EVALUATION AND SELECTION
Chapter 6
Objectives
Upon completion of this chapter, you should be able
to:
• Critically understand the process of strategy
evaluation.
• Identify criteria to evaluate strategic options
• Evaluate your organisations strategy using
different criterions.
• Perform gap analysis
• Explain how strategic decision making is concluded
in your organisation.
• Optimise your preferred strategic option and plan
how to make a case in support of your option.
Introduction
Strategy can neither be formulated nor
adjusted to changing circumstances
without a process of strategy evaluation
an selection. Whether performed by an
individual or as part of an organisation
review procedures, strategy evaluation
and selection forms an essential step in
the process of guiding an enterprise.
Strategy Evaluation
• It is an attempt to look beyond the
obvious facts regarding the short-term
health of a business and appraise instead
those more fundamental factors and
trends that govern success in the chosen
field of endeavor.
The Challenge of Evaluation
• It is accomplished, the products of a business
strategy evaluation are answers to these
three questions:
– Are the objectives of the business appropriate?
– Are the major policies and plans appropriate?
– Do the results obtained to date confirm or refute
critical assumptions on which the strategy rests?
• Devising answers to these questions is
neither simple nor straightforward. It requires
reasonable store of situation-based
knowledge and more than the usual degree
of insight.
• The major issues which make evaluation
difficult and with which the analyst must
come to grips are:
– Each business strategy is unique. Strategy
evaluation must rest on the type of situational
logic that does not focus on “one best way”
but which can be tailored to each problem as
it is faced.
– Strategy is centrally concerned with the
selection of goals and objectives. Many people
including seasoned executives find it much
easier to set or try to achieve goals than to
evaluate them.
• Formal systems of strategic review, while
appealing in principal can create explosive
conflict situations. Not only are there
serious questions as to who is qualified to
give an objective evaluation, the whole
idea of strategy evaluation implies
management by “much more than results”
and runs counter to much of currently
popular management philosophy.
Criteria for Evaluation
(Refer to page 195)
Johnson & Scholes – identified 6 broad criteria against
which to evaluate options:
1.Consistency with the purpose of the organisation: a
prime test for evaluation and selecting strategies.
2.Suitability of the strategy for the environment within
which the organisation operates.
3.Validity of the projections and data used in
developing the option must be tested.
4.Feasibility
5.Business risk also needs to be assessed because it
may be unacceptable to the organisation.
6.Attractiveness to stakeholders: some options
maybe more appealing than others to shareholders,
employees, government etc
Gap Analysis
• It is a business assessment tool enabling a
company to compare its actual
performance with its potential
performance.
• Provides the company with insight to
areas which have room for improvement
• Process involves determining,
documenting and approving the variance
between business requirements and
current capabilities.
• Gap analysis naturally flows from
• Once the general expectation of
performance in the industry is understood
then it is possible to compare that
expectation with the level of performance
at which the company currently functions.
• This comparison becomes gap analysis.
Such analysis can be performed at the
strategic or operational level of an
organisation.
• At some point a gap will have emerged
between what the existing products offer
the consumer and what the consumer
demands. That gap has to be filled if the
organisation is to surivive and grow.
Strategic investment decision
making
• This involves the process of identifying,
•
•
•
evaluating and selecting among projects that
are likely to have a significant impact on the
organisation’s competitive advantage.
More specifically the decision will influence
what the organisation does, where it does
and/or how it does it.
Strategic investment decision making process
is arguably one of senior management’s
greatest challenges. There is a critical need
to get these decisions right.
It has all the elements of a cost-benefit
analysis.
Making a case
• Effective communication has 6 main
characteristics:
– Relevance
– Reliability
– Understandability
– Significance
– Sufficiency
– practicality
• The way you make a case for your
strategic option will depend on your
organisation’s procedures and
expectations.
• The following checklist can be used as a
guide (page 207) :
– Define the strategy proposed
– Suitability of the proposal
– Acceptability
– Feasibility
– Timings
– Gaining support