In traditional business structures, the managerial function is usually split into three different levels with each level enjoying a different degree of power and control. Generally, senior managers will develop the business strategy, middle managers will execute the strategy and line managers will supervise staff as they perform their duties on the ground. All managers have a certain amount of decision-making responsibility, but the nature of those decisions changes markedly as you move down the ranks.
At the top of the corporate tree, the C-suite (chief executive officer, chief operating officer, chief financial officer, presidents) are responsible for strategic planning. This involves making long-term, big-picture decisions and establishing policies that will impact the organization for at least the next five years. Examples include:
- Launching new products.
- Becoming a market leader.
- Gaining market share.
- Diversifying revenue streams.
- Going international.
- Improving customer satisfaction.
- Reducing financial waste.
- Developing the company's reputation as an ethical business.
Strategic decisions give direction to the growth and development of a business and are thus critical to its success or failure. There's a level of risk associated with these decisions, and senior leaders will do a lot of financial modelling and situational analysis to assess the risk based on predictions about future trading conditions.
Middle managers are largely responsible for tactical decision making. Their job is to translate the company's strategic goals into action plans – for example, by specifying work processes, cash levels, price points, inventory levels and manpower requirements. The focus is on using resources and creating performance standards to achieve the objectives set out in the strategic plan.
Tactical decisions cover a much shorter time frame than strategic decisions – somewhere in the region of 12 to 36 months is normal – and are associated with less uncertainty and risk. Examples of managerial-level decision making at the tactical level include:
- Allocating budgets and resources.
- Manpower planning.
- Designing jobs and work processes, including the automation of tasks.
- Specifying technology to improve production efficiency.
- Pricing decisions.
- "Make or buy" decisions.
- Developing preventive maintenance plans to ensure that production runs smoothly.
The bottom layers of management are responsible for making operational decisions. These decisions are routine in nature and involve the day-to-day operations of the business, such as: Who should do this job? What machines or resources should we use? How many items of stock shall we reorder?
On any given day, a business may make hundreds or even thousands of operational decisions without even realizing it. These decisions tend to be administrative in nature and much smaller in scope and scale than tactical or strategic decisions. They can usually be spelled out quantitatively in terms of time and targets. For example, a line manager might decide how many units of production are needed to satisfy a work order or how many labor hours to allocate to a job.
While generally seen as low risk, operational decisions are the decisions that employees experience on the ground. If decisions are regarded as oppressive or unethical, or if too many constraints are placed on decisions made at this level, then employees are likely to feel frustrated. Suppose, for example, an engineer spots a fault and knows exactly how to make it right. If she has to wait several days for authorization from a higher up in order to fix the problem, then she may feel restricted in her job, underused, undervalued and distrustful of the decisions made by management.