Evaluating Strategic Options Strategy Evaluating Strategic Options Pete Considine Staffordshire University BLB10089-3 Tutor Pete Considine

BLB10089-3 Tutor 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 BLB10089-3 Tutor Pete Considine

Exhibit 10.4 Strategic Options (Johnson et al. 2008.p365) BLB10089-3 Tutor Pete Considine

The TOWS Matrix to Develop Options –( a re visit from last week) BLB10089-3 Tutor Pete Considine Exhibit 7.2

BLB10089-3 Tutor Pete Considine Weaknesses 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 Strengths Willingness & loyalty of men Large numbers Allies in farmers and townsfolk Income not taxed Reputation TWOS on Robin Hood (model from Johnson et al, 2005 Exploring Corporate Strategy Opportunities Unpopularity of Prince John Join forces with the Barons’ in plot to return King Richard Transit tax Geographical expansion 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 Threats Lack of game and food supplies (Growing number of band members – draining all the resources) Revenues in decline Retribution if caught conspiring Travellers avoiding forest S2, T1 Deploy spare resources to source food supplies Wx,Ty etc BLB10089-3 Tutor Pete Considine

BLB10089-3 Tutor Pete Considine Ref JLThompson Strategic Management 4th ed chp 19 BLB10089-3 Tutor Pete Considine

BLB10089-3 Tutor Pete Considine Ref JLThompson Strategic Management 4th ed chp 19 BLB10089-3 Tutor Pete Considine

BLB10089-3 Tutor Pete Considine Ref J. L. Thompson Strategic Management (2001) BLB10089-3 Tutor Pete Considine

BLB10089-3 Tutor Pete Considine Ref JLThompson Strategic Management 4th ed chp 19 BLB10089-3 Tutor Pete Considine

BLB10089-3 Tutor Pete Considine Ref J. L. Thompson Strategic Management (2001) BLB10089-3 Tutor Pete Considine

Exhibit 10.1 Strategy Methods and Evaluation BLB10089-3 Tutor Pete Considine

Evaluation Criteria Continued Johnson Et al (2008) use a similar approach to Thompson to evaluating strategic options with the “SAFe” acronym Suitability Acceptability Feasibility BLB10089-3 Tutor Pete Considine

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 BLB10089-3 Tutor Pete Considine

Evaluation Tools for Assessing Suitability TOWS Matrix Relative suitability of options Ranking strategic options Decision trees Scenarios BLB10089-3 Tutor Pete Considine

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 Effect on stakeholders Manage power/interest Cultural web “Real” acceptability, impact on feasibility Manage culture clash in merger/alliance BLB10089-3 Tutor Pete Considine

Examples of Suitability - Directions for Growth Strategic Option Suitability in terms of Environment Capability Expectations Consolid-ation Withdraw from declining markets Sell valuable assets Maintain 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 BLB10089-3 Tutor Pete Considine

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 Industry norm Complementary competences Learning from partners Required for entry Dilutes risk Fashionable BLB10089-3 Tutor Pete Considine

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 BLB10089-3 Tutor Pete Considine

Assessing Acceptability Return Profitability Cost-benefit Real options Shareholder value analysis Risk Financial ratios Sensitivity analysis Stakeholder reactions BLB10089-3 Tutor Pete Considine

Evaluation Tools for Assessing Suitability TOWS Matrix Relative suitability of options Ranking strategic options Decision trees Scenarios BLB10089-3 Tutor Pete Considine

Criteria for Acceptability To Understand Examples Limitations Return 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 value Mergers and acquisitions Technical detail often difficult BLB10089-3 Tutor Pete Considine

Criteria for Acceptability To Understand Examples Limitations Risk 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 reactions Political dimension Stakeholder mapping Game theory Largely qualitative BLB10089-3 Tutor Pete Considine

Assessing profitability (1) BLB10089-3 Tutor Pete Considine Exhibit 7.8a

Assessing profitability (2) BLB10089-3 Tutor Pete Considine Exhibit 7.8b

BLB10089-3 Tutor Pete Considine 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 BLB10089-3 Tutor Pete Considine

BLB10089-3 Tutor Pete Considine Resource Deployment BLB10089-3 Tutor Pete Considine Exhibit 7.10

BLB10089-3 Tutor Pete Considine 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 Considine