfice when making decision.

Bounded rationality suggests that their values and unconscious reflexes, skills limit decision makers, and
habits; by less-than complete information and knowledge. Essentially, then the concept of bounded
rationality suggests that although people try to be rational decision makers, their rationality has limits.

“Satisficing” suggests that rather than conducting an exhaustive search for the best possible alternative,
decision makers tend to search only until they identify an alternative that meets some minimum
standard of sufficiency. A manager looking for a site for a new plant, for example, may select the first
site he find that meets basic requirements for transportation, utilities, and price, even though further
search might yield a better location.

People may satisfice for a variety of reasons. Managers may simply be unwilling to ignore their own
motives and therefore may not be able to continue searching after a minimally acceptable alternative is
identified. The decision maker may be unable to weigh and evaluate large number of alternatives and
criteria. Also subjective and personal considerations often interfere with decision situations.

Because of the inherent imperfection of information, bounded rationality, and satisficing, the decisions
made by a manager may or may not actually be in the best interests of the organization.

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The above approaches have their own significance, yet the human being is a mix of the rational and the
emotional. The environment is a mixture of the analysable and of chaotic change and pressures.
Strategic management decisions are, therefore, made in a typically human way i.e. using the rational,
conscious analysis and intuitive, unconscious “gut” in light of political realities.
Approaches to Strategic Decision Making – As Given by Mr. Henry Mintzberg: With its Features

Strategic decision-making process is so strategic that each firm has its own approaches to these strategic
decision-making. Good many alternative approaches have come into practice because each firm is
unique or strategic.

The differences mainly arise due to, the extent of formalisation of decision making process, move from
formalised and structured to informal and unstructured, process, managerial power relationship-from
the dominant role of the strategist to dilution of different interest groups; nature of management-
ranging from highly complex and variable to simple and stable; the philosophy of management-ranging
from highly traditional to sophisticated ultramodern thinking and application.

Different management veterans have classified these approaches into a definite set of categories. Mr.
Henry Mintzberg, in his article “Strategy Making in three Modes” published in California Management
Review-Winter 1973-pp-44-53, as Entrepreneurial Adaptive and Planning.

George A. Stener, John, B.Miner and Edmund. R.Gray, in their title “Management Policy and Strategy”
published by Macmillan, N.Y., p.24 have classified these as format structured, intuitive-anticipatory,
entrepreneurial opportunistic, incremental and adaptive.

Though these are five as against one given by Mintzberg H. as three, they are only extension of those
basic three as given by Henry Mintzberg. What is important to note is that a particular approach of
strategy making varies from others in respect of all the major steps of decision-making namely,
identification of alternatives, criteria for evaluation of these alternatives, considering factors of decision-
making and the outcome of decision-making process- that is-choice.

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Following is the brief description of these three approaches as given by Mr. Henry Mintzberg:
1. Entrepreneurial Approach:

As the caption suggests, this approach is followed in strategic decision-making by the organisations
headed by family heads where by the organisation is moulded to- face the environmental changes. In
the Indian context the business groups such as Reliance, Jyoti Udyog, Nirma, Kothari Products, Mofatlal
Group, Dabur Products, T.T.K. Group, and Infosys Technologies are examples.

Features of Entrepreneurial Approach:

Entrepreneurial approach to strategic decision making has its own features.

These are:

i. Capitalising on the Opportunities:

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Entrepreneurial approach warrants constant search for opportunities that changing environment makes
available. This searching may be formal or informal. Seeking the possible and viable opportunities and
encashing them, i.e., it is not a problem solving process.

ii. Centralized Decision-Making Power:

The family head is the person who has the exclusive power of making bold and unusual decision. It is
founded on rich experience of past and sound judgment that play vital role in making the head as
competent authority to make decisions.
iii. Growth and Expansion Orientation:

This approach is growth and expansion-oriented. That is, there is an all-out attempt to increase the
wealth, assets, turnover and market share. Growth and expansion oriented approach keeps the family of
entrepreneurs on the toes, always alert and agile and keen observation of business situations is the key
to their success.

iv. Efforts and Rewards are Well Balanced:

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The entrepreneurial approach believes in making unusual and very bold decision in the environment of
uncertainty. They keep the organisation adaptive to the changing needs of business world.

