A) CORPORATE LEVEL The Role of the Corporate Centre
As we have seen from chapter 1 strategy occurs at different levels of the organization. Therefore different strategic choices are made for the different levels albeit there will be congruence between the strategies chosen.
As many organizations contain business units, managing these units becomes a challenge at corporate level. To ensure value is created among these units, corporate level strategy has two main concerns: first the strategic decisions about the scope of an organization i.e. the diversity of products and the geographical or international diversity of the business units and secondly how is value added or destroyed. This requires an understanding of the different parenting roles the corporate level might play and how it seeks to manage its portfolio of interests.
As illustrated in the multi business diagram below the business units are grouped into divisions and anything above the business unit level represents corporate level activity in the corporate center. Managers above the business level are concerned issues of a strategic nature e.g. control, co-ordination, investment i.e. corporate parenting.
Product Diversity
Diversification is a strategy that takes the organisation into new markets, products or services. Three reasons for Diversification are:
- Existing organisational resources and capabilities can be applied to new markets and products. Sometimes referred to as economies of scope, these resources are perhaps not being stretched or employed by other users, the organisation can therefore use them to diversify the business. E.g. in Europe many telecom operators are making more efficient use of the capacity of their telephone network by providing broadband and IP TV services. Sometimes these scope benefits are referred to as benefits of synergy.
Synergy refers to the benefits that might be gained where activities or processes complement each other such that their combined effect is greater than the sum of the parts.
- There may also be opportunities to apply corporate management capabilities to new markets products and services. Prahalad and Bettis describe these management capabilities as “dominant management logic”where the corporate managers add value by exploiting technologies, distribution or brands.
- Having a diverse range of products or services can increase market power. Diverse products or services allow the organisation to cross subsidise one product from the earnings of another. This type of activity can give an organisation a competitive advantage. See previous notes on Ansoff matrix for types of diversification.
International Diversity
There are many reason for an organisation to pursue a strategy of international diversification first there are the market based reasons.
Internationalisation of organisations is a cause and consequence of globalisation of markets. By expanding its market internationally a business can bypass its limitations in the home market. Ecobank is a good example. It started in West Africa and is now found throughout Africa. Another is Pricewaterhouse Coopers International Limited.
There may also be opportunities to exploit differences between countries and geographical regions. Administrative differences may also be exploited; consider the number of companies that are registered in one country for Tax revenue purposes, but have their head office in another and operate in a third.
Secondly there may be economic benefits in strategies of internationalisation.
International companies can exploit economies of scale by increasing the market size. This is most obvious where the products and consumer tastes are homogenous.
There is also the chance of stabilisation of earnings across markets e.g. Toyota operates in three major arenas – USA, Europe and Pacific Asia. If economic stagnation occurs in one arena it can balance its global sales in another arena with a more positive economic outlook.
Value Creation and the Corporate Parent
There are opposing views as to whether corporate parents add value to their business units. From a value adding perspective corporate parents engage in value adding activities such as establishing a clear strategic intent.
- Clarity to external stakeholders about what the corporation is about i.e. this leads to increasing investor confidence in the business.
- Clarity to business units – this communicates to business unit managers that their unit is central to corporate aspirations, it also acts to motivate managers and it also gives direction to the business units around expectations and standards.
Secondly corporate parents add value by intervening with business units in managing performance, actively setting challenges for the units and encouraging collaboration and coordination among units.
Thirdly they may offer central services and resources to help business units invest in new ventures transfer management capabilities or provide expertise to business units.
Corporate parents may also engage in value destroying activities such as implementing systems and hierarchies that slow down decision making by giving the business unit a false sense of security such as a financial safety net should things go wrong. Three reasons are outlined below for managing a multi-business organisation.
The Portfolio Manager
A Portfolio Manager is a corporate parent acting as an agent on behalf of the financial markets and shareholders with a view to enhancing the value attained from the business (Johnson Scholes and Whittington). A key role of the portfolio manager is to identify underperforming businesses and encourage improved performance. In addition they may seek out restructuring opportunities or divert the activities of those businesses.
