Strategic Decision-Making

A lecture about strategic decision-making can easily become a one-man show in which the speaker shows off all of the technical vocabulary and abstract theories without ever linking any thing to reality. However, Mr. Elmes took a very interesting approach. He began by breaking the myth that shady people in dark rooms who think for hours take strategic decisions and all of the sudden the future of millions changes. He actually explained that the basic process was “you take decisions, you do stuff, things happen and you go back around the loop again.” What an incredibly simple way of putting things! And yet that is how Mr. Elmes caught my attention. He wasn’t going to try to lose us by using terms that no one would understand or that we still had tons of things to learn before we could even think about strategy. He explained things in a way that was accessible to us and that’s what made it interesting.

In this paper I will not go into details repeating every single thing he said. However, I am going to talk about the arguments of his that made me think. The first point is about the concept of strategy itself. According to Mr. Elmes, the most important part in the definition of strategy is its purpose. Strategy is all about gaining a competitive advantage on competitors in order for the company not only to survive but also to thrive. This means that the decision maker has to identify a niche, a “blue ocean” as Kim and Mauborgne put it, and steer his ship towards these competition-free waters. The most challenging aspect of decision-making is therefore to identify the way that the company is heading; the rest is just about staying coherent with that initial vision.

From the concept of strategy, Mr. Elmes moved on to the different aspects involved in decision-making. As he was listing 7 main points, he asked us to think about a company that made a very strategic decision and to figure out how the 7 points where involved in the decision. I thought about Nike. In the 1990’s, the American company was accused of employing children in Pakistan and in Cambodia to make its footballs. After this scandal, Nike decided to own up to its mistakes and play the “honesty card”. It admitted that it had unwillingly employed children in Third World countries but added that it would be very difficult to get entirely rid of these practices. The main reason being that in these countries birth certificates are often inexistent or can be forged very easily. Today, the sportswear giant is one of the biggest spenders in corporate social and environmental responsibility even if that only represents a very small proportion of their turnover. However, what I think is interesting is that the company does not go public about this yet probably because they consider that it is too soon, that the scandals would pop right back up if they tried to show how much they are involved in these significant issues. How was this decision made? The first of Mr. Elmes’ seven point involved in decision-making was the future. Indeed when Nike saw its sales and its stock price collapse because of the child-labor incident, it had to think about the future. What kind of company did in want to be ten years from now? An American consumerist devil making the most outstanding profits off of poor people’s backs? Or the most eco-friendly a multi-billion dollar company? Also concerning the future, if you want to be up there in the sustainable development business, how would you go about to get there. Mr. Elmes’ second point was “scale and importance”. I believe that the interesting part about this point is that Nike decided to go for scale but not to communicate in the short-run about its efforts. Then came “complexity”, how do you manage to spend millions of dollars on making a company more ethic but not talk about it? How do you change the consumers’ attitudes about the company? How can you change the minds of people who think of Nike as an evil organization? Then, according to Mr. Elmes, there’s “taking risk and dealing with uncertainty”. How do you announce to your investors that you will be spending more on the environment, which means less money in their pocket? Also, how do you build back trust once markets have stopped believing in your companies potential? Mr. Elmes’ fifth point is “actions that take time and are largely irreversible”. Indeed, Nike couldn’t change the public opinion overnight, and once it had started to try to do so there could be no turning back. If the company announces publicly that one year it spends 1% of its turnover on Corporate Social and Environmental Responsibility (CSER), it cannot go back down to 0.5% the next year. The sixth main idea involved in decision-making according to Mr. Elmes is “involvement and coordination”. For Nike, this means that if it decides to change the way things work in Pakistan, it has to get all of its personnel and factories worldwide involved. Finally, the last point is “change” and this means that “Business as Usual” is not a strategic decision. Things have to move in order to attain the long-term goal.

Next, Mr. Elmes identified some strategic problems or questions and gave a few examples from the energy sector. Out of these generic challenges I would like to point out the Merger and Acquisitions. This is typically the kind of big words that I thought a lecturer might use to impress us and to talk about general ideas. However, what I liked about Mr. Elmes’ approach is that he explained that most people think immediately of M&As when asked about strategic decision-making however acquisitions only have a 20% success rate which makes them by far the least efficient decisions.

What I would like to spend a little bit more time on are examples of decisions that went wrong and what impact thisi might have. The first example that was given to us was E.on’s shift to new markets in the aim to redefine the competitive base. The head executives at E.on announced that they would take 20% of their activity away from Germany to BRICs countries. Of course, this wasn’t to please everyone but E.on’s main mistake is that they never followed through on this announce. This not only results in a loss of credibility but it also shows investors that the company does not really know where it is heading. The second big mistake was shell’s reserves restatement. The company accidentally made a mistake on the reserves that it had announced and when they went public about revising the figure, the stock price collapsed resulting in a loss of $15.25 billion. This shows how big the impact of a strategic problem might be and how important it is to face it even if it means dealing with the direct consequence of losing billions of dollars.

Mr. Elmes then went on talking about Michael Porter’s positioning view of strategy. The basic idea is for a company to identify

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