Strategic Decisions

There are three central characteristics of strategic decision making:

  1. Strategic decisions that affect the very survival of the firm;
  2. The effects of a decision last a long time, perhaps five to ten years;
  3. The long range effects of a decision are very hard to forecast.

Actually, the first characteristic is really the definition of a strategic decision. The other two characteristics follow from it. If we could correct a bad decision of any size within a year or two, then it would be less likely to harm the firm permanently. And it should be clear that any decision whose effects last for many years will be extremely difficult to forecast.

Difficulties of long-range forecasting include:

  1. Long-range forecasts are usually ill-structured; that is, it is impossible to make a really good mathematical model of what is being forecasted.
  2. Forecasting accuracy drops off rapidly as one looks further into the future. This is essentially because unforeseeable change accumulate as we peer further and further ahead.
  3. Forecasts need to mix subjective and objective information, since different kinds of information are being captured.
  4. The longer the horizon, the less objective information is available, the worse models will be, and the more we must rely on subjective forecasts.

Given that huge financial stakes are involved and that strategic decisions have a long horizon with poor forecasts available, it is hardly surprising that most Operations Management texts do not delve deeply into this problem. Many methods which are in practical use are not deeply quantitive, and are, in any event, difficult to describe and justify. Nevertheless, manufacturing executives do not have the luxury of ignoring strategic decision making and must be careful consumers of the best available methods.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit, Line of Sight