The Synergy Manager
Often seen as why the corporate parent exists – the synergy manager attempts to create and enhance value across units, this can be done in a number of ways:
- Sharing resources e.g. SBU’s sharing a common distribution system.
- Sharing skills and competences, e.g. marketing or research expertise.
Attempting to achieve synergies is not without problems such as:
- Costs – The value of synergy needed to outweigh the cost of undertaking such integration,
- Self interest by managers – co-operation and collaboration between managers of units must be set aside and a move away from ” what’s in it for me” .
- In addition the illusion of synergy may cause problems as managers attempt to justify benefits on synergies that do not exist.
Incompatibility between business units and/or culture, variation in local conditions and finally commitment on the part of the parent to see the synergy through.
The Parental Developer
The parental developer seeks to employ its own competencies as a parent to add value to its own businesses. Unlike synergy the parental developer must know its own capabilities and resources in order to enhance the business units. These resources, financial, branding, management etc., can be used in under-performing businesses that do not possess these skills.
As with the synergy approach it is not without its problems.
Identifying the capabilities of the parent can be a challenge and if incorrectly applied can have disastrous consequences for the business.
Focus – the parent must only provide services in those areas that add values. Encroaching on areas that will deliver minimal cost savings may be a mistake e.g. outsourcing for one organisation may deliver great savings but to a public sector organisation it may be important to hold on to services as they retain control over how those services are utilised for the public benefit.
The crown jewel problem – Some businesses create value whilst others may not. The role of the parent is to maintain the successful business while divesting from those poor performing ones and using the resources to develop other business that have potential.
Mixed parenting – this is an approach of either engaging with or disengaging from some business units or a mix of synergy manager and parental developer.
The logic is that the executives of the business must know where and how to achieve value.
Portfolio logic is dealt with in the next section.
Managing the Corporate Portfolio
Managing the corporate portfolio is concerned with the models managers might use to analyse the business units within the portfolio. The models are considered in the context of the rationale as discussed above.
The following tools have been developed by managers to determine which business units to have in their portfolio. The focus of each tool is on one or more of the following criteria:
- The balance of the portfolio, in relation to its markets and the needs of the corporation.
- The attractiveness of the business units in the portfolio with regard to profitability and growth potential,
- The degree of fit, that the business units have with each other i.e. synergy, and if the corporate parent is good at looking after them.
One of the most common models for evaluating a corporate portfolio is the BCG or Growth Share Matrix as discussed in chapter 2. The model is often used to analyse products but can equally be applied to business units as in some instances they are products in their own right.
The Directional Policy Matrix
This is another way of analysing the portfolio of the business. The matrix identifies those business units with good and bad prospects, sometimes known as the attractiveness matrix. The policy matrix positions business units according to how attractive the relevant market is in which they are operating and the competitive strength of the SBU in that market. Each business unit is positioned within the matrix according to a series of indicators of attractiveness and strength.
Matrix indicators:
- SBU Strengths compared to the competition –
- Market share, sales force, R&D, distribution, management skills, marketing.
- Market attractiveness – market size, market growth, barriers to entry, technology, inflation, supply of labour, environment and economic issues.
Each segment in the market will indicate how large the market is and potential share of the market. The matrix also assists in the level of corporate strategic support in terms of investment or divestment. It may also be used to assess international opportunities particularly the competitive position in the same product market across different national markets.
While the Directional Policy Matrix overcomes some limitations of the BCG e.g. international portfolio planning, it does not account for resource linkages between products
The Ashridge Portfolio Display – Parenting Matrix
This is useful when deciding the role of the parent and the mix of business units best suited to the parent. It builds on the ideas of the parental developer.
It suggests that the corporation should seek to build portfolios that fit with the corporate parent skills and the corporate parent should build skills that are appropriate for the portfolio.
