We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

See Pricing

What's Your Topic?

Hire a Professional Writer Now

The input space is limited by 250 symbols

What's Your Deadline?

Choose 3 Hours or More.
Back
2/4 steps

How Many Pages?

Back
3/4 steps

Sign Up and See Pricing

"You must agree to out terms of services and privacy policy"
Back
Get Offer

Evaluating Strategies

Hire a Professional Writer Now

The input space is limited by 250 symbols

Deadline:2 days left
"You must agree to out terms of services and privacy policy"
Write my paper

A.INTRODUCTION TO SESSION

Within all organisations there will come times where a proposed course of action, or more likely a number of courses, need to be evaluated. In Session 1, discussion about the nature of strategic management suggested that a strictly sequential model of analysis-choice-implementation stood at one end of a spectrum of descriptions of the strategy process, with most organisations following a more incremental model of strategy development.

Don't use plagiarized sources. Get Your Custom Essay on
Evaluating Strategies
Just from $13,9/Page
Get custom paper

Never the less, the evaluation of strategic options is an important part of the strategy process, whether largely incremental and implicit or an explicit stage within a formal planning system.

However conducted the focus of attention is on the future of the organisation rather than assessing past performance.

In Session 1 it was also argued the strategic analysis “tool kit” could be applied to assist all aspects of strategic management. The primary purpose of this Session is to examine how many of the tools, models and frameworks explored throughout this Module can be used in the assessment and selection of strategic options.

This process can also be assisted by applying some of the tools explored in other modules of the course, so where appropriate these are mentioned below.

Your Objectives

By the end of this session you should be able to:

•Outline the range of criteria that can be applied in the evaluation of strategic options.

•Apply relevant tools, models and frameworks to assist in the assessment and selection of appropriate strategic options for organisations.

Reading

G Johnson & K Scholes, Exploring Corporate Strategy Ch. 8
T Jacobs, J Shepherd & G Johnson,“Strengths, weaknesses, opportunities and threats (SWOT) analysis” in V Ambrosini et al., Exploring Techniques of Analysis and Evaluation in Strategic Management R Rumelt, “The Evaluation of Business Strategy” in B De Wit & R Meyer, Strategy – Process, Content, Context, 2nd ed. International Thompson Publishing 1998 B.EVALUATING STRATEGIES – A FRAMEWORK

In his article The Evaluation of Business Strategy, Richard Rumelt identified the key criteria against which strategic options need to be evaluated as being consistency, consonance, advantage and feasibility. Similarly, in Exploring Corporate Strategy, Gerry Johnson and Kevan Scholes identified suitability, feasibility and acceptability as the broad tests to be used. Whilst not identical, there are many similarities between the approaches in terms of the questions that they pose about particular strategic options, as indicated in Figure 9:1.

Johnson & Scholes’ Criteria
Rumelt’s Criteria
Suitability
Does the strategy address the circumstances in which the organisation is operating? Is the strategy viable?
Does the strategy exploit core competences?
Consonance
Does the strategy address the external environment?

Advantage
Does the strategy create/maintain competitive advantage in the selected area of activity?

Acceptability
What are the expected performance outcomes and are they consistent with stakeholder expectations?

Consistency
Are goals and policies mutually consistent?
Feasibility
Has the organisation got the resources and capabilities to deliver the strategy? Feasibility
Can the strategy be attempted within the physical, human and financial resources available?

Figure 9:1 – Comparing Tests for Evaluating Strategic Options

To the criteria identified above can also be added the following questions:

Attractiveness – does the strategy look attractive in terms of financial returns and the timescale required for delivery?

Vulnerability – what are the risks involved in following the strategy and how significant are they?

Validity – are the assumptions made about the strategy reasonable and justifiable given the context?

Achievability – what is the likelihood of success for the strategy given conditions within the external environment?

All these questions can be combined under the three broad criteria of suitability, acceptability and feasibility, but to find answers to the questions involved in assessing and selecting particular options requires the application of relevant tools, models and frameworks. In Figure 9:2, a revised list of the questions implied by each of the broad sets of criteria are linked to relevant tools explored in previous Sessions, as well as drawing on some techniques explored in the other Modules of this course.

Criteria & Questions
Tools, Models & Techniques
Suitability
Does the strategy address the external environment?
Is the strategy viable and achievable given conditions within the environment? Does the strategy build upon or exploit the strategic capabilities of the organisation? Does the strategy create/exploit synergy across the organisation? Does the strategy fit with the current corporate culture of the organisation? Does the strategy create/maintain competitive advantage?