Naturally, unusual and bold decisions based on rich and unique experience and sound judgment are
bound to yield rich dividends commensurate with the boldness and environmental interfacing. This
means that these bold and unusual decisions are based on hard facts of changing environment.

2. Adaptive Approach:

This adaptive approach is reactive rather than proactive and tries to collect and mix the variant factors
influencing the strategic decisions. It touches the very root of changing context of decision-making. This
approach is very common in case of public sector enterprises where decision-making power is divided
amongst different constituents.

It is a matter of governing and managing these enterprises where the objectives are social service
orientation hinged by profit making. That is, though the aim is to meet the social needs the government
enterprises not barred from making profit.
Features of Adaptive Approach:

The adaptive approach has its own features distinct from others.

These are:

i. It is an Exercise of Problem-Solving:

Such an approach is to solve the problem encountered which are more of survival and maintenance or
continuation of existing situation rather hunting new opportunities and encashing on them.

ii. Dominance of Decision Making Process by Constituents:

These constituents we mean here the ‘publics’ that have stake in business. The decision-making process
is shared by the owners, managers, government agencies, trade unions, financers and the like. The
decision reflects the interests of these stake-holders.

iii. Priority Based Decisions:

This approach believes in solving one problem at a time. The most urgent problem gets the priority over
others. The idea behind this is to attain and maintain highest degree of flexibility to adapt the decision
to more pressing needs. Logic behind this is to use all the vigour and strength in solving effectively the
most pressing problem so that they need not look back again.

3. Planning Approach:

This approach calls for making decisions in anticipation of the future state of affairs where the
organisation is prepared to face it boldly. That is, strategic decisions are based on socio-economic
purposes of the organisation, value of top management, external opportunities and problems on one
hand and organisations strength and weaknesses on the other.
It is widely used by multi-nationals which have formalised and structured strategic decision-making
process.

Features of Planning Approach:

Planning is clothed with the future and moulding organisation ready to tackle the future problems and
uncertainties that are likely to be encountered by the firm.

i. Analysis of Factors Influencing a Strategy:

The process of strategy making is founded on analysis of various factors that influence the strategy.
These factors are both external and internal. External factors are economic, technological, socio-cultural,
political, and ecological and the internal are related with firm’s strengths and weaknesses.

ii. Systematic and Structured Approach:

Planning approach to strategic decision making involves systematic and structured approach to the
solution of problems. It is more a task of assessing the cost benefit pay-offs of the possible alternatives.
It is a systems approach in that the structure of organisation and its parts are geared to make possible
the payoffs in terms of costs and benefits.

iii. It is a Comprehensive Process:

It is comprehensive process in that it is capable of producing a set of integrated decisions and strategies.
That is, all the decisions and strategies that are inter-departmental and inter level of the organisation
are supporting one another rather than supplanting.
Thus, the goal of profit maximisation or wealth maximisation is having the organisational level support
and the inter departmental and inter sections support where each is limited, balanced and integrated. It
is a coordinative approach.

It is evident that above three approaches are having contrasting ways for strategic decision making. It is
not mandatory to follow a particular approach. In practice, to its advantage, it may select one of these
or combine them to get the best results provided the combination works within the internal constraints
on resources and compatibilities and external uncontrollable factors that provide threats and
opportunities.

Approaches to Strategic Decision Making – With Suitability and Limitation

Strategic decision making is the core of strategic management. Therefore, it is desirable to understand
the nature of strategic decision making. Strategic decision is a major choice of an action concerning
committing of resources with a view to achieve organizational objectives.

It has the following features:

1. Strategic decision is a major choice of action which affects the entire organization or major parts of it.

2. It affects the long-term prosperity of the organization because the commitment is for long term.

3. It involves commitment of large amount of resources—human, financial, and physical— in

implementing the strategic option chosen.

4. Because of high-level of futurity, a strategic decision is made after analyzing various factors both
within the organization and its environment.

