Lesson 3: The Decision Making Process: Problem Analysis Methodology, Decision Making, Learning, Creativity, and Entrepreneurship

Step 1 of 5

3.1. The decision making process

Intelligence activities aim to provide support for decision making, and information analysis forms an important part of that work. Ungureanu and Avramescu (2008) assert that strategy is the main connection between a company´s organizational structure and the external environment. Previously we have reviewed the field of intelligence activities, but in order to find out how they assist in decision making, it is necessary to have a look at the way decisions are made. Then, the aim of this part is to map out the field of strategic decision making through introducing different approaches to strategy.

According transcribed and expressed L.C. Seitovirta, with another point of view, it could be consider that strategy starts with a vision of what one desires to be at a definitive time in the future. This vision evolves to the development of specific actions necessary to reach the stated vision. These actions, moves or allocations are strategies. Fleisher and Blenkhorn (2003) define strategic management as a way of conducting an organization that aims to develop values, managerial capabilities, organizational responsibilities and administrative systems to link strategic and operational decision making.

Porter (2008) views strategy formation as an analytical process. In his view, strategy work is about understanding the industry structure and claiming a position in the industry that is more profitable and less vulnerable to attack. This may include positioning the company to better deal with the current competitive forces, anticipating and exploiting shifts in the forces, and shaping the balance of forces to create a more favorable industry structure to the company. The best strategies exploit more than one of these possibilities:

  • Positioning the company: A strategy can focus on building defenses against competitive forces, or on finding a position in the industry where the forces are weakest.
  • Exploiting industry change: If a strategist has a good understanding of the competitive forces and their underpinnings, it is possible to spot and claim promising new strategic positions as the industry changes.
  • Shaping industry structure: In addition to recognizing and reacting to the inevitable, a company may also lead the industry towards new ways of competing that change competitive forces to the better. While many participants can benefit from industry transformation, the innovator can benefit most if it can shift the competition in directions where it can excel.

In the analytic approach, strategy comes into being when it is formulated – thus it is something that is done somewhere and then implemented (Fleisher & Blenkhorn 2003). Viitala and Pirttimäki (2006) discover that although there are several models to describe the process of strategic management, certain elements are included in nearly all of them: analyzing both internal and external environment, strategy formulation, strategy implementation and evaluation and control.

Fleisher and Blenkhorn (2003) assert that the objective of strategic management is to position the company so that it can achieve the tightest fit with its competitive environment. Competitive intelligence aims to assist in generating this form of understanding. However, there is criticism regarding the usefulness of strategic planning. Fleisher and Blenkhorn (2003) assert that in today´s fast-changing, fast-paced and competitive world, a lock-step strategic planning approach impedes dynamic and innovative decision making and required marketplace action. Viitala and Pirttimäki (2006) claim that instead of being performed in certain intervals the strategy planning process should be continuous. It is necessary that a company should always be able to adjust the strategy on an ongoing basis.

In contrast to the analytical approach to strategic planning represented by Porter (1980), Mintzberg (1994) argues that strategy formation can also be emergent. In his view, there is more to strategy than analysis – strategy can be a synthesis drawing from multiple sources of information. The strategy making process should capture what the manager learns from all sources, including soft insights from personal experiences and the experiences of others throughout the organization, in addition to hard data from market research and the like. This learning should then be synthesized into a vision of the direction that the business should pursue, which is called strategic thinking.

In the analytical approach, Porter (1980) argues that analyzing the industry´s underlying structure can form the basis for actionable, set plans. Mintzberg (1994), however, asserts that rather than creating strategies, planners should make their greatest contribution around the strategy making process: planners can supply the data, help managers think strategically, and program the vision. They can produce the formal analyses and hard data that strategic thinking requires, but only in order to broaden the consideration of issues rather than to discover the one right answer. Thus, instead of positioning the company based on a clear, structural picture of the environment (Porter, 1980), the emerging approach employs a more broader brush that allows for picking up, and acting upon, a wider range of signals that can have an impact on the strategy. Brown and Eisenhardt (1998) assert that strategy cannot be regarded as a permanent guideline to a company´s long term goals. It is rather about creating a flow of competitive advantages that, taken together, create a semi-coherent strategic direction (Viitala & Pirttimäki, 2006).

Mintzberg (1994) considers that strategic thinking, in contrast to strategic planning, involves intuition and creativity. The result of strategic thinking is an integrated perspective of the enterprise, a vision of direction that is not too precisely articulated. These kinds of strategies cannot be developed on schedule; they must be free to appear at any time and at any place in the organization and they cannot be forced to a cyclical framework of strategic management (Fleischer & Blenkhorn, 2003). They typically arise through messy processes of informal learning; carried out by people at various levels of the organization who are deeply involved with the specific issues at hand. Mintzberg (1994) points out how formal strategic planning is dependent on the preservation and rearrangement of established categories – the existing levels of strategy, the established types of products, overlaid on the current organizational structure.