Heartland business units – are ones that the corporate can add value without danger or harm. They should be at the core of future strategy.
Ballast business units – the parent understands the business units but contributes little as they could easily survive as stand alone.
Value trap business units – these are dangerous, they appear attractive due to the potential opportunities. Consider them for a future strategy.
Alien business units – these are misfits, they offer little opportunity to add value. Exit or withdraw from them.
B. BUSINESS LEVEL
Competitive Advantage
Strategic choice “is concerned with decisions about an organisation’s future and the way in which it needs to respond to the many pressures and influences identified in the strategic analysis” Johnson & Scholes 1993, It is the process whereby strategic options are evaluated and the most suitable strategy or set of strategies (short, medium, long term) are chosen.
Therefore once an organisation has undertaken a strategic analysis it is better positioned to identify what options are available to it for evaluating strategies.
The bases of strategic choice for organisations can usually be considered in the context of an overall generic competitive strategy which an organisation might pursue.
A firm’s position within an industry will determine whether it earns average profitability or above industry average earnings.
Michael Porter’s Generic Strategies
According to Michael Porter there are 3 generic strategies a firm may pursue,
Cost leadership, where a firm sets out to become the low cost producer. If it can achieve and sustain its cost leadership then it will be an above average performer in its industry.
Differentiation, the firm seeks to be unique in its industry and be widely valued by its customers. It is rewarded with a premium price which exceeds the extra cost incurred in being unique.
Focus, Cost focus – a firm seeks advantage in a target segment.
Differentiation focus – exploits the special needs of buyers in certain segments.
Porter describes a firm that does not make a clear choice of these strategies as being “stuck in the middle” (SITM) which he argues is the worst position to be in. This argument has created debate about strategic direction as some organisations in Europe and in Japan have pursued SITM strategies with success.
It is also argued that cost is an internal measure and gives no competitive advantage. Competitive advantage can only be achieved through the product or service, which can be seen by the buyer.
There are risks associated with generic strategies for example with cost leadership competitors can imitate you or your competitive advantage may erode due to technological advances. A differentiation strategy may fail due to buyers being less attracted to the product or service, and finally in a focus strategy the segment becomes less attractive due to market changes or less demand.
Taking Porter’s theory into account a market oriented set of strategies has been developed that is known as the strategy clock (Cliff Bowman 1996).
Strategy Clock
The strategy clock shows eight generic strategies available to organisations which can be shown under five broad headings:
- No frills – Price based strategies, reduced price and perceived added value aimed at price sensitive segments. If you are in a segment that has a low cost advantage, a low price is important. These are generally associated with price wars.
- Low Price – risk of price war and low margins; need to be cost leader.
- Hybrid strategy – Provide added value and keep costs down, normally used to gain foothold in the market or when a chink in the competitors’ armour is achieved.
- Differentiation – this is a broad based strategy aimed at offering perceived added value at a premium price to gain a market share. This is achieved through uniqueness in the market place.
- Focus differentiation – added value and a high price focused at a particular segment, e.g. BMW, Lexus cars.
- Failure strategy (6,7,8 on diagram), result from increased price but no added value, reduced value but maintain high price.
Sustaining Competitive Advantage
It is possible to achieve competitive advantage in such a way that it can be preserved over a
period of time. The following are options which are open to organisations, Price based advantages:
- Accept reduced margins because it can sell high volumes or cross subsidise a business unit elsewhere.
- An organisation may be able to sustain and win a price war because it has a lower cost structure or a better bank balance.
- It may gain advantage through organisationally specific capabilities which may be achieved by driving down costs throughout the value chain.
- Focusing the organisation’s efforts on those markets where customers value low cost.
Differentiation based advantages:
Sustainable advantage through differentiation may be any of the following,
- Create difficulties if limitation; e.g. supply chain capabilities.
