Chapter 13

Question 1

Gap analysis

Answer 1

Gap analysis compares actual or projected performance with desired performance.

Question 2

How might economic measures be conflicting?

Answer 2

Sales growth might for example be achieved by cutting prices, but this will mean less profit from each sale: the profit margin falls consequently.

Question 3

What is the SAFE-framework

Answer 3

SAFE framework is a method to identify preferred strategic options or initiatives. Suitability, Acceptability, feasibility and evaluation.

Question 4

Suitability

Answer 4

Suitability analysis involves assessing the extent to which a proposed strategy:

1. Exploits the opportunities in the environment and avoids the threats.
2. Capitalises on the organisations strenghts and avoids or remedies the weaknesses.

Question 5

Acceptability

Answer 5

Acceptability is concerned with whether the expected performance outcomes of a proposed strategy meet the expectations of stakeholders.

(i) Can be of three types, the 3 Rs: Return, Risk and stakeholder Reactions.

Returns:
Returns are measures of the financial profitability and effectiveness of a strategy. In private sector investors and shareholders expect a financial return on their investment.

Financial analysis through ROCE, payback period, DCF or sensitivity analysis. Or real option, which sees strategy as a series of real option, easier to evaluate possibilities of exit.

Three problems of financial analyis:
Problem of uncertainty, problem of specificity, assumptions.

*Risk: *
The second R is the risk an organisation faces. Risk concerns the extent to which strategic outcomes are unpredictable, especially with regard to possible negative outcomes. Low risk often low return etc => risk return ratio. Good sharpe ratio. Important to establish the acceptable level of risk for the organisation.

Sensitivity analysis; tests how sensitive the predicted performance outcome is to different assumptions.

Financial risk refers to the possibility that the organisation may not be able to meet the key financial obligations necessary for survival. Increased gearing (i.e. debt relative to equity) raises the financial risk. Liquidity is also a type of financial risk important to consider.

Break-even analysis.

Cost benefit analysis (CBA), often used to determine the strenghts and weaknesses of different strategic alternatives and may also be the basis for comparing courses of action.

*Reaction of stakeholders:
*
Stakeholder mapping can be used (ch. 6).

Different type of stakeholder: Owners, bankers, government agencies, employees and unions, customers. There is a need to be conscious of the impact on the various stakeholders.

Question 6

Feasibility

Answer 6

Feasibility is concerned with whether a strategy could work in practice.

Concerned mainly with two questions; (i) do the resources and capabilities currently exist to implement a strategy efficiently?
(ii) and if not can they be obtained?

Financial feasibility: Identify the cash needed for a strategy, and forecast the cash flow implications for the strategy. Will be influenced by current ownership structure, interconnected with acceptability aspect. Can vary between start-up, growth, mature and declining businesses.

**People and skills: **
Work organisation: Will changes in work content and priority setting signigicantly alter the orientation of people job?
Rewards: How will people need to be incentivised?
Relationships: Will interactions between key people need to change? will conflict and political rivalry be likely?
Training and development: Are current training and mentoring systems appropriate?
Recruitment and promotion: Will new people need to be recruited?

Question 7

Evaluation

Answer 7

Evaluation is the process of identifying strategies that pass all criteria of suitability, acceptability and feasibility. Strategy that appear excellent under one criteria may fail under another.

There