Introduction
The strategic decision-making process involves detailed planning of a course based on long-term goals. The process requires a company to identify its aim and align it with short-term goals to meet the long-term vision. In financial service companies, accountants are given the mandate to ensure that the decisions made for daily operations bring success to set financial goals. Failure to meet set goals could be caused by many things, including poor performance, poor allocation of resources, failed risk management, and objectives that do not align with the external environment, among others.
When the goals are not met or there is foreseen the possibility of not meeting the objectives, the strategic decision-making process requires improvement. Various experts provide different opinions regarding ways to improve the process of decision-making. Amongst the opinions the paper considers are those of Bower and Gilbert (2007), Chartered Institute of Management Accountants (CIMA) (no date), Kenny (2020), and many others. With this in mind, improving the strategic decision-making process entails lining up business decisions with the objectives of the business.
Performance Management
The performance of the business is one of the major key indicators of failure or success. The future of the business can be measured using the current performance of the firm. When it comes to financial services institutions, their performance is key to meeting their long-term goals. The companies must make decisions to increase the performance of the business to meet the overall goal. The decisions made may be done at the beginning of the term or involve procedural updates.
Either way, the decision process is critical to the way the company’s key factors function. The major factors to the functioning of the business are the shareholders, including employees, customers, the government, and other external factors (Lafley et al., 2012). In money services firms, the operation of employees and customers is critical to positive performance.
Many companies experience difficulties in rewarding the level of performance correctly. A performance like any other indicator of success needs to be rewarded based on its level of achievement toward the long-term goal. Knowing how the correct recompense to give the current level of performance is significant to identifying where to improve. It is upon recognizing the need for improvement that the decision-makers revise the process of decision-making to include a solution. In all circumstances, aligning the purpose and aim of the business with the performance level is the surest way to improve the decision-making process (Sull & Sull 2018).
The strategic decision made must reflect the overall goal of the company. For example, if the objective is to be the best in the financial services industry, then the decision made must ensure the performance aims at meeting this goal. According to CIMA (no date), many financial service firms fail to meet their long-term goals because of making unrealistic decisions. The unrealistic decisions made by these institutions barely consider the aim of their operations hence making it hard to perform well.
Achieving balanced scorecards in financial services companies has proven challenging. Developing scorecards and performance strategies is not difficult, even with uncertain decision-making processes. However, identifying the linkages of performance measures required to establish effective or well-balanced scorecards is the problem. Therefore, for the finance firms’ decision-makers to manage the performance and deliver positive results, they must understand the drivers of business value and strategy (Kaplan & Norton, 2007, p. 4).
Their level of understanding is what helps them to challenge the company managers to deliver results according to the actual potential of the firm. If the finance partners do not know the value and strategy of the business, they end up making poor decisions. When wrong choices are made at the beginning of a journey, not even by luck can the businesses meet their long-term goals?
The use of key performance indicators is another way of improving the strategic decision-making process. Key Performance Indicators (KPIs) are management tools used by managers to monitor the progress of a business. The KPIs show whether the company is on the right track or not. The data provided by KPIs can be used to make critical decisions regarding the business target.
Tesco Company is one firm known to effectively use KPIs for efficient decision-making. For example, the company uses âTesco Steering Wheelsâ as a tool to drive performance. The tool monitors the key performance of finance, customers, community, people, and operations (CIMA, no date, p. 4). Eventually, the organization’s decision-makers obtain the KPIs data to improve decisions for every poorly performing aspect.
Management of Value
Many finance companies are invested through private equity, thus increasing the need to manage shareholdersââ value. These private equity firms are not required to be transparent about their equity to the public. However, compared to public companies, private equity is funded by more debts than equity. The high leverage places these institutions at huge financial risks, thus leaving them with options of either reducing debts or managing cash for services (Lafley et al., 2012). In such circumstances, the organizations may make poor decisions based on the need to stay in service hence disregarding the need to meet the long-term goal.
When the right strategic decisions are made, private equity becomes a role model for other finance firms to emulate. Their operations may be faced with financial risks, but they focus on managing and increasing the value of the shareholders in the long term.
Building upon the value of the shareholders is a significant decision-based improvement. The key shareholders of finance companies are employees, customers, and the community. It is essential to understand that the relationship between the firm and the shareholders determines the productivity of a business. Thus, it is wise to create a relationship that ensures profits and revenues of the business are yielding as desired.
Kenny (2020) states that a good relationship is that which makes a company competitive based on the shareholders’ perspectives. Listening to shareholders’ opinions, may it be employees or customers, are the most convenient way of adding value. Considering their perspectives show that the institutions not only value their contributions but also regard them as high worth.
There are many ways in which shareholders can contribute to the decision-making process. The organization managers could allow employees to share their opinions regarding improvements in pay, working conditions, organization culture, and safety measures (Sull & Sull 2018). Customersâ perspectives may be applied to the quality and prices of financial services in the companies. The decisions made by managers while considering shareholders’ perspectives help the firm increase performance and achieve the set goals.