In contrast to Porter´s (2008) approach, Mintzberg (1994) argues that real strategic change requires not merely rearranging the established categories but inventing new ones. Strategy making needs to encourage informal learning that produces new perspectives and combinations. Furthermore, he considers that strategic planning cannot be applied to problem solving without judgment and intuition. Strategic planning represents a calculating style of management, aiming to reduce the power of management over strategy making, in a world that needs a more committing style of management where management engages people and everyone contributes and helps shape the course of the company. He introduces three fallacious assumptions that undermine strategic planning: the fallacy of prediction, the fallacy of detachment and the fallacy of formalization. Thus, even though formal systems offer a way to process more information, they can never internalize it, comprehend it, or synthesize it. Formal procedures will never be able to forecast discontinuities, inform detached managers, or create novel strategies.

Mintzberg (1994) observes that planners and managers have different advantages in the strategy making process. Planners lack management´s authority to make commitments and can access soft information critical to strategy making. Managers, in turn, pressed with time, tend to favor action over reflection, and the oral over written, which may cause them to overlook important analytical information. Even though strategies cannot be created through analysis, they can be developed with it. As planners have the time and will to analyze, they have critical roles to play alongside line managers, but not as conceived in the past. Planners should work as soft analysts, whose purpose is to pose the right questions rather than to find the right answers. That way they open up complex issues to thoughtful consideration instead of their being closed down hastily by snap decisions.

Hamel and Prahalad (1989) infer that all kinds of strategy recipes limit competitive innovation. In their view, strategy is too often seen as a positioning exercise (Porter, 2008) where options are tested by how well they fit the existing industry structure. The current industry structure reflects the strengths of the industry leader and playing by the leader´s rules is usually competitive suicide. Assuming a more inward approach to strategy, they argue that a strategist´s goal is not to find a niche within the existing industry space, but to create a new space that is uniquely suited to the company´s own strengths. They named this approach strategic intent and it aims to force companies to operate more innovatively.

Hamel and Prahalad (1989) find that the value of traditional industry analysis, represented by Porter (1980), for instance, has been undermined by unstable industry boundaries, rapidly changing technology, deregulation and globalization. However, they see that an industry in turmoil presents opportunities for ambitious companies to draw the map in their favor, providing that their thinking extends outside traditional industry boundaries. Managers cannot restrain themselves by simply playing the same game better. Instead, they must fundamentally change the game in ways that disadvantage the incumbents.

This way of thinking extends beyond Porter´s (2008) analytical approach to strategy. Instead of searching for opportunities in the existing structure, the strategic intent approach aims to find a more unique solution. This can be seen to comply more with the emerging approach to strategy, represented by Mintzberg (1994). The strategic intent approach has a different way of analyzing of the business environment than Porter´s (2008) five forces framework, but the analysis is still structured. Hamel and Prahalad (1989) assert that in order to guide actions in the medium term, specific corporate challenges should be determined in the business environment. These challenges can be determined through analyzing competitors as well as from the foreseeable pattern of industry evolution. They reveal competitive openings and help to identify the skills an organization will need in order compete with better-positioned players. These strategies employable can be divided into four approaches to competitive innovation:

  • Building layers of advantage: The wider a company´s portfolio of advantages, the less risk it faces in competitive battles.
  • Searching for loose bricks: Analyzing the competitor´s definition of its served market and its most profitable activities, determining which geographic markets are too challenging to enter and so forth. The objective is not to find a desert niche in the market territory that the industry leaders occupy, but to build a base of attack just beside it.
  • Changing the terms of engagement: Companies do not have to accept the front runner´s definition of industry and segment boundaries.
  • Competing through collaboration: Competitive collaboration can, for instance, be used to hijack the development efforts of potential rivals or to calibrate competitors‟ strengths and weaknesses.

Furthermore, Hamel and Prahalad (1989) stress that in the strategic intent approach the whole organization needs to be engaged to focus on the specified corporate challenges. This is consistent with the emergent approach to strategy (Mintzberg, 1994). It is no longer seen that strategy can be planned somewhere at the top and then communicated, as implied by Porter (2008) and the planning school of strategic management. Hamel and Prahalad (1989) assert that in order to engage the whole organization, top management needs to do the following:

  • Create a sense of urgency: Weak signals in the environment should be amplified to emphasize the need to improve, instead of allowing inaction to precipitate to a real crisis.
  • Develop a competitor focus at every level through a widespread use of competitive intelligence: Every employee should be able to benchmark his or her efforts against best competitors in order for the challenge to become personal.
  • Provide employees with the skills they need to work effectively: Employees should be trained, for instance, in statistical tools, problem solving, value engineering, and team building.
  • Give the organization time to digest one challenge before launching another: Even when competing initiatives overload the organization, they should be carried through.
  • Establish clear milestones and review mechanisms to track progress: The challenge should be made inescapable for everyone in the company.

Hamel and Prahalad (1989) consider that the strategic intent assures consistency in resource allocation over the long term, clearly articulated corporate challenges focus individuals´ efforts in the medium term and competitive innovation helps reduce competitive risk in the short term. This structure is more flexible than Porter´s (2008) analytical approach to strategy, seeing that it allows for some fine-tuning, but as there are guidelines for every time frame, the strategic intent approach can be seen as a bit more structured than the emerging approach to strategy (Mintzberg, 1994).