1. Evaluating Strategic Options
Strategy
Evaluating Strategic Options
Pete Considine
Staffordshire University
BLB Tutor Pete Considine

2. 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
BLB Tutor Pete Considine

3. Exhibit 10.4 Strategic Options
(Johnson et al p365)
BLB Tutor Pete Considine

4. The TOWS Matrix to Develop Options –( a re visit from last week)
BLB Tutor Pete Considine
Exhibit 7.2

5. 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
BLB Tutor Pete Considine

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

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

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

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

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

11. Exhibit 10.1 Strategy Methods and Evaluation
BLB Tutor Pete Considine

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

13. 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
BLB Tutor Pete Considine

14. Evaluation Tools for Assessing Suitability
TOWS Matrix
Relative suitability of options
Ranking strategic options
Decision trees
Scenarios
BLB Tutor Pete Considine

15. 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
BLB Tutor Pete Considine

16. 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
BLB Tutor Pete Considine

17. 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
BLB Tutor Pete Considine

18. 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
BLB Tutor Pete Considine

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

20. Evaluation Tools for Assessing Suitability
TOWS Matrix
Relative suitability of options
Ranking strategic options
Decision trees
Scenarios
BLB Tutor Pete Considine

21. 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
BLB Tutor Pete Considine

22. 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
BLB Tutor Pete Considine

23. Assessing profitability (1)
BLB Tutor Pete Considine
Exhibit 7.8a

24. Assessing profitability (2)
BLB Tutor Pete Considine
Exhibit 7.8b

25. 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
BLB Tutor Pete Considine

26. BLB10089-3 Tutor Pete Considine
Resource Deployment
BLB Tutor Pete Considine
Exhibit 7.10

27. 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
BLB Tutor Pete Considine