- Imperfect mobility of resources or capabilities e.g. how easily can the resources of the organisation be traded within or outside the industrial sector.
- Protection of the company brand, image or reputation.
- Switching costs – what are the actual or perceived costs for a buyer when changing the source of supply of a product or service.
- Co-specialisation may help achieve imperfect mobility e.g. if the selling organisation’s resources or capabilities are intimately linked with the buyer’s organisation.
Game Theory
Game theory evolved from war and based upon the interrelationship between the competitive moves of a set of competitors. The central idea is that the strategist has to anticipate the reactions of the competitors.
There are three assumptions around this,
- That the competitor will behave rationally and always try to win to their own benefit.
- That the competitor is in an independent relationship with other competitors, thereby all competitors are affected by what competitors do.
- To a greater or lesser extent competitors are aware of the interdependencies that exist and of the potential moves competitors could make.
There are two key principles that guide strategic development from the above assumptions. Strategists as game theorists need to put themselves in a position of competitors. They can then take an informed decision of what the competition may do. This allows the strategist to take the best course of action.
It is also important for the strategist to identify any potential strategy that the competitor could follow which may result in the organisation being dominated in the market.
There are three types of Games:
- Simultaneous Games – All competitors in the market are faced with making the same decision at the same time. The options for the players are to agree an equal share of the market or attempt to outmanoeuvre the competition with the potential to lose market share.
- Sequential Games – Strategic decisions are often sequential where the organisation’s actions are pursued by the actions of a competitor. The task for the strategist is to think forward and then to reason backwards .i.e. think through the attitude of the competitor before taking action.
- Repeated Games – In repeated games competitors interact repeatedly; however the favourable outcome here is for both parties to co-operate and this approach is the outcome of experience in the market place. It will also be influenced by such factors as the number of competitors, differences between organisations or the breakdown of the market i.e. small or large organisation.
Business EcoSystems
The concept of a Business Ecosystem was originated by James F Moore and is a strategic planning approach adopted by technology companies in the 90’s. The basic definition comes from Moore’s book, The Death of Competition: Leadership and Strategy in the Age of Business Ecosystems (Harper Business, 1996).
Moore considered businesses to be part of an economic community supported by a foundation of interacting organisations and individuals, the organisms of the business world. This economic community produces goods and services of value to customers, who are themselves members of the ecosystem.
The member organisations also include suppliers, producers, competitors, and other stakeholders. Over time, they co-evolve their capabilities and roles, and tend to align themselves with the directions set by one or more central companies. Those companies holding leadership roles may change over time, but the function of ecosystem leader is valued by the community because it enables members to move toward shared visions to align their investments and to find mutually supportive roles.
The ecosystem concept was widely used by Cisco Systems Inc. throughout the world. The company leveraged partners for all business functions except for developing their core patented products and business strategy. Partners were used for sales, marketing, manufacturing, technical support and new installations. Cisco lived up to the motto ‘do what you do best and leave the rest for others to do’.
Supporting the Entrepreneur and New Venture Creation
Feasibility Study and Guidelines – Business Case Development
A feasibility study is an examination of all the relevant factors prior to the establishment of a business or new product idea.
The purpose of the feasibility study is to gather and itemise the requirements for say the establishment of a manufacturing plan or service operation. This will include identifying the financial details, operational and capital, key assumptions and timetable of events.
Feasibility studies require in-depth research and may involve the services of business consultants or support agencies.
A Feasibility Study should include details under the following headings,
- Profile of the project/venture promoters.
- Description of the business proposal.
- Details of the product or service.
- The market and customer base.
- Capital required.
- Manpower planning/employment details.
- Critical issues for the project e.g. market research or product trials.
- Key assumptions and schedule of events.
One of the advantages of the feasibility study is that it forces the entrepreneur into examining the crucial aspects of the business proposal. It also answers questions that will be posed by potential lenders and investors.
If the results of the feasibility study are positive, i.e. indications are that the business will be successful, then the details from the study will be used in the preparation of the business plan.