5. Since a strategic decision has major impact on the organization on long-term basis, it is made by top
management which has much wider perspective of the organization and its environment.
Some examples of strategic decisions are – choice of Tata Motors to enter small-car business, divesting
of its edible oil business by Hindustan Unilever, takeover of Tetley Tea by Tata Tea, and so on. Strategic
decision making involves the usual decision-making process—specific objectives derived from
organization’s strategic intent, search for alternatives to achieve those objectives, evaluation of these
alternatives, and choice of the most appropriate alternative.

Thereafter, this choice is put into action. However, this process can be conducted by adopting different
approaches. Each approach has its own risk-payoff relationship. Therefore, let us go through these
approaches.

Different approaches to strategic decision making emerge because an organization may differ from
other organizations in terms of:

1. Degree of formalization in decision-making process—from highly formalized and structured to

informal and unstructured process.

2. Managerial power relationship—from the dominant role of the strategist to compromise of different
interest groups.

3. Nature of environment—from highly complex to simple and stable.

These differences determine the kind of approach individual organizations would adopt in their decision-
making process, including strategic decision making. However, various approaches that are available for
adoption in strategic decision making have been described by authors differently. For example,
Mintzberg has classified various approaches into three forms (he has referred to these as modes).

These are entrepreneurial, planning, and adaptive. As against this classification, Steiner et al have a five-
fold classification – Formal-structured, intuitive- anticipatory, entrepreneurial-opportunistic,
incremental, and adaptive. The difference between these two sets of classification can be resolved to
some extent.
Formal-structured approach resembles planning approach – Incremental and adaptive approaches have
common factors than differences and, therefore, can be grouped together; entrepreneurial approach is
basically based on intuition and anticipation as these elements require high level of vision in strategists
to anticipate opportunities and threats posed by the relevant environment. Therefore, for further
analysis, three types of approaches will be taken.

These are:

1. Entrepreneurial-opportunistic approach,

2. Formal-structured approach and

3. Adaptive approach.

Approach # 1. Entrepreneurial – Opportunistic:

Entrepreneurial-opportunistic (or simply entrepreneurial) approach is adopted, generally, by heads of

family-managed organizations and is characterized by pushing an organization ahead in the face of
environmental odds.

The basic features of strategy making under this approach are as follows:

i. The focus in this approach is on capitalizing the opportunities rather than problem solving. There is
constant search of opportunities in the environment either formally or otherwise.

ii. Decision power is centralized in the entrepreneur who is capable of making bold and unusual
decisions.

iii. The bold and unusual decisions made in the face of environmental uncertainty, lead the organization
to move forward by unusual leaps and thrive with corresponding gains.
iv. The most important objective in this approach is growth and expansion in assets, turnover, and
market share.

Thus, decision making becomes emergent process as against formal process.

Suitability and Limitations:

Entrepreneurial approach is suitable in those organizations where key strategists have very high stake in
the outcomes of a strategy. They are in a position to lead the organization from front sidelining the
views of other stakeholders. Usually, such strategists have very high level of aspirations, high level of
vision about the future business scenarios, and have high-risk bearing profile.

A basic advantage of this approach is that such decisions are made which may defy the basic principles
of management textbooks. This is the reason that such organizations outperform their counterparts
adopting formal-structured approach.

The above discussion shows only the positive aspects of entrepreneurial approach. This approach has
one basic limitation that if the strategists do not have intuition and vision required for doing something
new and extraordinary, the strategies are likely to fail. There have been severed such cases.

For example, Sunrise Industries entered the toilet market with Yuva and Piyu brands in 1980s. Both the
products failed against the massive competition posed by then existing players particularly Hindustan
Unilever. Similarly, Suraj Automobiles introduced diesel- based motor cycles to provide saving in fuel
cost but the product failed. There are numerous such cases of failures. Therefore, entrepreneurial
approach is not suitable for all entrepreneurs.

Approach # 2. Formal-Structured:

Formal-structured (or simply formal) approach involves strategic decision making in anticipation of the
future state that the organization wants to be in. Strategic decisions are based on socioeconomic
purposes of the organization, values of top management, external opportunities and threats, and
organization’s strengths and weaknesses.

The basic features of this approach are as follows:

i. Strategy making is based on analysis of various factors which affect the strategy.

ii. It involves systematic and structured approach to the solution of problems and also the task of
assessing the cost and benefit of various alternatives.

iii. It is a comprehensive process which produces a set of integrated decisions and strategies.

