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Strategy Choice Strategy Choice And Implementation And Implementation

ToolsTools

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3.1 3.1 IntroductionIntroduction• The strategic choice is concerned with The strategic choice is concerned with

choosing a strategychoosing a strategy based on the based on the foundation laid by strategic analysis.foundation laid by strategic analysis.

• Elements associated with making Elements associated with making strategic choices arestrategic choices are– Generation of optionsGeneration of options– Evaluation of optionsEvaluation of options– Selection of optionsSelection of options

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3.4.1.1 Elements of Strategy 3.4.1.1 Elements of Strategy ImplementationImplementation

StrategicAnalysis

EvaluationOf

Options

StrategicChoice

StrategyImplement-

ation

SelectionOf

Strategy

GenerationOf

Options

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• Generation of strategicGeneration of strategic options involves options involves identifying as many as possible of identifying as many as possible of potential courses of action.potential courses of action.

• Evaluation of strategicEvaluation of strategic involves testing of involves testing of the alternatives listed for the alternatives listed for suitability, suitability, feasibility & acceptabilityfeasibility & acceptability (evaluation (evaluation criteria).criteria).

• Selection of strategySelection of strategy result in a single result in a single strategy or strategy set that will be the strategy or strategy set that will be the target for the strategic implementation target for the strategic implementation element for the processelement for the process

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3.2 Generation of strategic 3.2 Generation of strategic optionsoptions

• This element of the strategic choice This element of the strategic choice process aims to process aims to generate strategic generate strategic optionsoptions for subsequent evaluation. for subsequent evaluation.

• This is done in a number of ways, by This is done in a number of ways, by identifying the:identifying the:

• What basis?What basis?– Which direction?Which direction?– How options?How options?

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3.2.1 What basis? - Alternate competitive 3.2.1 What basis? - Alternate competitive strategiesstrategies

• The question of what The question of what competitive strategycompetitive strategy to adopt is answered by Porter’s to adopt is answered by Porter’s classification of three possible ways for classification of three possible ways for an organization to out perform its an organization to out perform its competitive rivalscompetitive rivals

• Porters presented the choices as between Porters presented the choices as between 3 generic business strategies3 generic business strategies::– Product differentiationProduct differentiation– Overall Cost leadershipOverall Cost leadership– Focus/NicheFocus/Niche

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• i)i) Product differentiationProduct differentiation– The organization hope to win customers by

offering better products or services than its competitors. The organization focus on building unique products

• ii) Overall cost leadership– The organization seeks to win customers on

the basis of cost for a given level of quantity and services. Good cost control, cost reduction

• iii) Focus or Niche– The organization is targeting particular parts

of the market such as certain customers groups or regional areas

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3.2.2 Which direction?- Alternate directions3.2.2 Which direction?- Alternate directions

• There are a number of directions an There are a number of directions an organization can pursue organization can pursue

• Possible development strategies are Possible development strategies are modeled in which seven alternatives are modeled in which seven alternatives are suggested based upon the extent to suggested based upon the extent to which new markets and/or new products which new markets and/or new products are sought as shown in fig.are sought as shown in fig.

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• Do nothing

• Withdrawal

• Consolidation

• Market penetration

• Product development

• Market development • Diversification

• Related

• Unrelated

On existing On new

On

new

On

exi

sti

ng

Product focus

Mar

ket

focu

sAlternative Strategic Options

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• Do nothingDo nothing– implies the continuation of existing direction– some growth may occur if the current market grows

• Withdrawal– org. removes itself from the industry, e.g. because

of an irreversible decline in demand, an over-extended position, , etc.etc.

