Transcript WELCOME [www.staffs.ac.uk]

Strategy
Evaluating Strategic
Options
Pete Considine
Staffordshire University
BLB10089-3 Tutor Pete Considine
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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
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Exhibit 10.4 Strategic Options
(Johnson et al. 2008.p365)
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The TOWS Matrix to Develop
Options –( a re visit from last week)
Exhibit 7.2
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TWOS on
Robin Hood
(model from Johnson et al,
2005 Exploring Corporate
Strategy
Opportunities
1.
2.
3.
4.
Unpopularity of Prince
John
Join forces with the
Barons’ in plot to return
King Richard
Transit tax
Geographical expansion
Threats
1.
2.
3.
4.
Strengths
1.
4.
Willingness & loyalty of
men
Large numbers
Allies in farmers and
townsfolk
Income not taxed
5.
Reputation
2.
3.
Weaknesses
1.
2.
3.
4.
Lack of discipline amongst the group
Vigilance in decline
Loss of control within the band (Lack
of focus/direction of men when not
raiding)
Band too large –risk of capture
S3, O2 Objective to work with W3, O4 Objective: Overcome
Allies to Return King Richard
Etc etc
risk of capture by moving into new
areas
Etc
S2, T1 Deploy spare resources
Lack of game and food
to source food supplies
supplies (Growing number
of band members –
draining all the resources)
Revenues in decline
Retribution if caught
conspiring
Travellers avoiding forest
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Wx,Ty etc
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Ref JLThompson
Strategic Management 4th ed chp 19
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Ref JLThompson
Strategic Management 4th ed chp 19
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Ref J. L. Thompson
Strategic Management (2001)
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Ref JLThompson
Strategic Management 4th ed chp 19
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Ref J. L. Thompson
Strategic Management (2001)
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Exhibit 10.1 Strategy Methods
and Evaluation
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Evaluation Criteria Continued
• Johnson Et al (2008) use a similar approach
to Thompson to evaluating strategic options
with the “SAFe” acronym
Suitability
Acceptability
BLB10089-3 Tutor Pete Considine
Feasibility
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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
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Evaluation Tools for
Assessing Suitability
•
•
•
•
•
TOWS Matrix
Relative suitability of options
Ranking strategic options
Decision trees
Scenarios
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Suitability – Strategic Position
Exhibit 10.5
Concept
To understand
Strategy must address
PESTEL
Growth/decline
Changes 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 standards
Basis of competitive advantage
Eliminate weaknesses
Exploit strengths
Value chain
Opportunities for vertical
integration/outsourcing
How to integrate (e.g.
merger/alliance)
Stakeholders Acceptability to stakeholders
Power and interest
Cultural web
Effect on stakeholders
Manage power/interest
“Real” acceptability, impact on
Manage culture clash in
feasibility BLB10089-3 Tutor Pete Considine
merger/alliance
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Examples of Suitability - Directions for Growth
Strategic
Option
Suitability in terms of
Environment
Capability
Consolidation
Withdraw from declining
markets
Sell valuable assets
Maintain market share
Build on strengths
– invest and
Better returns at low
innovate
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
Market
developm’t
Opportunities for new
Exploit current
geographical market, new products
segments/uses
Diversification
Current markets
saturated/declining
Exploit core
competences in
new areas
BLB10089-3 Tutor Pete Considine
Expectations
Better returns at
medium risk by
exploiting current
strengths or market
knowledge
Better returns at
higher risk by seeking
new business
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Examples of Suitability - Methods of
Growth
Strategic
Option
Suitability in terms of
Environment
Capability
Expectations
Internal
developm’t
First in field
Partners/acquisitions
not available
Learning and
competence
development
Spread of cost
Cultural/political ease
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
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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 BLB10089-3
strategy,
development
direction
Tutor Pete Considine
and development method
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Assessing Acceptability
Return
• Profitability
• Cost-benefit
• Real options
• Shareholder
analysis
Risk
• Financial ratios
• Sensitivity analysis
value
Stakeholder reactions
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Evaluation Tools for
Assessing Suitability
•
•
•
•
•
TOWS Matrix
Relative suitability of options
Ranking strategic options
Decision trees
Scenarios
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Criteria for Acceptability
Criteria
To Understand
Examples
Limitations
Profitability
Financial return on
investments
ROCE
Payback period
DCF
Apply to discrete
projects
Only 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 Mergers and
value
acquisitions
Technical detail
often difficult
Return
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Criteria for Acceptability
Criteria
To Understand
Examples
Limitations
Financial ratio
projections
Robustness of
strategy
Break-even
analysis
Impact on
gearing/liquidity
Sensitivity
analysis
Test assumptions/
robustness
What if? analysis
Tests factors
separately
Stakeholder
mapping
Game theory
Largely qualitative
Risk
Stakeholder reactions
Political dimension
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Assessing profitability (1)
Exhibit 7.8a
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Assessing profitability (2)
Exhibit 7.8b
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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
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Resource Deployment
Exhibit 7.10
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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
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