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Evaluating and Selecting Strategies

Chapter 9

Learning Outcomes

Describe the nature of strategic options Explain the key areas of strategic decisions Understand and describe the 4 criteria for strategic options Understand financial tools used to evaluate strategic options

Key Definitions

Strategic, tactical and operational decisions Goods Services Industrial products, consumer products Convenience, shopping and specialty products Product lifecycle Suitable Feasible Acceptable

Strategic Analysis

Evaluation and Selection of Strategies

Strategic Analysis

INTERNAL ANALYSIS
PRODUCTS AND MARKETS Market Segmentation Kotlers product benefit Copelands product typology Product life cycle BCG Matrix GEC Matrix Chap 5

FINANCIAL ANALYSIS Hamel and AND Prahalad PERFORMANCE Core Competence INDICATORS ORGANISATIONAL Sources of finance Porter CULTURE WACC and CAPM Value Chain Handys typology Ratio Analysis analysis Miles & Snow culture Benchmarking types
HUMAN RESOURCES Audit Analysis

Chap 2

Chap 3

Chap 4

Pgs. 33-111

EXTERNAL ANALYSIS
SPENT Macroenvironment Socio-demographic Political Economic Natural Technological

INDUSTRY Porters 5-forces Resource-based

COMPETITIVE ADVANTAGE Competitive Positioning Porters generic Resource-based/Core Competence Prahalad and Hamel Knowledge-based Stonehouse and Pemberton

Chap 6

Chap 7 ANSOFFs Product/Growth Matrix

Chap 8 Strategic options/choice

Strategic options/choice

Pgs. 115-177

Evaluating and Selecting Strategies

Strategic Decisions
LEVELS

STRATEGIC TACTICAL

OPERATIONAL Level of decision-making Focus Scope Time horizon Complexity Degree of uncertainty

Evaluation and Selection of Strategies: The Process


Strategic Analysis

Evaluating and selecting strategy

Identifying Strategic Options

Applying Evaluation Criteria

Identifying Strategic Options: 3 Areas of Focus

Products and markets (Chapter 5) Generic strategy and scope (Chapter 8) Growth and development options (Chapter 11)

Identifying Strategic Options

Product and Market Decisions

Generic Strategy Decisions

Growth and Development Decisions

Product and Market Decisions

Two questions are answered:

Which products should we produce? In which markets should we sell our products?

Product and Market Decisions (cont.)

Decisions to be made include:

Product and market categories Product features Product and market portfolios Life cycle considerations

Product and Market Categories

Decisions to be made include: Products


Goods/services Consumer/industrial products Convenience, shopping or specialty products (Copelands classification) Geographic area International decisions Benefits and risks

Markets

Product Features

Focuses on the benefits of the product Decisions may be based on Kotlers 5 levels of product benefit

Core benefit Basic product Expected product Augmented product Potential product

Product and Market Portfolios

Should the portfolio be broad or narrow?

Generic Strategy Decisions

Cost Leadership or differentiation strategy? Cost Focus or Focused Differentiation?

Growth and Development Decisions

Generic growth direction (Ansoffs Growth Matrix)


Market penetration Market development Product development Diversification

Mechanisms for generic growth strategies

Internal external

Applying Evaluation Criteria

Four criteria can be used to assess each option:


Is the strategic option suitable? Is the strategic option feasible? Is the strategic option acceptable? Will the strategic option give the organization a competitive advantage?

Is the strategy suitable?

Suitable fitting, appropriate Is the strategic option appropriate for achieving the strategic goal? Example: a cost leadership strategy may not be suitable if the strategic goal is to create a premium brand

Is the strategy feasible?

Feasible capable of being done or carried out Feasibility will often depend on the organizations physical, financial, human and intellectual resources Example: a strategy that involves diversification (new products for new markets) may require a large capital investment cost. If the organization has difficulty getting the capital, the strategy is not feasible.

Is the strategy acceptable?

Acceptable capable of being received For strategy, the proper question is: Is the strategy acceptable to the stakeholders? Remember, stakeholder influence differs based on power and interest

Will the strategy lead to competitive advantage?

The strategy is not worth pursuing unless it either results in superior performance or above average profits

In Support of Evaluation Criteria: Financial Tools

Cash-flow forecasting Investment appraisal

Cash-flow forecasting

The organization forecasts (predicts) the expected income from the strategic option Example

Investment Appraisal

Payback period

In Support of Evaluation Criteria: Other Tools

Cost/benefit analysis comparing the costs of the strategic option (including financial and opportunity costs), with the benefits (financial and intangible benefits) Impact analysis Sensitivity analysis

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