In India, most of the multinationals follow this approach in which they have formalized and structured
their strategic decision-making process.

Suitability and Limitation:

Suitability and limitations of formal approach depend on type of organization, management styles and
complexity of environment, complexity of production processes, nature of problems and purpose of
planning system.

A basic advantage of this approach is that it generates enough information which enables decision
makers to make decisions in complex situations. However, when decision system becomes too
formalized and highly structured, decision-making process becomes slow because of emergence of
professional bureaucracy which relies on standardization of skills. Decision making is decentralized and
takes place where the expertise exists. With the result, unusual decisions are hard to come by.

Approach # 3. Adaptive:
Adaptive approach of strategic decision making is basically reactive and tries to assimilate the change in
decision-making context—various factors, particularly environmental ones, affecting strategic decisions.

Various features of strategic decision making under adaptive approach are as follows:

i. Decision making is basically meant for problem solving, rather than going for new opportunities.
Adaptation process is adopted to meet the threats by changed environment as against the decision
making to meet the anticipated changes in environment which entrepreneurial approach suggests.

ii. Decisions are made in sequential, incremental steps, one thing at a time necessitated by
environmental changes. The basic orientation is to maintain flexibility to adapt the decisions to more
pressing needs.

iii. Various interest groups and stakeholders put considerable pressure on decision-making process so as
to protect their own interests. Thus, the ultimate decision is a compromised one which may be,
sometimes, at the cost of optimizing organizational effectiveness.

iv. Since decision making is incremental and fragmented, there is lack of integrative decision making.
With the result, systems approach of decision making is missing.

In India, most of the public sector organizations follow adaptive approach in their decision making
because of the power distribution between organizations’ management and controlling ministries of
Government. Those organizations in the private sector which cannot anticipate likely future scenarios
either based on vision and intuition or through formal and structured approach of environmental
analysis follow this approach in their strategic decision-making process.

Suitability and Limitations:

Adaptive approach of strategic decision making is suitable for those organizations which tend to play the
role of followers rather the role of leaders in the industry sector concerned. This approach saves them
from high risk since the strategic decisions are based on the actual environmental factors. If these
factors are less dynamic, this approach produces satisfactory results.

However, this approach suffers from one basic limitation. Environmental adaptation as a continuous
process works well so long as there is continuity in environmental changes which can be assimilated
quickly by the organizations adopting this approach.

When the environmental factors change fast, this approach does not work because by the time the
organizations adopt one change which has some lead time, environment changes further making
previous adaptation unworkable. In the present context of global competition, perhaps, this approach is
not very suitable to achieve meaningful competitive advantage.

Approach # 4. Combination of Different Approaches:

We have seen above that various approaches of strategic decision making have their positive and
negative aspects and each of these is suitable for particular type of organizations and the nature of
environment. Since there are many variables which affect strategic decision making, many organizations
follow a combination of different approaches. The experts on strategic management also hold this view.

For example, Sumantra Ghoshal, Professor of Strategic Leadership, comments that “it may be useful for
Reliance (following entrepreneurial approach) to think whether it should follow a bit of Hindustan
Unilever’s structured processes, just as much as it may be productive for Hindustan Unilever to consider
ways of broadening its systems and culture to the entrepreneurial approach.”

In fact, Hindustan Unilever has realized the need for infusing entrepreneurial approach in developing
business-level strategies. According to its former Chairman, Keki Dadiseth, “Hindustan Unilever has
grown in size. While it has its own obvious benefits, it also brings some drawbacks. What we need to
master is the art of creating and preserving the entrepreneurial ability and connectedness of a small
company within a large company.” There may be different ways in which various approaches may be
combined together.

More common ways are as follows:

i. Adaptive-entrepreneurial.

ii. Structured-adaptive.

iii. Entrepreneurial-structured.

iv. Adoption of different approaches for different businesses.

v. Adoption of different approaches at different stages of organizational life cycle.

While combining two or more approaches together, the individual organizations can do better. If they
evaluate their culture, human resources, and leadership styles and the nature of environment in which
an organization or its different businesses operate.

