1. Evaluating and Choosing Strategic Alternatives
Chapter 11
Evaluating and Choosing Strategic Alternatives

2. Objectives
understand why strategy evaluation (prior to implementation) is of critical importance, even in cases where the required strategic direction is apparently self-evident
describe and implement a range of general evaluative criteria
use a range of common corporate strategy evaluation models,
apply the principles of strategy evaluation to alternatives facing any given organisation.
self explanatory
Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia

3. Strategy evaluation criteria
consistency and compatibility
value-adding activities
support
The most successful strategies are those that consistently add value and are supported throughout the organisation.
The strategy needs to be consistent with the organisation’s mission and compatible with both the internal and external environment.
Value adding activities consists of those operations that are consistent with the organisation’s value chain. For example improvements in competitive advantage have an acceptable risk factor, are flexible enough to cope with turbulence and are able to be measured.
The strategy needs to have the support of the organisation and its members to ensure its success. Gaining support for a strategy is often dependent on the level of resource availability and support from key managers. In order to gain this support it is important that the strategies are explicit and communicated throughout the organisation. Once this has been achieved it is important to provide motivation for its success. Strategies that are extreme at either level of the continuum are not likely to be supported. Another important issue is that of ensuring that employee belief systems are compatible with strategies.
Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia

4. Evaluating Corporate Strategy Alternatives
Attractive market
Quadrant 1 Strategies
1. Consolidation
2. Vertical integration
3. Related diversification
4. Do nothing
Quadrant 2 Strategies
1. Consolidation
2. Horizontal diversification
3. Divestment
4. Liquidation
Strong competitive
position
Weak competitive
position
This figure summarises the major corporate level strategic options available to organisations, the strategies are listed in probable order of attractiveness.
Analysing strategic alternatives using the two criteria of market attractiveness and competitive position shows clearly that there is no clear ‘best alternatives’ for all organisations.
The figure is self explanatory.
Quadrant 3 Strategies
1. Related diversification
2. Unrelated diversification
3. Joint venture
4. International
Quadrant 4 Strategies
1. Withdrawal
2. Diversification
3. Divestment
4. Liquidation
Unattractive market
Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia

5. Strategies for Public Sector Organisations
Increasing long term public need
Use strong position to negotiate for increased funding. Maintain or build service capability.
Build skills, systems, structures and culture to improve client service.
Strong service capability
Weak service capability
Lobby strongly for increased funding on the the basis of the high quality of services provided to clients and increase client base.
Look for new activities which will attract greater funding and provide more opportunity for staff development and motivation
Public sector organisations are unable to use all of the methods available in the private sector. They can, however, adapt this strategy by changing the axis for example changing ‘market attractiveness’ to ‘long-term public need’.
The quadrants on this figure are self explantory.
Decreasing long term public need
Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia

6. Corporate strategy evaluation models 1
Boston Consulting Group (BCG) product portfolio matrix
balancing the BCG portfolio matrix
General Electric Business Screen
Over the past twenty years a number of models have been developed to assist in evaluating alternative corporate strategies.
The major strategies are listed here, all of which attempt to evaluate strategy on the nexus between external environmental characteristics and internal skills and resources.
Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia

7. BCG product portfolio matrix
Relative Market Share
Stars
? Marks
Market Growth Rate
Cash Cows
Dogs
BCG Matrix shows where your products stand relative to the competition
Horizontal axis - relative market share
Vertical axis - rate of market growth
Four cells
stars - those products in a high growth market and for which the organisation has a high relative market share and competitive dominance
cash cows - those products in a low growth market but which the organisation dominates
question marks - products in a high growth market but for which the organisation has a low market share
dogs - products with a low market share in a low growth market
Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia

8. Balancing the BCG portfolio matrix
Relative Market Share
Stars
? Marks
Market Growth Rate
Cash Cows
Dogs
Cash movement
Product Movement
Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia

9. General Electric Business Screen
Competitive strength
Market attractiveness
High
Medium
Low
Strong
Weak
High overall attractiveness
Medium overall attractiveness
Low overall attractiveness
General Electric Business Screen
9 cell matrix based on market or industry attractiveness (high, moderate, low) on one side and business strength (strong, moderate, weak) on the other
place products in the relevant square, and based on location, make the following decisions:
1. expand (green squares) - those products that fall into the areas strong business strength / high industry attractiveness, strong business strength / moderate industry attractiveness or moderate business strength / high industry attractiveness.
2. expand with caution (blue squares) - those products that fall into the areas strong business strength / low industry attractiveness, moderate business strength / moderate industry attractiveness or weak business strength / high industry attractiveness.
3. divest (red squares) - those products which fall in the areas moderate business strength / low industry attractiveness, weak business strength / moderate industry attractiveness or weak business strength / low industry attractiveness.
Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia

10. Corporate Strategy Evaluation Models 2
A.D. Little business profile matrix
directional policy matrix
alternative method for allocating priority to strategies
self explanatory
Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia

11. A.D. Little Business Profile Matrix
Competitive position
Stage of industry maturity
Embryonic
Growth
Maturity
Ageing
Dominant
Strong
Favourable
Tentative
Weak
This approach to the management of complex product and market portfolios is based on the dimensions of market position and industry maturity as shown in the figure.
The fours stages are synonymous with product lifecycle stages. Resource allocation priorities decrease along the diagonal from an embryonic industry/dominant competive position to ageing industry/weak competitive position.
Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia

12. Directional Policy Matrix
Prospects for sector profitability
Unattractive
Average
Attractive
Weak
Disinvest
Phased
withdrawal
Double or quit
Withdrawal
Custodial
growth
Try harder
Strong
generation
Growth
Leader
Company’s
competitive
capabilities
Market segment profitability is the basis for this matrix. The directional matrix allows management to select factors which it considers important in determining sector profitability and the organisation's competitive capabilities. This is not particularly useful as a comparison tool because organisations tend to define their profitability etc in different ways.
Cash
Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia

13. Alternative method for allocating priority to strategies
Strategies that are important to our stakeholders
Strategies that are less important to our stakeholders
Strategies that we will be able to implement well
Strategies that we will not be able to implement well
Priority 1
Priority 2
Stakeholders can have a significant impact on the choice of strategies within organisations. Therefore, it is important to reconsider the impact of these groups on strategic options.
All stakeholder groups should be considered during strategy evaluation and choice. However, if this impacts on returns to shareholder groups this needs to be recognised and dealt with at the outset rather than waiting until a crisis evolves.
Priority 3
Priority 4
Strategic Management 4e., Viljoen & Dann © 2002 Pearson Education Australia