Strategic Decision Making and

Functional Decision Making

There are currently dozens of large companies that generate more revenues than many
countries in the world. Strategical considerations become increasingly important as a business
grows in size and complexity. To compete, small and medium businesses need to improve their
processes and strategies in order to survive a rapidly changing environment. This course will
help you understand the impact of strategic decision making on functional decision making;
questions at the end will help you in assimilating those principles.

I. Strategic Decision Making

A major part of business creation involves the development of a vision through a mission
statement and a list of short-term and long-term objectives that permit the pursuit of the
company’s reason of being. Strategic planning – also known as strategic decision making –
details step by step the procedures to create strong mission statements, relevant objectives and
provides with a methodology to follow in order to ensure a coherent, resilient and meaningful
enterprise.

1. Strategic decision making - fundamentals

Strategic decision making is a continuous process involving the creation of strategies to

attain goals; it is continuous because it can be adapted according to collected feedbacks so that
it becomes more efficient. For instance, the director of a hotel might be willing to increase his
guests’ experience during their stay. To do so, he can implement a strategy to improve its
environment (cleanliness, soft music in the hall and so on) first and evaluate it later in order to
verify if it has been effective or not. Upon completion of the trial period, the director can check
on surveys left at the desk and/or customer reviews written on the internet to see if guests’
experience changed after he started this strategy.

While there are many different models, the strategic decision making process could be
divided into 8 steps as shown in this graph:

Step 1 – defining the problematic: the first stage consists of identifying the problematic
and creating a problem statement – which is the output at this phase.

Step 2 – data processing: recollection of data relevant to step 1 – both internal external
influences are taken into account.
 Step 3 – assessing options: objectives are treated as input at this stage in order to
identify the different options that could resolve the problematic. Manager during this phase
focus on finding/creating as many feasible solutions.

Step 4 – select options: after listing the different possible options, they need to be ranked
and evaluated - the most rated one is then selected. There are multiple ways to measure them
both quantitatively and qualitatively in order to rank them.

Step 5 – implementing the option: the selected option needs to be executed following an
implementation plan which must be created in order for the option to be effective. It could be in
the form of a step by step plan which contains the list of the required resources and their
allocation. Adding to it a list of the capabilities needed permit to activate the option – resources
+ capabilities.

Step 6 – collecting feedbacks: gathering of information related to the option – e.g.

surveys, financial ratios, customer reviews and so on.

Step 7 – analysing feedbacks: comparison of the feedbacks prior to the option’s

implementation and post implementation in order to evaluate its degree of impact.

Step 8 – improving method: last step in the feedback process, it allows to determine how
the option selected and implemented could be improved – or discarded if not relevant.

While strategic decision making is a cyclical process, it is important to point out that it is
possible to initiate a strategic decision making process for another problem while one is already
running and at any stage of the cycle. Also, two strategic decision making processes could have
different steps while serving the same objectives – i.e. resolving an issue.
 2. Strategic decision making tools

Managers have different tools they can use in order to improve their decision making
processes. The most widely used are – but not limited to:

 SWOT analysis – a frequently used decision making tool that serves managers by
helping them to examine the internal and external factors having an impact on the
organisation’s competence to attain objectives. The analysis is concentrated in two
parts:
 Strengths & Weaknesses – are the sections that refer to a list of the
organisation’s internal positive and negative attributes contributing to its
ability to perform and attain its goals.
 Opportunities & Threats – are referring to the external influences on the
organisation that could have a positive or a negative impact on its conduct.

When planning, managers could use this analysis in order to exploit its strength, minimise
its weaknesses, take advantage of opportunities and dodge threats.

 Cost Vs Benefit Analysis – this strategic decision making tool allows managers to
make better choices between different manners to proceed. The Cost Vs Benefit
analysis evaluates the projected revenues created by a product/project and the
estimated costs associated to it. This way, managers can differentiate
products/project depending on the level of benefit generated – the highest the better.
 Outsiders – even though managers can be expert in their field, they might not be
experts in disciplines that may have an impact on their businesses. This is especially
true for small to medium enterprises – they might not have all the required skills to
achieve a project. In order to solve this problem, they often seek help from outsiders
specialised and skilled for these special tasks. Mentoring is a common way for small
 businesses to respond to its needs. They can also hire specialised consultants to guide
them when designing strategies.
 Market Research – a process by which managers collect data about a specific market,
such as the inclinations of a certain type of consumers, the level of competition in a
given segment or the current trends moving the markets. It is an important strategic
planning tool as it allows managers to get insight into the state of a market and can
consequently allow managers to design a mission, a strategy and objectives in order
to better respond to its needs.

