Strategic Management

Slide 2.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Slide 11.*

Part III:
Strategy in Action

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

The focus of part 3:
strategy in action

• Criteria and techniques that can be used to evaluate possible strategic options.
• How strategies develop in organisations; the processes that may give rise to intended strategies or to emergent strategies.
• The way in which organisational structures and systems of control are important in organising for strategic success.
• The leadership and management of strategic change.
• Who strategists are and what they do in practice.

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Slide 11.*

Strategy in Action
11: Evaluating Strategies

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Learning outcomes

• Employ three success criteria for evaluating strategic options:

– Suitability: whether a strategy addresses the key issues relating to the opportunities and constraints an organisation faces.

– Acceptability: whether a strategy meets the expectations of stakeholders.

– Feasibility: whether a strategy could work in practice.

• For each of these use a range of different techniques for evaluating strategic options, both financial and non-financial.

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

The SAFe criteria

Table 11.1 The SAFe criteria and techniques of evaluation

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Suitability

Suitability is concerned with assessing which proposed strategies address the key opportunities & constraints an organisation faces, through an understanding of the strategic position of an organisation.

It is concerned with the overall rationale of the strategy:

• Does it exploit the opportunities in the environment and avoid the threats?
• Does it capitalise on the organisation’s strengths and strategic capabilities and avoid or remedy the weaknesses?

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Suitability of strategic options in relation to strategic position (1)

Table 11.2 Suitability of strategic options in relation to strategic position

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Suitability of strategic options in relation to strategic position (2)

Table 11.2 Suitability of strategic options in relation to strategic position (Continued)

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Some examples of suitability (1)

Table 11.3 Some examples of suitability

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Some examples of suitability (2)

Table 11.3 Some examples of suitability (Continued)

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Suitability – screening techniques

There are several useful techniques:

Ranking.

Using scenarios.

Screening for competitive advantage.

Decision trees.

Life cycle analysis.

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

The life cycle/portfolio matrix

Table 11.5 The industry life cycle/portfolio matrix

Source: Arthur D. Little

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Competitive position within an industry

Competitive position within an industry can be:

• A dominant position which is rare in the private sector unless there is a quasi-monopoly position. In the public sector there can be a legalised monopoly status.
• A strong position where organisations can follow strategies of their own choice without too much concern for competition.
• A favourable position where no single competitor stands out, but leaders are better placed.
• A tenable position can be maintained by specialisation or focus.
• A weak position where competitors are too small to survive independently in the long run.

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Acceptability (1)

Acceptability is concerned with whether the expected performance outcomes of a proposed strategy meet the expectations of stakeholders.

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Acceptability (2)

There are three key aspects of acceptability - the ‘3 R’s’:

• Risk.
• Return.
• Reactions (of stakeholders).

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Risk

• Risk concerns the extent to which the outcomes of a strategy can be predicted.

• Risk can be assessed using:

Sensitivity analysis.

Financial ratios – e.g. gearing and liquidity.

Break-even analysis.

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Sensitivity analysis

Illustration 11.3 A

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Sensitivity analysis (Continued)

Illustration 11.3 B

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Sensitivity analysis (Continued)

Illustration 11.3 C

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Return

• Returns are the financial benefits which stakeholders are expected to receive from a strategy.
• Different approaches to assessing return:

Financial analysis.

Shareholder value analysis.

Cost–benefit analysis.

Real options.

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Real options evaluation

Illustration 11.6

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Assessing profitability (1)

Figure 11.1 Assessing profitability

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Assessing profitability (2)

Figure 11.1 Assessing profitability (Continued)

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Assessing profitability (3)

Figure 11.1 Assessing profitability (Continued)

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Measures of shareholder value

Table 11.6 Measures of shareholder value

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Advantages of real options

There are four main benefits:

Bringing strategic and financial evaluation closer together.

Valuing emerging options.

Coping with uncertainty.

Offsetting conservatism.

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Reaction of stakeholders

• Stakeholder mapping and the power/interest matrix can be used to:

understand the political context of strategies.

understand the political agenda.

gauge the likely reaction of stakeholders to specific strategies.

If key stakeholders find a strategy to be unacceptable then it is likely to fail

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Feasibility

Feasibility is concerned with whether a strategy could work in practice i.e. whether an organisation has the capabilities to deliver a strategy

Two key questions:

• Do the resources and competences currently exist to implement the strategy effectively?
• If not, can they be obtained?

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Financial feasibility

Need to consider:

The funding required.

Cash flow analysis and forecasting.

Financial strategies needed for the different ‘phases’ of the life cycle of a business.

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Financial strategy and the business life cycle

Table 11.7 Financial strategy and the business life cycle

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

People and skills (1)

Three questions arise:

• Do people in the organisation currently have the competences to deliver a proposed strategy?
• Are the systems to support those people fit for the strategy?
• If not, can the competences be obtained or developed?

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

People and skills (2)

Critical issues that need to be considered:

Work organisation – will this need to change?

Rewards – are the incentives appropriate?

Relationships – will people interact differently?

Training and development – are current systems appropriate?

Staffing – are the levels and skills of the staff appropriate?

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Integrating resources

• The success of a strategy depends on the management of many resource areas, for example:

people,

finance,

physical resources,

information,

technology and

resources provided by suppliers and partners.

• It is essential to integrate resources – inside the organisation and in the wider value network.

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Evaluation criteria

Four qualifications:

Conflicting conclusions and the need for management judgement.

Consistency between the different elements of a strategy is essential.

The implementation and development of strategies might reveal unanticipated problems.

Strategy development in practice – it isn’t always a logical or even rational process.

Slide 11.*

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Summary

• Proposed strategies may be evaluated using the three SAFe criteria:

Suitability is concerned with assessing which proposed strategies address the key opportunities and constraints an organisation faces. It is about the rationale of a strategy.

The acceptability of a strategy relates to three issues: the level of risk of a strategy, the expected return from a strategy and the likely reaction of stakeholders.

Feasibility is concerned with whether an organisation has or can obtain the capabilities to deliver a strategy.