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THEME 4:
EVALUATION AND SELECTION OF
STRATEGIC ALTERNATIVES
Success criteria: suitability,
acceptability & feasibility (viability).
But first, an example:
http://www.youtube.com/watch?v=e8Lw76
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http://www.youtube.com/watch?v=ibYucMl
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© Alfonso VARGAS SÁNCHEZ
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DEFINITIONS
• Suitability is concerned with whether an
alternative addresses the key issues relating to
the strategic position of the company.
• Acceptability is concerned with the expected
performance outcomes of a strategic option.
• Feasibility is concerned with whether a
company has the resources and capabilities to
deliver a strategy; in other words, if it could work
in practice.
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Implementation
YES
FEASIBILITY
YES
NO
ACCEPTABILITY
YES
Strategic
Option
Rejected
NO
SUITABILITY
Rejected
NO
Rejected
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SUITABILITY
• Factors to be considered:
Environment - Capabilities - Expectations.
• Techniques: PESTEL, 5-Forces, Strategic
Groups, Value Chain, Core Competences,
Stakeholder Mapping, Cultural Web.
• Relative suitability: SWOT analysis,
ranking, decision trees, scenarios.
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Ranking: example
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Decision tree: example
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ACCEPTABILITY. Criteria
• Return:
– Profitability.
– Cost-Benefit.
– Real Options-Strategic Flexibility (redefinition of industry
attractiveness & analysis of resources and capabilities).
Example: hotel industry.
– Shareholder Value Analysis (Total Shareholder Return &
Economic Value Added).
• Risk:
– Financial Ratios Projections
(http://www.netmba.com/finance/financial/ratios/).
– Sensitivity Analysis.
• Stakeholder reactions.
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ACCEPTABILITY. Criteria
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Profitability: Return Of Capital
Employed (ROCE)
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Profitability: Payback Period
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Profitability: Discounted Cash Flow
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Shareholder Value Analysis
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Sensitivity Analysis
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FEASIBILITY
• Financial feasibility:
– Funds Flow Forecasting.
– Break-Even Analysis.
• Resource deployment, for staying in
business and for competing successfully.
• Video:
http://www.youtube.com/watch?v=b_YiHy
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