SWOT analysis
PEST analysis
Five forces framework
Strategic group analysis
Market segmentation analysis
Resource analysis
Value chain analysis
Core competences analysis
Activity mapping
Cultural web mapping
Generic strategy identification
Synergy analysis – portfolio; linkages; core competences; management styles Sources of competitive advantage appraisal
Acceptability
What are the expected outcomes of the strategy and are they consistent with stakeholder expectations? Does the strategy look attractive in terms of financial returns and the timescale required for delivery? What are the risks involved in following the strategy and how significant are they?

Stakeholder mapping
Profitability analyses – return on capital employed; payback period & net present value of discounted cash flows Risk analyses – financial ratio projections; sensitivity analysis & simulations Feasibility

Has the organisation got the resources and capabilities to deliver the strategy? What gaps in resources and capabilities need addressing in order to ensure success?

Resource analysis
Value chain analysis
Core competences analysis
Activity mapping
Resource and capability gap identification
Cultural web re-mapping
Stakeholder re-mapping

Figure 9:2 – A Framework for Evaluating Strategies – Questions and Tools

Some of the tools and techniques identified in Figure 9:2 can be used to provide input into addressing the questions under more that one set of criteria. This does imply that the analyses need to be undertaken repeatedly, just that their results have application in more than one area. The following sections explore each of the criteria in more detail, reviewing the questions and how the tools, models and techniques can be applied.

C.SUITABILITY

The assessment of the suitability of a particular strategy is concerned with the logic or rationale on which it is based – how the proposed strategy creates and/or maintains competitive advantage. This can be broken down further to assess the extent to which the strategy addresses the challenges of the external environment, is based upon or enhances the resources and capabilities of the organisation, builds or exploits synergies and is consistent with its corporate culture.

It is not unusual for discussions about suitability to stress the importance of fit between the elements outlined above. However, the more important point is that the assessment needs to ask if the strategy makes sense and to identify were there are gaps that need to be confronted – which links into the assessment of feasibility.

Using these elements a range of criteria can be articulated as implied by the questions outlined in Figure 9:3. In some cases a simple “yes/no” test will be sufficient, but if a range of options are under consideration then an assessment of the extent to which each criterion is met or surpassed might be required.

The assessment of the suitability of a strategy depends upon answers to these questions:

Does the strategy address the external environment?

Is the strategy viable and achievable given conditions within the environment?

Does the strategy build upon or exploit the strategic capabilities of the organisation?

Does the strategy create/exploit synergy across the organisation?

Does the strategy fit with the current corporate culture of the organisation?

Does the strategy create/maintain competitive advantage?

Figure 9:3 – Assessing the Suitability of a Strategy

An environmental analysis is the starting point for assessing whether suggested strategies meet the criteria related to the external environment. The tools and frameworks outlined in Session 3, like PEST analysis, the five forces framework, strategic group analysis and market segmentation analysis may be employed, as appropriate, to identify the main external pressures. Then each strategic option can be assessed by addressing the first two questions in outlined in Figure 9:3.

Resource and capabilities analysis underpins the evaluation of the criterion related to capabilities. The tools and frameworks covered in Session 4, including resource audit, value chain analysis, core competences analysis
and activity mapping may all provide useful insights into the extent to which any strategic option meets the test indicated.

In many organisations, any new strategic option needs to be evaluated within a multi-business context. As was described in Sessions 6 and 7, the creation and management of synergy can provide a major contribution to the organisation as a whole and underpins the fourth question in Figure 9:3. The range of frameworks and models that may prove useful in this assessment include portfolio matrices, linkages and core competences analysis, the identification of management styles and the parenting matrix. The use of some or all of these tools can help assess the extent to which any new strategy (an acquisition for example) is consistent with, relies upon or can enhance existing synergies within the organisation.

Any test of suitability of a particular strategic option needs to consider the extent to which it is consistent with the existing corporate culture of the organisation. Mapping the cultural web allows for a more explicit assessment of how the proposed option may be interpreted and possibly resisted by those within the organisation. However, this need not be a passive assessment – the new strategy may well aim to change key aspects of the cultural web, as was discussed in Session 8.