Approaches to Strategic Decision Making – Different Theories Suggested for Different Approaches

Different theories have suggested different approaches of decision-making.

These approaches are discussed hereunder:

(a) The Intuitive-Emotional Approach:

Decision-maker takes decisions based on intuition which is characterised by the use of hunches, inner
feelings or the ‘gut-feeling’ of the decision-maker. Decision-maker who makes decisions based on
intuition, practices management exclusively as an art. This decision-maker prefers habit or experience,
relative thinking, and instincts using the unconscious cognitive process.

The decision-maker takes into account a number of alternatives into consideration, but simultaneously
jumps one step in analysis and search for another and back again.
(b) The Rational-Analytical Approach:

In the rational-analytical approach, the decision-maker is intelligent and rational. The decision-maker
makes the choice in full awareness of all available feasible alternatives to maximise advantages. The
decision-maker considers all alternatives as well as consequences of all possible choices, orders these
consequences in the light of a fixed scale of preferences, and chooses the alternative that procures the
maximum gain.

The rational approval to decision-making includes the following steps:

(i) Recognize the need for a decision;

(ii) Establish, rank and weight criteria;

(iii) Gather available information and data;

(iv) Identify possible alternatives;

(v) Evaluate each alternative with respect to all the criteria; and

(vi) Select the best alternative.

(c) A Satisfying Approach:

There are limits to human rationality. Therefore, an individual must take decisions based on limited and
incomplete knowledge. In view of this, the individual decision-maker cannot optimize but only satisfy.

Optimizing means choosing the best possible alternative. Satisfy means choosing the first alternative
that meets the decision-makers minimum standard of satisfaction.
In the rational-analytical approach, the decision-maker is intelligent and rational. If the decision-maker is
satisfied that an acceptable alternative has been found, it is selected otherwise, and the decision-maker
searches for an additional alternative.

(d) Political-Behavioural Approach:

Normally, decisions made by organisations affect a variety of people and organisations. Hence, another
view suggests that the corporations must consider all the people and organisations in making decisions.
Corporations interact with a variety of stakeholders as the corporation and its stakeholders are mutually
dependent on each other.

The employees exchange their human resources for fair salaries, benefits and harmonious industrial and
human relations. Customers exchange their money for qualitative products and courteous services.
Shareholders exchange their money for high rate of dividend and safety of their capital. Government
provides security and protection and in turn expects payment of taxes regularly.

Financial institutions exchange their finance for high rate of interest, security of principal amount and
regular payment of interest. Suppliers of inputs expect fair terms of trade and continuous business.
Competitors exchange information through chamber of commerce, trade and industry for mutual
existence and development.

The dealers expect continuous business. Thus, a stakeholder is an individual or organisation who can
affect or is affected by the decision-making and achievement of organizational purpose and objective.

A Synthesis:

The decision-maker being a human being possesses a rational and the emotional mind. Environment is a
mixture of analyzable and chaotic change and pressures. Therefore, decisions are made in a typically
human way, using the rational, conscious analysis and intuitive, unconscious ‘gut feeling’ in light of
political realities. Blending of these prescriptive and descriptive approaches helps to understand how
decision-makers operate.
Approaches to Strategic Decision Making – Top 3 Theories of Strategic Decision Making Mostly Focused
by Writers

Various theories have been suggested about how decisions are made. Let us examine these first. Most
writers focus on three approaches – Intuitive-emotional, rational-analytical and behavioural- political.

1. Intuitive-Emotional:

The opposite of the rational decision maker is the intuitive decision maker. This decision maker prefers
habit or experience, gut feeling, reflective thinking, and instinct, using the unconscious mental
processes. Intuitive decision makers consider a number of alternatives and options, simultaneously
jumping from one step in analysis or search to another and back again.

Some who prescribe intuition of judgement as the preferred approach point out that in many cases,
judgment may lead to “better” decisions than “optimizing” techniques. For example, consider sensitivity
analysis on a tool such as the economic order quantity. EOQ models suggest that there is an optimal
order quantity considering trade-offs of ordering and holding costs.

Yet you can stray far from optimal in cost cases without a very significant impact on total cost
differential. Here, then, judgement concerning other factors in the decision situation could lead to a
better decision about order quantities, rather than holding fast to deciding what the rational model
prescribes.

