What is strategic decision making? (With examples)
Updated 14 August 2023
Managers make numerous significant business decisions each year to increase sales figures in the shorter term and consider the bigger picture and direct the future of an organisation. One approach to these kinds of choices is by using strategic decision-making. This method of making important business decisions helps to make sure that an organisation bases its decisions on the company's mission and vision or its objectives. In this article, we explain what strategic decisions are, provide examples of strategic decision making, outline some of the benefits and provide tips to help you make more strategic choices for your business.
What are some strategic decision-making examples?
Strategic decisions are choices made that consider a company's mission and its strategic objectives. There are various times when it's important for a company to use strategic decision making. For instance, when deciding whether or not to enter or exit an existing market, introducing a new product or service to their offering, withdrawing or discontinuing an existing product or service or whether to target a new or existing customer segment. The action taken considers the whole environment in which the organisation operates and the company's resources, instead of focusing on purely short-term gain.
Example: A dog food company's mission is to sell the healthiest dog food in the country. The company director notices their customers prefer high-quality freshly prepared food instead of cheaper dog food sold in larger amounts, although they're similar in terms of nutritional value. To guide the future of the company to suit the evolving tastes of their customers, the director alters their product line to focus on high-quality, freshly prepared dog food. While the products have a shorter shelf-life, they also result in an increased profit margin because dog owners will pay a higher price for freshly prepared food.
This is an example of a strategic decision. The director of the dog food company decided to alter the company's product line to focus on higher-quality foods that cost more, considering the evolving needs of its customers. If the company's mission was to be the top supplier of low-priced dog food, then it wouldn't make strategic sense to prioritise fresh ingredients. Sourcing cheaper ingredients with a longer shelf life would align more with the company mission.
What is strategic decision-making?
Strategic decision-making refers to when a business bases its shorter-term decisions on the longer-term vision for the direction of the organisation. This method typically entails using small, quantifiable goals that contribute to its overall mission. Managers typically make strategic decisions regarding high-level factors that are crucial to the success of an organisation, for instance, budget, structure and potential risk. Successful strategic decision-making is usually a collaborative process that involves a leadership team and even team members and company employees, depending on the context.
Advantages of strategic decision-making
Strategic decision-making can have many advantages for a company or organisation. It's closely linked to strategic planning, as both concern the distribution of resources and the long-term future of the organisation. Though many companies appreciate the importance of strategic planning and decision making, they may neglect the company's mission statement and vision. Here are some advantages of effective strategic decision-making:
Strategic decision-making can give you a structure to guide your evaluation process. Having a structure can help to alleviate stress caused by complex situations and depending on the design of your organisation, it can also be an effective method of helping your team collaborate and work towards a common goal. Try using a strategic decision-making framework for any key business decisions.
By making a connection between your shorter-term decisions and the longer-term consequences, it may be easier to anticipate the outcomes of some business decisions. This can be very helpful when you're trying to forecast an organisation's progress and growth. Consider using strategic decision-making as part of forecasting your organisation's development.
Strategic decision-making is typically more effective when people work together. When a team collaborates to come to a decision, they may think of more innovative solutions and identify more nuances than one person working alone. The collaborative nature of strategic decision-making may also help to promote a culture of cooperation and innovation within the organisation. You may also consider including strategic decision-making in your hiring and staff retention efforts.
The longer-term vision and mission of your organisation may evolve and grow with time, and strategic decision-making can offer the necessary flexibility. You can use it to respond to evolving goals, by aligning your smaller, short-term goals and choices with the long-term company vision. This can make it easier to alter the short-term decisions to support your long-term objectives.
How to make more strategic decisions
If you'd like to make more strategic decisions for your company so that you can align your short-term goals with your overall vision for the business, you may be wondering exactly how to begin. Here are some steps you can follow to make more strategic decisions for your organisation:
1. Determine your company mission
As a first step, determine your organisation's overall purpose. Your company may already have a mission statement you can review for inspiration. If this mission statement is up to date with the current goals and requirements of your company, then you may use it as a foundation for strategic decision-making. If it's no longer aligned with the current values of your organisation, you may adjust it as necessary. Consider collaborating with others in the company and obtain their feedback to make sure that the company mission statement supports the organisational values.
If you don't currently have established company values or a mission statement, you can begin by creating one to use as a basis for your strategic decision-making. Collaborate with others, such as business managers, your team and even external stakeholders, if it's reasonable. Be clear in your mission statement, as this can support your decision-making processes. You can share your company's mission and values with everyone in the organisation and publish them so that others outside your organisation can access them and find inspiration in them.
2. Establish your long-term goals
As a next step, choose long-term goals for your organisation. Think about how you can work to achieve the purpose you outlined in your mission statement. It may help to develop goals that are specific, measurable, attainable, relevant and time-based, also known as SMART goals. Aim to collaborate with your team or others within the organisation to create tangible goals.
When defining your long-term goals, it's important that you balance the needs of different stakeholders, such as company leaders, employees and your customers or clients. Consider a time frame, for instance, five or 10 years, and contemplate setting goals over multiple periods of time.
3. Establish your short-term goals
Use your long-term goals to determine several short-term goals for your organisation. It's important that you're clear about your short-term goals and consider using the SMART method to establish them. You may adapt your short-term goals or implement new ones to meet any new company challenges, or requirements that may arise, so as to address them in a way that still supports your long-term goals and overall mission.
Seek input from others within the company on short-term goals to gain valuable feedback from a range of perspectives. You may also consider presenting these goals to your team or sharing them with the wider organisation so that everyone is aware of what they are.
4. Revise and update
Your long- and short-term goals will likely change as the needs of your business and customers evolve. This is a common element of strategic decision-making. It can also provide a good opportunity to refresh your team's perspective on your mission and values and to remember your shared purpose as an organisation. Periodically review your mission and goals to see if and how you're achieving them or if it's necessary to adjust the goals themselves to accommodate changing circumstances. Consider doing so on a regular schedule or in response to significant industry events or changes.
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