Tradeoffs are an inherent part of decision-making. Persuing one opportunity may mean that another course of action is closed. Indeed, accepting tradeoffs is important in strategy – you can’t be everything to everyone, there is a need to be focused on a particular direction.
However, resolving tradeoffs is often not easy. There may be competing alternatives, each with merits and disadvantages, and no clear winner. In such cases, a clear strategy can aid in decision making – helping determine the best course of action, and rationalize the decision.
The strategy sets the direction of the firm
It is important to recognize that the strategy of the firm sets the direction of the organization. It is intended to allow consistent decision-making – each decision reinforcing one another. The strategy of the firm should be an overarching game-plan, a reference point to help guide decision-making.
The role of a strategy in balancing tradeoffs
When a firm is faced with a tradeoff, one of the first things to consider is how the specific options connect to the strategy of the firm.
When viewed in isolation, both options may have merits and limitations, but when considered relative to the strategy that the firm is pursuing, there may be a clear winner – the option that best aligns with the strategy of the company.
As well as helping decide on tough decisions, referring back to the strategy is also important because it helps keep decision-making consistent. Making independent decisions without consideration of how they will impact the broad approach that the company is taking runs the risk that the firm starts to lose its focus. Multiple separate decisions are made, that each on their face seemed to make sense, but overall are inconsistent do not reinforce one another.
Summary: In tough decisions, refer back to your strategy
It can be useful to remember that strategy is not intended as an annual exercise, that exists only in planning sessions, and then is forgotten for the rest of the year. Rather, the strategy of the firm is intended as a guide for decision making – helping avoid inconsistent decisions, and provide some guidance on the best approach during decision making.