In fact, the timing of when to implement a decision based on the analysis may require an intuitive feel
for what the dates are telling you. In many cases, judgement such as this might be preferred to relying
on the analysis. Recognize, then, that analytical models are tools to help the decisions maker in
improving judgement.

Those opposed to this approach argue that –

(a) The rational approach ensures that adequate attentions is given to consequences of decisions before
big mistakes are made.
(b) It does not effectively use all the tools available to modern decision makers.

2. Rational-Analytical:

In this model, the decision maker is a unique actor whose behaviour is intelligent and rational. The
decision is the choice this actor makes, in fall awareness of all available feasible alternatives, to
maximize advantages. The decision maker therefore considers all the alternatives as well as the
consequences of all the possible choice orders these consequences in the light of a fixed scale of
preferences, and chooses the alternatives that procures the maximum gain.

This is the oldest decision theory. It prescribes a rational, conscious, systematic, and analytical approach.
It has been criticized because –

(a) Decision makers make decisions with more than a maximization of objectives in mind. They tend to
“satisfice,” that is, make a decision expected to yield a satisfactory, as opposed to an “optimal”,
outcome. Besides, the objectives may change.

(b) The decision maker is often not a unique actor but part of a multiparty decision situation.

(c) Decision makers are not rational enough or informed enough to consider all alternatives or know all
the consequences and information is costly.

3. Political-Behavioural:

A third model suggests that real decision makers must consider a variety of pressures from other people
affected by their decisions. An organisation interacts with a variety of shareholders in series of
interdependent exchange relationships. Unions exchange labour for decent wages and job security.

Customers exchange money for products and services. Owners exchange capital for expected returns on
investment. Suppliers exchange inputs for money and continued business. Government exchanges
protection and economic security for taxes. Even competitors exchange information with one another
through trade associations or other contacts. The list of agents and expectation goes on.
Each shareholder gives the organisation something and expects something in return. To the extent an
organisation has favourable exchange relationship gets a bit more than given compared with other
organization and stockholders, it has more power. More powerful stockholders have more influence
over decisions because the organisation is more dependent on these stockholders.

A majority stockholder can have a greater influence on decisions about reinvestment versus dividend
payout than if stock is widely held by many small owners. If the firm is labour intensive more attention
may be paid to union-leaders demands for better wages than to the desires of stockholders for more
profit, because the union might shut the firm down. Given these realities, decision makers do a juggling
act to meet the demands of the various stockholders. Through political compromise they attempt to
merge competing demands so that a coalition of interests emerges that will support the decision.

The mode of decision making is descriptive theory suggesting that the organisation in which the decision
maker works limits the choices available. Decisions are made when the several people involved in the
process agree that they have found a solution. They do this in mutual adjustment and negotiation
following the rules of the game the way decisions have been made in the organisation in the past. The
decision maker must consider whether the decision can be implemented politically.

Approaches of Strategic Decision Making – 5 Important Approaches of Strategic Decision Making

Categorised by Few Authors

Strategic decision making process is complex and intriguing. Various researchers and authors have
studied and described the manner in which such decision-making takes place. These different
approaches have also been categorised by a few authors.

We have attempted to understand the different approaches to strategic decision making as under:

Approach # 1. Intuitive-Anticipatory:

This approach is based on the intuition of, usually, a single person who is the promoter or chief
executive of an organisation. He anticipates the future and takes strategic decisions accordingly. The
process is implicit in the sense that the mental processes involved in decision-making are not readily
evident.
The basis of decision-making is intuition, judgement or hunch, which are the result of long years of
experience in dealing with a variety of strategic problems. A few authors, including Herbert Simon,
Rechard Cyert, James March and Henry Mintzberg have contributed to an understanding of this
approach. It is difficult to provide an illustration of this approach. Owing to its inherent nature, the
process of decision-making adopted under this approach is not clear and inexplicable and, therefore,
cannot be reported.

Approach # 2. Formal-Structured:

This approach involves systematic planning and set procedures. Since it is formal and structured,
strategic problems are dealt with by a designated group of planners who follow a set procedure to arrive
at decisions. Different types of planning system such as strategic planning, corporate planning or long-
range planning are used.

