1. What is a strategic decision in firm?
Strategic management is associated with making strategic decisions that often concern the long-term future of the firm, its changing business environment, and all the resources and people related to the firm. Therefore, strategic decisions are distinguished from others by the following specific features (Johnson et al., 2005):
- Making strategic decisions is a complex process. This complexity characterizes the strategies and strategic decisions involved, especially for firms with a large and diverse business portfolio, such as multinational corporations.
- Strategic decisions are often related to the business portfolio of the The central questions that strategists often ask include focusing on which business area, whether this one or another one, or multiple ones? or developing which product lines? or deciding whether to enter or defend a specific market within a particular area, and so on?
- Strategic decisions often aim to achieve a specific advantage for the
- Strategic decisions are sometimes made in an uncertain context related to future conditions and outcomes of the firm.
- Strategic decisions have a significant impact on the firm’s operations and business activities for two primary reasons: firstly, if business activities do not align with the firm’s strategy, the latter will not be successful; secondly, at the functional level, the right strategic decisions enable the firm to gain a competitive advantage.
- Strategic decisions require fully–integrated business management within the firm. Managers at different corporate levels must deal with strategic issues either independently or in cooperation with other divisions, while adhering to the principle of consensus with other managers who may pursue different interests and objectives.
- Managers must also maintain and develop relationships and business networks with partners such as suppliers, distributors, and customers …
- Strategic decisions often involve long-term changes for the firm, which can be challenging to implement due to organizational inertia, limited resources, organizational culture, and stakeholder routines.
2. How does a strategic decision differ from a tactical decision?
In nature, strategic decisions differ from tactical decisions in terms of their impact scope and time horizon. Strategic decisions aim at long-term objectives and have a significant impact on the firm’s activities and survival by focusing on exploring new opportunities, defining the firm’s future product, and its target markets. Additionally, strategic decisions involve the allocation and long-term commitment of resources to specific business operations. Therefore, making strategic decisions requires managers to have a deep understanding of the market, industry, as well as the strengths and weaknesses of firm.
In essence, strategic decisions differ from tactical decisions in terms of their scope of impact and time horizon. Strategic decisions aim at long-term objectives and have a significant impact on the firm’s activities and survival by focusing on exploring new opportunities, defining the firm’s future products, and its target markets. Additionally, strategic decisions involve the allocation and long-term commitment of resources to specific business operations. Therefore, making strategic decisions requires managers to have a deep understanding of the market, industry trends, as well as the strengths and weaknesses of the firm.
For example, let’s analyze the strategic decision of Southwest Airlines – the world’s leading low-cost airline, when they chose to purchase only Boeing 737s instead of Airbus A330s, despite still investing in upgrading some airports for these Airbus flights. In reality, Airbus is large commercial aircraft, while Boeing does not pursue this strategy. Southwest Airlines’ primary market consists of urban customers, characterized by short flight distances and high flight frequencies rather than passenger load per flight. In this context, the Boeing 737 series is more suitable than the Airbus series, which is generally efficient for long-haul flights and larger passenger capacities per flight. Southwest Airlines’ decision is a strategic one due to its long-term impact on all three parties involved, especially the airline itself, as it commits to a future in the urban market and the Boeing series.
On the contrary, tactical decisions are contextual decisions aimed at supporting the implementation of strategic decisions. These decisions are made to address short-term and operational issues, often related to pricing, promotion, and inventory management … They do not have a significant impact on the long-term direction; however, they play a crucial role in optimizing operational performance and maximizing short-term profitability for the firm.
To make appropriate strategic decisions, managers must have a deep understanding of customer behavior, market trends, and the current competitive positioning of the firm. For example, an automobile dealership deciding to lower prices in a specific region and for a certain period in order to increase revenue and attract customers can be considered a tactical decision. Similarly, decisions focusing on developing plans such as promoting innovation, marketing programs… are often regarded as tactical decisions rather than strategic ones.
For the firm, strategic and tactical decisions play distinct roles and should be flexibly coordinated to achieve the firm’s goals. Strategic decisions provide the foundation and guidance for the process of making tactical decisions. Meanwhile, tactical decisions play a crucial role in driving and supporting the implementation of the business strategy. Therefore, managers need to formulate a clear and rational strategy to direct and develop appropriate tactical plans in order to continuously promote the firm’s activities.