The evaluation of suitability of a new strategy also needs to identify and appraise the sources of advantage on which it is based, in terms of cost efficiency and added value. This can be done by considering its classification within the generic strategies framework and/or assessing the sustainability of the sources of advantage and appropriability of returns, as discussed in Session 5.

SWOT Analysis

SWOT analysis was introduced in Session 1 as a means of summarising how an organisation’s capabilities (strengths & weaknesses) matched with the challenges of the external environment (opportunities & threats). As applied to the Churchill Tableware illustration this was a simple framework
for listing the key points of a largely intuitive analysis. However, the technique can be extended to provide a more rigorous analysis of the current strategy of an organisation and to evaluate the suitability of a range of strategic options.

In their article Strengths, weaknesses, opportunities and threats (SWOT) analysis Tony Jacobs, Jill Shepherd and Gerry Johnson show how a simple scoring scheme can be used to assess the impact of each environmental change upon the existing strengths and weaknesses of an organisation. This can provide an evaluation of the current strategy and highlight areas for action in terms of building on strengths or rectifying weaknesses.

They then go further to extend their scoring technique to the screening of strategic options. Within the context of the assessment of the suitability of a range of strategic options, this adaptation of the technique can provides a useful way of bringing together and summarising the outcomes from the many analyses outlined above.

This approach works by systematically evaluating the impact of each environmental change as identified from the environmental analysis on the range of possible alternative strategic options. The other analyses can be used to identify the strengths and weaknesses and assess the effects of each option upon them. Using a simple scoring system (such as +3 to –3) to indicate the intensity of the impact, scores can be attributed to each element for each strategic option. Finally, the results from the assessment of each strategic option can be summarised on a combined matrix. By aggregating the scores the organisation will be able to see:

Which strategies capitalise on environmental changes, build on strengths and overcome weaknesses, and which do not.

Which strategy or strategies, in relation to others, are likely to offer the best way forward.

An example of this more approach as it could apply to a pharmaceutical
company is illustrated in Figure 9:4.

Strategy A – Impact analysis of forming alliances with biotech companies Environmental Changes (Opportunities & threats)
Increasing industry globalisation
Entrance of new technologies
Health care rationing
New diseases & resistance to antibiotics
Total -Strength or Weakness
(+/-)
Strengths

Large sales force
0
+1
+1
0
+2
Leading research facilities

0

+2

-2

+2

+2
Global recognition of main product

0

-1

+1

+1

+1
Weaknesses

No competences in biotech or genetics

+3

+1

-1

+2

+5
No new products in line

+1

+1

-1

-1

0
Over-reliance on main product

0

+1

+1

0

+2
Environmental Impact Scores

+4

+5

-1

+4

Suitability of all strategic options identified in impact analyses Strategy
External Changes
Strengths
Weaknesses
Sum

Increased global-isation
Entry of new tech-nology
Health care rationing
New
diseases
&
antibiotic resistance
Large sales force
Leading research facilities
Global recog-nition
of main product
No comps.
in
biotech
or genetics
No new products in line
Over-reliance on main product

Option A
Alliances

+4

+5

-1

+4

+2

+2

+1

+5

0

+2

+24

Option B
Global
Research

+3

+2

+1

+1

0

+2

+3

-1

+2

-3

+10

Option C
Own
Biotech.
Capability

0

+3

+2

+2

-1

+2

0

-1

+3

-1

+9

Option D
Improve on past
strengths

0

-1

+3

-3

0

+1

+1

0

0

0

+1

Figure 9:4 – SWOT Analysis: Analysing Suitability of Strategic Options Source: adapted from A Jacobs, J Shepherd & G Johnson, “SWOT Analysis” in V Ambrosini et al. Evaluating Techniques of Analysis and Evaluation in Strategic Management, Prentice Hall, 1998

A point of caution: whilst the approach uses scores, they are arrived at by a process qualitative judgements so spurious accuracy should not be attributed to the outcomes, the main purpose is to present an assessment about the suitability of each option.

Illustration

EasyJet orders up to 30 Boeings
Low-cost airline plans to increase fleet fivefold in attempt to pre-empt competitors

EasyJet, the UK-based low-cost carrier, is to increase the size of its Boeing fleet fivefold in an attempt to pre-empt competition from rivals such as Ryanair and Go, the British Airways offshoot.

