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

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).
2. Utilizing strategic intelligence in decision making
Successful strategic decisions and actions require proactive information and knowledge that provides a view of possible futures. This information is partly produced in the strategic intelligence process. The literature on strategy reviewed above suggests that gaining a picture of the business environment is important in strategic decision making, regardless of the approach to strategy employed.
Following to L.C. Seitovirta again, the analytical approach to strategy (Porter, 2008) builds upon an understanding of the industry structure and strategic intelligence can be seen to assist in building this understanding. For instance, Gilad and Gilad (1985) assert that the goal of the business intelligence process is to produce information that can be utilized in the strategic positioning of the company. The focus is more on the external environment, and thus the level of intelligence employed could be assumed to be more on the competitive intelligence side. Competitive intelligence aims to ensure that decision makers have accurate and current information about the competitive environment and a plan for using that information (Fleisher and Bensoussan, 2007). It could help provide information to support the positioning of the company in the light of current competitive forces, anticipate shifts in the forces, exploit them and shape the balance of the industry structure (Porter, 2008).
Following Mintzberg´s (1994) view of strategic decision making in the emergent approach, intelligence activities could provide assistance by assuming some of the responsibilities of planners: it could help gather information, both hard data and soft insights, from a wide range of sources in order to broaden manager´s consideration of issues. In this sense, seeing that both internal and external information is needed, emergent decision making can be seen to require intelligence on the broadest, business intelligence level, covering both internal and external information (Ghoshal & Kim, 1986; and Gilad & Gilad, 1986). Mintzberg argues that strategy emerges through messy, uncyclical processes of informal learning carried out by various people in the organization. SI could help in the process by, for instance, leveraging company internal information through consulting experts in the company (Choo, 2002; Gilad & Gilad, 1985; and Viitanen & Pirttimäki, 2006). Extending the scope of information gathering beyond public sources to include internal information would also ensure that the information would be early and more profound (Viitanen & Pirttimäki, 2006).
The strategic intent approach, in turn, has a more inward view of competitiveness (Hamel & Prahalad, 1989) and, consequently, it could be assumed that strategic intelligence could help by producing more internal information on the company´s own strengths, for instance. Hamel and Prahalad (1989) question the value of traditional industry analysis as boundaries are becoming more unclear and the environment is characterized by rapid change, deregulation and globalization. Instead of analyzing opportunities in the existing industry structure (Porter, 2008), they argue for finding a more unique solution, a space that is off the map. As the strategic intent approach builds upon the definition of specific corporate challenges; strategic intelligence could help by producing information on competitors and industry evolution (Hamel & Prahalad 1989).
However, Fleisher and Bensoussan (2007) point out that analysis is not always recognized as critical-mission; it is often called something else or the process is embedded in other activities. Viitala and Pirttimäki (2006) observe that business intelligence literature mainly focuses on the collection of information but its integration to support existing business processes is rarely studied – no integrated process models of business intelligence and strategic management exist in the literature.
Viitala and Pirttimäki (2006) argue that instead of regarding business intelligence and strategic decision making as separate processes, they should be integrated into a continuous cycle that fosters strategic learning. Business intelligence should be organized in a way that leverages the advantages of both formal organization and informal networks. This can be done through recognizing the people who play critical roles in the informal business intelligence network and supporting the network with a defined structure. They suggest establishing a global coordination function connected to decentralized information collection networks that have their own local coordinators. Their proposed business intelligence structure consists of five roles. The people who have access to non-public external information are internal gatekeepers. Boundary spanners are intelligence coordinators of the regional or functional network they belong to, possessing specific understanding and knowledge of their area. Global coordinators, in turn, coordinate the intelligence network and activities at the corporate level, using their wide access to information from several areas. Furthermore, experts are utilized in analyses, and strategic decision makers are seen as the end users of the information processed in business intelligence.
In their framework, Viitanen and Pirttimäki (2006) propose that internal gatekeepers should forward the information they receive either to their network´s boundary spanner or directly to the global coordinator. Analysis is conducted in cooperation with boundary spanners and the global coordinators so that both the local and functional aspect of the issue as well as the global view is taken into account. This cooperation is further facilitated by establishing a business intelligence forum that serves the company level strategic decision making by regularly going through external information from human sources, comparing it with public information, considering its implications and giving proposals for action for strategic decision makers who, in turn, further discuss them and make decisions. The forum also consults experts on the issues and one or two strategic decision makers are also present in order to have valid suggestions for actions. The forum is concerned with strategic level issues. It combines the information flows to a condensed whole of analyzed, actionable information that is made available for strategic decision makers. Ideally, information would also flow backwards between the actors: strategic decision makers would give feedback on received information and communicate the strategy and the assumptions that it is built on to the rest of the company. Global coordinators can facilitate this communication of strategy through passing it on to boundary spanners. Consequently, boundary spanners can, in addition to passing on information from the business intelligence network, also share this strategic information received from the global coordinators. Fleisher and Bensoussan (2007) infer that in an ideal situation, analysts are deployed on-site and have regular contact with managers, negotiating teams and front-line decision makers. This kind of interaction helps to better target the intelligence efforts and ensures that analysts understand shifting agendas, prime movers and receive quick feedback on their outputs. However, it is important to note that there is a lack of models describing the integration of strategic intelligence in strategic management, and Viitala and Pirttimäki´s (2006) framework is one of the few that exist.
3. Problem analysis methodology, organizational decision making and process, learning, creativity, and entrepreneurship
Problem analysis is the process of understanding real-world problems and user needs and proposing solutions to meet those needs. A problem can be defined as the difference between things as perceived and things as desired: “what is” vs. “what should be”; “what is given” vs. “what is needed”.
The goal of problem analysis is to gain a better understanding of the problem being solved before development begins.
Within the problem analysis methodology, there are five main steps:
·        Gain agreement on the problem definition…
·        Understand the root causes; the problem behind the problem…
·        Identify the stakeholders and the users…
·        Define the solution system boundary…
·        Identify the constraints to be imposed on the solution…
You can know the main aspects of each step, and the main ideas about the organizational decision  making, the decision making process, learning, creativity, and entrepreneurship, following the presentation of supplementary material we have prepared attached.
Lesson 3: The Decision Making Process: Problem Analysis Methodology, Decision Making, Learning, Creativity, and Entrepreneurship
Type: Theory
Questions: 5
Attempts allowed: Unlimited
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