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Evaluation Of Strategies
Evaluation is not just about finding our preferred strategy. We also need:
– Contingency plans– An understanding of a variety of options - how might each fit
different circumstances
Evaluation should assess consequence of following a strategy and how sensitive that strategy is to our assumptions.
Therefore:– Evaluation must be a continuous part of a continuous process– Must evaluate low priority options to guard against future
possibilities
Strategy Support Tools
StrategyDevelopment
Process
Ability toFormulateStrategy
Ability toDeduce
Consequencesof Strategy
StrategySupport Tool
Models, Computing And Strategic Choice
Models should be an aid– i.e. do things we are not very good at
Models do not replace managerial creativity and judgement
Models help give sharper insight into consequences of pursing particular strategy
Choice is based on combination of quantitative and qualitative information
Models, of whatever type, should be seen to generate "opinions" not "answers"
Assumptions Underpinning Rational Strategy Selection Criteria
Organisations are systems driven by rules producing predictable long term outcomes
These rules establish clear-cut relationships between cause and effect; action and outcome
Successful organisations are in a state of stable equilibrium
Successful organisations exhibit characteristics of stability, regularity, predictability and harmony
Evaluation Criteria (According to Johnson & Scholes)
Suitability– Does it fit situation revealed by our strategic analysis
Feasibility– Will it work in practice?– Have we got the resources?
Acceptability– Will stakeholders like it?
Evaluation Criteria (According to Lynch)
Consistency– Is the proposed strategy in line with our mission and objectives?
Suitability– Does it fit our business and competitive environment?
Validity– Is it based upon realistic assumptions?
Feasibility– Will it work in practice and have we got the resources?
Business Risk– Do the potential returns justify the exposure?
Attractiveness to stakeholders– Will stakeholders like it?
Evaluation Criteria (According to Thompson)
Appropriateness– Does the proposed strategy deal with the influencing
factors identified in our strategic analysis?
Feasibility– Does the organisation have the capability to implement
the proposed strategy effectively?
Desirability– Does the proposed strategy satisfy stakeholder
aspirations and expectations?
Johnson And Scholes, Lynch and Thompson Compared Although using different words (labels/terminology)
approach is essentially similar:
Lynch
Consistency
Suitability
Validity
Feasibility
Business Risk
Attractiveness to
Stakeholders
Thompson
Appropriate ness
Feasibility
Desirability
Johnson & Scholes
Suitability
Feasibility
Acceptability
The Johnson & Scholes Framework For Evaluating and Selecting Strategies
Strategic Analysisidentifies the
organisation’s circumstances
Strategic Optionsidentifies possibilities
for development
Assessment of Suitabilityestablish the rationale
screening options
Selection of Strategyplanned, enforced,learning, command
FeasibilityAcceptability
return, riskstakeholder reactions
Suitability
Suitabilityis this a
good strategy?
Life-cycle Analysesdoes it fit the stage
we will be in?
Positioningis the positioning
viable?
Value Chain Analysisdoes it improve value
for money?Does it exploit core
competences?
Business Profilewill it lead to good
financial performance?
Portfolio Analysisdoes it strengthen thebalance of activities?
Criteria for Assessing Suitability
Does the proposed strategy exploit opportunities and avoid threats?
Does the proposed strategy capitalise upon our strengths and core competences whilst avoiding our weaknesses?
Does the proposed strategy fit our culture and political context?
Techniques for Assessing Suitability
Portfolio / Life-cycles analyses– assess the position of the organisation and the product/service in
relation to theoretical product and organisation life-cycles– assess the proposed strategy in terms of the attractiveness of the
proposed market and the current competitive position of the organisation
– Value Chain Analysis– assess the extent to which the value chain needs to be
reconfigured and whether such reconfiguration is sustainable
Business Profile– assess the proposed strategy against available research evidence
such as the PIMS database
Undertaking an Initial Screening of Options
Gap Analysis– extent to which proposed strategies will meet, exceed or fail to
meet performance objectives
Decision Trees– progressive elimination of proposed strategies assessed against
progressively more rigourous criteria
Scenario Planning– assess the match between proposed strategies and likely future
scenarios– prepare contingency plans
Ranking– scoring proposed strategies against a range of criteria to assess
best fit
Criteria for Assessing Acceptability
Financial Return– do the likely profit and cashflow outcomes meet
expectations?