EasyJet will announce today that it has placed firm orders for 15 new generation Boeing 737-700s and has taken out options on a further 15. The orders are in addition to 12 older generation Boeing 737-300s that EasyJet ordered last year. The airline also plans to start using a further Boeing leased by a Swiss company in which it has taken a stake. This will increase its fleet from seven aircraft to 35 over the next five years.

EasyJet’s latest order for up to 30 aircraft has a list price of about $1.2bn (£720m) although the airline will have a discount on that. The privately-owned company is understood to have financed the deposits on the aircraft from cashflow. Full payment on the first orders will be financed by bank loans. In the longer term, EasyJet may issue enhanced equipment trust
certificates – bonds secured by the aircraft. EasyJet has no immediate plans for a flotation.

Stelios Haji-Ioannou, the heir to a Greek shipping fortune, founded EasyJet in 1995 to take advantage of the liberalisation of the European Union aviation market, completed last year. Based at London’s Luton airport, EasyJet began flying to Scotland before extending its network to continental Europe including Amsterdam, Barcelona, Nice and Athens. It has since established a second hub at Liverpool airport, with flights to Amsterdam and Nice.

EasyJet is expected to use the new aircraft to start services to Spain, France, the Netherlands, Switzerland or Greece. Mr Haji-Ioannou is understood to be keen to pre-empt Ryanair and Go by flying to routes they do not serve. The three airlines have largely avoided direct competition with one another.

EasyJet has made proposals to Geneva airport to establish a third hub. It has acquired a 40 per cent stake in TEA Switzerland, a charter carrier, which it wants to use to set up a Geneva-based low-cost affiliate. EasyJet can acquire the remainder of TEA if Switzerland concludes an “open skies” agreement with the EU.

TEA has five leased Boeing 737s. EasyJet is using one and plans to take on a second. It will return the other three to International Lease Finance Corporation of Los Angeles.

Mr Haji-Ioannou is involved in two legal battles. In the UK, he won the right this year to challenge BA’s support for Go, although he failed to win an injunction to prevent Go from operating. In Greece, Mr Haji-Ioannou is being sued by travel agents objecting to his refusal to use their services.

Source: M Skapinker, Financial Times, 28 July 1998

SAA 1

Read the illustration EasyJet Orders up to 30 Boeings and use relevant tools and techniques to comment upon the suitability of the strategy outlined for the company.

What additional information would you require to improve upon this assessment?

(Note: not all the tools and techniques outlined above can be applied in this case, select those that seem appropriate.)

C.ACCEPTABILITY

The assessment of the acceptability of a strategy involves consideration of the anticipated rewards relative to the goals of the organisation. The goals of the organisation are likely to be a reflection of the expectations of its key stakeholder groups. Anticipated rewards reflect the possible returns of the strategy relative to the risks incurred. In defining the criteria for acceptability consideration should be given to the questions outlined in Figure 9:5.

The assessment of the acceptability of a strategy depends upon answers to these questions:

What are the expected outcomes of the strategy and are they consistent with stakeholder expectations?

Does the strategy look attractive in terms of financial returns and the timescale required for delivery?

What are the risks involved in following the strategy and how significant are they?

Figure 9:5 – Assessing the Acceptability of a Strategy

In assessing stakeholder expectations and their likely reaction to any
particular strategy, stakeholder mapping can be of considerable assistance. This technique, outlined in Session 8, allows for an assessment of the relative importance of different stakeholder groups and implicitly their expectations. The framework can highlight the alignment of different stakeholders in response to a particular strategy, so providing an assessment of its likely acceptability. However, it can also be used to proactively manage the relationships with stakeholders to improve the acceptability of such a strategy.

The assessment of the acceptability of the returns from a particular strategy is frequently defined in terms of financial measures and the timescale needed to achieve them. Organisations often set “hurdle rates” for the return on capital employed of potential strategic options, rejecting those where the projections fail to jump the hurdle.

Another measure used is the payback period which provides an assessment of the timescale required to recover any investment – comparing this with other options under consideration and/or a general timescale limit (e.g. less than two years) applied across the organisation.

More sophisticated assessment of the returns can be made using discounted cash flow techniques, particularly the net present value of the option(s) under consideration. Only options with positive net present values after using a suitable discount rate (normally linked to the organisation’s cost of capital) will meet the criteria for acceptability. Net present values can also be used to rank and adjudicate between a range of possible options.

