Strategic Choice Making

Let us understand few termsChoice and strategic choice refer to the process of

selecting one option for implementation. An option is a course of action that it appears possible

to take. The simplest form of choice is therefore between taking an option and not taking it—doing it or not doing it.

A strategic option is a set of related options (typically combining options for product/markets and resources) that form a potential strategy. For instance, it might be an option to enter a new market in a new country.

Chosen Strategy is the strategic option that has been chosen.

Process of Strategic Choice The process could be rationally divided into

four steps:1. Identify options, 2. Evaluate the options against preference

criteria, 3. Select the best option, and 4. Then take action

What Options are available?

Structure for making strategic choice

Options of method on

how to progress

Options about products, markets

and services

Options to improve resources &capabilities

Making the Choice

Choice Criteria-Assessment

-Intent Theoretical Frameworks for

making strategic choice

Who should be involved inthe Choice?

Linking into available strategic options

Chosen Strategy

Options about products, markets and services – Ansoff’s Matrix

Options for building resources,capabilities, and competence

It is obvious that potential market/product options will require supporting changes in resources and capabilities

Before making a choice companies have to consider options about resources, capabilities, and competencies

It involves identifying strengths and weaknesses in existing resources and capabilities in comparison with competitors.

The time-scales for developing resources and capabilities may be very long and may be longer than the time-scale for market entry For instance, people are a major resource, but changing the overall

mix of people in a company is likely to take years or decades.Strategic options about building skills and experience may

therefore have to precede choices to enter new markets or to develop individual products.

Options in methods on how to progress There are four main methods by which

companies can grow their capabilities1. Internal development

It involves developing the necessary skills among existing staff and acquiring the necessary production capacity.

2. Acquisition3. Contractual arrangements4. Strategic alliances and partnerships

Linking Available StrategicOptions

Options about product/markets, resources/capabilities, and the method of implementation have to be combined into a much smaller number of strategic options.

General tests of strategic options1. Alignment

- Whether the strategic option conforms to the strategic intent. This test answers the question ‘Does this option take us towards where we want to go?’

2. Feasible- Whether the capabilities and resources necessary for success can be made available. This answers the question: ‘Will it work?’

3. Acceptability:- Acceptable means whether it will win the approval of both those who will have to approve it and those who will have to implement it.- ‘Will this option be acceptable?’

Who should be involved in the Choice?

Strategic choice is as much a political as a logical process.

Each context will have its own pattern of politics which will be important in determining both how and what strategic decisions are made.

Ultimately it is likely that a strategic choice will need approval by the board

Theoretical Frameworks formaking strategic choice

Porter suggested that the most fundamental choices facing any business are the scope of the markets that it attempts to serve and how it attempts to compete in these chosen markets.

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Choosing a strategy from among strategic options

Strategic Intent

StrategicAssessment Available

Options

Choice Criteria/No options identified

Logically viable options/Chosen Strategy

Feasible butUnaligned Options

Aligned butInfeasible Options

Example of options and a strategic choice

In April 1999, Ford announced the agreed acquisition of Kwikfit. Ford had therefore made a strategic choice. Ford has a strategic intent to move into automotive services. A strategic assessment of Ford should show that its existing resources of large plants and skills in design, marketing, finance, and assembly of new cars are inadequate to support a service business. The decision to acquire Kwikfit would then be made from options about:What types of services to offer and in which markets;What resources and capabilities are needed to

support these services;How to acquire or build these resources.

Criteria for strategic choice Does strategy exploit the opportunities

present in the environment? Is it consistent with the resources of the

firm, its competitive advantage & core competence?

Is the chosen level of risk feasible? Is it appropriate to the values & aspirations

of the firm?

Factors affecting strategic choiceNature of environment – stable?Firm’s internal realitiesAmbition of CEO / ownersCompany cultureFirm’s capacity to execute the strategyResource allocation.

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Corporate GovernanceCORPORATE GOVERNANCE is a system by which

companies are directed and controlledCG is defined as the general set of customs, regulations,

habits, and laws that determine how a firm should be run Corporate Governance evolved and introduced as

remedial measures in corporate sector for forbidding the wrongs or unethical practices.

Ethics & Transparency are ground rules of Corporate Governance.

It means carrying the business as per the stakeholders’ desires.

efficiency as well as globalization are significant factors urging corporate governance

Objectives of Corporate GovernanceProtecting the long term interest and

enhancing the values of shareholders and other stakeholders ( viz., customers, employees, creditors, bankers, regulators and society at large)

Reducing the risks normally faced by the companies

To solve the conflict of interests between shareholders and management.

Benefits of Corporate Governance1.Good corporate governance ensures corporate success and

economic growth. 2.Strong corporate governance maintains investors’

confidence, as a result of which, company can raise capital efficiently and effectively.

3.It lowers the capital cost. 4.There is a positive impact on the share price. 5.Good corporate governance also minimizes wastages,

corruption, risks and mismanagement. 6.It helps in brand formation and development. 7.It ensures organization in managed in a manner that fits the

best interests of all.8.Better relationship between the owners and the managers in

an organization

Corporate EthicsEthics involves a discipline that examines good or

bad practices within the context of a moral dutyMoral conduct is behavior that is right or wrongBusiness ethics (also known as Corporate ethics)

is a form of professional ethics that examines ethical principles and ethical problems that arise in a business environment.

Public’s interest in business ethics increased during the last four decades

Public’s interest in business ethics spurred by the media

Expe

cted

and

Ac t

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eve l

sof

Bus

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s Eth

ics

Ethical Problem

Ethical Problem

Society’s Expectations of Business Ethics

Actual Business Ethics

1950s Early 2000sTime

Two Key Branches of EthicsDescriptive ethics involves describing,

characterizing and studying morality“What is”

Normative ethics involves supplying and justifying moral systems“What should be”

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Developing Moral Judgment

External Sources of a Manager’s Values:

Religious valuesPhilosophical valuesCultural valuesLegal valuesProfessional values

Developing Moral JudgmentInternal Sources of a Manager’s

Values:Respect for the authority structureLoyaltyAccepted beliefPerformanceResults

Managerial PhilosophyPhilosophy is the study of general and

fundamental problems, such as existence, knowledge, values, reason, mind, and language.