Furthermore, the managers need to communicate the long-term goals to the shareholders from time to time. According to Bower and Gilbert (2007), the objectives of an organization are to be communicated now and then to the goal achievers. The goal achievers, in this case, our customers, the community, and employees. For employees to render their required duties, they need a reminder of what they aim to achieve by the end of the operation. Study shows that constantly reminding employees of the institutional goal makes them set their own goals (Kenny, 2020). Employees set personal goals because their opinions are considered in decision-making, so they work to prove that with their requirements met, they can do better.
Risk Management
In risk management, improving the decision-making process ensures that organizations reduce the risk of failure. Meeting the set goal in the business is the core aspect of running it. However, the process of working to meet the goal is critical and requires ultimate discipline. In finance service institutions, financial discipline is a key factor in meeting the long-term goal (Sull and Sull, 2018). The management of funds, may it be in lending, controlling the flow, or even banking, must involve lots of discipline. To stay focused, the management must eliminate every possible risk that could prevent the business from reaching its goals.
Risk mitigation compliance policy provides businesses with unrealistic possibilities of risk. Organizations then tend to spend much time focusing on such risk mitigation measures rather than working on real risk strategies. Preventive measures are more important for business success than dwelling on solutions to solve risks that already happened. Thus, the main focus of a financial institution should be on how to prevent such risks by making effective decisions about real risks.
Strategizing on real risks means treating possible risks as opportunities and potential threats. Successful organizations like The Linde Group make management of risk a tool to gain a competitive advantage in the industry (Sull and Sull, 2018). The groupsâ decisions are made by the management whereby they put actions, controls, and descriptions against risks instead of numbers.
Financial service companies can also use risk management risk indicators to track and identify risks. Depending on whether the risk poses a low, medium, or high threat, the management makes decisions considering such knowledge. Strategic decisions require the managers to use risk as an opportunity to operate on an existing gap in the industry. Furthermore, if the risk poses a threat to the firm, the decision-makers treat it as a threat and prevent it from happening.
Risks that pose business opportunities demand aligning resources with time. For example, a bank whose customers are almost defaulting on their loan payments could develop increased intervals in which they pay their loans in many installments. That way, the banking institution will have used the risk of losing money to customers by creating an opportunity for them to have more intervals for installments. In this case, potential customers could be attracted to the bank lending concepts without knowing that it was a risk turned into an opportunity. Risks that pose a threat to the business are prevented by making alternative decisions.
The managing team recognizes a problem and makes it a priority in solving a possible crisis. Solving the problem entails seeking more information about it, finding alternative solutions, selecting the best choice among many, implementing it, and getting feedback (Sull and Sull, 2018). The systematic approach used by CIMA insists on collecting feedback to know whether the solution provided is working or not. Therefore, if the provided solution is not provided with the expected results, a choice is applied.
A good decision-making process involves avoiding some obvious or most basic errors. Decisions made by the same person lead to poor results; hence, managers need to involve other heads of departments in making different decisions. McKinsey & Company (2009) affirm that collective opinions make the best decision, especially in uncertain circumstances. Finance institutions face critical decisions every day and how they handle them determines the success of the business and that of the stakeholders.
The same concept applies to high-risk management processes. A collection of decisions makes a working strategy more viable. Lafey et al. (2012) divide good strategic decisions into two categories, namely, corporation and human resources. Corporate decisions focus on revenue growth and cost savings while staying in line with set goals. Human resource decisions include cost-saving, revenue growth, and improved productivity. The decisions are made while considering the focus of the business, and that way, the institution achieves growth.
Conclusion
Improving the strategic decision-making process involves more than identifying the problem in a business. A business could seem to be working well but still require performance management, risk management, and value management, which results in making effective decisions. Good decisions must be made collectively by the management and shareholders.
These decisions also require the involved institutions to line up the objectives of the firm with the strategies in place. Good decisions made should reward the firm with success and growth while still staying in line with the long-term goals. Finally, monitoring the strategies already in progress is crucial in knowing where to improve.
References
Bower, J. and Gilbert, C. (2007) How managersâ everyday decisions createâor destroyâyour companyâs strategy. Web.
Chartered Institute of Management Accountants (n.d.) Improving strategic decision-making. Web.
Kaplan, R. and Norton, D. (2007) Using the balanced scorecard as a strategic management system. Web.
Kenny, G. (2020) Create KPIs that reflect your strategic priorities. Web.
Lafley, A.G. et al. (2012) âBringing science to the art of strategy,â Harvard Business Review,â 90(9), pp. 1-19. Web.
McKinsey & Company (2009) How companies make good decisions: McKinsey global survey results. Web.
Sull, D. and Sull, C. (2018) With goals, fast beats smart. Web.