We make decisions everyday. Many are functional and answer very simple questions like, “Shall we eat at MacDonald’s or Burger King?” Those questions are clearly not strategic and we can simply make the decision and move on. Yet sometimes, a similar question may be simple for one and strategic for another.
For example, “Should we purchase an apartment in downtown Jakarta?” For many, this will be a strategic question and a lot of thinking and discussion will have to go into it to come to the right decision. Yet for others, it may be a simple walk in the park, especially if they were of significant means.
Why is this important to us?
Understanding if a decision was strategic or not allows us to allocate the right amount of decision-making resources to answer them. These resources include time, information-search, assimilation, sense-making and a whole host of other thinking processes. Obviously we want to be judicious in expending these resources because, as Daniel Kahneman, Noble Prize winner and author of Thinking, Fast and Slow says: these are System Two activities, and System Two is lazy. Therefore we will only want to apply strategic thinking onto decisions that are strategic and for those that are not, to simply just get it done already!
So is yours a strategic decision? We will look at the three criteria to assess if it is…
Affects more than YOU
If the decision does not affect anyone except you, then the decision is not strategic. After all, you will be making the decision only for yourself and should it turn out badly, no one else will be affected by it. Obviously, no one wants to make an adverse decision even if it just impacts us, but the fallout is limited if the stakeholders number just one. Of course, the minute the decision impacts others, either in its execution or its outcome, then the complexity multiplies; and it starts becoming strategic.
Has high opportunity cost
We used to identify the second criteria as “huge amount of resources” – time, money, people, assets etc. However, we have since refined that because requiring a large amount of resources may not mean much for a person or organization with considerable means. What is of concern is the opportunity costs associated with the use of these resources that makes the decision difficult, and therefore, more strategic. Opportunity cost is the price we have to pay for using the resource one way as opposed to another. That cost is the potential of the choice we had to forgo in applying it to the other option. When the opportunity cost is high, there is a need to apply more rigorous thinking; finding better options, balancing options with constraints, and managing the downside risks. We need to ensure that we are betting on the correct horse. Hence more needs to be done to answer a strategic question.
Impacts the future
Strategy is about the actions we take today that will have a future outcome. The further ahead in time your decision impacts, the greater the strategic-ness of your decision. And the further out it is, the more it requires us to put in place checkpoints and directional signs to increase the chance of success. Since we cannot tell the future, the odds that the decision will be wrong becomes higher the further in time it impacts; and this necessitates broader thinking.
It’s AND, not OR
So these are the three criteria that you can use to assess if your decision is strategic. But there is one more thing. To be strategic, it has to contain all of the above criteria; so it is its impact on more than just you, AND its high opportunity costs, AND its impact on the future. So when one of these criteria is missing, your decision is no longer strategic. That is not to say that you can’t apply strategic thinking in this case, it is just that the decision process is simpler and you can scale back on the decision-making resources we spoke about earlier.
And what if your decision is strategic? Then use the 8 steps outlined in my earlier article (see here) to make the right decision.