Modes of Entry to Business
There are a number of ways in which the entrepreneur may enter business. The choice of entry will depend upon the factors such as the expected level of control of the business, the life expectancy of the business, the size of the business and capital required to establish the business.
Sole Trader
A sole trader (or sole proprietorship) is a business organisation with only one owner. For tax purposes he or she would be classed self-employed. It is the most common form of business organisation.
The typical sole trader is a shopkeeper who owns his/her own shop. Family may be employed to help run the shop. Sole traders are also common in agriculture and manual trades. Sole traders are in control of their own destiny. They enjoy great freedom of action and great privacy in the running of the commercial concern.
Sole Traders have unlimited liability. This means that no distinction is made between the assets of the business and the private assets of the owner. If the business goes bankrupt and the assets of the business do not cover the debts, then the owner will be forced to sell his or her own private assets as well.
Sole trader businesses are common because they are very easy to establish or wind down. There are no particular legal formalities to setting up the business apart from those which would apply to any business in the particular industry chosen. Income tax and employment taxes have to be paid on the profits of the business but the total tax liability may be far less than if the owner established a limited company. The owner is also likely to be in full control of the company. Sole trader businesses may employ workers, but it would be quite exceptional for a sole trader to employ a manager to be in charge of a considerable number of personnel.
The great disadvantage of sole trading businesses is their inability to attract finance. It is often very difficult for small businesses to raise finance in order to expand.
Registered Company
A registered company is a legal person independent of its members i.e. a separate entity. The law recognises physical or natural persons and moral or artificial persons. A registered company is a moral person possessing its own legal personality. The registered company is capable of holding property, of entering into contractual relations and of suing and being sued. Its great advantage over the physical person is its potentially perpetual existence. Another advantage is that it can attract money for investment in the form of new shares. Shareholders know that if the firm goes bankrupt the most they stand to lose is the value of their shareholding.
There are four types of company.
- a company limited by its shares
- a company limited by guarantee
- a company limited by both shares and guarantee
- an unlimited company
Franchising
Franchising is something of a halfway house, lying somewhere between entrepreneurship and employment. It holds the attractions of running a business while at the same time eliminating some of the risks. Borrowed from the French term `franchise` originally meant being free from slavery. The local operator (the franchisee) pays the parent organisation (the franchisor) an initial fee and usually continuing royalties for the privilege.
The franchisor lays down the blue print of how the business should be operated, the content and nature of the goods and services being offered and even the location. The franchisor also provides marketing for the brand and may offer preferential loans to help start and invest in the franchisee’s business.
Forms of franchising:
There are various types of relationships between licensee and licensor, which are described under the heading franchises.
A distribution: Is an arrangement where two parties are legally independent as vendor (licensor) and purchaser (licensee).
The purchaser will have exclusive territorial rights and is backed by the vendor’s advertising, promotion and possibly staff training, e.g. car dealership.
A licence to manufacture: This applies to certain products within a certain territory and over a period of time. The licensee may have access to any secret process this involves and use of the product’s brand name in exchange for royalty on sales. For example the Rank organisation is licensed to produce the photocopying devices pioneered by the Xerox Corporation.
Manufacturing / Distribution Licensing:
This form of business which is similar to franchising allows a firm to distribute or manufacture a product under strict licence, the licensee usually pays a fixed fee plus royalties to the licensor for access to the rights.
Stages in the Enterprise Process
Just as there is a product lifecycle there is also business lifecycle with different stages of development.
The Emergence and Influence of e-Commerce
In Europe and the USA, the emergence of e-commerce and the use of the internet for business purposes over the past decade has been the most significant transformation in the way business can be conducted.
While there is no internationally agreed definition essentially electronic commerce is a transaction involving goods, information and services in which the parties to the transaction do not meet but interact electronically.