– a strategy of asset realization and resource a strategy of asset realization and resource deployment deployment

• Consolidation– when an industry dominant org. aims for stability in

order to accumulate cash reserves for some future activities

– done by cutting costs and/or increasing prices done by cutting costs and/or increasing prices – aim is to obtain a better margin aim is to obtain a better margin

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• Market penetrationMarket penetration– org. seeks growth within the same market and using

the same products – growth is achieved either by the market itself

growing or by grabbing the market share of others– conservative growth strategy (no R&D investment)conservative growth strategy (no R&D investment)

• Product development– keeps the org. operating within its current markets keeps the org. operating within its current markets

but competing on the basis of new products but competing on the basis of new products – growth is obtained if these new products are

successful – relatively low-risk strategy and one that works well

when product life cycles are short and products are the natural spin-off from the R&D process

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• Market development– org. takes its current product range into new org. takes its current product range into new

marketsmarkets– relatively high-risk strategy given the state of relatively high-risk strategy given the state of

ignorance of this new market ignorance of this new market

• Diversification– takes the org. away from both the existing markets takes the org. away from both the existing markets

and the existing products and the existing products – the highest-risk strategy because of unfamiliaritythe highest-risk strategy because of unfamiliarity– related diversificationrelated diversification remains broadly within the remains broadly within the

same industry, either backward into the supply same industry, either backward into the supply chain, forward into the distribution chain or chain, forward into the distribution chain or horizontally into complementary activities, and so horizontally into complementary activities, and so lowers the risklowers the risk

– unrelated diversificationunrelated diversification is a strategy popular with is a strategy popular with holding company conglomeratesholding company conglomerates

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3.2.3 How? - Alternate methods3.2.3 How? - Alternate methods

• Possible ways to implement growth Possible ways to implement growth strategies:strategies:– internal developmentinternal development of of growth over timegrowth over time

(this is slow)(this is slow)– external developmentexternal development via via mergersmergers and and

acquisitionsacquisitions (expensive but fast in gaining (expensive but fast in gaining access to markets access to markets

– joint venturesjoint ventures

• The trade-offs between The trade-offs between cost/ risk/ speedcost/ risk/ speed shape the choice between these shape the choice between these alternatives alternatives

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3.3 Strategy evaluation & choice3.3 Strategy evaluation & choice

3.3.1 Introduction3.3.1 Introduction• Once the strategic options have been generated there Once the strategic options have been generated there

must exists a framework within which they can be must exists a framework within which they can be evaluated for evaluated for – suitabilitysuitability– feasibility feasibility – fit to the organizationfit to the organization3.3.1.1 Evaluation Process3.3.1.1 Evaluation Process

• The evaluation process seeks toThe evaluation process seeks to judge the judge the appropriateness of the optionsappropriateness of the options with regard to organ.’s with regard to organ.’s environment, culture and capabilities environment, culture and capabilities

• The evaluation process can use some of the tools The evaluation process can use some of the tools covered under strategic analysis, e.g. MCC matrixcovered under strategic analysis, e.g. MCC matrix

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3.3.2 Strategic evaluation 3.3.2 Strategic evaluation processprocess

Strategic evaluation process

Strategic strategies Rejected strategies

Strategic options

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3.3.3 Criteria for Evaluating options3.3.3 Criteria for Evaluating options

• The The criteriacriteria against which the possibilities are against which the possibilities are evaluatedevaluated– Does the option Does the option take advantage of the strengthtake advantage of the strength the the

organization?organization?– Does the option Does the option avoid depending upon a weaknessavoid depending upon a weakness

the organization suffers?the organization suffers?– Does the option offer the organization the chance toDoes the option offer the organization the chance to

gain a competitive advantage?gain a competitive advantage?– Is this strategy Is this strategy consistent with other strategiesconsistent with other strategies

selected?selected?– Does this option address a Does this option address a mission-related mission-related

opportunityopportunity presented by the evolving market? presented by the evolving market?– Is this option’s Is this option’s level of risk acceptable?level of risk acceptable?– Is this option Is this option consistent with policy guidelines?consistent with policy guidelines?

