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8 SIM336 Evaluating Strategy

This document discusses evaluating strategies using the SAFe criteria of suitability, acceptability, and feasibility. It outlines techniques for assessing each criterion, including ranking and screening options, sensitivity analysis, stakeholder mapping, and ensuring an organization has the resources and competencies to implement a strategy. The key goals are to evaluate how well strategies address opportunities and threats, meet stakeholder expectations, and could realistically be implemented in practice. Management judgment is also needed to weigh any conflicting evaluations.

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34 views

8 SIM336 Evaluating Strategy

This document discusses evaluating strategies using the SAFe criteria of suitability, acceptability, and feasibility. It outlines techniques for assessing each criterion, including ranking and screening options, sensitivity analysis, stakeholder mapping, and ensuring an organization has the resources and competencies to implement a strategy. The key goals are to evaluate how well strategies address opportunities and threats, meet stakeholder expectations, and could realistically be implemented in practice. Management judgment is also needed to weigh any conflicting evaluations.

Uploaded by

igotoschoolbybus
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Strategic Management

EVALUATING STRATEGY
SAM CHAN
Learning outcomes (1)
Assess the performance outcomes of different strategies in terms of
direct economic outcomes and overall organisational effectiveness

Assess performance and the need for new strategies using gap
analysis
Learning outcomes (2)
Employ three success criteria for evaluating strategic options (the
SAFe criteria):
◦ 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
Use for each of these a range of different techniques for evaluating
strategic options, both financial and non-financial
Evaluating Strategies
Performance Measures (1)
Economic performance refers to direct measures of success in terms
of economic outcomes.
There are three main dimensions:
1. Performance in product markets (e.g. sales growth or market share)
2. Accounting measures of profitability (e.g. profit margin or return on capital
employed)
3. Financial market measures (e.g. share price)
These measures may seem objective but need to be carefully
interpreted.
Performance Measures (2)
Effectiveness refers to a broader set of performance criteria
reflecting internal operational efficiency or measures relevant to a
wider range of stakeholders
A broad measure of effectiveness is provided by the balanced
scorecard which considers four perspectives (i.e. the customer,
internal business, innovation and learning and financial perspectives)
The triple bottom line – has economic, social and environmental
measures
The SAFe criteria and techniques of
evaluation
Suitability
Suitability is concerned with assessing which proposed strategies
address the key opportunities and threats an organisation faces.
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 avoid or
remedy the weaknesses?
Suitability of strategic options in relation
to strategic position (1)
Suitability of strategic options in relation
to strategic position (2)
Some examples of suitability (1)
Some examples of suitability (2)
Suitability – screening techniques
There are several useful techniques:
◦ Ranking
◦ Screening through scenarios
◦ Screening for bases of competitive advantage – using the VRIO criteria
◦ Decision trees
◦ Life-cycle analysis
The industry life-cycle/portfolio matrix

Source: Adapted from Arthur D. Little.


The life cycle/portfolio matrix –
competitive position
Competitive position within an industry can be:
A strong position where organisations can follow aggressive strategies
throughout the life cycle. Early on they can grow rapidly and later they can
drive out weaker rivals by pricing, innovation or acquisition strategies.
A middling position where organisations need to follow a more defensive
strategy – to strengthen their position or find a relatively protected niche.
Later on they may consider selling out to a stronger firm with parenting
advantages.
A weak position where competitors are too small to survive
independently in the long run. They need a rapid improvement in their
position or retreat to a niche quickly.
Acceptability
Acceptability is concerned with whether the expected performance
outcomes of a proposed strategy meet the expectations of
stakeholders

There are three important aspects to acceptability:


1. Risk
2. Return
3. Stakeholder reactions
Risk
Risk concerns the extent to which strategic outcomes are
unpredictable, especially with regard to negative outcomes.

Risk can be assessed using:


◦ Sensitivity analysis
◦ Financial risk – use ratios e.g. gearing and liquidity
◦ Break-even analysis
Sensitivity analysis (1)

Sensitivity of cash flow to changes in real production costs


Return
These are a measure of the financial effectiveness of a strategy.

Different approaches to assessing return:


◦ Financial analysis
◦ Shareholder value analysis
◦ Cost–benefit analysis
◦ Real options
Assessing profitability (1)
Measures of shareholder value
Reaction of stakeholders
Stakeholder mapping (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
Stakeholder Analysis –
Mendelow’s Power Interest Grid

High
Keep Managed
Satisfied closely
Level of Power

Keep
Low Monitor
Informed
Low High
Level of Interest
Feasibility (1)
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:
1. Do the resources and competences currently exist to implement the
strategy effectively?
2. If not, can they be obtained?
Feasibility (2)
Need to consider:
◦ Financial feasibility – funding and cash flow
◦ People and skills – competences, knowledge and experience
◦ Integrating resources – obtaining and integrating new resources.
Financial strategy and the business life
cycle
People and skills (1)
Three questions arise:
1. Do people in the organisation currently have the competences to
deliver a proposed strategy?
2. Are the systems to support those people fit for the strategy?
3. If not, can the competences be obtained or developed?
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?
◦ Recruitment and promotion – are the levels and skills of the staff
appropriate?
Integrating resources
The success of a strategy depends on the management of many
resource areas, for example:
◦ people
◦ finance
◦ physical resources
◦ Information
◦ technology
◦ resources provided by suppliers and partners.
It is essential to integrate resources – inside the organisation and in
the wider value system.
Evaluation criteria
Four qualifications:
1. Be aware of conflicting conclusions and the need for management
judgement.
2. Consistency between the different elements of a strategy is essential.
3. The implementation and development of strategies might reveal
unanticipated problems.
4. Strategy development in practice isn’t always a logical or even rational
process.

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