Evidence shows companies that create sound strategies establish a foundation for future success. The hallmark of effective strategy is consistent, quality strategic decision-making that can be broadly supported by employees. But sometimes executives seem to underestimate its importance. They try to form their company’s next strategy without properly examining the facts, basing it instead on a gut feel. That’s like selecting your strategy by flipping a coin. Certainly not the best way to set company direction.

Strategy basics. Strategy is defined by McGregor as “an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage.”1 So, what do we learn when we pull this statement apart?

First, strategy is “integrated” not siloed. Where does your company fall on this spectrum? Does the corporation combine the different perspectives of multiple business functions into a harmonious approach for grappling with issues? Or does parochial thinking restrict new perspectives from blossoming? Does one particularly strong function in your company control strategy content? Effective strategy is best developed with input from a multi-disciplinary team.

McGregor also refers to the term “coordinated.” Surprise! He does not promote “haphazard” actions. This implies that strategy cannot be formed on an ad hoc basis. There needs to be a structured process that guides the executive team to examine their environment, identify how their current strategy needs to alter in order to manage any changes to that environment and assess proposed strategy changes to ensure they are selecting the best strategy.

McGregor points out that strategy is rooted in the company’s competencies, those activities it does well. Strategy is not just a fanciful wish for the company becoming something it is not. Accordingly, it makes sense that part of a company’s strategic analysis includes an assessment of how to leverage its competencies into a winning formula.

Finally McGregor explains why companies develop strategies. The payoff has a substantial benefit, something to aspire for. Namely, competitive advantage. So essentially, companies develop strategies to improve their business success. Choosing the strategy that positions a company best against its competition requires organizations to select the optimal approach from a set of competing alternatives. A strategic decision process governs this choice. Think of this process as a structured set of activities established to guide decision-makers on a course that assists management in choosing better strategic options.

Strategic decisions. What, then, is a strategic decision? Harrison developed an excellent definition: A strategic decision is “a moment in an ongoing process of evaluating alternatives for meeting an objective, at which expectations about a particular course of action impel a decision-maker to select that course of action most likely to result in attaining the objective.”

Note the key points that Harrison makes in this statement. First, a strategic decision involves choosing among alternate courses of action. Therefore, it is logical to assume that an important part of a strategic decision process is to identify a full set of alternatives from which the decision-maker can choose.

Second, Harrison uses the word “impel” to describe why the executive decides on a course of action. In corporations, what impels a decision-maker? Certainly facts are needed. This allows the executive to accurately analyze the situation. But “impel” implies that an executive is emotionally engaged in the decision. Emotional involvement occurs in one of two ways: fear of a personal negative impact or promise of a personal positive outcome. Strategic imperatives can fulfill either condition.

Avoid the coin flip. So then, effective strategy is not formed by flipping a coin. We form strategy to improve our corporation’s business prospects. We develop strategies using a strategic decision process that presents alternatives and supporting data to convince executives that a course of action for shaping the future course of the corporation provides the best professional payoff.

Think of strategic decisions as a corporate sextant, the tool used by sailors to track the movement of the stars as a guide for plotting a ship’s course. At points throughout a corporation’s journey, the firm will face junctures where it must modify its course in order to reach port. These junctures are the points where strategic decision-making occurs. The coin flip approach will force a poor choice and your company is likely to stray off course, perhaps so severely that the cargo spoils. With this poor strategy operational tasks are implemented along misaligned priorities — the company’s execution suffers. The ship flounders. Worst case, a missed market opportunity dooms the company.

1. J. McGregor, “Smart Management for Tough Times,” BusinessWeek, March 12, 2009.

2. E. F. Harrison, The Managerial Decision-Making Process, 4th ed. (Boston: Houghton Mifflin, 1995).