Strategic management
Lecture 8
Strategic decision and strategic
goals
A framework for the evaluation and selection of strategies
Strategic options
Identifies possibilities
for development
Strategic analysis
Identifies the
organisation's
circumstances
Assessment of suitability
establishing the rationale
screening options
Acceptability
Return
Risk
Stakeholder reactions
Selection of strategies
planned
enforced
learning
command
Feasibility
Success Criteria for Strategic Options (1)

Suitability
• Whether strategy addresses
circumstances in which organisation is
operating
• Linked to strategic position
• Rationale of strategy
Success Criteria for Strategic Options (2)

Feasibility
• Whether strategy can be made to work
in practice
• Linked to strategic capability
Success Criteria for Strategic Options (3)

Acceptability
• The expected performance outcomes
(e.g. risk/return)
• Meeting expectations of stakeholders
Testing suitability
Life cycle analyses
Positioning
Does it fit the stage
we will be in?
Is the positioning
viable?
Suitability
Is this a good
strategy?
Value chain analysis
Business profile
Does it improve
value for money?
Does it exploit core
competences?
Will it lead to
good financial
performance?
Portfolio analyses
Does it strengthen the
balance of activities?
Suitability – Strategic Position
Concept
To understand
Strategy must address
PESTEL
Growth/decline
Changes in industry structure
Industry convergence
Scenarios
Uncertainty/risk
Contingency plans
5-forces
Competitive forces
Barriers to new entrants
Strategic
Groups
Attractiveness of groups,
Mobility barriers, strategic
spaces
Repositioning
Core
Competence
Industry threshold standards
Basis of competitive advantage
Eliminate weaknesses
Exploit strengths
Value chain
Opportunities for vertical
integration/outsourcing
How to integrate (e.g.
merger/alliance)
Stakeholders
Acceptability to stakeholders
Power and interest
Effect on stakeholders
Manage power/interest
Cultural web
“Real” acceptability, impact on
feasibility
Manage culture clash in
merger/alliance
Examples of Suitability - Directions for Growth
Strategic
Option
Suitability in terms of
Environment
Capability
Consolidation
Withdraw from
declining markets
Sell valuable assets
Maintain market share
Build on
strengths –
invest and
innovate
Market
penetration
Gain market share for
advantage
Exploit superior
resources &
competences
Product
developm’t
Exploit knowledge of
customer needs
Exploit R&D
Market
developm’t
Opportunities for new
geographical market,
new segments/uses
Exploit current
products
Diversification
Current markets
saturated/declining
Exploit core
competences in
new areas
Expectations
Better returns at
low risk by
exploiting current
strategies
Better returns at
medium risk by
exploiting current
strengths or market
knowledge
Better returns at
higher risk by
seeking new
business
Criteria for Acceptability
Criteria
To Understand
Examples
Limitations
Profitability
Financial return on
investments
ROCE
Payback period
DCF
Apply to discrete
projects
Only tangible
costs/benefits
Cost-benefit
Wider
Major
costs/benefits (incl. infrastructure
intangibles)
projects
Difficulties of
quantification
Real options
Sequence of
decisions
Real options
analysis
Quantification
Mergers and
acquisitions
Technical detail
often difficult
Return
Shareholder
Impact on
value analysis shareholder value
Criteria for Acceptability
Criteria
To Understand
Examples
Limitations
Risk
Financial ratio Robustness of
projections
strategy
Break-even
analysis
Impact on
gearing/liquidity
Sensitivity
analysis
What if? analysis Tests factors
separately
Test assumptions/
robustness
Stakeholder reactions
Political dimension
Stakeholder
mapping
Game theory
Largely
qualitative
Processes for selecting strategies
Approach
Dominant
processes
Elements of good
practice
Dangers
Planning
Analytical techniques
Tested against
objectives
Quantified where
possible
Involve line
managers
Analyse ‘holistic’
picture
Build in flexibility
Communication
between analysts
and decision-makers
No ownership
Fragmented analysis
Rigidity - lost
opportunities
Decision-makers disown
analysis
Enforced choice
Bend to
environmental
‘pressure’
Assess risk
Prepare
contingencies
‘Victims of
circumstances’
Evaluation not done
Learning from
experience
Reactive moves in
separate parts of
organisation
Cultural/political
context important
Processes need
credibility
Avenues of
challenge
Promote inter-unit
learning
Fragmented/inefficient
Pragmatism
Risk of strategic drift
