Selection Factors Influencing Strategic Choices
Selection Factors Influencing Strategic Choices
Strategic choices are influenced by four managerial selection factors:
Factor # 1. Perception of External Dependence:
Business firms depend on other units that include the owners, competitors, customers, government, and community for their survival and prosperity. The more dependent a firm on these units is, the less flexible its strategic choice can be. Thus the range of strategic choices is limited. Strategic choices result from interactions of the firm with its environment. Thus strategic choices are outcomes that are negotiated as various parties maneuver to reach their objectives.
These dependencies can be objectively measured. A stockholder who controls 51 percent of the voting stock clearly has more power, and the firm is more dependent on the wishes of the majority power. But in addition to the objective phenomena there are the subjective views of the decision makers.
Facts do not speak for themselves, executives interpret them. Executives who see the firms differently can head two firms of equal power. One firm’s executives can see their firm as weak and dependent, the other as strong.
Thus the weights they put on the strategic alternatives can vary. For instance, a strategy requiring lower prices to gain market share maybe rejected if managers believe that their union has the power to gain greater wages and benefits than their competitors offer. Diversification strategies are often used to reduce dependence..
Factor # 2. Managerial Attitudes toward Risk:
Another factor influencing strategic choice is how much risk the firm, its stockholders, and management can tolerate. Managerial attitude toward risk ranges from comfort to strong risk aversion. The risk averters probably view the firm as very weak and will accept only defensive strategies with very low risks.
Risk attitudes can change, and vary by industry volatility & environmental uncertainty. In very volatile industries, executives must be capable of absorbing greater amounts of risk otherwise they cannot function.
Risk attitudes can also vary on the basis of internal conditions. These internal conditions may include. The amount of gambling on any given project and the amount of betting and the amount of loss involved. The financial strength and the past success also have an influence on the perception of risk. If you have won recently, you may see less risk in the future.
Thus the assessment of manager’s perception of risk will help in understanding the potential acceptability of a given strategic option. In so far as they influence managerial attitudes, the risk attitudes of the managers and stockholders will eliminate some strategic alternatives and highlight others.
Factor # 3. Managerial Awareness of Past Strategies:
Past strategies are the beginning point of strategic choice and may eliminate some strategic choices as a result. The beginning point of the process is the present position of the firm. From there, the initial question is, Will the continuation of our strategy lead to the expected attainment of desired objectives? To the extent that the gap is small, past strategy will be continued. And to the extent that managers are committed to continuing the strategy, other alternatives will be ignored.
The corporate cultures built up to implement the past strategy also get in the way of choosing a new strategy. A corporate culture is the “personality” of an organization. Changing a corporate culture represents new patterns of resources allocation, norms, communication, leadership, rewards, and so on.
Such changes will be needed if a new strategy diverges very far from the past one. It is often difficult and time-consuming to change corporate culture. Even the past image of the firm may make a new strategy harder to implement. So the values of management and perceptions of the firm from outside as a result of long commitments to past strategy are preventing the firm from moving rapidly into new growth areas.
Factor # 4. Managerial Power Relationships:
People know that power relationships are a key reality in organizational life. In many enterprises, if the top manager begins to advocate one alternative, the decision to choose it is soon unanimous.
Sometimes personalities get involved in the strategic choice: whom the boss likes and respects has a lot to do with which strategic choice is made. And sometimes if “mistakes” are made, the power can shift the blame to lower-level executives.
The power of the CEO plays a role, too. The manager’s personal goals, ambitions, values, and motivation can affect the choice of strategy. If the CEO is very powerful, the organization’s goals become intertwined with personal goals in the choice process.
There is no doubt that power and politics influence decisions, including strategic decisions. The significance of the decisions, the degree of time pressure, the degree of uncertainty, and the style of the decision maker influence the relative roles of analytical, political, and intuitive approaches to decision making. The external political pressures are also involved in determining the trade-offs among objectives.
It can be said that politics always plays a role, even to the extent of influencing objectives and the way the analytical approaches are used and interpreted. According to Mintzberg, politics seems to be an over-riding factor in the strategic choice process about 30 per cent of the time, Thus, it is important to analyze the values and goals of the key managers.
The strategy chosen has little chance of success unless it will be implemented effectively; it is unlikely that a politically unacceptable strategy will be carried out successfully.
The power of lower-level participants also plays a role in strategic decision-making. Of course, top managers make the strategic choices, but earlier strategic choice made by their subordinates limit the strategic choice usually considered. Subordinates can choose to hold or submit proposals strategic change.
They can also influence the choice by providing analytical data that support their proposal. Moreover, strategies must be implemented, and lower-level managers have the power to make or break a strategy.
Decision-makers also have opportunities to select the type of environment within which they will operate. In large organizations, they have the power to influence conditions prevailing in the environments in which they are operating.
According to Child, threats and opportunities perceived in the environment, which affect strategic choice, “are functions of the power exercised by decision makers in the light of ideological values”. Hence, power constrains choices on the one hand, and expands choice opportunities on the other. The key is the perception of power and its use. Finally, sometimes workers’ councils have an influence on strategic choices. Thus the power of “insiders” and “outsiders” can be a strong political influence on the strategic decision. Coalitions develop to influence the formation of objectives and strategies.
Factor # 5. Time Dimension and Strategic Choice:
The timing of decisions and time pressures affect the strategic decision process and the quality of the decision. The deadlines for making a strategic choice is often set not by the manager but by others. Sometimes, the strategist must make decisions in time frames set by other. In other cases, the strategist has more time to seek alternatives and choose among. When time pressures are significant, strategist may not be able to gather enough information or consider an adequate number of alternatives. Time pressures also affect the strategic choice process itself. Finally, the desire to accomplish certain objective within specific time fame will more naturally lead to the choice of some alternative strategies.
Important links
- BCG Matrix as Corporate Portfolio Analysis Technique
- GE Nine-Cell Planning Grid: Corporate Strategy Analysis Technique
- TOWS Matrix: (Corporate Portfolio Analysis Technique)
- Hofer’s Matrix: (Corporate Strategy Analysis Technique)
- Approaches of Strategic Analysis and Choice at Business Level
- Shell Directional Policy Matrix
- Strategic Business Unit (SBU)- Success Factors, & Features etc.
- Environment- Meaning, Definition & Components
- Environmental Scanning- Importance, Internal & External Analysis
- Synergy in Business- Meaning, Types & Synergy Approach
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