Business Strategic Choices : Optimize your Decisions!

business strategic choices

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Business strategic choices allow it to move forward through a set of tactical decisions that must follow the general strategic framework in place.

Jeff Bezos, the founder of Amazon, is known for his long-term planning and his creativity when it comes to strategic planning. He says that when someone congratulates him on last quarter’s results, he thanks the person, but deep down inside he thinks that last quarter’s results show efforts that were put in place three years ago!

The medium or long-term perspective and understanding of the results leads one of the greatest entrepreneurs in the world to orient himself through his short-term decisions. In other words, when we understand that today’s work has fueled the results that will take place in two or three years, then our vision of work changes.

This change of vision, because it becomes a more and more efficient effort. It must be understood that the immediate results that have occurred without effort are related to luck.

For any successful business, long-term strategic planning is essential for future growth and profitability. Every day, leaders and decision-makers within a company are faced with important decisions that could dramatically alter the course of the business.

Every business understands the importance of defining a strategy, but for many, it is a daunting task to deal with. Planning for a future that cannot be defined requires expertise and effort.

The difference between long-term profitability and business stagnation can often come down to the strategies the business has in place to achieve its goal. This article discusses strategic business choices, the importance of managing and defining business strategies, and key elements and examples of business strategy.

 

What are Business Strategic Choices?

business decision

Business strategy planning is a process that all businesses should have in place. Not only will strategic planning help your business define its goals and how to achieve those goals, but it will also determine the course of action that will lead to revenue growth and increased profitability.

Business strategic choices stem from a company’s overall strategy. A business strategy is a defined set of actions, plans, and goals that dictate the steps a business will take to compete in a particular market or markets with a service or product or a combination of both.

A business strategy is a crucial and powerful tool for defining the methods and tactics that will achieve business goals.

From a general point of view, the company establishes strategic choices by creating a plan of several years, generally 5 to 10 years, which results from the vision of the leaders to the place of the company in one or more markets. These strategic choices must be broken down into many tactical choices that will dictate the concrete actions taken in the short term.

Once a tactical plan is established, each decision that follows can be driven by the question:

“Will this decision move us closer or further from our strategic business goals?”

 

The strategy of a company: 5 forces

 

According to Professor Michael Porter of Harvard, the work to be done concerning strategic business choices is to understand and manage vis-à-vis the competition. The strategist must highlight 5 competitive forces that must form the strategy.

 

5 forces porter

*Adapted from an illustration by Porter, M., & Magretta, J. (2014). Strategy and Competition: The Porter Collection (3 Items). Harvard Business Review Press.

 

These forces come to govern the competition in an industry. Generally, if these forces are high, then the expected profits from that industry are low. Opposite to weak forces that promise high expected profits.

The analysis of industry must necessarily take into account the 5 forces of Porter which allow understanding of the reality of this one.

The strategist must analyze the entire industry to understand how to establish an adequate strategy.

Mr. Porter highlights the fact that the strategist must do his analysis with a time horizon of 3 to 5 years depending on the industry. This is a general rule, as some industries need to be assessed from a longer perspective.

So, the idea is to determine the average annual profitability that the industry can offer over a defined time horizon. Moreover, the main objective of the strategist is to understand the competition and know what are the sources of profitability in this industry. In addition to the rivalry between competitors that are present in the industry, managers must analyze other factors such as the bargaining power of customers and suppliers and threats in the industry.

 

Bargaining Powers

 

power of suppliers and customers

 

Negotiation is a factor that has an impact on the profitability of a company. A company’s customers and suppliers have a say in the price/cost to be paid.

First, the bargaining power of suppliers is high when they have several business options with which to do business. Thus, by having several choices, it is easier for the supplier to charge more to your company knowing full well that they can turn to the highest bidder.

Then, the bargaining power of customers follows the same logic, except that the principle applies according to the choices that customers have to buy the product you are selling. If the competition is increased, then your customer has a high bargaining power because he can decide to buy elsewhere.

It is quite simple to understand that for both bargaining powers the opposite effects also apply.

 

The threats

 

The company is still threatened by substitute products and potential new entrants. The company must choose its battles. To be able to move forward quickly, the company must find ways to stand out from the competition, by adopting methods such as research and development, as well as sustainable development.

The company’s strategic choices serve as a guide when implementing and innovating processes to achieve its objectives and dominate an industry. Nowadays, competition is increasing and technological innovations must be taken seriously by managers to allow the company to speed up its processes.