The introduction of e-commerce has also had a profound influence on the operations, relationships and structures of modern organisations. Organisations can conduct business electronically with customers and suppliers, connecting manufacturers and inventory, aiding efficient time and volume reordering.
Organisations that fail to develop an e-presence in the market may find their market share eroded over time as other competing businesses develop online facilities.
The outcome of all technological developments is that the modern organisation is in a constant state of transformation. Whilst the introduction of information and communication can lead to cost savings and efficiencies as more organisations adopt the technology, competitors are compelled to do the same in order to remain competitive.
- STRATEGY DEVELOPMENT
Directions of Strategy Development
Strategy selection is the decision process whereby a specific strategy is selected. The results of strategy evaluation provide essential input to the decision process. There is a number of ways in which strategies are selected.
- Selection against objectives, i.e. the strategy is selected on its merit by its ability to meet the corporate objectives.
- Referral to a higher authority, this is used where the participants of the strategy evaluation do not have the necessary power to decide which strategy to pursue.
- Partial implementation: used where the final decision on strategy cannot be made without prior knowledge or experience of what the outcome will be.
- Outside agencies: where a decision on which strategy cannot be agreed by the appropriate authority an outside agency may be appointed to resolve the differences.
It is possible an organisation may select more than one development strategy for different time periods or SBU’s.
This section uses an adaptation of Ansoff’s Matrix to offer potential strategic directions.
Strategic Options available to the Organisation
Up to now we have been concerned with analysis and the choices available to the strategist. The next step is to identify the alternative directions the organisation may take, for example if an organisation has a broad strategy of being the cheapest provider of a product, then it must focus its resources on establishing a competitive position by gaining market share through continued cost reduction which it can pass onto the customer.
The other directions a firm may pursue are as follows:
Protect/Build on Current Position: is a broad category which has a number of specific options which an organisation can consider.
Withdrawal: Some organisations lack the resources or competence to compete in certain markets and withdrawal from some activities may free up the necessary resources to improve the chances of succeeding in another strategy.
Consolidation: Here the organisation is concerned with protecting and strengthening the organisation’s position in its current market. However consolidation does not mean remaining static rather it is a method of deploying the organisation’s resources so it fits the intended market. Consolidation may require reshaping the organisation to suit the market conditions.
Market penetration: Situations may occur where there are opportunities to gain market share; e.g. in some situations existing suppliers cannot match market demand or are unwilling to meet the demand. However market penetration may be affected by factors such as market growth rate, resource constraints or ignoring smaller market share competitors and their potential to grow.
Product development: There are many reasons why organisations pursue product development initiatives e.g., changing needs of customers in products and services. In this case a core competence of successful analysis of the market and customer needs is required, some organisations have the R&D infrastructure and capabilities to support this. Product development is important in industries that have a short product life cycle. Product development does not come without risk – many new products never reach the market place.
Market development: Where the organisation’s aspirations have outstripped the opportunities in the existing market it is natural to explore the opportunities in new markets.
There are three ways of doing this,
- Extension into new markets through product modification.
- Development of new uses for existing products.
- Geographic spread by establishing overseas markets or growth strategies.
Diversification
Diversification is the term used to identify different directions of development that take the organisation away from its present market position.
Diversification normally involves extending existing products or services whilst at the same time remaining within the industry. This is achieved through three broad methods of diversification:
Backward integration – this is concerned with the development with the inputs into the organisation’s product or service, e.g. raw materials , machinery and labour are important in this regard, therefore by acquiring some of these inputs we may be able to enhance the value chain.
Forward integration – this is concerned with the development of the outputs of the organisation such as transport, distribution, repairs or servicing. This is reflected in the forward aspects of the value chain.
Both backward and forward integration are sometimes referred to as vertical integration. Horizontal integration refers to the development into activities which are competitive with or complementary to a firm’s activities, e.g. a builder may offer maintenance services.
Where there is the potential, organisations will diversify into other activities or divest from those activities that are loss making.
