BLB10089-3 Tutor Pete Considine1 Strategy Staffordshire University Evaluating Strategic Options Pete...

BLB10089-3 Tutor Pete Considine 1

Strategy

Staffordshire University

Evaluating Strategic Options

Pete Considine


Learning Outcomes

• At the end of this weeks learning sessions you are expected to be able to understand:

• Identify the methods by which strategies can be pursued: organic development, mergers and acquisitions, and strategic alliances

• Employee three success criteria for evaluating strategic options: suitability, acceptability, and feasibility

• Use a range of different techniques for evaluating strategic options


Exhibit 10.4 Strategic Options (Johnson et al. 2008.p365)


The TOWS Matrix to Develop Options –( a re visit from last week)

Exhibit 7.2


TWOS on Robin Hood (model from Johnson et al, 2005 Exploring Corporate

Strategy

Opportunities1. Unpopularity of Prince

John 2. Join forces with the

Barons’ in plot to return King Richard

3. Transit tax4. Geographical expansion

Threats1. Lack of game and food

supplies (Growing number of band members – draining all the resources)

2. Revenues in decline3. Retribution if caught

conspiring4. Travellers avoiding forest

Strengths1. Willingness & loyalty of

men2. Large numbers3. Allies in farmers and

townsfolk4. Income not taxed

5. Reputation

Weaknesses1. Lack of discipline amongst the group2. Vigilance in decline3. Loss of control within the band (Lack

of focus/direction of men when not raiding)

4. Band too large –risk of capture

S3, O2 Objective to work with Allies to Return King Richard

Etc etc

W3, O4 Objective: Overcome risk of capture by moving into new areas

Etc

S2, T1 Deploy spare resources to source food supplies

Wx,Ty etc


Ref JLThompsonStrategic Management 4th ed chp 19


Ref J. L. ThompsonStrategic Management (2001)


Exhibit 10.1 Strategy Methods and Evaluation


Evaluation Criteria Continued

• Johnson Et al (2008) use a similar approach to Thompson to evaluating strategic options with the “SAFe” acronym

Suitability Acceptability Feasibility


Success Criteria for Strategic Options• Suitability

– Whether strategy addresses circumstances in which organisation is operating

– Linked to strategic position

– Rationale of strategy

• Acceptability– The expected performance outcomes (e.g. risk/return)

– Meeting expectations of stakeholders

• Feasibility– Whether strategy can be made to work in practice

– Linked to strategic capability


Evaluation Tools for Assessing Suitability

• TOWS Matrix

• Relative suitability of options

• Ranking strategic options

• Decision trees

• Scenarios


Suitability – Strategic Position Exhibit 10.5

Concept To understand Strategy must address

PESTEL Growth/declineChanges in industry structure

Industry convergence

Scenarios Uncertainty/risk Contingency plans

5-forces Competitive forces Barriers to new entrants

Strategic Groups

Attractiveness of groups, Mobility barriers, strategic spaces

Repositioning

Core Competence

Industry threshold standardsBasis of competitive advantage

Eliminate weaknessesExploit strengths

Value chain Opportunities for vertical integration/outsourcing

How to integrate (e.g. merger/alliance)

Stakeholders Acceptability to stakeholdersPower and interest

Effect on stakeholdersManage power/interest

Cultural web “Real” acceptability, impact on feasibility

Manage culture clash in merger/alliance


Examples of Suitability - Directions for GrowthStrategicOption

Suitability in terms of

Environment Capability Expectations

Consolid-ation

Withdraw from declining marketsSell valuable assetsMaintain market share

Build on strengths – invest and innovate

Better returns at low risk by exploiting current strategies

Market penetration

Gain market share for advantage

Exploit superior resources & competences

Product developm’t

Exploit knowledge of customer needs

Exploit R&D Better returns at medium risk by exploiting current strengths or market knowledge

Market developm’t

Opportunities for new geographical market, new segments/uses

Exploit current products

Diversifi-cation

Current markets saturated/declining

Exploit core competences in new areas

Better returns at higher risk by seeking new business


Examples of Suitability - Methods of Growth

StrategicOption

Suitability in terms of

Environment Capability Expectations

Internal developm’t

First in fieldPartners/acquisitions not available

Learning and competence development Spread of cost

Cultural/political ease

M&A SpeedSupply/demandP/E ratios

Acquire competencesScale economies

Returns: growth or share valueProblems of culture clash

Strategic alliance

SpeedIndustry norm

Complementary competencesLearning from partners

Required for entryDilutes riskFashionable


Why Strategies may be Unsuitable

• Biased – Not addressing all three factors of environment,

capability and expectations

• Relative suitability– Other options may be more suitable

• Elements of strategy not internally consistent– Competitive strategy, development direction and

development method


Assessing Acceptability

Return• Profitability• Cost-benefit• Real options• Shareholder value

analysis

Risk• Financial ratios• Sensitivity analysis

Stakeholder reactions


Evaluation Tools for Assessing Suitability

• TOWS Matrix

• Relative suitability of options

• Ranking strategic options

• Decision trees

• Scenarios


Criteria for Acceptability Criteria To Understand Examples Limitations

Return

Profitability Financial return on investments

ROCEPayback periodDCF

Apply to discrete projectsOnly tangible costs/benefits

Cost-benefit Wider costs/benefits (incl. intangibles)

Major infrastructure projects

Difficulties of quantification

Real options Sequence of decisions Real options analysis

Quantification

Shareholder value analysis

Impact on shareholder value

Mergers and acquisitions

Technical detail often difficult


Criteria for Acceptability

Criteria To Understand Examples Limitations

Risk

Financial ratio projections

Robustness of strategy

Break-even analysisImpact on gearing/liquidity

Sensitivity analysis

Test assumptions/robustness

What if? analysis Tests factors separately

Stakeholder reactions

Political dimension Stakeholder mappingGame theory

Largely qualitative


Assessing profitability (1)

Exhibit 7.8a


Assessing profitability (2)

Exhibit 7.8b


Feasibility

• Financial– Funds flow forecasting – timing of new funding– Break-even analysis

• Resource deployment– Resources and competences needed

• Threshold• Unique resources/core competences

– Scale, quality of resource, timetable for change


Resource Deployment

Exhibit 7.10


Key Points• Three success criteria for strategic options

– Suitability– Acceptability– Feasibility

– Or Appropriate, Feasible & Desirable after JL Thompson)

– Weighted Scores of strategic options against strategic objectives can give an overview

• A Range of analytical techniques for evaluation of strategic options have been reviewed

BLB10089-3 Tutor Pete Considine1 Strategy Staffordshire University Evaluating Strategic Options Pete...

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