Strategic CHOICE We have looked at Strategic Management and Strategic Analysis (tools), so now onto Strategic CHOICE...

Strategic Choice Strategic Choice – identifying the different options and deciding between them... Methods used: Ansoff’s Matrix Force Field Analysis Decision Trees

Strategic Choice - ANSOFF ANSOFF MATRIX A model used to show the degree of risk associated with 4 growth strategies... offering 4 different strategic options to increase sales... Increasing Risk MARKETS PRODUCTS

Strategic Choice - ANSOFF Market Penetration... Penetration Pricing strategy... eg – Aer Lingus reducing prices – some seats $15! Aggressive method of increasing market share quickly for low cost airlines BUT – could be risky due to heavily reduced profit margins of all firms – if a price war occurs

Strategic Choice - ANSOFF Product Development Eg – Diet Pepsi – slightly different version sold in the soft drinks market where Pepsi already existed G4 cellphones Ipad 2 I Phones etc – same produce with new functions

Strategic Choice - ANSOFF Market Development Could include exporting overseas Could include selling to a new market segment Lucozade – traditionally for flu and colds now sold as a healthy sports drink to younger consumers DELL – using business computer systems and marketing them to the consumer market

Strategic Choice - ANSOFF Product Diversification UNRELATED Diversification Virgin – don’t need to say any more !!!... Media/planes/trains/fashion/cinemas/phones/broadband... They even put a bid in for the UK Lottery (and lost  ) RELATED Diversification is also a choice: Forward/Backward/Vertical integration (via mergers/takeovers) Less risky as it is related The most risky of the 4 strategies – new challenges for both choices BUT – might be worth the risk if it will result in high profits AND – it could produce a reduction in the overall business portfolio risk

Strategic Choice - ANSOFF EVALUATION OF ANSOFF... Allows managers to analyse degrees of risk for each option – providing a choice based on costs, reduced or increase risk Several strategies from Ansoff might be appropriate BUT  It only considers 2 factors – the product and the market SO – must also include SWOT and PEST for external and other factors  Management Judgement might be a better option “gut feeling” rather than working off a matrix

Strategic Choice FORCE FIELD ANALYSIS “Techniques for identifying and analysing the positive factors that support a decision, and negative factors constraining it” Developed by Kurt Lewin Involves looking at all of the forces for and against a decision Simply, weighing up the pros and cons before a choice is made! Usually for new products/services, or implementing a major internal change (IT systems)

Strategic Choice FORCE FIELD ANALYSIS The steps for conducting a FFA... Situation Analysis and Desired situation List factors driving the change List the factors against the change Allocate a numerical score to each force (1-10 ranking) Chart the driving forces on the left and restraining forces on the right Total the scores and identify viability of the change Discuss how the driving forces can be strengthened Discuss how the restraining forces can be weakened

Strategic Choice FORCE FIELD ANALYSIS

Strategies for decreasing the restraining forces... Train staff – this will increase cost by +1, but will reduce staff concern by -2 Show staff that change is necessary for business survival – add a new force in favour +2 Select machines that are more energy efficient – impact of technology reduces by -1 Managers could raise wages to reward staff for high productivity (increasing costs by +1, but reducing loss of staff due to overtime cuts -2)

EVALUATION of FORCE FIELD ANALYSIS Evaluation... Good for a provision of forces to be considered Provides a starting point for pros and cons to change 2 main limitations:  Unskilled or inexperience managers might not see all of the forces involved in a change process  How do you allocate the numerical values to the constraints and driving forces? All very subjective!

DECISION TREES Definition: “a diagram that sets out the options connected with a decision and the outcomes and economic returns that may result” It shows: 1 The options available to a manager 2 The possible outcomes from the options 3 The chances of these outcomes occurring 4 The economic returns from the outcomes By comparing the likely financial results from each option, the manager can minimise the risks

DECISION TREES Expected Value is... “The likely financial result of an outcome obtained by multiplying the probability of an event occurring by the forecast economic return if it does occur” Refer to worked example on pg 638