As well as assessing the returns from particular strategies, the risks inherent in the strategy need to be considered for acceptability. Again, a range of financial measures can be used. Break-even analysis assesses the volume of business needed to ensure that the particular option covers its investment and acceptability will be based on an assessment of the likelihood of this volume being met and the consequences of falling short. The consequences of adopting a particular strategy upon projections for the liquidity (short-term financial solvency) and gearing (long-term capital
structure) ratios of the organisation also provide measures of the riskiness of a strategy.

All these financial analysis techniques are reviewed in more detail in the Business Analysis module.]

The acceptability of risk can also be assessed through sensitivity analysis, which allows for the evaluation of “what if” questions about the key assumptions underpinning the projections for a particular strategy. Simulation modelling also allows for similar quantitative assessment of strategic options. The Decision Making module explores such techniques in greater detail.]

SAA 2

Return to the illustration EasyJet Orders up to 30 Boeings and use relevant tools and techniques to comment upon the acceptability of the strategy outlined for the company.

What additional information would you require to improve upon this assessment?

(Note: not all the tools and techniques outlined above can be applied in this case, select those that seem appropriate.)

E.FEASIBILITY

Assessing the feasibility of strategic options involves considering whether the organisation has the resources and capabilities to successfully implement the strategy. Frequently this leads to an analysis of the tangible resources of the organisation, finance in particular, but a wider consideration of all resources and capabilities should not be ignored.

As well as assessing the feasibility of current resources and capabilities to meet the needs of particular strategies, the gaps need to be identified and an assessment made of the ability of the organisation to address these
issues. These criteria are highlighted by the questions in Figure 9:6.

The assessment of the feasibility of a strategy depends upon answers to these questions:

Has the organisation got the resources and capabilities to deliver the strategy?

What gaps in resources and capabilities need addressing in order to ensure success?

Figure 9:6 – Assessing the Feasibility of a Strategy

An assessment of the financial feasibility of a particular strategy can be made using funds flow analysis. However, the discussion in Session 4 of this module should have made it clear that a broader assessment, particularly of strategic capabilities built on core competences and unique resources is important.

The tools and techniques of resource and capability analysis discussed above, such as resource audit, value chain analysis, core competence analysis and activity mapping, can all contribute to this broader assessment of feasibility.

Richard Rumelt points to several questions that can provide a critical focus in this area:

Has the organisation demonstrated that it possesses the problem solving abilities and/or special capabilities required by the strategy?

Has the organisation demonstrated the degree of co-ordination and integration necessary to carry out the strategy?

Does the strategy challenge and motivate key personnel and is it acceptable to those who must lend their support?

The third of these questions highlights the importance of those within the organisation to the feasibility of pursuing particular strategies. Their impact may be experienced through both the cultural and political contexts of the organisation. Consequently, the use of cultural web re-mapping and stakeholder re-mapping may offer insights into the feasibility of a particular strategy, by pointing to the extent of change required.

Finally, all these analyses may lead to the identification of resource and capability gaps (as mentioned in Session 5). Any assessment of feasibility will need to assess the ability of particular strategies to bridge these gaps.

SAA 3

Return to the illustration EasyJet Orders up to 30 Boeings and use relevant tools and techniques to comment upon the feasibility of the strategy outlined for the company.

What additional information would you require to improve upon this assessment?

(Note: not all the tools and techniques outlined above can be applied in this case, select those that seem appropriate.)

F.SUMMARY

This Session has explored the criteria available to evaluate potential strategic options developed within an organisation. Whilst there are a range of possible criteria that can be identified, many can be consolidated into three broad categories:

Suitability – an assessment of the underlying rationale or logic of the potential strategy.

Acceptability – an assessment of risks and returns of a potential strategy
relative to the goals of the organisation.

Feasibility – an assessment of the resources and capabilities needed to achieve the potential strategy.

References were made to many of the tools, models and frameworks outlined in the other Sessions of this Module that can be used to conduct analyses in order to provide the data necessary to undertake the assessments.

Cite this Evaluating Strategies

Evaluating Strategies. (2016, Apr 29). Retrieved from https://graduateway.com/evaluating-strategies/

Show less
  • Use multiple resourses when assembling your essay
  • Get help form professional writers when not sure you can do it yourself
  • Use Plagiarism Checker to double check your essay
  • Do not copy and paste free to download essays
Get plagiarism free essay

Search for essay samples now

Haven't found the Essay You Want?

Get my paper now

For Only $13.90/page