How to Make a Good Strategic Decision

This week in our newsletter:

• A New Type of Money is Spreading Across the Internet
• Reading Tea Leaves: The Fed’s Final Interest Rate Decision of 2025

Read the full newsletter for our analysis on these stories — shared exclusively in our newsletter.

Here’s a question for you: How competent are you at making a strategic decision?

Strategic decisions are the key to growth

According to McKinsey, the gap between the world’s most profitable and least profitable companies is getting wider. The top quintile of companies by economic profit captures 90% of the total profit generated. Meanwhile, the bottom quintile of companies is driving increasing losses. The gap between the two groups has more than doubled in the last two decades. McKinsey argues that this trend suggests the return on a good strategy is growing, as is the cost of a bad strategy.

In 2025, we’ve seen companies make major strategic bets, many of which have centered on digital transformation.

The largest tech companies are all spending heavily on AI. Alphabet, Amazon, Meta, and Microsoft are expected to spend a combined $380 billion in capital expenditures this current fiscal year, the bulk of which is going towards chips, servers, and data center expenses. That’s a 1,300% increase from a decade ago.

These trends have been accompanied by announcements of organizational changes. Over a million people have been laid off in 2025, more than in any year since 2020.

The stakes for strategic decisions have never been higher, and only time can tell whether the risks taken are worth the payoff.

The stark reality, however, is that most strategic decisions fail.

According to a 2024-2025 McKinsey survey, only 21% of executives reported that their corporate strategies passed four or more of McKinsey’s ‘Ten Tests of Strategy.’ That’s a 40% decrease from 15 years ago, driven by increasing uncertainty in today’s economic climate.

So, how does one make a good strategic decision?

An oldie but a goodie

The bulk of what we convey here must be credited to the work of Professor Phil Rosenzweig and, in particular, to his 2013 Harvard Business Review article, What Makes Strategic Decisions Different.

Rosenzweig argues that most research about decision making focuses on the simpler kinds of decisions involving routine judgments and choices (e.g., which grocery store to go to or which brand of milk to buy), rather than the complex, strategic decisions that must be made by those who run significant businesses. The problem here is that applying insights from simple-decision research directly to such strategic decision-making can be counterproductive.

So, the first step is to recognize what type of decision you’re making here.

What kind of decision must be made?

Rosenzweig proposes evaluating the decision by looking at two questions:

• Control: how much influence does the decision-maker have over the process and outcome? That is, are they just selecting among fixed options, or can they shape those options and influence results after the decision?
• Performance metric: whether success is judged on absolute terms (e., did the decision produce a good result?) or relative terms (did the decision produce results that beat out another party’s (e.g., a competitor’s) results?)

Based on these two metrics, there are four basic types of decision:

1. Making routine choices and judgments: Low control, absolute performance metric.
   This could be deciding which cereal to buy at the grocery store, or voting on a political candidate. Investment decisions, like deciding on which stock to buy, also fall under this. Your decision is to pick from the options available, and you don’t have the ability to improve them.
2. Influencing outcomes: High control, absolute performance metric.
   This could be a project manager estimating how long a project will take. Here, you have the ability to influence performance.
3. Placing competitive bets: Low control, relative performance metric.
   Here, you’re competing for a prize based on performance, where the goal is to beat your competitors. The decision you make here needs to anticipate what your rivals will do.
4. Managing for strategic success: High control, relative performance metric. These decisions could be about launching a new product, entering a market, or acquiring another company.

Type #4 decisions, of course, lie at the heart of strategic management decisions. According to Rosenzweig, this type of decision is rarely studied under controlled conditions.

Many of the biases we’ve been taught to be conscious of in decision-making, such as the sunk cost fallacy or the concept of being fooled by randomness, apply only to Type #1 decisions. Game theory, meanwhile, offers competitive guidance for making Type #3 decisions, albeit it doesn’t really factor in the role of management.

But these theories and concepts all fall short in advising us on how to make better strategic decisions, which fall into the hardest bucket.

So, what’s a decision maker to do?

Ultimately, an effective business leader can’t be held back by ‘analysis paralysis’ and must be willing to make a decision.

For the most consequential, strategic decisions, Rosenzweig argues that decision-makers need a hybrid mindset, combining:

• Left-brain thinking: clear-eyed analysis, structured thinking, careful deliberation, with
• Right-stuff (boldness): willingness to shape options, take risks, commit to uncertain outcomes, and use vision and leadership to influence results.

The key is to recognize what kind of decision you’re making, then adopt the right approach for that kind of decision. Treating a strategic decision like a routine choice is a mistake. The lessons we’ve learnt about biases that impact simple choices don’t always apply to complex, high-stakes decisions.

How do companies actually strategize to create sustained competitive advantage?

Rosenzweig’s decision matrix provides the starting point for tackling this question.

To begin, we have recognized strategic decisions as a different beast from everyday choices. They aren’t situations where simple behavioral tweaks will help; they involve shaping outcomes under uncertainty, with success defined by beating competitors.

Now that we’ve understood this, if strategy is inherently about winning relative to rivals, then the central question becomes: how should a firm position itself to create a lasting competitive edge?

For that, dear reader, we invite you to read our next week’s newsletter article…