3 levels of Decision Making Strategy In Business Firms

Business firms typically exhibit three levels in their decision-making hierarchy. At the top is the corporate level, composed principally of members of the board of directors and the chief executive and administrative officers. They bear the responsibility for the financial performance of the corporation as a whole and for achieving the non-financial goals of the firm, e.g., corporate image and social responsibility.

To a large extent, their orientations reflect the concerns of stockholders and of the society at large. Particularly in multi-business firms, it is their duty to determine in what businesses the company should be involved. Further, they set objectives and formulate strategies which overarch the activities of individual businesses in the corporation and of their respective functional areas. By adopting a portfolio approach to strategic management, corporate level strategic managers attempt to exploit their distinctive competencies within their industries while typically planning with a five-year time horizon.

The second rung of the decision-making hierarchy is the business level, which is composed principally of business and corporate managers. They must translate the general statements of direction and intent which were generated at the corporate level into more concrete and operational objec¬ tives and strategies for their individual business divisions or SBUs. In essence, business level strategic managers must determine on what basis the company can compete in the selected product-market area. While so doing, they strive to identify and secure the most profitable and promising market segment. This market segment is the fairly unique piece of the total market which the business can claim and defend because of its competitive advantages. Every corporation, even the largest multinational, depends on the strength of their market segments as the basis of its continuing viability.

The third rung of the strategic decision-making hierarchy is the functional level, which is composed principally of activity managers of product, geographic, and function areas. It is their responsibility to develop annual objec¬ tives and short-term strategies for such areas as production, operations management, and research and development; financial and accounting; marketing; and human relations. However, their greatest responsibilities are in the implementation or execution of the company’s strategic plans. While corporate and business-level managers center their planning concerns on 4 ‘do the right things,” functional-level managers must stress “doing things right.” Thus, they directly address such issues as the efficiency and effectiveness of production and marketing systems, the quality and extent of customer service, and the success of particular products and services in increasing their market shares.

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