Week 9 - Strategy evaluation

Question 1

How do managers evaluate strategies?

Answer 1

1) -> Look at the performance
- Economic performance
- Organisational effectiveness

2) Identigy the gap (comparing the desired with actual)

3) evaluate strategies
- F easibility
- A cceptability
- S uitability

Question 2

What is economic performace

Answer 2

• looks at the economic outcomes.
  1) performance of the produt (BCG matrix - comparing to competition)
  2) accountability measures of profitability (margins/ return on capital employed)
  3) financial market measures (share price)

These measures may seem objective but can be conflicting and need to be carefully interpreted. Eg: sales growth can be achieved by cutting prices this reduces profit margins.

Question 3

What is organisational effectiveness?

Answer 3

refers to performance criteria of internal operational effeciencies. (measures stakeholders too)

performance is measured through a balanced scorecard. - 4 perspectives simultaneously (customer perspective, internal business perspective, innovation and learning perspective and financial perspective).

tripple bottom line (corporate social responsibility and enviroment (people, planet, profit)

Note: Multi-dimensional measures of effectiveness such as the balanced scorecard or the triple bottom line are subject to trade-offs

Question 4

How can performace comparisons be achieved?

Answer 4

• organisational targets (managers own targets, mission vision, objectives) - solved though gap analysis
• trands over time - helps smooth out short-run cyclical effects
• Comparator organisations - benchmarking

Question 5

what is Gap analysis?

Answer 5

Compared desired performance to actual or projected performance.

If there is a gap - need to change- current stratgey not working.
-Size of gap indicates the extent to which strategy needs to be changed.

Question 6

explain the complexities of performance measures

Answer 6

performance measures can be comtridactory:

• Organisation can manipulate outcomes eg: tesco delaying payment
• Legitimately manage perceptions and expectiations (institutional analysists)
• performace measures can change over time. eg: Tripple bottom line becoming more important.

Question 7

Form the SAF criteria of evaluating strategies : What is suitability?

Answer 7

Suitability - looks at how the proposed strategies addresses opportunities and threats.

• exploiting opportunities in the enviroment by avoiding/ reducing threats
• capatalises on the organisaitons strength by reducing or remeding weaknesses.

Question 8

What are some suitabiltiy screening techniques?

Answer 8

1) Ranking (scoring - helps avoid manager bias)
2) Screening through scenarios (future scenarios usefu when high dregree of uncertainity) - open stratgies - contingency plans
3) screening for bases of competitive advantage - strategic capabilities = VRIO criteria
4) decision tree - strategy emerges
5) life cycle analysis - proposed strategy fit the current state of the cycle
- Strong - cost advantage through experience - broadning scope.
-Middle - merger/ aquisition - find a protected niche
-Weak - sale/ closure to competition
NOTE : life cycle stages are not irreversible.

Question 9

How can acceptability be viewed

Answer 9

Acceptability - proposed strategies meet stakeholder expectations.

RISK

• sensitivity analysis (what if scenarios)
• Break even (fixed costs + variable cost) - survival
• Financial analysis (liquidity/ gearing)

RETURN

• Payback period
• ROCE (return on capital employed)
• discounted cashflows.

Question 10

What is shareholder value analysis?

Answer 10

Its a form of financial analysis.- poses a direct question:

• Total shareholder return
• Economic value added

Question 11

what does it mean by “reaction to shareholders”

Answer 11

This means that the proposed strategy is not acceptable - likely to fail. key stakeholder reasctions include:

• customer
• oweners
• bank
• regulators
• employees
• local community

Question 12

what is fesibility?

Answer 12

Fesibility looks at - whether the strategy will work

• Financial feasibility (capital required)
• People and skill (strategic capabilities)
• Integrating resources

Question 13

SAFe evaluation criteria?

Answer 13

• strategy development isnt always a logical and rational process.
• consistency between different strategy approaches is important eg:
• pursuing strategies (organic, merger, aquisituion)
• competitive strategies (low cost, differentiation)
• strategic direction- (product development diversificaiton)
• The implemented strategy might reveal an unanticipated problem: Overcome by;
• real options evealuation, experimentation, low cost probes.