Strategic Decisions

Schwenk (1988) defines three elements of a strategic decision. He theorizes that strategic decisions are

• Ill-structured and nonroutine
• Especially important to an organization
• Very complex

Strategies are different from tactics. Although good companies can develop bad tactical and even strategic decisions, few firms obtain sustained competitive advantages without good decisions (Schwenk, 1988).

We can view decisions through two theoretical lenses in the strategy field: the resource-based view and strategic choice.

• The resource-based view of the firm: Internal resources are key. The resource-based view (Barney, 1991, 2002; Priem & Butler, 2001; Wernerfelt, 1984) holds that firms obtain sustained competitive advantages through developing resources that are rare, valuable, inimitable, and nonsubstitutable. Effective strategic decisions in the health care industry could be a valuable, rare, nonsubstitutable, and inimitable resource and thus produce sustained competitive advantage. Many health care leaders see strategic decisions as a potential source of sustained competitive advantage. They would argue that decisions that include Schwenk's (1988) three elements are rare, valuable, inimitable, and nonsubstitutable.
• Strategic choice: Strategy defines financial performance. The Holy Grail of strategy research is the correct relationship between strategy and performance. Many argue that the only reason for strategy is to improve performance. The strategic choice theory (Child, 1972, 1997) holds that a firm's strategies drive performance (Powell, 1990). Traditionally, performance focused on financial performance. Firms chose a particular strategy if the financial benefits outweighed the costs. Thus, strategies determined financial performance. Those strategies where costs outweighed the benefits produced poor financial performance. Strategies that produced benefits that outweigh costs, produced better financial performance. An eclectic group of stakeholders drive the health care industry. Thus, health care firms need to consider multifaceted forms of performance. Financial performance may not be the fundamental type of performance in the health care industry. Indeed, financial performance can be less important than the relationships among the firm, the insurance industry, and the regulatory agency. Strategic choice theory could be especially relevant in the health care field. The health care industry is inherently complicated, because of the number, complexity, and jurisdictional issues of regulations as well as the number, complexity, diversity, and importance of stakeholders. As such, strategic choice theory could explain managers' attempts to apply a rational framework in such a disorganized environment. Again, strategic choice theory predicts that strategies are related to performance and as such, firms that implement effective strategic decisions as defined by Schwenk (1988) will consistently perform better financially over the long term.

To be successful, managers in the health care industry should develop a specific yet flexible process for strategic decision making. Two popular texts provide examples of the strategic decision process:

• Williams (2000) recommends “rational decision making.” His steps include defining the problem, identifying decision criteria, weighting the criteria, generating alternative courses of action, evaluating each alternative, and computing the optimal decision.
• Wheelen and Hunger (2002) propose a more detailed process, including evaluating current performance results; reviewing corporate governance; scanning and assessing the external environment; scanning and assessing the internal corporate environment; analyzing strategic (SWOT) factors; generating, evaluating, and selecting the best alternative strategy; implementing selected strategies; and evaluating implemented strategies.

[Page 528]In summary, effective strategic decisions are an important element to the successful health care firm.

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