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3.3.4 Strategic Fit – 3.3.4 Strategic Fit – Framework for Framework for EvaluatingEvaluating Suitability (Appropriateness) Suitability (Appropriateness)• This is the degree to which the options being This is the degree to which the options being

reviewed reviewed fit the situationfit the situation identified during the identified during the strategic analysisstrategic analysis

• A good fit:A good fit:– maximizes available strengths and opportunitymaximizes available strengths and opportunity– minimizes weaknesses and threatsminimizes weaknesses and threats

• Tools that can be used include:Tools that can be used include:– SWOT analysisSWOT analysis– Product portfolio analysisProduct portfolio analysis– Life cycle analysisLife cycle analysis

• Tools enable options to be matched against Tools enable options to be matched against relative competitive positionrelative competitive position

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3.3.5 Strategic feasibility3.3.5 Strategic feasibility• This is the This is the assessment of the extent to assessment of the extent to

which the option will work in practicewhich the option will work in practice

• The feasibility can be judged in terms The feasibility can be judged in terms of:of:– the the returnsreturns that can be anticipated, and that can be anticipated, and – the the demandsdemands it will makeit will make

• Tools that may be used include:Tools that may be used include:– Cost-benefit analysis (financial feasibility)Cost-benefit analysis (financial feasibility)

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3.3.6 Strategic desirability3.3.6 Strategic desirability• This is the extent to which the This is the extent to which the option is option is

acceptable to the stakeholdersacceptable to the stakeholders of the of the organizationorganization

• Options may be assessed in terms of:Options may be assessed in terms of:– ProfitabilityProfitability– Risk profileRisk profile– Cost/benefit appraisalCost/benefit appraisal– Shareholders expectationsShareholders expectations

• The selection of a strategy will require a The selection of a strategy will require a trade-off to be made that trade-off to be made that balances risks with balances risks with returns returns

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• One very simple One very simple approach to judging the approach to judging the trade-offtrade-off to ask two basic questions: to ask two basic questions:– What is the pay-off of the proposed strategy, What is the pay-off of the proposed strategy,

quantitatively, qualitatively or via a quantitatively, qualitatively or via a reasonably realistic estimate of the benefit reasonably realistic estimate of the benefit return?return?

– How far off are the goal posts in terms of the How far off are the goal posts in terms of the current capabilities, the business or current capabilities, the business or technical difficulties to be overcome or the technical difficulties to be overcome or the organizational barriers?organizational barriers?

• These key variables can be modeled on a These key variables can be modeled on a 2x2 risks/returns portfolio matrix shown 2x2 risks/returns portfolio matrix shown in the figure below.in the figure below.

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3.3.7 Risks and returns portfolio 3.3.7 Risks and returns portfolio matrixmatrix

Early Success

Glittering Prize

Sweetmeats Backburner

Pay-O

ff

Goal Posts

Near FarHigh

Low

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• Early successEarly success initiatives are needed to initiatives are needed to build confidence and provide returns to build confidence and provide returns to finance the finance the glittering prizesglittering prizes that are of that are of significant competitive value but more significant competitive value but more organizationally drainingorganizationally draining

• To balance the strain To balance the strain sweetmeatssweetmeats are are needed to reap the limited but easily needed to reap the limited but easily achieved rewards, whereas the achieved rewards, whereas the backburnersbackburners are to be postponed until are to be postponed until either the difficulty factor reduces or the either the difficulty factor reduces or the pay-off factor increases (become a pay-off factor increases (become a sweetmeat or a glittering prize)sweetmeat or a glittering prize)

• Most of the tools are aMost of the tools are a common-sense common-sense method of prioritizing method of prioritizing

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3.43.4 Strategic Strategic Implementation ToolsImplementation Tools

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3.4.1 3.4.1 IntroductionIntroduction• Other views of strategic management do Other views of strategic management do

not distinguish strategy not distinguish strategy implementationimplementation and strategy and strategy planningplanning – the two are – the two are inextricably linkedinextricably linked

• Assuming the two are separate, Assuming the two are separate, implementation will deal with:implementation will deal with:– Resources requiredResources required– Organizational structure requiredOrganizational structure required– Systems and HRSystems and HR

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3.4.1.1 Elements of Strategy 3.4.1.1 Elements of Strategy ImplementationImplementation

StrategicAnalysis

ResourcePlanning

StrategicChoice

StrategyImplement-

ation

Structure

People &Systems

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3.4.1.2 Other views of org. 3.4.1.2 Other views of org. elementselements

Culture

People

StructureActivities

& ResourcesLeadership

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3.4.2 3.4.2 Resource PlanningResource Planning• Resource capabilitiesResource capabilities are a fundamental issues are a fundamental issues

in strategy formulation (analysis of resources in in strategy formulation (analysis of resources in strategic analysis)strategic analysis)

• Resource allocationResource allocation is at the centre of strategic is at the centre of strategic management and takes place at all levels of management and takes place at all levels of planning (corporate, Strategic Business Unit ..)planning (corporate, Strategic Business Unit ..)

