Factors Affecting Strategic Choice
Factors Affecting Strategic Choice
The more important factors influencing the strategic choice are discussed here:
Factor # 1. Environmental Constraints:
The dynamic elements of environment affect the way in which choice of strategy is made. The survival and prosperity of a firm depend largely on the interaction of the elements of environment-such as shareholders, customers, suppliers, competitors, the government and the community. These elements constitute the external constraints. The flexibility in the choice of strategy is often governed by the extent and degree of the firm’s dependence on the environment.
Pearce and Robinson state, “A major constraint on strategic choice is the power of environmental elements. If a firm is highly dependent on one or more environmental factors, its strategic alternatives and ultimate choice must accommodate this dependence. The greater a firm’s external dependence, the lower its range and flexibility in strategic choice.”
Well established, large companies in different industries are more powerful vis-a-vis their environments and therefore have greater flexibility in the strategic choice than their counterparts in the respective fields.
Factor # 2. Dynamism of Market Sector:
Glueck has said, “The strategic choice is affected by the relatively volatility of market sector the firm chooses to operate in.” Market forces vehemently influence the choice of strategy.
For example, a firm which obtains bulk supply of its raw materials or components in a competitive market will have greater flexibility in its strategic choice than another firm which has to depend for its supplies on an oligopolistic market.
Factor # 3. Intra-Organisational Factors:
Organisational factors also affect the strategic choice. These include organisational mission, strategic intent, goals, organisation’s business definition, resources, policies, etc. Besides these factors, organisational strengths, weaknesses, and capability to implement strategic alternatives also affect the strategic choice.
Factor #4. Corporate Culture:
In choosing a strategic alternative, strategy makers must consider pressures from the corporate culture. They must assess a strategy’s compatibility with that culture. Every organisation has its own corporate culture. It is made of a set of shared values, beliefs, attitudes, customs, norms, etc. The successful functioning of an organisation depends on ‘strategy-culture fit’.
The strategy choice has to be compatible with firm’s culture. The strategic choice should not be out of tune with the cultural framework of the firm. The culture has substantial influence on the strategic choice. In case of mismatch between strategic choice and the cultural framework of a company, either one is to be redefined.
The management should decide to:
- Take a chance on ignoring the culture
- Manage around the culture
- Try to change the culture to fit the strategy
- Change the strategic alternative to fit the culture.
Factor # 5. Industry and Cultural Backgrounds:
Industry and cultural backgrounds affect strategic choice.
For example, executives with strong ties within an industry tend to choose strategies commonly used in that industry. Other executives who have come to the firm from another industry and have strong ties outside the industry tend to choose different strategies from what is being currently used in their industry.
Country of origin often affects preferences.
For example, Japanese managers prefer a cost-leadership strategy more than do United States managers. Research reveals that executives from Korea, the U.S., Japan, and German tend to make different strategic choices in similar situations because they use different decision criteria and weights.
Factor # 6. Pressures from Stakeholders:
The attractiveness of a strategic alternative is affected by its perceived compatibility with the key stakeholders in a corporation’s task environment. Creditors want to be paid on time. Unions exert pressure for comparable wage and employment security. Governments and interest groups demand social responsibility. Shareholders want dividends. All these pressures must be given some consideration in the selection of the best alternative.
Stakeholders can be categorized in terms of their (i) interest in the corporation’s activities and (ii) relative power to influence the corporation’s activities. Each stakeholder group can be shown graphically based on its level of interest (from low to high) in a corporation’s activities and on its relative power (from low to high) to influence a corporation’s activities.
Strategic managers should ask four questions to assess the importance of stakeholder concerns in a particular decision:
- How will this decision affect each stakeholder, especially those given high and medium priority?
- How much of what each stakeholder wants is he likely to get under this alternative?
- What are the stakeholders likely to do if they don’t get what they want?
- What is the probability that they will do it?
