High-level strategic decision-making is a daunting task for senior leaders in single-business companies. The difficulties associated with such decisions only increase with the number of businesses under the company’s umbrella.In multi-business enterprises, the problem shifts away from achieving competitive advantage within a particular industry or market to achieve Corporate advantage— manage the interactions between the businesses in your portfolio so that the whole is greater than the sum of its parts.
Key corporate strategy decisions may include entering, retaining or exiting a particular business. Whether growth is pursued internally or externally, through partnerships and acquisitions. How to allocate resources within a portfolio. These decisions are not only highly risky, but often must be based on partial or incomplete information. And, of course, they cost a lot of money and cannot be easily reversed. In light of the above concerns, how can we ensure the quality of corporate strategic decisions?
In the world of management, it is tempting, but incorrect, to define good decisions after the fact based on the desirability of apparent outcomes. In an uncertain world, the potential for luck to play a role between strategic planning and its legitimate realization should not be underestimated. A good decision, therefore, is one that (1) is best given current limitations on information (which may involve recognizing those limitations) and (2) is compelling to others within the organization. You can think of it as justifiable to have.
Let’s take a closer look at these two components.
decision making structure
It is impossible to discuss corporate strategy decisions in depth without acknowledging that professional advisors play an important and often overly dominant role. Corporate strategists’ heavy reliance on advisors may be the nature of the beast, but when leaders are unable to engage with consultants, investment bankers, and the like knowledgeably, it becomes a concern. their own agenda. Left unchallenged, they can act like magicians forcing you to pick the cards they want you to choose. I am not. But strategists can better handle all available options if they learn to ask the right questions.
In fact, every corporate strategy decision boils down to a few key choices with the underlying trade-offs in mind. The right answer in your particular case can only come from analyzing company-specific factors such as the nature of the synergies, the time it takes for the investment to mature, and the shrinking challenges.my new book Corporate Strategy: Tools for Analysis and Decision Making (co-authored with Bart Vanneste, University College London) provides a different set of tools and frameworks for this purpose. While there are no guarantees, this book is designed to help move people toward better decision making.
decision making process
But a framework like the one in our book will only truly work if it helps corporate strategists bring two key factors into the decision-making process. diversity of opinion When clarity of languageFor example, two teams can use the same tool to analyze pending diversification decisions. One team is ready to focus on minimizing the chance of error in fees (i.e. acting inappropriately), while the other team is prepared to focus on omission errors (i.e. Missed).
Viewed from this opposite angle, the same problem can provide a wide variety of very valuable information and even opinions. At the same time, as long as both teams engage in rational discourse that incorporates common analytical terms, clear language can lead to real insightful communication and productive end results, even if the teams have differing conclusions. can be achieved. The above methodology can be applied to almost all major corporate strategy decisions.
Note that the goal here is not to assign teams to agree or disagree with a pre-determined outcome to produce dissenting opinions, but to let each team conduct open-ended analysis based on their individual perspectives. please.
In an ideal world…
Corporate strategy decisions are often made in stressful and dangerous situations. Political pressure from higher ups, interdepartmental competition, and compressed timeframes can lead to hasty and chaotic decision-making. Still, having a benchmark of how decisions would be made in an ideal world can help you stay focused even when your strategy is volatile.
In short, from a practical standpoint, a better corporate strategy is to logically consider the most likely alternatives. From a process perspective, engaging enough people within the organization to extract the best and most complete information available and ensuring that decisions are widely accepted as appropriate and fair is.
Furnish Planum Roland Berger Professor of Strategy and Organizational Design at INSEAD. He is also the Academic Director of his PhD program at INSEAD.
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