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Complete Guide to Strategic Management Decisions

Strategic decisions are the decisions that are concerned with whole environment in which the firm operates, the entire resources and the people who form the company and the interface between the two.

What are Strategic Management Decisions?

The word strategic has been used in context with management to make a distinction between the tactically important decisions which are concerned with carrying out a range of day-to-day activities and the very rare type of decisions which are concerned with setting the direction for the firm and determining the extent to which the firm’s activities in the market place will be guided by these directions in order to win in the future.

These decisions are of two kind, decisions about the strategies that the firm should adopt and decisions about what the firm should do to implement these strategies. They are difficult to understand and to make because a firm is a living, human organization with its own culture and its own ways of thinking, with its own rules by which it runs itself. All of the factors that influence the firm, strategic decisions are concerned with how to combine all the resources of the firm in a way to create an efficient and competitive firm in the future.

Strategic decisions divide into two categories, long term strategic decisions and short term strategic decisions. Long term strategic decisions are regarding the long term planned future of the firm. The decisions are related to the nature of the firm, the people in the firm, the firm’s products and the markets in which the firm operates. The long term decisions are concerned with the nature of the firm’s operations and the kinds of activities in which the firm is engaged.

The short term decisions are concerned with current planning and current direction which will be taken by the firm in the near future. Short term decisions are concerned with performance, with the quality of products, with the quantity of production, with the technology used to produce the products and with the pricing strategies of the firm.

Strategic decisions are concerned with what the firm’s long term goals are, what kinds of activities are most suited to the firm’s goals and what the firm should be doing to improve its way of doing things. Then strategic decisions are concerned with what the firm should be doing in the immediate future to make its decisions bearing fruit in the long term.

Many strategic decisions are concerned with the analysis of some important factor in the environment in which the firm operates and the need to understand the factors in the environment well enough to be able to make decisions which are responsive to them.

Strategic management involves analysis of long term environment in which the firm operates and then the decision making process that create business environment in which the firm operates.

Long Term Management Decisions

Long term management decisions are divided into two categories, decisions about the nature of the firm and decisions about the long term goals and objectives which the firm should follow in order to gain success.

Organizational Structure

The decisions about the structure of the organizational and the size of the firm are called Organizational Structure Decisions. In the organizational structure decisions, professionals decide about the number of levels in the organizational, the number of men at each level, the type of job at a particular level in the organizational structure, the number of departments and the sales division.

The size of a firm can be decided by either making it smaller or larger. Every large firm is operated through many smaller departments. The firms are usually divided into three departments, Sales, Production and Marketing. A firm should make its own decisions about where to hold one or two of these departments. The number of men in terms of the sales force, production force and marketing men are decided in the prior stage of large firm.

Types of decisions:

Freestyle or functional organization

If the firm structures itself on a functional basis, then it is called free style or functional organization. This is an organizational structure that has been developed with managers dividing the organizational unit into sections that are related functionally. The personnel of each division will be allocated to the job according to skills required. Each of these departments will be controlled separately. If there is need for transaction between departments, then there will be persons in separate department who are assigned the job of integrating these activities to minimize duplication.

The organization structure is independent of the other two departments. Therefore, they could be made smaller or larger or shift to some other functional area if there was a requirement to do so.

Divisional and product based

In this type of organization, the firm is divided into different segments like a sales division and a manufacturing division. The executive is made responsible for one or more of these divisions. He is responsible for the product decisions, marketing and administration and finance of the division. Each of these divisions of the firm will be independent of the others and the people involved in these activities. The self-contained divisions exercise control over the activities of other divisions.

The basis of divisionalization can be anything, of any area- it might be an area of responsibility or it might be a line of products. There is a range of product line that is related to the functional area of sales, production and marketing etc. Divisionalization can be product line, geographical area, customers, raw materials, cost centres or manager’s control area. It might be a product line or geographical area. It depends on where the firm has been having problems or where growth is expected in the future.

