Chapter Five

Strategic choice
 Strategic choice
• An effective strategic choice process positions an organization
for making sustainable strategic decisions.
• At the heart of effective strategic planning lies the ability to
surface the truly important issues and to make good choices, in
the process of deciding how to address these issues.
• choosing one action among several actions selected by the firm
to respond to the changes in the environment, in order to
benefit from opportunities or to avoid unhealthy effects from
threats.
• The main intention is to achieve the strategic fit between the
organization and it’s environment in order to accomplish the
firm’s objectives.
 How to determine an optimal/best
strategy choice
• In the process of strategy formulation a company is often
faced with multiple strategy choices.

• These are all based on thorough strategy analyses of the

external environment as well as its internal situation.

A key question then is how to choose amongst

several strategic choices available to the firm?
 Contd.
• A logical path would be to choose the one with better chances
of success.

• A success criterion of a strategic option is therefore often

needed to assess its probable, well success.

• One such criteria to assess strategy options on their

Suitability, Feasibility and Acceptability (SFA).
 Suitability
• It analyzes an organization’s position first and then changes
in the environment and assesses the fit between these keeping
in view the organizational goal (expectation of stakeholders).
• It evaluates the rationale of the strategic option.
• Suitability concerns whether a strategy addresses the
circumstances in which the organization is operating.
• It is made possibly by using several concepts and frameworks,
including:
 understanding environmental factors and spotting growth
opportunities (e.g. PESTEL),
 possible future scenario planning,
 Contd.
 analyzing industry competitiveness (e.g. 5-forces or system
dynamics),
 strategic group analysis, core competence, value networks,
legitimizing strategy for stakeholders and cultural fit.

• One needs to define suitability criteria for assessing the

strategy e.g. it could be environmental suitability, capability
suitability and expectation suitability.

• Such criteria establishment should be more contextual and

could vary across different companies.
 Contd.
• Having established suitability criteria, the next thing is to have a
selection criterion.
• This could be based on:
 ranking (score cards): each strategic option is scored against the
assessment criteria (which could also be weighted),

 decision trees: each choice is eliminated based on preference and

requirements further imposed or considered, and

 scenario matching: where each option is evaluated in terms of a

preferred scenario (that is the option which is more likely to take
the firm to its preferred position).
 Acceptability

• Strategies also have to be acceptable or desirable to a variety

of different stakeholders.
• Here an outcome based view of strategy is taken and strategy
performance expectation is judged.
• The performance of strategy in this case is measured in terms
of return, risk and stakeholder reactions.
• Returns are calculated based on the benefits stakeholders are
expected to get by pursuing the particular strategy.
• Returns could be financial as well as non-financial and the
criteria of evaluating returns depend on the expectations of
stakeholders, countries and industries.
 Contd.
• Some methods of calculating returns include: profitability
analysis, cost-benefit analysis, real-options analysis and
shareholder value analysis.
• The risk of a strategy in this area concerns the probability of
its failure and possible consequences thereafter.
• It involves financial losses as well as intangible loses like
corporate or brand image.
• It can be assessed using financial ratios (e.g. impact on
liquidity), sensitivity (what-if) analysis and stakeholder
reactions (satisfaction/dissatisfaction).
 Feasibility

• It considers whether an organization has the required

resources, capabilities and competences to implement the
strategy in practice.
• Financial feasibility is established by forecasting and
analyzing cash-flows and/or break-even analysis among
others.
• Assessment of the availability of other resources, as deemed
necessary to carry out activities involved in the strategy
implementation is also done.
• It focuses more on the internal fit of activities required as
compared to the external fit analyzed during suitability
analysis.
 Contd.
• Feasibility is concerned with whether an organization has the
resources and competences to deliver a strategy .
• Issues of implementation and change:
 Is the strategy feasible in resource terms?
 Can it be implemented effectively?
 Is it capable of achieving the objectives that it addresses?
 Can the organization cope with the extent and challenge of the
change implied by the option?
 Contd.
• Finance and other resource availability: A lack of any key
resource can place a constraint on certain possible
developments.
• Ability to meet key success factors: A strategic alternative is
not feasible if the key success factors dictated by the industry
and customer demand, such as quality , price and service level,
cannot be met.
• Competitive advantage: The effectiveness of a strategy will be
influenced by the ability of the organization to create and
sustain competitive advantage.
 Contd.
• The strategy option which fits well to all three criteria
mentioned above is selected to be the most favorable for an
organization.