Command
Dominant
stakeholder selects
strategies
Inform/educate
decision-maker
Need ‘completeness’
Challenge the
paradigm
Incomplete vision
Vision institutionalised
What are the goals and objectives
Objectives: desired outcomes for individuals,
groups, and entire organizations.
Why oraganizations set up objectives?
Enviroment orientation,
Guide actions
Hierarchy linkage
Coordinate decisions
Basis for control
Why peoples set up objectives:
Personal challenges,
Integration of poersonal objectives
Fostering of motivation
Types of purposes
Types of purposes
Common charecteristics
Open or closed
Mission
General,
Visionary
Central, and overriding
Often unwritten
Mostly open
Strategic
objectives
Often financial
Express expectation
Derived from mission
Mostly closed
Unit or
functional
objectives
Unit specific
Operational
Short term
Always closed,
resource
oriented
The hierarchy of objectives and their place in the strategy
process
Objectives need to meet five specifications
1. An objective should be clear, single, specific
topics (It sould not be stated in vague form)
2. An objective should relate to a result, not to an
activity to be performes (The objective is a
result of an activity, not to performing the
activity)
3. An objective should be measurable (An objective
should be stated in quantitive terms whenever
feasible)
4. An objective should contaion a time deadline and
a responsible person of its achievement
5. An objective should be challenging but
achievable.
1. Step of the GAP planning
Performance
Assumption of the unchanging environmemt
Present
Time
2. Step of the GAP planning
Assumption of the different – favorable, or unfavorable environmental conditions.
Performance
Favorable conditions
Unchange convditions
Unfavorable conditions
Present
Time
3. Step of the GAP planning
Strategic goals based on mission
Performance
Goals based on mission
Favorable condition
Unchanged conditions
Present
Time
4. Step of the GAP planning
Performance
Strategic goals based on mission, and actions fitted to
enhanced goals
Goals based on mission
Gap what you have to fill
with actions
Favorable condition
Unchanged conditions
Present
Time
BSC: four basic perspective of a company
Based on „balenced score card” four perspectives
are seen to affect the long term economic value
of a company:
Financial perspective: This includes consideration of factors
such as the return on capital employed, cash flow
Customer perspective: This requires the company to set
specific goals besides price, that are important to the
customers, qualitiy, performance, and service
Internal perspective: This includes consideration of factors
such as capacity, and cost connected with effectiveness
Innovation, and learning perspective: This includes the
generation of new business from innovation, and staff
attitudes and morale
The Balanced Scorecard
Based on Kaplan & Norton
The Balanced Scorecard
Key Performance Indicators KPIs
Financial
perspective
Financial
perspective
e.g. Operational view
Customer perspective
Customer perspective
e.g. Customer satisfaction
Internal Perspective
Innovation & learning
e.g. Assess quality
of people & processes
Training & development
Job turnover %
Product quality
Stock turnover /
e.g. Continuous improvement
Quality circles
e.g. Research & Development
Speed to market / months
e.g. Operational view
Cost reduction %
Cost reduction
Sales growth %
Sales growth
e.g. Shareholder view
e.g. Shareholder view
ROCE %
ROCE
EVA €
EVA
e.g. Customer
Customer
retentionsatisfaction
%
Customer
retention
Customer loyalty %
Customerofloyalty
Acquisition
new customers %
Acquisition of new customers
Balanced Score Card
The structure of the goals
Objective
Goals
Strategies Measures
Tactics
The Balanced Scorecard – An Example
The BSC helps to translate mission
to strategy and tactics
Financial
To succeed
financially
how should
we appear to
our
shareholders
Objectives
Measures
Targets
Initiatives
A possible definition of goal-strategy system
Mission or Objective: WORDS long-term (3-5 yrs ?)
somewhat visionary, business right to be in, our
ambition
Goals: NUMBERS “stretch“, specific by year, sales,
profit, competitive position (share), back-up sheets
Strategies: WORDS, HOW to, FOCUS sustainable
competitive advantage, long-term direction
Measures: NUMBERS one or two per strategy, readiliy
optainable, sensitive to permit 3-monthly readings
Tactics: KEY NEXT PROJECTS recommended by Strategy
Owner, agreed by top management, prioritized, timedefined, owners