Strategic Evaluation of Strategic Options

Evaluation Of Strategies

Evaluation is not just about finding our preferred strategy. We also need:

– Contingency plans– An understanding of a variety of options - how might each fit

different circumstances

Evaluation should assess consequence of following a strategy and how sensitive that strategy is to our assumptions.

Therefore:– Evaluation must be a continuous part of a continuous process– Must evaluate low priority options to guard against future

possibilities

Strategy Support Tools

StrategyDevelopment

Process

Ability toFormulateStrategy

Ability toDeduce

Consequencesof Strategy

StrategySupport Tool

Models, Computing And Strategic Choice

Models should be an aid– i.e. do things we are not very good at

Models do not replace managerial creativity and judgement

Models help give sharper insight into consequences of pursing particular strategy

Choice is based on combination of quantitative and qualitative information

Models, of whatever type, should be seen to generate "opinions" not "answers"

Assumptions Underpinning Rational Strategy Selection Criteria

Organisations are systems driven by rules producing predictable long term outcomes

These rules establish clear-cut relationships between cause and effect; action and outcome

Successful organisations are in a state of stable equilibrium

Successful organisations exhibit characteristics of stability, regularity, predictability and harmony

Evaluation Criteria (According to Johnson & Scholes)

Suitability– Does it fit situation revealed by our strategic analysis

Feasibility– Will it work in practice?– Have we got the resources?

Acceptability– Will stakeholders like it?

Evaluation Criteria (According to Lynch)

Consistency– Is the proposed strategy in line with our mission and objectives?

Suitability– Does it fit our business and competitive environment?

Validity– Is it based upon realistic assumptions?

Feasibility– Will it work in practice and have we got the resources?

Business Risk– Do the potential returns justify the exposure?

Attractiveness to stakeholders– Will stakeholders like it?

Evaluation Criteria (According to Thompson)

Appropriateness– Does the proposed strategy deal with the influencing

factors identified in our strategic analysis?

Feasibility– Does the organisation have the capability to implement

the proposed strategy effectively?

Desirability– Does the proposed strategy satisfy stakeholder

aspirations and expectations?

Johnson And Scholes, Lynch and Thompson Compared Although using different words (labels/terminology)

approach is essentially similar:

Lynch

Consistency

Suitability

Validity

Feasibility

Business Risk

Attractiveness to

Stakeholders

Thompson

Appropriate ness

Feasibility

Desirability

Johnson & Scholes

Suitability

Feasibility

Acceptability

The Johnson & Scholes Framework For Evaluating and Selecting Strategies

Strategic Analysisidentifies the

organisation’s circumstances

Strategic Optionsidentifies possibilities

for development

Assessment of Suitabilityestablish the rationale

screening options

Selection of Strategyplanned, enforced,learning, command

FeasibilityAcceptability

return, riskstakeholder reactions

Suitability

Suitabilityis this a

good strategy?

Life-cycle Analysesdoes it fit the stage

we will be in?

Positioningis the positioning

viable?

Value Chain Analysisdoes it improve value

for money?Does it exploit core

competences?

Business Profilewill it lead to good

financial performance?

Portfolio Analysisdoes it strengthen thebalance of activities?

Criteria for Assessing Suitability

Does the proposed strategy exploit opportunities and avoid threats?

Does the proposed strategy capitalise upon our strengths and core competences whilst avoiding our weaknesses?

Does the proposed strategy fit our culture and political context?

Techniques for Assessing Suitability

Portfolio / Life-cycles analyses– assess the position of the organisation and the product/service in

relation to theoretical product and organisation life-cycles– assess the proposed strategy in terms of the attractiveness of the

proposed market and the current competitive position of the organisation

– Value Chain Analysis– assess the extent to which the value chain needs to be

reconfigured and whether such reconfiguration is sustainable

Business Profile– assess the proposed strategy against available research evidence

such as the PIMS database

Undertaking an Initial Screening of Options

Gap Analysis– extent to which proposed strategies will meet, exceed or fail to

meet performance objectives

Decision Trees– progressive elimination of proposed strategies assessed against

progressively more rigourous criteria

Scenario Planning– assess the match between proposed strategies and likely future

scenarios– prepare contingency plans

Ranking– scoring proposed strategies against a range of criteria to assess

best fit

Criteria for Assessing Acceptability

Financial Return– do the likely profit and cashflow outcomes meet

expectations?

