Strategy evaluation & Selection

Dr Tahir Rashid
Review of Last week Lecture
Strategic analysis
Identifies the organisation's
circumstances
Strategic options
Identifies possibilities
for development
Assessment of suitability
Establishing the rationale
Screening options
Acceptability
Exhibit A framework for the evaluation and selection of strategies
Acceptability
Return
Risk
Stakeholder reactions
Feasibility
Selection of strategies
Planned
Enforced
Learning
Command
EVALUATION CRITERIA
Suitability
does the strategy address the key issues identified in
the strategic analysis?
useful for screening choices (often qualitative)
Acceptability Acceptability
are the expected outcomes acceptable? (To whom?)
Stakeholder analysis important
Feasibility
can the strategy be made to work in practice?
focus on practicalities of resourcing
Value chain analysis
Does it improve value
Positioning
Is the positioning
viable?
Life cycle analysis
Does it fit the stage
we will be in?
Business profile
Suitability
Is this a good
strategy?
Does it improve value
for money?
Does it exploit core
competences?
Will it lead to good
financial performance?
Portfolio analysis
Does it strengthen the
balance of activities?
Exhibit Testing suitability
Examples of Suitability - Methods of Growth
Strategic
Option
Suitability in terms of
Environment Capability Expectations
Internal
developmt
First in field
Partners/acquisitions not
available
Learning and
competence
development Spread
of cost
Cultural/political ease
M&A Speed Acquire competences Returns: growth or share M&A Speed
Supply/demand
P/E ratios
Acquire competences
Scale economies
Returns: growth or share
value
Problems of culture
clash
Strategic
alliance
Speed
Industry norm
Complementary
competences
Learning from
partners
Required for entry
Dilutes risk
Fashionable
Criteria for Acceptability
Are the strategies acceptable to key stakeholders?
Criteria To Understand Examples Limitations
Return
Profitability Financial return on
investments
ROCE
Payback period
Apply to discrete
projects
Only tangible
costs/benefits
Cost-benefit Wider costs/benefits
(incl. intangibles)
Major infrastructure
projects
Difficulties of
quantification
Shareholder
value analysis
Impact on shareholder
value
Mergers and
acquisitions
Technical detail
often difficult
Financial
Ratio
Robustness of
Strategy
Break Even
Analysis
Feasibility
Can the strategy be made to work in practice?
Financial
Funds flow forecasting timing of new funding
Break-even analysis
Resource deployment Resource deployment
Resources and competences needed
Threshold
Unique resources/core competences
Scale, quality of resource, timetable for change
Staying in the business
Competing successfully
Do we lack any necessary resources?
Are we performing below threshold on any activity?
Which unique resources already exist?
Which core competences already exist?
Could better performance create a core competence? Could better performance create a core competence?
What new resources or activities could be unique or core
competences?
Exhibit Resource deployment analysis - some important questions
Resources and
competences for
the future
Protecting
unique
resources
Fitting resources
together
Business
process re-
engineering
the future
Exploiting
experience
Exhibit Resource configuration: creating capabilities for the future
Do we have choices?
Strategic moves based on assumptions about
business, capabilities, and potential within an
external environment with competitors.
Planned versus emergent strategies Planned versus emergent strategies
Matching - internal with external
- SW : OT (TOWS matrix)
- SBU : Corporate
FINAL STRATEGIC OPTIONS TOWS FINAL STRATEGIC OPTIONS TOWS
SYNERGY
... is an assessment of the benefit which can be gained by linking
activities in new ways
It is often concerned with re-configurations of the value chain
Many different types (e.g. supply chain, outlets, internal links)
Often used to justify diversification Often used to justify diversification
Some difficulties:
What is core business (product, market or competences)?
Must fit parenting style
LOW-PRICE STRATEGY
Underlying competences
Process design
Labour supervision
Easily produced products
Low-cost distribution
DIFFERENTIATION STRATEGY
Underlying competences
Product design
Marketing
Creative flair
Research capability
Corporate image
Requiring
Tight cost control
Detailed reporting
Highly structured tasks
Quantitative targets
Requiring
Looser control
Simpler reporting
Strong co-ordination
Market-based incentives
Exhibit Competences and management styles to support different strategies
Time Frame
Short term: Immediately 6months
Medium term : 6 months- 2 years
Long term: 2 years years
Time is relative to the industry Time is relative to the industry
Long term in retailing is approx 5 years
Long term in petrochemical industry approx 15
years
Summary
What is the purpose of the business?
Evaluating Criteria
Suitability
Acceptability Acceptability
Feasibility
What resources will be required?
Which competences do we have?