Method of Strategy Development
- Internal Development
Internal development is where strategies are developed by building on and developing organisational capabilities. This form of development is often referred to as organic growth. Some reasons for this approach are as follows,
- By developing highly technical products, capabilities are developed in-house which can be further used in the development of new products and markets.
- Internal development may be more costly but returns on investment may be greater over the long term.
- The organisation may have no choice but to develop internally as those capabilities needed cannot be acquired from outside.
- Methods of Strategic Development External to the Organisation
An organisation that has limited resources and that wishes, or has no choice but, to grow the business may have to look outside the organisation to develop the business.
The options available to the organisation fall into two broad categories:
- Mergers and Acquisitions
Developments by mergers or acquisitions have been of critical importance to some industries by allowing organisations to exploit competencies in production and distribution of goods and services.
A compelling reason to merge with or acquire another firm is the speed at which it allows the firms to enter new markets. Technology and markets are changing so rapidly that it becomes the only way to grow the business, e.g. a company may be acquired for its R&D expertise or its knowledge of a particular production system or process. It should be pointed out that acquisitions are generally the result of poor performance where the acquiring company will purchase to gain market share or access to specific activities of the company. An extreme example of acquisition is acquiring a company for short term gain by selling the asset off piecemeal or asset stripping.
The difficulty with acquisitions is the integration of the two companies and generally centres around cultural fit.
The reasons for mergers are similar to those of acquisitions however in this instance the merger is the result of a voluntary agreement between the firms where both participants wish to gain synergies/benefits from the exercise.
- Joint Ventures and Strategic Alliances
Joint ventures and strategic alliances have become increasingly popular since the 1980’s. This is because organisations cannot cope with the dynamics and complexities of the environment (such as globalisation) from internal competencies and resources alone. They may seek to achieve skills, knowledge, finance, block competition, share assets, link value chains or access to markets through co-operation with another organisation.
Joint ventures are typically thought of as arrangements where organisations remain independent but set up a subsidiary organisation owned by the parents.
The opportunity of entering a joint venture or strategic alliance allows firms to spread the risk associated with large projects, exchange technology and faster entry and pay back on new ventures.
These strategic options are not without their problems and may run into trouble when it comes to cultural fit, internal political decisions or strategic direction.
Implementing Strategy
Organisations implementing strategy need to take into account issues that will influence the success of the strategy not least the relationships of people within the organisation.
The key point for the strategist is to ensure that the strategy drives the structure, not the other way round.
Success Criteria
The Criteria for Evaluating Strategies are as follows:
Strategic options should be evaluated according to their suitability, acceptability and feasibility.
- Suitability is the criterion used for screening strategic options and how it fits into the situations identified in the strategic analysis and how it would sustain or improve competitive advantage.
The suitability can be assessed from the following angles.
- Strategic logic – does the strategic capability match the market environment by pursuing a specific strategic option, BCG matrix, life cycle analysis, value chain analysis assist in this instance.
- Cultural fit – review options within the cultural and political realities, cultural web analysis.
- Research evidence: attempts to determine the suitability of strategic options through the experience of other organisations.
Using the above analysis, options are selected by weighting, ranking, or devising scenarios.
- Acceptability: examines whether a specific strategy is acceptable to the stakeholders of the organisation. The methods and techniques that can be used are as follows:
- Analysing financial return -, this may include profitability analysis techniques such as return on investment (ROI, ) payback periods, cost benefit analysis and shareholder analysis.
- Analysing risk: this may involve the use of techniques such as financial ratio projections, sensitivity analysis, decision matrices, simulation modelling.
- Analysing stakeholder reactions, this may be done by stakeholder mapping
- Feasibility is concerned as to whether a specific strategy can be implemented successfully. The feasibility of a strategy can be assessed using the following methods and techniques,
- Funds flow analysis – Identify the funds necessary for the strategy and the likely sources of these funds.
- Breakeven analysis
- Resource development analysis