When a choice is made, it should make it possible to achieve one or other of the following points, that is to say, the improvement of profitability and/or the reduction of risks. Always keeping in mind to maximize the relationship between risk and expected return, managers will make decisions that should improve the overall situation of the company.

This point represents the complexity and nuance of defining and operating successfully as part of a business strategy. Executives tasked with making strategic choices, regardless of the amount of in-depth forecasting, data analysis, and insight, make decisions based on an estimate of what the future holds. The achievement of results is therefore hoped for, but not guaranteed.

However, making a decision and making a mistake is much better for the business than not making a decision. Entrepreneurs must tame error and see it as an essential factor in the success of all innovations.

To minimize the risk of business strategy choices being made on a guess, many companies will implement tools and tips to guide decision-making. Having a decision-making system in place helps managers make better decisions.

 

How to set up a decision-making system?

 

Bearing in mind that not making a decision is a decision in itself, so it is essential to take the reins to guide the activities of your business. Steve Jobs repeated it regularly:

“Mistakes will be made! This is exactly what is needed, because at least decisions will have been made. Then we’ll find those mistakes and we’ll fix them.”

To set up a decision-making system, the company must design a database using its knowledge and experience. This database will have to be dissected to extract the useful information that will be used for decision-making.

An intelligent decision-making system is characterized by the conversion of input resources to output resources. In other words, it is essential to use the available information and convert it in a way that allows us to extract what the company needs to make an “intelligent” decision.

The managers of a company are constantly confronted with decision-making and it is very likely that by reading these lines you are at this very moment confronted with difficult decision-making. The first step to making an informed decision is to be aware of the alternatives to consider to make a good decision.

Dr. Mohammad Ayaz Ahmad Ph.D. considers that an effective way to increase the quality of information is to support the preparation and adoption of decisions according to an intelligent decision-making system.

He also adds that the systems must be based on knowledge, which makes it possible to make hypotheses on the possible solutions, establish recommendations to clarify the solutions, and also makes it possible to make decisions whose level of competence is not lower than the level of a human considered an expert in a specific field.

Here is an illustration of the elements that an intelligent decision system should contain (adapted from the work of Ahmad, M. A., Tvoroshenko, I., Baker, J. H., & Lyashenko, V.):

 

decision system

 

1. Knowledge Base

It represents all the skills, knowledge, and experience that the company has. All the elements mentioned above are acquired over time thanks to the efforts and innovation of the company’s resources.

 

2. Database

When the knowledge base has content, the company must store its data. The classification of data is an important initiative for the long-term strategy of the company because it makes it possible to extract quality information from it.

 

3. Inference Unit

By having more and more data, the company must understand what to do with it. The inference is defined as follows: it is about managing to construct valid information that is not explicitly visible by the raw data. The construction of an analysis tool is essential for the implementation of an intelligent decision-making system since it allows the company to have a structured framework to think about.

 

4. Explanation Unit

Once the data is structured through the inference unit, then an explanatory unit must be able to convey the information in a suitable language for those whose information is useful. Thus, the company must define certain people who can make simple concepts that can sometimes be very complex.

 

5. User-friendly interface

Despite having a competent explanatory unit, the abundance of information may be difficult to describe. Thus, implementing a system translated by creating a user-friendly interface allows other resources to take advantage of the company’s knowledge base, without having to learn the whole system. work. In other words, a user-friendly interface makes it possible to simplify the work of the company’s resources, which makes it possible to speed up the transmission and use of the company’s knowledge base. A simple example of the outcome of the process is the implementation of accounting software. Now everyone can do their bookkeeping as the software makes it easy with a user-friendly interface. Complexity may require expert review and this logic applies to any intelligent decision-making system put in place.

If the system operates under conditions of uncertainty and severe resource restrictions, then it is necessary to include other modules in its structure. Technological innovation is then more than necessary because in a situation of uncertainty your process is complex and it is a case-by-case study.

 

How to establish a decision-making system for a start-up?

 

The context of a start-up in particular. You constantly live with a high level of uncertainty. The reason that describes this level of uncertainty is the fact that you are currently in the phase of establishing your knowledge base, as well as your database. Your knowledge and experience allow you and more to build your database.

 

prise de décision A vers C

 

In our view, the reality of a start-up is as follows:

Imagine that you are at point A. You want to make the right decisions to get to point B. The uncertainty you are experiencing is represented by a huge layer of fog that prevents you from seeing point B. However, thinking about the situation, your intuition guides you thanks to an idea which is the flame which pushes you to take the first steps.

