Strategic Choices 10: Strategy Methods and Evaluation

Learning Outcomes 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 10-2

Exhibit 10.1 Strategy Methods and Evaluation 10-3

What is a Strategic Method? A strategic method is the means by which a strategy can be pursued. Organic development Mergers and acquisitions Strategic alliances 10-4

What is Organic Development? Organic development is where strategies are developed by building on and developing an organisation’s own capabilities. 10-5

Reasons for Using Organic Development Highly technical products Knowledge and capability development Spreading investment over time Minimising disruption Nature of markets 10-6

What are Mergers and Acquisitions? A merger is a mutually agreed decision for joint ownership beween organisations An acquisition is where an organisation takes ownership of another organisation 10-7

Environmental Motives for Acquisitions and Mergers Speed of entry Competitive situation Consolidation opportunities Financial markets 10-8

Capability Motives for Acquisitions and Mergers Exploitation of strategic capabilities Cost efficiency Obtaining new capabilities 10-9

Stakeholder Expectations for Acquisitions and Mergers Institutional shareholder expectations Managerial ambition Speculative motives 10-10

Issues Affecting Success of Acquisitions and Mergers Can value be added to acquisition? Can the commitment of middle managers be gained? Will expected synergies be realised? Are there problems of cultural fit? 10-11

What is a Strategic Alliance? A strategic alliance is where two or more organisations share resources and activities to pursue a strategy. 10-12

Motives for Strategic Alliances Need for critical mass Co-specialisation Learning 10-13

Types of Alliances Joint ventures Franchising Consortia Licensing Networks Subcontracting 10-14

Exhibit 10.3 Types of Strategic Alliance 10-15

Success Criteria of Strategic Options Feasibility Suitability Acceptability 10-16

Exhibit 10.4 Strategic Options 10-17

Evaluation Tools for Assessing Suitability TOWS Matrix Relative suitability of options Ranking strategic options Decision trees Scenarios 10-18

Assessing Acceptability Return Profitability Cost-benefit Real options Shareholder value analysis Risk Financial ratios Sensitivity analysis Stakeholder reactions 10-19

Exhibit 10.8 Assessing Profitability: Return on Capital Employed 10-20

Exhibit 10.8 Assessing Profitability: Payback Period 10-21

Exhibit 10.8 Assessing Profitability: Discounted Cash Flow 10-22

Exhibit 10.10 Measures of Shareholder Value 10-23

Stakeholder Reactions Financial restructuring Acquisitions/Mergers New business model Use Eurotunnel, begin at 2:50 and go to 3:33 (section on banks and financial needs) Outsourcing 10-24

Case Example: Tesco Using Exhibit 7.2, identify the development directions that Tesco had followed from its origins as a UK-based grocer retailer 10-25