Strategic decision versus Tactical decision in firm

1. What is a strategic decision in firm?

In practice, strategic management is associated with making strategic decisions, that concern often the long-term future of firm, its changing business environment, and all of resources and people related to the firm. So, strategic decisions are different from the other ones by its following specific features (Johnson et al., 2005):

• Making strategic decisions is a complex process. Such complexity characterizes the strategy and strategic decisions involved, especially for firm having a great and diverse business portfolio, such as multinational corporations.
• Strategic decisions are often related to the business portfolio and/or industry in which firm operates. The central questions that strategists often ask consist in focus on which business area, on this one or the other one or several ones? or in development of which product lines? or attacking or defending which market, in which area, etc.?
• Strategic decisions often aim at achieving a certain advantage for firm.
• Strategic decisions are sometimes made in uncertain context related to future conditions and outcomes.
• Strategic decisions have great impacts on firm’s functioning and business operations for two reasons: firstly, if business operations do not fit to the firm strategy, the last one will not be successful; secondly, at the functional level, right strategic decisions will enable firm to gain a competitive advantage.
• Strategic decisions require the fully-integrated business management in the firm. Managers at different corporate levels have to handle with strategic issues related to or in cooperation with others divisions on the principle of consensus with other managers, who may pursue different interests and objectives.
• Managers must also maintain and develop the relationships as well as business networks with partners such as suppliers, distributors, customers…
• Strategic decisions often concern the long-term changes of firm, so they are difficultly accepted by related people because of organizational inertia, limited resources, organizational culture and routines of stakeholders.

2. How does a strategic decision differ from a tactical decision?

Take for example, the decision of an airline to procure a fleet of only Boeing 737s, versus Airbus A 330s is strategic, in that, it has long term implications associated with target city market pairs and customers, that can be served owing to aircraft, flying range and passenger, carrying capacity restrictions.

Airbus’s decision to enter the very large commercial transport space, Boeing’s decision to not enter that space. The decision of Southwest Airlines, a leading low-cost carrier, to not enter the full-service carrier space, and the decision of some airports to upgrade their facilities, to cater to the requirements of a 380, are examples of calls made by organizations, regarding what to do, and what not to do, which have important long run strategic implications, for the future of these organizations, hence implying that, they are strategic decisions.

Tactical decision, in contrast to strategic decision, have a short-term outlook. For instance, a price cut announced by car dealer in a particular region, for a specified duration, can be considered tactical in nature.

Similarly, decisions, which are not in the nature of betting on the future survival of the firm, such as investments of the magnitude, associated with developing a new type of commercial airline; but take the form of developing an incentive plan, to spur innovation in the firm, are more tactical in nature, as opposed to being strategic.

However, it is important to note that, while there is a clear distinction between strategic and tactical decisions, it should also be understood that, strategic decisions have several tactical decisions, which undergird or comprise it.

A series of tactical decisions often lie behind the strategic decisions, that firm make.