Risk– is the level of exposure satisfactory given the likely

returns?

Stakeholder Reactions– will stakeholders be motivated to act in a positive

manner towards the proposed strategy?

Techniques for Assessing Acceptability

Approach Used to Assess Examples LimitationsAnalysing ReturnProfitability analyses Financial return of

investmentsReturn on capitalPayback periodDiscounted cashflow

Apply to discreteprojectsOnly tangible costs /benefits

Cost-benefit analysis Wider cost/benefits(including intangibles)

Major infrastructureprojects

Difficulties ofquantification

Shareholder valueanalysis

Impact of newstrategies onstakeholder value

Mergers / takeovers Technical detail oftendifficult

Analysing RiskFinancial ratioprojections

Robustness ofstrategy

Breakeven analysisImpact on gearingand liquidity

Sensitivity analysis Test assumptions /robustness

‘What if?’ analysis Test factorsseparately

Simulation modeling Aggregate impact ofmany factors

ComprehensivemodelsRisk analysis

Quality of data oncausal relationships

Stakeholderreactions

Political dimension ofstrategy

Stakeholder mappingGame theory

Largely qualitative

Criteria for Assessing Feasibility

Does the organisation have the resources necessary to deliver the proposed strategy successfully?

Can any resource deficiencies be remedied easily?

Does the organisation have the competences required to enact the proposed strategy successfully?

Techniques for Assessing Feasibility

Funds Flow Analysis– assessing whether the available sources can provide sufficient

funds to enable the proposed strategy to be implemented successfully

Break-even Analysis– determining the level of performance required to enable the

outcome of the proposed strategy to exactly cover the costs of enacting the proposed strategy

Resource Deployment Analysis– understanding the changes and developments needed in

organisational activities to enable the proposed strategy to be enacted successfully

Thompson’s Criteria for Effective Strategies

Appropriateness

Feasibility Desirability

E-V-RCongruence

Simplicity

Mission & objectives Culture

SWOT: Current Strategic position

Skills & resourcesAvailable & needed

Effect on strategicperspective

Strategic needs:planning gap

Level of returnexpected

Synergy

Stakeholder needs& preferences

RiskCompetitiveAdvantage

Ability to meet keysuccess factors

Finance & otherresource

availability

Change demands -issues of

Implementation

Timing

Selecting Strategies

Acceptability

Suitability Feasibility

Processes for Selecting StrategiesApproach Dominant

ProcessesElements of GoodPractice

Dangers

Planning Analytical techniquesTested againstobjectivesQuantified wherepossible

Involve line managersAnalyse ‘holistic’pictureBuild in flexibilityCommunicationbetween analysts anddecision-makers

No ownershipFragmented analysisRigidity – lostopportunitiesDecision-makersdisown analysis

Enforced Choice Bend toenvironmental‘pressure

Assess riskPreparecontingencies

‘Victims ofcircumstances’Evaluation not done

Learning fromExperience

Reactive moves inseparate parts of theorganisationCultural / politicalcontext important

Processes needcredibilityAvenues of challengePromote inter-unitlearning

Fragmented /inefficientPragmatismRisk of strategic drift

Command Dominant stakeholderselects strategy

Inform / educatedecision-makerNeed ‘completeness’Challenges theparadigm

Incomplete visionVisioninstitutionalised

Criteria For Selecting A Policy

Goal Consistency Test

Frame Test

Competence Test

Workability Test

According to Byars but note similarity to Johnson and Scholes

(Acceptability)

(Feasibility)

(Feasibility)

(Suitability)

Methods Of Making The Choice

Selection against pre-determined objectives

Referral to a higher authority

Incrementalism

Using outside agencies

Influences On The Selection Decision

Managerial perceptions of external dependence

Managerial attitudes towards risk

Managerial awareness of past policies

Managerial power relationships

Making the Choice

Risks

Reactions

Resources

Requirements

Returns

Revenues

The Selection Decision

Perception

Judgement

Sentiment

Research

Analysis

Feelings

Intuition

Evaluation