• One must note that all these criteria are further defined in a
context-dependent fashion and strategic options are then
evaluated based on those criteria.

• Selection criteria are worth focusing and emphasizing here,

because if things go wrong there then one might end up
selecting relatively “bad” strategy.
 Strategic choice – options
• It considers the development directions available to an
organization in terms of the:
 market coverage,
 products and
 competence base of the organization.
 Types of Strategic Options
1. Defensive – to defend the business activities

2. Prospective – to gain prospects

3. Analyzer – to survive and sustain

4. Reactive – to keep afloat

 The defender organization

• The key focus of most defenders is to reduce cost and achieve

efficiency through low-cost operations.

• The defender is unlikely to innovate and is best suited to

stable environments.
 The prospector organization

• The prospector organizations operates with a wide range of

products in a growing and usually fast-moving market.

• Prospectors tend to focus on innovation and new market

opportunities.

• Prospector organizations tend to be flexible and decentralized

and tend to be creative while remaining efficient.

• The prospector organizations tend to emphasize on R&D and

marketing as the crucial functions.
 The analyzer organization

• The analyzer organizations are rarely first in the market.

• These organizations follow others after a thorough analysis of

the market and the competitors’ behavior.

• Analyzers can be found in both stable environments where

they tend to emphasize on cost reduction and in changing
environments where they emphasize product differentiation.
 The reactor organization

• The reactor organizations tend to have mismatch between

environment and their strategy.

• These organizations might not have any strategy at all.

• These organizations find it difficult to respond to the changes

in the environment and their strategies could be inappropriate.
 Factors That Influence Strategic Choices

• Competition is seen as the main factor that influences strategic

choices.
• However, other factors like organization structure, leadership,
culture, pressure from donors, slow economic growth,
increased diversification and technological advances influence
choices made by organizations.
• None consideration of these factors leads to challenges faced
by community based organizations that include poor co-
ordination of activities, misallocation of resources, incomplete
projects, low motivation of the staff and mistrust of
community based organizations members.
 Factors Shaping the Choice of Strategy

Societal, Political, Regulatory, and Citizenship Considerations

• All organizations operate within the broader community of
society.
• What an enterprise can and cannot do strategy wise is always
constrained by:
 what is legal,
 what complies with government policies and regulatory
requirements,
 what is considered ethical, and
 what is in accord with societal expectations and the standards
of good community citizenship.
Competitive Conditions and Overall Industry
Attractiveness
• An industry's competitive conditions and overall attractiveness
are big strategy-determining factors.

• A company's strategy has to be tailored to the nature and mix

of competitive factors in play: price, product quality,
performance features, service, warranties, and so on.

• When competitive conditions intensify significantly, a

company must respond with strategic actions to protect its
position.
 The Company's Market Opportunities and
External Threats
• The particular business opportunities open to a company and the
threatening external developments that it faces are key influences on
strategy.

• Both point to the need for strategic action.

• A company's strategy needs to be deliberately aimed at capturing its

best growth opportunities, especially the ones that hold the most
promise for building sustainable competitive advantage and
enhancing profitability.

• Likewise, strategy should provide a defense against external threats to

the company's well-being and future performance.
Company Resource Strengths, Competencies,
and Competitive Capabilities
• One of the most pivotal strategy-shaping internal
considerations is whether a company has or can acquire the
resources, competencies, and capabilities needed to execute a
strategy proficiently.
• These are the factors that can enable an enterprise to:
 capitalize on a particular opportunity,
 give the firm a competitive edge in the marketplace, and
 become a cornerstone of the enterprise's strategy.