Strategy makers should choose strategic alternatives that minimize external pressures and maximize the probability of gaining stakeholder support. Managers may, however, ignore or take some stakeholders for granted leading to serious problems later. (Thomas Wheelen and David Hunger)
Factor # 7. Impact of Past Strategies:
It has been noticed that the choice of current strategy may be influenced by what type of strategies have been used or followed in the past. Pearce and Robinson have said, “A review of past strategy is the point at which the process of strategic choice begins. As such past strategy exerts considerable influence on the final strategic choice.”
Hence, it is said that ‘past strategies are often the principal architects of current strategies.’ Pearce and Robinson explain the reason in this way- “Because they have invested substantial time, resources and interest in these strategies, the strategists would logically be more comfortable with a choice that closely parallels past strategy or represents only incremental alternations.
Henry Mintzberg says, “the past strategy strongly influences current strategic choice.” On the other hand, Barry M. Staw has remarked, “the older and more successful a strategy has been, the harder it is to replace. It is very difficult to change because organisational momentum keeps it going.”
Factor # 8. Personal Characteristics:
Personal factors like own perception, views, interests, preferences, needs, aspirations, personal disposition, ambitions, etc., are important and play a vital role in affecting strategic choice. Even the most attractive alternative might not be selected if it is contrary to the attitude, mindset, needs, desires and personality of the selector/strategist himself.
Thus, personal characteristics and experience affect a person’s assessment and choice of strategic alternatives.
For example, one study found that narcissistic (self-absorbed and arrogant) type of managers favour bold actions that attract attention.
Factor # 9. Value System:
The role of value system in choosing a strategic alternative is well recognized. While evaluating the strategic alternatives, different executives may take different positions because of differences in their personal values.
Guth and Tagiuri found that personal values were important determinants of the choice of corporate strategy. Similarly, value system to top management affects the types of strategy that an executive chooses.
Factor # 10. Managerial Attitude towards Risk:
Managerial attitude towards risk is an important factor that influences the choice of strategy. Individuals differ considerably in their attitude towards risk taking. Some are risk prone, others are risk averse.
Conceptually, one may distinguish between the following attitudes reflecting the order of risk preferences:
- Risk is necessary for success;
- Risk is a fact of life and some risk is desirable; and
- High risk destroys enterprises and needs to be minimized.
These attitudes may vary from risk taking to strong aversion to risk, and they influence the range of available strategy choices. Pearce and Robinson have suggested that, “where attitudes favour risk, the range and diversity of strategic choice expand. High risk strategies are acceptable and desirable. Where management is risk averse, the diversity of choice is limited, and risky alternatives are eliminated before strategic choices are made. Risk-oriented managers prefer offensive, opportunistic strategies. Risk averse managers prefer defensive safe strategies.”
Those who consider some risk is desirable, balance high with low risk choices and prefer a combined strategy. Also, executives may overlook the risks involved if they perceive an opportunity with optimism, i.e., where the tradeoff between risk and return weighs heavily in favour of the gains from the potential opportunity.
Research studies have also thrown some light on the risk preferences of decision maker:
- Older managers tend to be less prone to risk taking. (Vroom and Pahl)
- Individuals who deal easily with risk and uncertainty are better able to cope with complex problems than those who are risk averse. (Sieber and Lanzetto)
- Risk-prone decision makers limit the amount of information they consider and tend to make decisions rapidly. (Taylor and Dunnette)
Important links
- Retrenchment Strategy- Meaning, Types & Advantages
- Harvest Strategy & Liquidation Strategy
- Expansion Strategy and Stability Strategy
- Horizontal Integration- Meaning, Advantages & Disadvantages
- Vertical Integration- Meaning, Types, Advantages & Disadvantages
- Strategic Alliances- Meaning, Types, Advantages & Disadvantages
- Strategic Analysis- Meaning, Types, Strengths & Weaknesses
- Divestment Strategy & Reasons to Chose Divestment Strategy
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