Posted by Colin Weatherby 500 words
‘How to Tell which Decisions are Strategic’ is the title of a paper by Ram Shivakumar published in the California Management Review in 2014. It attracted my attention because I have often asked that question myself. What is it that distinguishes a strategic decision from a non-strategic decision? Well, hopefully you will know more after reading this post.
The essential idea in the paper is that a strategic decision is defined by the degree of commitment involved and the implications for the scope of the business or organisation. Let me explain.
Shivakumar measures the degree of commitment by the extent to which a decision is reversible. Think about it. Some decisions are simple and inexpensive to undo. Others are extremely expensive and complicated to reverse. He says that the four most common business decisions requiring a high level of commitment are investments/disinvestments, relationships, public proclamations, and policies and procedures.
The scope of the firm is the choice of products, services, activities and markets. The organisation expands or contracts its scope by ‘altering the mix of its market and organisational transactions’. Decisions that significantly change service offerings in response to new or emerging markets will impact on the ‘market-making activities, and those that ‘influence the organisation’s people, architecture, routines and culture’ will impact on organisational transactions.
The following matrix from Shivakumar positions different types of decisions in each of the quadrants.
Strategic decisions make significant change to the degree of commitment and scope of the firm. For example, offering new services to new customers requiring significant capital investment to establish facilities. They influence the subsequent tactical and operational decisions that must be taken. Neo-strategic decisions significantly alter the scope of the firm without altering the degree of commitment. This type of decision has become more common with changes in technology enabling new products or services to be provided without significant capital investment.
Tactical decisions significantly alter the degree of commitment without significantly altering the scope of the firms. This includes large investments in internal systems capability. Operational decisions do not significantly alter either the degree of commitment of scope of the firm. They are the routine decisions made every day. Both tactical and operational decisions are the ‘residual decisions left after strategic and neo-strategic decisions have been made.
As one colleague asked me when we were discussing this idea, ‘so what?’ What is the relevance to local government? Good question.
For a start, this idea can be used with councillors to help resolve the never ending tension between ‘strategic’ and ‘operational’ decisions. The next time the CEO feels the need to wrap councillors over the knuckles when they venture into operational decision making, an explanation can be given for why the decision is operational. And the opposite can apply when there are clear strategic decisions that have to be made by the council – decisions about investments, relationships, policies or public proclamations that have significant implications for services or the organisation and its resources.
Shivakumar, Ram 2014. ‘How to Tell which Decisions are Strategic’, California Management Review.