Most authors in strategic management use the formal-structured approach framework in their texts. As
an illustration, we may consider the example of Larsen & Toubro (L & T), which adopts a formal strategic
planning system. In essence, the company follows a three-stage process.

The first stage is the diagnostic phase involving the setting of corporate mission, objectives and goals,
and SWOT (strengths, weaknesses, opportunities and threats) analysis by each of the seven business
group in the company. The second stage deals with providing directions through the choice of
alternatives strategies to be adopted. The last phase is the implementation phase where the action plan
is put into action.

Approach # 3. Adaptive:

The essence of the adaptive approach is on taking strategic decisions on the basis of how a change is
perceived at a given point of time. With changing circumstances, the decisions are also reviewed. The
basic for review of decisions is an estimation of the gap between the current position of the company
and its objectives.

Strategic decisions are meant to reduce such a gap. Circumstances are defined in terms of the
environment. For an environment that is perceived to be stable, strategic decision are based on
certainty. Where stability is less, and the future is risky, contingency planning systems are adopted. In an
uncertain environment, the emphasis is on building up adaptive capability to respond to changes as and
when they occur. This approach has been dealt with by authors like H. Igor Ansoff and Russell L. Ackoff.
Many organisations exhibit the adoption of such an approach in the Indian business environment.

Mintzberg’s classification of the modes of strategy making as entrepreneurial, adaptive, and planning,
offers another theoretical framework which aids the understanding of the strategic decision-making
process.
According to Mintzberg, three pure modes of strategy making could be defined. The entrepreneurial
mode envisages an active search for opportunities by a person, usually the entrepreneur or chief
executive, who takes bold and risky decisions and rapidly moves the organisation towards its objectives.

In the adaptive mode, the emphasis is on solving short-term problems by adopting a reactive attitude
and decisions are made in incremental steps based on negotiated settlements among different interest
groups. The planning involves a systematic appraisal of the environment, assessment of internal
capability and choosing courses of action in the form of meticulously formulated strategies.

These three pure modes could be combined to form mixed modes like adaptive-entrepreneurial,
adaptive-planning or entrepreneurial-planning modes. The method of strategy making may also differ
with respect to different functional areas. Organisations may also adopt different modes at successive
stages of their development.

Thus, there could be many different approaches to strategic decision-making. But to state that an
organisation follows only a single approach at a time or only one approach all the time would be
unrealistic. Real-life business situations offer countless examples of organisations and decision makers
who adopt a combination of approaches.

Approach # 4. Incremental:

The incremental or, colloquially, the muddling through approach involves limiting the focus of strategic
decision-making to a few alternatives at a time that differ only marginally from one another. The choice
of the best alternative is based on an iterative process of continually redefining problems so as to make
them manageable.

The end result is a negotiated settlement between different interest groups. Charles Lindblom has
explained this approach through the concept of disjointed incrementalism. Most public sector
companies in India, in their strategic decision-making, exhibit the adoption of an incremental approach.
Owing to the various pulls and pressures between which public sector companies typically operate with
regard to their objectives and goals, the strategic decision-making is based on negotiated settlement
among different groups.

Approach # 5. Entrepreneurial-Opportunistic:

This approach is characterised by a constant search for opportunities and exploiting them for the benefit
of the organisation. Entrepreneurial strategic decision-making is based on the perception of
opportunities, diagnosing them for the generation of alternatives, analysing the consequences and
selecting the course of action that would best meet the objectives. Such an approach is generally
adopted by entrepreneurs and family- business executives but may also be adopted by manager in
organisations.
Many examples can be provided in the Indian context where this approach is adopted for strategic
decision-making. The illustration of Dhirubhai Ambani, the founder-chairman of the Reliance group of
companies, typifies the adoption of the entrepreneurial-opportunistic approach.

Starting as a humble office member of staff in Burmah Shall, Ambani moved into spices exports and then
to nylon yarn trading. It is in this business that he, in the early sixties, realised the importance of
synthetic fabrics. Seizing upon the opportunity, Ambani laid the foundation of Reliance Textiles Ltd., a
giant multi-product and multi-location company.