Obviously, you may realize after a while that this idea was not the right one, because you will have more and more experience which will facilitate your decision-making. On the other hand, thanks to this intuition, you have started your quest.

So, two factors working together will structure your quest.

These are intuition and reflection.

By thinking intelligently and having the audacity to follow your intuition, you will make more and more decisions. Thus, the fog layer will decrease. Through your journey in search of point B, you may realize that what you have been looking for all along is actually at point C!

 

The logic behind this perspective is to make you understand that a flame within you must push you forward, but you must be rational while following this flame.

At the start of a day, ask yourself the following question: “What do I need to do today to take another step?”.

Answering this question allows you to make some decisions, which, in the long term, will allow the success of your business.

This philosophy is therefore essential for any entrepreneur who wishes to develop a business. The more the company evolves, the more the database should be well filled. It depends on your ability to store your data.

With a lot of data, it can be complex to know what to do with it. This is where your thinking comes in.

Once the subject has been considered, then it is essential to understand what data is crucial to the success of your business.

 

Generally, the success of any business depends largely on the management of economic capital and available human capital.

If you are at the stage where you have income, then cash flow management is crucial for the survival of your business.

On the other hand, any company must master the management of its human capital, which is the source of all innovation. Whether you are the creator or you pay someone else to create (or innovate), suboptimal use of resources will be your downfall. Thus, the understanding of a productivity system must be put in place to allow the maximization of human and monetary resources.

Despite mastering your management systems, you may not yet have the success you hoped for. Remember that just because you put everything in place doesn’t mean you’ll reach the top. However, you increase the probability of success thanks to these set-ups. We like the quote from Mark Cuban, the well-known billionaire on the show Shark Tank who says:

“You have to be good to be lucky and lucky to be good!”

 

Here, this dose of motivation must fuel your flame in search of success. If you believe that being a successful business owner happens overnight then you will quickly be disappointed. On the other hand, if your ambition pushes you every day to achieve your goals, then you are on the right track.

 

Importance of Managing Business Strategic Choices

 

Managing business strategic choices is one of the most crucial roles within an organization. Managers and executives are often at the top of the food chain when it comes to income, seniority, and decision-making for this very reason.

Planning and preparing a business strategy requires both a great deal of skill and planning as well as the correct information and forecasting to guide the decision. One of the most important aspects of business strategy management and strategic choices is the process of defining objectives for the organization to work towards.

In some cases, defining a goal and a strategy for the goal can take weeks or even months, but if the correct decisions are made the company can be led to higher efficiency, growth, and profitability. Having an objective in place allows a company to measure its progress and strategic integrity.

Once objectives are set, they can be communicated to the entire organization allowing each employee to be aware of the goals they are working toward. Not only will this create more trust amongst all employees from top to bottom, but it will install a greater overall focus into the organization to prioritize their efforts towards one common goal.

Strategy and goal setting also keep every department of employees within an organization on the same page. Every company has a limited number of resources to utilize to work towards its objectives. By utilizing a series of business strategy choices, businesses can plan and optimize how their resources are being utilized within their strategy.

The main benefit of business strategy choices and outlining a business strategy is the ability for a company to define its goals, define a plan to reach those goals, and allow every member of the organization to be aware and focused on reaching their strategic goals.

 

Key Components of Business Strategy

 

Vision and business objectives are defined and planned as the first step of creating a comprehensive business strategy. With a vision for the direction the company should travel, organizations can create a clear plan to follow to reach their goals.

Core values also contribute to strategic planning. Business strategy should be based on the overall objectives of a business. Overall objectives are derived from the business’s core values and overall mission for operation.

SWOT analysis helps firms outline their strengths, weaknesses, opportunities, and threats. Analyzing these four areas of the business can help determine the best strategy for reaching business objectives in both the short term and the long term.

Tactics are the actions a business will take to follow its strategy. Many businesses will outline operational details for how and when work processes should be completed to maximize the outcomes of a plan.

A resource allocation plan will help the entire organization understand how and where the business’s resources are being utilized within a strategy. Every business is faced with a limited number of resources, so it is crucial to understand where the money and resources are being spent on a project.

Once a strategic choice is made and a plan or project is in full swing, it is essential to have measurable and quantifiable metrics to track the strategy’s progress. Measuring both success and failure can help improve future business strategy choices, as well as help, prevent the same mistakes from being made twice.

Hope this article was helpful to you! For more business insights, you can always check out our other business finance articles.

 

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