Comparative advantages and disadvantages of Freestyle, Divisional and product base organization:

Decision Supporting System, better evaluation of the performance of the decisions taken, well informed decisions to be taken in future. Security is threatened, the team might not be good enough for having close eye on them, it also invites. The internal competition among different departments of the firm which increases efficiency and productivity of the organization. The structure that is based on function is not so efficient as the structure that is based on product line.

The organization structure decisions, professionals make decisions about the number of levels in an organization, the number of men at each level, the type of jobs at a particular level, the number of departments and the number of sales division. It suffers from a great deal of disagreement and lack of coordination in the firm and therefore makes the whole organization a mess. It is cost efficient because the firm does not have to employ or pay salaries to people who are not needed in the operation of the organization.

Range of Products

The range of products of the firm are the goods or services that the firm provides. It also includes the price range these products and services are sold. The range of products is closely linked to the organizational structure of the firm. If you set up an organization which is a single division of the firm, its range of products is narrowed down. There is little need to set a large sales force.

The firm does not have a divisional structure for manufacturing, it can manufacture and sell a wide variety of products. If the firm has many divisions, it generates the need for a low-cost manufacturing, a wide range of products. Organizational structure is concerned with the number of jobs at each level, the type of activities that people shall perform at each level and the range of products of the firm.

The firms are usually divided into three departments; sales, production and marketing. A firm should make its own decisions about where to hold one or two of these departments. The number of men in terms of sales force, production force and marketing men are decided at the time of setting up of the firm. The range of products of the organization is also decided by the organizational structure of the firm. The firms have to decide the range of products when it decides the organizational structure of the firm.

The firm can have sales force that is responsible for selling the organization’s whole range of products or it can be divided into three groups- selling a particular range of products like home appliances, automobile spare parts, and computer software.

The sales force’s object is to increase the sales of the organization by selling the range of products available in market. He is also involved in the process of selling the range of products and the prices at which they have to be sold. As the sales are increasing the sales force will increase to increase the sale of the products because the organizations make profits only when the products are sold. Each kind of product has a different distribution pattern and price. The organization structure decisions are also responsible for this factor also.

When the firms decide about the number of divisions they will have, they will take important factors into consideration. One of the major factors that is considered is the range of products of the organization. The distribution process, pricing of products, the number of customers the firms have and the kind of products that are sold in organizations are decided based on the organizational structure of the firm. The pricing process, the kind of customers the firms have and the distribution process depends on the organizational structure of the firms because they have to be in line with the organizational structure. Organizational structure is responsible for the range and price of the products.

Organizational structure determines the range of products an organization sells. In every organization, the number of departments that it has determines its organizational structure. The organizational structure that is the most commonly used in the organizations of the present period is the divisional structure. The organizational structure of an organization is a kind of structure formed by the different departments like sales, marketing etc.

The organizational structure determines the range of products being produced by the firm. From the organization’s perspective, products are broken into different categories like consumer products, consumer durable, industrial and controlled goods etc. Each category is different. This process is known as product analysis and it requires efforts of experienced persons like market experts, industrial experts etc. ,

The range of products that the organization produces depends upon the range of products that are available in market and needs to be sold by the organization. Considering the current scenario, the organizational structure of firms that are operating in developed countries are changing from the time to time depending on the market conditions. The range of products of firms is very widely spread. They manufacture durable and non-durable goods, services, and software etc.

Organizational Structure and The Range of Products:

Organizational structure is responsible for the range of products being produced by the firm. Product analysis is the process of dividing the products into different categories. Continued product analysis is very important for the organizations because it helps to target the market of potential users of their products.

For the firms that are operating in developing and underdeveloped countries, customer analysis is very important. Market research is also very important in underdeveloped and developing countries as it brings about uniformity in methods and statistical data, the time and energy that is to be spared on market analysis is also reduced because (as comparative statistics are available the time and effort required for development of a new product is decreased as it can be based on existing information.

From the organizational structure point of view, the levels of management can be divided into two categories- the top management team and the middle or operating level management. Further we can classify middle and operating level management into two- the front line manager and the staff manager.

The different jobs that are performed at each level of management and the organizational structure of the firm determine the range of products that are being manufactured by the firms. So it can be concluded that organizational structure is responsible for the range of products being produced by the firm.