• Corporate allocation of resourcesCorporate allocation of resources should reflect should reflect the the business strategybusiness strategy being followed, as being followed, as indicated in Fig.indicated in Fig.

• Functional level resource allocationFunctional level resource allocation normally normally takes place through takes place through budgeting techniquesbudgeting techniques and and project planningproject planning and and control mechanismscontrol mechanisms

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• Degree of change in resource demandsDegree of change in resource demands– judgment unstable/fast-changing times - judgment unstable/fast-changing times -

more processes are requiredmore processes are required– static conditions - incremental changes made static conditions - incremental changes made

based on historically determined formulae based on historically determined formulae

• Extent of central directionExtent of central direction– central authority to autonomous unitscentral authority to autonomous units

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3.4.3 Strategy vs. org 3.4.3 Strategy vs. org StructureStructure• Structure = formal + informalStructure = formal + informal• 5 types5 types of structures: of structures:i) Entrepreneurial/simple structuresi) Entrepreneurial/simple structures

– activities are totally centralized around the activities are totally centralized around the owner managerowner manager

– no division of responsibilityno division of responsibility– only suitable for small organizations in their only suitable for small organizations in their

formative stages formative stages

ii) Functional structureii) Functional structure– grouped around the primary tasks of the grouped around the primary tasks of the

business, e.g. marketing, production, etc. business, e.g. marketing, production, etc. – appropriate for medium-sized orgs. or those that appropriate for medium-sized orgs. or those that

have a relatively static environmenthave a relatively static environment

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iii) Divisional structuresiii) Divisional structures – emerge as the org. grows or becomes more emerge as the org. grows or becomes more

diversifieddiversified– divisions are 'chunks' of the org. that are divisions are 'chunks' of the org. that are

responsible for a coherent market or product responsible for a coherent market or product area (SBU)area (SBU)

– SBUs may have functional structuresSBUs may have functional structures– appropriate structure for orgs. that have appropriate structure for orgs. that have

grown through acquisitions or where natural grown through acquisitions or where natural divisional splits exist.divisional splits exist.

– a very common structure for dynamic a very common structure for dynamic environments environments

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iv) Federal/holding structuresiv) Federal/holding structures – pertain where a set of virtually autonomous pertain where a set of virtually autonomous

operating co. has a headquarters that serves as operating co. has a headquarters that serves as an investment companyan investment company

– suitable for conglomerates with diverse interests suitable for conglomerates with diverse interests or where individual businesses are frequently or where individual businesses are frequently bought or soldbought or sold

v) Matrix structuresv) Matrix structures– combine features to give a two-dimensional combine features to give a two-dimensional

chain of commandchain of command– appropriate for groups of businesses in diverse appropriate for groups of businesses in diverse

areas who nevertheless have significant inter-areas who nevertheless have significant inter-relationshipsrelationships

– Suitable for highly decentralized functional Suitable for highly decentralized functional organizationsorganizations

• Alfred Chandler concluded that Alfred Chandler concluded that “Structure “Structure follows strategy”follows strategy”

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3.4.4 ORG. MATURITY VERSUS PROBLEMS IN THE ORG.

