On the face of it, one might conclude that no strategic planning is taking place. Would you agree?
Operational decisions are not made during the strategic-planning process, but subsequent to it. The reason is that operational decisions and plans flow from the strategic decisions made, and so the latter must precede the former. Operational decisions are made when doing operational planning (discussed in Chapter 7) and involve deciding what has to be done (programs, activities, tasks, projects), who will do it, who is accountable, what amount of budget is allocated, and a deadline for completing it. Examples of operational decisions include upgrading the accounting system, installing a new production process, changing an advertising campaign, offering discounts or other promotional incentives, lobbying for tariffs, hiring anyone other than the CEO, reducing costs, financing a particular initiative, investing surplus cash, and so on.
1.8 About Business Models Business models are different from strategies, but in some people’s eyes the distinction is fine. You can make up your own mind after reading this section. Earlier, we defined strategy as “how a com- pany actually competes.” A business model describes the way in which a firm does what it does to deliver customer value (Abraham, 2006, pp. 10–11). For example, a hospital’s strategy would be concentration (both market and product development) and possibly acquisition. Its business model should answer some basic questions:
• How to get people to come to the hospital for services? Will it attract patients by delivering high quality services, offering low prices to insurance companies, training courteous staff, promoting wellness, etc.?
• How to make money? Will it control costs by streamlining processes and removing waste- ful steps, seeking volume discounts from suppliers, selling more wellness products, etc.?
• How to grow? Will it produce growth by expanding services that can be efficiently served by existing facilities, acquiring physician practices, etc.?
Three well-known instances of companies transforming an industry by successfully using a differ- ent business model are Dell, Inc., Progressive Insurance, and Netflix. These examples will illustrate why business models are important and how they can be so easily confused with strategy.
Discussion Questions 1. Some corporations, like manufacturers of aircraft and nuclear plants, have to look 20–30 years
into the future when making decisions. How might strategic planning be different for them with such long planning horizons? What other information or analysis might they require to help them make more robust decisions?
2. We know that operational decisions flow from strategic decisions, and must be made subse- quently. Are they less important? Why or why not?
3. Managers who are used to making and following operational and tactical decisions are often pro- moted to VP or C-level executive positions. Explain what difficulties they might encounter as they transition from making operational decisions to making strategic ones.
4. The CEO of a small company has been making all the decisions for the past 20 years, and the company is doing well. What can you say about the manager’s decision making? On the face of it, one might conclude that no strategic planning is taking place. Would you agree?
5. Why is hiring a CEO a strategic decision but hiring anyone else isn’t? Hiring what other position might be strategic and under what conditions?