Risk– is the level of exposure satisfactory given the likely
returns?
Stakeholder Reactions– will stakeholders be motivated to act in a positive
manner towards the proposed strategy?
Techniques for Assessing Acceptability
Approach Used to Assess Examples LimitationsAnalysing ReturnProfitability analyses Financial return of
investmentsReturn on capitalPayback periodDiscounted cashflow
Apply to discreteprojectsOnly tangible costs /benefits
Cost-benefit analysis Wider cost/benefits(including intangibles)
Major infrastructureprojects
Difficulties ofquantification
Shareholder valueanalysis
Impact of newstrategies onstakeholder value
Mergers / takeovers Technical detail oftendifficult
Analysing RiskFinancial ratioprojections
Robustness ofstrategy
Breakeven analysisImpact on gearingand liquidity
Sensitivity analysis Test assumptions /robustness
‘What if?’ analysis Test factorsseparately
Simulation modeling Aggregate impact ofmany factors
ComprehensivemodelsRisk analysis
Quality of data oncausal relationships
Stakeholderreactions
Political dimension ofstrategy
Stakeholder mappingGame theory
Largely qualitative
Criteria for Assessing Feasibility
Does the organisation have the resources necessary to deliver the proposed strategy successfully?
Can any resource deficiencies be remedied easily?
Does the organisation have the competences required to enact the proposed strategy successfully?
Techniques for Assessing Feasibility
Funds Flow Analysis– assessing whether the available sources can provide sufficient
funds to enable the proposed strategy to be implemented successfully
Break-even Analysis– determining the level of performance required to enable the
outcome of the proposed strategy to exactly cover the costs of enacting the proposed strategy
Resource Deployment Analysis– understanding the changes and developments needed in
organisational activities to enable the proposed strategy to be enacted successfully
Thompson’s Criteria for Effective Strategies
Appropriateness
Feasibility Desirability
E-V-RCongruence
Simplicity
Mission & objectives Culture
SWOT: Current Strategic position
Skills & resourcesAvailable & needed
Effect on strategicperspective
Strategic needs:planning gap
Level of returnexpected
Synergy
Stakeholder needs& preferences
RiskCompetitiveAdvantage
Ability to meet keysuccess factors
Finance & otherresource
availability
Change demands -issues of
Implementation
Timing
Processes for Selecting StrategiesApproach Dominant
ProcessesElements of GoodPractice
Dangers
Planning Analytical techniquesTested againstobjectivesQuantified wherepossible
Involve line managersAnalyse ‘holistic’pictureBuild in flexibilityCommunicationbetween analysts anddecision-makers
No ownershipFragmented analysisRigidity – lostopportunitiesDecision-makersdisown analysis
Enforced Choice Bend toenvironmental‘pressure
Assess riskPreparecontingencies
‘Victims ofcircumstances’Evaluation not done
Learning fromExperience
Reactive moves inseparate parts of theorganisationCultural / politicalcontext important
Processes needcredibilityAvenues of challengePromote inter-unitlearning
Fragmented /inefficientPragmatismRisk of strategic drift
Command Dominant stakeholderselects strategy
Inform / educatedecision-makerNeed ‘completeness’Challenges theparadigm
Incomplete visionVisioninstitutionalised
Criteria For Selecting A Policy
Goal Consistency Test
Frame Test
Competence Test
Workability Test
According to Byars but note similarity to Johnson and Scholes
(Acceptability)
(Feasibility)
(Feasibility)
(Suitability)
Methods Of Making The Choice
Selection against pre-determined objectives
Referral to a higher authority
Incrementalism
Using outside agencies
Influences On The Selection Decision
Managerial perceptions of external dependence
Managerial attitudes towards risk
Managerial awareness of past policies
Managerial power relationships