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• Fig. shows how the stage of maturity may Fig. shows how the stage of maturity may determine the problems being faced & hence determine the problems being faced & hence the the parameters surrounding structure choiceparameters surrounding structure choice

• Selected structure must allow Selected structure must allow strategy strategy integrationintegration at the centre and at the centre and strategy strategy differentiationdifferentiation at the periphery at the periphery – Where there is a strong focus upon understanding Where there is a strong focus upon understanding

the core competencies then structural decisions will the core competencies then structural decisions will be made in the light of how the structure will support be made in the light of how the structure will support those as well as the general issue of how structures those as well as the general issue of how structures add add valuevalue

• Hence strategy – structure relationship is Hence strategy – structure relationship is two-two-wayway

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• Alfred Chandler concluded that Alfred Chandler concluded that “Structure “Structure follows strategy”follows strategy”

• However relationship is However relationship is more complexmore complex::– Strategy, structure & other orgnal. contexts have Strategy, structure & other orgnal. contexts have

complex r/ships through human complex r/ships through human interactions/actionsinteractions/actions

– i.e. contexts cannot be perceived independently i.e. contexts cannot be perceived independently of human actionof human action

• These These contexts have both enabling and contexts have both enabling and constraining effectsconstraining effects on human interactions and on human interactions and actions actions

• Human Human interactions/actions have both intended interactions/actions have both intended and unintended consequencesand unintended consequences on on organizational contextsorganizational contexts

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3.4.5 3.4.5 People and SystemsPeople and Systems• If strategy is taken as If strategy is taken as a consistent pattern a consistent pattern

of resource decisionsof resource decisions; that pattern ; that pattern happens through peoplehappens through people operating within operating within activity systems making resource activity systems making resource decisionsdecisions

• To deal successfully with the To deal successfully with the peoplepeople and and systemssystems aspects of any strategic aspects of any strategic implementation it is necessary to achieve implementation it is necessary to achieve a a cultural changecultural change for the organizational for the organizational acceptance of the 'new' information, acceptance of the 'new' information, controlcontrol, , regulatoryregulatory, and , and political systemspolitical systems

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• Control and feedback systemsControl and feedback systems allow the org. to allow the org. to detect that the strategy is succeeding or failing detect that the strategy is succeeding or failing and to take corrective actions in order to and to take corrective actions in order to implement that strategy more successfully, or to implement that strategy more successfully, or to modify the strategy itselfmodify the strategy itself

• Control systemsControl systems need to provide need to provide::

– Effective monitoring of performanceEffective monitoring of performance– Devolution of responsibilities to the Devolution of responsibilities to the

appropriate level of the organizationappropriate level of the organization– Agreed performance targetsAgreed performance targets– Highlights of both successful and Highlights of both successful and

unsuccessful outcomesunsuccessful outcomes

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• Regulatory systemsRegulatory systems are those that assist are those that assist in bringing about strategic change since in bringing about strategic change since they promote changes in individuals' they promote changes in individuals' behaviour, including:behaviour, including:

– Incentive and reward systemIncentive and reward system of monetary of monetary rewards (e.g. bonuses) & non-monetary rewards (e.g. bonuses) & non-monetary rewards (e.g. status enhancements)rewards (e.g. status enhancements)

– Training schemesTraining schemes to ensure that the to ensure that the organization is able to implement the chosen organization is able to implement the chosen strategystrategy

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• Management style or cultureManagement style or culture determines determines how these regulatory systems can be put how these regulatory systems can be put into effect, just as it determines many into effect, just as it determines many other aspects of strategic management. other aspects of strategic management. Management style can be classified as:Management style can be classified as:

– EntrepreneurialEntrepreneurial oror ConservativeConservative– AutocraticAutocratic oror DemocraticDemocratic– MechanisticMechanistic oror OrganicOrganic

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• Successful strategy implementationSuccessful strategy implementation depends fundamentally upon the depends fundamentally upon the successful gaining of acceptance of the successful gaining of acceptance of the required behaviour changesrequired behaviour changes

• Change may be achieved: Change may be achieved:

– directlydirectly, , by altering the attitudes, beliefs & by altering the attitudes, beliefs & values of individuals, or values of individuals, or

– indirectlyindirectly, , by changing the structure, goals or by changing the structure, goals or technology of the organisationtechnology of the organisation

• Read on Change managementRead on Change management in more detail in more detail from the course text books.from the course text books.