Strategic decision making

Decision making is the most crucial management function. Decisions commit the organisation and its members to activities which have financial repercussions and affect the functioning of others who are connected with those. Therefore, decisions are taken after lot of deliberations which involve data gathering, analysis, and predicting outcomes as shown in figure 3.4.

Accuracy of data, their relevance for the matter under consideration is the factor which affects the quality of decisions. In addition, the following factors also form the basis of decision making:

Figure 3.4: Planning and decision making

a) Environmental scanning: The business environment of any organisation includes the industry, marketplace, governmental agencies, society, ecology, technology, and others. Organisations should be aware of the business environment in which the firm exists, and have to compete continually by exhibiting potential for opportunities and threats.

Being aware of those, and their impact on the firm by a process of analysis, is called environmental scanning. Let us now consider the potential exhibited by business environment.

 Competitors may be gaining edge by diversification, making forays into the firm‟s niche market by making new and better products

 Suppliers could be forming cartels and preparing to drive hard bargains

 Government could be passing laws and issuing orders which could affect the supply of materials or restrictions on import and export or even employment conditions.

Adaptation to these dynamic factors by environment scanning and basic strategic decisions is vital.

b) Core competencies: Each organisation is started by an entrepreneur or a small group of entrepreneurs. The objective is to use their unique strengths to create and develop an organisation. These unique strengths are the core-competencies of the organisation. However, many-a-time, it becomes necessary to augment the existing business with some additional strengths or competencies. Such developments and

improvements in core competencies provide an edge over the competitors who would have to grapple with these competencies.

Core processes of an organisation are determined by the core competencies. Four main core processes are mentioned below. (See Figure 3.5 Core competency process)

 Customer relationship

 New product/service development

 Supplier relationship

 Order fulfilment

The emphasis on these processes depends on:

 The type of industry

 The length of its existence

 The consequent strengths built up in certain areas

 The way earlier successes have been achieved

 The reinforcement they have given to the organisation

One should remember that the environment is always dynamic and the strategy formulation needs to be constantly updated for making implementation effective. Ultimately, every organisation depends on the core competencies which give it an advantage over the competitors.

Figure 3.5: Core competency processes 3.2.3 Differentiation strategies

Differentiation is a process, by which, a company distinguishes itself, from its competitors, and their offerings. The process includes adding a set of differentiators, which are meaningful, and adds value for the customer. The differences should be perceived by the customer as important, distinctive, superior, and affordable. Despite anything to the contrary, they have to make the company‟s offerings (the products and services) profitable.

To derive competitive advantage, the study of the processes to adapt innovations which should be pre-emptive is important. Here, we are not considering the situation of an entirely new product but those which are already contributing to the company revenues.

“Companies have different potential in terms of manoeuvrability along with target market, place (channels), promotion, and price. These are affected by the company’s position in the market, and the industry structure.”

– According to Miland Lele, (Miland M.Lele, Creating Strategic Leverage: New York, John Wiley 1992)

Boston Consulting Group (BCG) has classified four types of industries and the approaches available, depending on the cell the particular industry fits into. The figure 3.6, illustrates the classification of industries according to BCG.

Figure 3.6: BCG’s Classification

Size of advantage vs. number of approaches to achieve advantage When the volume of the industry is large, the advantage for a firm is high, but the number of approaches is small. On the other hand, if it is fragmented, the size of the advantage is small, and the approaches are many. The options available and the quantum of advantage are the considerations for any strategy. For products differentiation we consider

form, features, and the quality of performance. By form, we mean the shapes, dimensions, aesthetics which determine the physical aspects of the product.

The components and parts that are integral to the product may not be visible but will have forms which make it easy for assembly, identification, extraction, insertion, and inspection. This is necessary for making a product serviceable and repairable to meet customers‟ needs. The dimensions are optimised for safe use, safety, and durability.

Aesthetics is the ultimate differentiator to attract the customer and make him comfortable using it. Features contribute for differentiation to a large extent.

It addresses the requirements of the customer in such a way as to make the products meet them in a way that the competitors do not. Again, performance is looked at from the point of view of reliability, durability, and reparability.

The strategy that gives advantage is to have features incorporated during design and ensuring fail-safe methods in the processes. Measures taken should be implemented in such a way that all personnel involved are aware of the purpose and improves commitment. From the operations perspective, it is bound to unlock creativity and encourage innovativeness, a well earned bonus.

Self Assessment Questions Fill in the blanks

2. Features contribute to a large extent in that they address the _______ of the _______.