 Practicability study – strategic planning tool that permits to managers to assess the
feasibility of a specific project or objective and its potential to generate a financial
surplus. It is often used during the first phases of a plan to begin a new venture. It can
avoid disastrous launches of products that are doomed to fail simply because they are
not really attainable to start with.

II. Functional Decision Making

Functional decision making refers to a lower level of decision making than corporate or
business strategic making levels. It is a strategic level concentrated around the different
departments of a company that serve a function – e.g. Marketing, Finance, R&D and so on. It is
interacting with higher and lower levels of command and can influence or be influenced by
them.

1. Impact of strategic decision making

As seen in the following pyramidal representation, functional strategies make the liaison
between the higher levels and the lower levels of the company.
 It is directly influenced by corporate strategies and tactics – through business strategies for
very large organisations. Typically, downward influences are stronger as corporate strategies
prevail over business, functional and operating strategies. However, the lower levels often have
a great influence on the corporate strategy as they provide with more detailed feedbacks about
the organisation’s daily operations.

2. Functional decision making: purpose

Functional decision making serves as a basis for managers so that they can make their
choices. Decision makers will improve the effectiveness of a decision by considering all variables
having an impact on it. Decisions can greatly affect the business as a whole and over long period
of time. The factors that can help in making the process more effective are:
 o Precedents – managers look at previous cases, their implementation and the effects
they had on results.
o Confined rationality – when limited in alternatives due to confined resources,
managers consider the most efficient solution and settle for its implementation.
o Organisational procedures – are processes (planning, setting of objectives and so on)
which are not aimed at optimising the decision process for an organisation, but rather
at optimising its functionality.

The impact of strategic decision making on functional decision making goes both ways. In
fact, while corporate strategies have a greater impact due to the way organisations are
structured – i.e in hierarchical forms. Strategic decision making can adapt due to the feedbacks
of lower strategical levels, which are closer, faster and more responsive to the markets.
 Multiple Choice Questions
1. What is strategic decision making?

a. An implementation plan involving external influences;

b. A continuous process involving the creation of strategies to attain goals;

c. Recollection of data – both internal external influences are taken into account;

d. All true.

2. Which statement is true?

a. There are 6 steps in the decision making process;

b. Decision making processes are always made of 8 steps;

c. There are many different forms of strategic decision making processes;

d. All false.

3. Which strategic level is managed by business executives?

a. Business strategies;

b. Corporate strategies;

c. Functional strategies;

d. b. & c.

4. What is the output of the first stage of the strategic decision making process?

a. A mission statement;

b. A problem statement;
c. A list of possible solutions;

d. b. & c.

5. What is functional decision making?

a. A strategic level concentrated around the different departments of a company that serve a
function;

b. A lower level of decision making than corporate or business strategic making levels;

c. A strategic level interacting with higher and lower levels of command;

d. All of the above.

6. What is a practicability study?

a. A strategic planning tool that permits to managers to assess the feasibility of a specific project
or objective;

b. A process by which managers collect data about a specific market;

c. A strategic planning tool that permits to managers to assess the potential for a project or
objective to generate a financial surplus.;

d. a. & c.

7. What is a Cost Vs Benefit Analysis?

a. A strategic planning tool that allows managers to get insight into the state of a market;

b. A process by which managers collect data about a specific market;

c. A strategic decision making tool allows managers to make better choices between different
manners to proceed;

d. All the above.

8. What factor can help the functional decision making process?

a. Precedents;
b. Confined rationality;

c. Organisational procedures;

d. All of the above.

9. Which tool should a manager use to assess the strong and weak components of a business?

a. Cost Vs Benefit Analysis;

b. Market research;

c. SWOT analysis;

d. Outsiders.

10. What is the last step of the decisional making process?

a. Feedback analysis;

b. Feedback collection;

c. Improvement of the method;

d. Selection of an option.

Answers
1: b; 2: c; 3: b; 4: b; 5: d; 6: d; 7: c; 8: d; 9: c; 10: c;