← Back to Vol. 08 Issue No. 01 — April
Abstract
We need to study strategic investments as they result in significant and irreversible decisions. Strategic investment decisions result in activities that are meant to profoundly change the direction of an entity after assessing the risk levels, financial investment levels and internal capacity levels. In summary, the entity looks within itself to identify its long-term plans, internal capabilities, risk appetite, and financial resource availability, looks outside to see what prospects are out there that it can adopt or attain, and leverages its internal configuration to attain its objectives. The authors distinguish between investment decisions that are operational and strategic. Operational decisions are routine financial application decisions that sustain the business on its existing trajectory while strategic investment decisions are tied to the mission of an organization. The authors, further, note that capital budgeting techniques were structured investment decisions while strategic investment decisions were unstructured. As opined by Mintzberg et al. (1976) strategic investment decisions are unstructured and require IDS model to execute. The “IDS” model required identification, development and selection of the strategic investment decision. In making its decision, an entity uses a variety of tools at its disposal, it does not need to use necessarily one tool for all decisions. In the past, preference has been given to simple financial methods but more complex financial techniques have gained traction with the availability of information processing tools such as spreadsheets. There is a need to, also, consider organizational and behavioral aspects of decisions that have not received as much attention despite their importance. It is imperative that strategic decision-making does not choose the path of least resistance to use information that is only readily available and forsakes equally important considerations. If the path of least resistance is chosen, we may very well end up with poor decisions that result in significant unsustainable losses of scarce resources resulting in wealth being destroyed rather than being created.