According to the organizational structure the jobs are classified into in a hierarchical way consisting of different levels of management. The levels of management have different jobs assigned to them and the level decided by the organization’s planning team. These levels of management and job-ups in hierarchy decides the organizational structure of the firm.

The organizational structure, to be considered is the structure that helps the firms to achieve their goals. Although all the levels are not equally important, they vary in importance. The survival of an organization requires to have quick response. The organizational structure by which the firms can achieve fast response is of great importance. If an organization does not get quick response, it will lose self-confidence and desire to compete, then it will ultimately die.

If an organization has a level in its hierarchy, which is responsible only for its survival and quick response, it is then very efficient. Such an organizational structure is known as simple hierarchy. If an organization though not having a middle and lower level has a superordinate level which is a superior of lower level and an inferior of superordinate level then it is known as rational-multiple hierarchy. If an organization has an unconventional level in the organization’s managerial hierarchy it is known as power-structural hierarchy.

The Organizational Structure:

In firms that are operating in developed countries, simple hierarchy is very common. The reason for this is because they have well experience managers who are well- equipped with various managerial techniques. Moreover, these organizations have very powerful decision makers responsible for taking important decision for the firms.

The front line managers in developed countries have the ability to take informed decisions very fast. The credit goes to their fast decision making ability and also to the relationship that exists between the front line managers and the workers in the organizations. Moreover, the specialist that are available for all the departments at the top management level of the organizations fulfill their need. Thus, in such organizations, the range of its products is quite wide.

In contrast, firms that operate in developing and underdeveloped countries have different organizational structures. The most common organizational structure that can be seen in these countries are power-structural hierarchy. The organizational structure in this hierarchy is liable to uncertainties and unexpected consequences.

The front line managers in the firms operating in developing and underdeveloped countries are not very educated and experienced. So experience and the techniques which the organizations utilize in developed countries are not used in these countries to carry out fundamental business units.

The market research which is not uniform in developing and underdeveloped countries, makes it difficult for the firms to grow at a faster rate. This is obviously because of the platform of specialization which the firms require for developing their products is not there in developing and underdeveloped countries. Thus, in these countries the range of products is small.

The hierarchical structures in underdeveloped countries also have their various pros and cons. The chief pro of this hierarchical structure is the responsibility for multiple tasks is divided among individuals and thus, the organizational process in the first tier become faster.

This in turn will help in increasing the sales of the product. The drawback of the hierarchical structure is that it is sequential. The individuals in this case are not of the same administrative level. So the objectives are not the same for the individuals of the hierarchical structure.

These objectives are very much dependent on hierarchy. It is true that all the individuals in a hierarchical structure will not work effectively when the objectives set by the top management are not at the same level.

This is because, in power-structural hierarchy, the lower level of structure has a desire to outperform the higher level and higher level is increasing. Every single manager does not want to be outperformed. This affects the output of the firms.

The hierarchical structure, as mentioned earlier, has its own problems. But it should also be noted that unification of the firm on the basis of ‘power-structural’ do not show the real picture, that is, firms operate at different levels.

Each organization has its own unique organizational structure. For this very reason, it is not possible to create a universal organizational structure that can fit all the firms in the world. It is also possible that the organizational structures of some firms do not fit the organizational structures of other firms.

Although every firm has its structure and its objective is to achieve their objectives, they may be integrated in one larger organizational structure. For example, the firms in an industry or let say firms in the electronics industry in a country can have a firm.

Targets, business statements and strategies are unified and the organizations work under one head. Thus, in this very case, while each of the organizations have their own structure, they also have their own organizational structure. This is a very important issue in the concept of organizational structure.

According to the hierarchy of a firm that is hierarchical structure has an impact on the range of products that are produced by a firm. The range of products a firm manufactures are determined by the organizational structure that exists in the firm. Thus, from the aforesaid discussion, we can conclude that the range of products in firms is determined by the organizational structure of the firm.

This is because the organizational structure of the firm determines who is responsible for what and how they will operate according to the precedence of the firm. This is a very brief and lucid explanation about the organizational structures of the firm.

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