C M Clarke-Hill 1

Strategic Evaluation

Evaluation - Two Basic Types• Post Hoc Evaluation - evaluation of a strategy

that has already been in operation. Here we evaluate the outcomes of the strategy against the strategic benchmarks we set. The role of this form of evaluation is to allow for corrective action. Models widely used are: The Balanced Scorecard The Margin Return Model

• Strategic Choice Evaluation - is about techniques that allow the manger to decide which of several strategic options to chose from.

Evaluation Of Strategies• Evaluation is not just about finding our preferred

strategy. We also need: Contingency plans An understanding of a variety of options - how might

each fit different circumstances• Evaluation should assess consequence of

following a strategy and how sensitive that strategy is to our assumptions.Therefore: Evaluation must be a continuous part of a continuous

process Must evaluate low priority options to guard against

future possibilities

Strategy Support Tools

StrategyDevelopment

Process

Ability toFormulateStrategy

Ability toDeduce

Consequencesof Strategy

StrategySupport Tool

Models, Computing And Strategic Choice

• Models should be an aid i.e.. do things we are not very good at

• Models do not replace managerial creativity and judgement

• Models help give sharper insight into consequences of pursing particular strategy

• Choice is based on combination of quantitative and qualitative information

• Models, of whatever type, should be seen to generate "opinions" not "answers"

Assumptions Underpinning Rational Strategy Selection

Criteria• Organisations are systems driven by rules

producing predictable long term outcomes• These rules establish clear-cut

relationships between cause and effect; action and outcome

• Successful organisations are in a state of stable equilibrium

• Successful organisations exhibit characteristics of stability, regularity, predictability and harmony

Evaluation Criteria (According to Johnson & Scholes)

• SuitabilityDoes it fit situation revealed by our

strategic analysis• Feasibility

Will it work in practice?Have we got the resources?

• AcceptabilityWill stakeholders like it?

Evaluation Criteria (According to Lynch)

• Consistency Is the proposed strategy in line with our mission and

objectives?

• Suitability Does it fit our business and competitive environment?

• Validity Is it based upon realistic assumptions?

• Feasibility Will it work in practice and have we got the resources?

• Business Risk Do the potential returns justify the exposure?

• Attractiveness to stakeholders Will stakeholders like it?

Evaluation Criteria (According to Thompson)

• Appropriateness Does the proposed strategy deal with the influencing

factors identified in our strategic analysis?

• Feasibility Does the organisation have the capability to

implement the proposed strategy effectively?

• Desirability Does the proposed strategy satisfy stakeholder

aspirations and expectations?

Johnson And Scholes, Lynch and Thompson Compared

• Although using different words (labels/terminology) approach is essentially similar:

Lynch

Consistency

Suitability

Validity

Feasibility

Business Risk

Attractiveness to

Stakeholders

Thompson

Appropriateness

Feasibility

Desirability

Johnson & Scholes

Suitability

Feasibility

Acceptability

The Johnson & Scholes Framework For Evaluating and Selecting Strategies

Strategic Analysisidentifies the

organisation’s circumstances

Strategic Optionsidentifies possibilities

for development

Assessment of Suitabilityestablish the rationale

screening options

Selection of Strategyplanned, enforced,learning, command

FeasibilityAcceptability

return, riskstakeholder reactions

Suitability

Suitabilityis this a

good strategy?

Life-cycle Analysesdoes it fit the stage

we will be in?

Positioningis the positioning

viable?

Value Chain Analysisdoes it improve value

for money?Does it exploit core

competences?

Business Profilewill it lead to good

financial performance?

Portfolio Analysisdoes it strengthen thebalance of activities?

Criteria for Assessing Suitability

• Does the proposed strategy exploit opportunities and avoid threats?

• Does the proposed strategy capitalise upon our strengths and core competences whilst avoiding our weaknesses?

• Does the proposed strategy fit our culture and political context?

Techniques for Assessing Suitability

• Portfolio / Life-cycles analyses assess the position of the organisation and the

product/service in relation to theoretical product and organisation life-cycles

assess the proposed strategy in terms of the attractiveness of the proposed market and the current competitive position of the organisation

Value Chain Analysis assess the extent to which the value chain needs to be

reconfigured and whether such reconfiguration is sustainable

• Business Profile assess the proposed strategy against available research

evidence such as the PIMS database

Undertaking an Initial Screening of Options

• Gap Analysis extent to which proposed strategies will meet, exceed or

fail to meet performance objectives

• Decision Trees progressive elimination of proposed strategies assessed

against progressively more rigourous criteria

• Scenario Planning assess the match between proposed strategies and likely

future scenarios prepare contingency plans

• Ranking scoring proposed strategies against a range of criteria to

assess best fit

Criteria for Assessing Acceptability

• Financial Returndo the likely profit and cashflow

outcomes meet expectations?• Risk

is the level of exposure satisfactory given the likely returns?

• Stakeholder Reactionswill stakeholders be motivated to act in a

positive manner towards the proposed strategy?

Techniques for Assessing AcceptabilityApproach Used to Assess Examples LimitationsAnalysing ReturnProfitability analyses Financial return of

investmentsReturn on capitalPayback periodDiscounted cashflow

Apply to discreteprojectsOnly tangible costs /benefits

Cost-benefit analysis Wider cost/benefits(including intangibles)

Major infrastructureprojects

Difficulties ofquantification

Shareholder valueanalysis

Impact of newstrategies onstakeholder value

Mergers / takeovers Technical detail oftendifficult

Analysing RiskFinancial ratioprojections

Robustness ofstrategy

Breakeven analysisImpact on gearingand liquidity

Sensitivity analysis Test assumptions /robustness

‘What if?’ analysis Test factorsseparately

Simulation modeling Aggregate impact ofmany factors

ComprehensivemodelsRisk analysis

Quality of data oncausal relationships

Stakeholderreactions

Political dimension ofstrategy

Stakeholder mappingGame theory

Largely qualitative

Criteria for Assessing Feasibility

• Does the organisation have the resources necessary to deliver the proposed strategy successfully?

• Can any resource deficiencies be remedied easily?

• Does the organisation have the competences required to enact the proposed strategy successfully?

Techniques for Assessing Feasibility

• Funds Flow Analysis assessing whether the available sources can provide

sufficient funds to enable the proposed strategy to be implemented successfully

• Break-even Analysis determining the level of performance required to enable the

outcome of the proposed strategy to exactly cover the costs of enacting the proposed strategy

• Resource Deployment Analysis understanding the changes and developments needed in

organisational activities to enable the proposed strategy to be enacted successfully

Thompson’s Criteria for Effective Strategies

Appropriateness

Feasibility Desirability

E-V-RCongruence

Simplicity

Mission & objectives Culture

SWOT: Current Strategic position

Skills & resourcesAvailable & needed

Effect on strategicperspective

Strategic needs:planning gap

Level of returnexpected

Synergy

Stakeholder needs& preferences

RiskCompetitiveAdvantage

Ability to meet keysuccess factors

Finance & otherresource

availability

Change demands -issues of

Implementation

Timing

Selecting Strategies

Acceptability

Suitability Feasibility

Processes for Selecting StrategiesApproach Dominant

ProcessesElements of GoodPractice

Dangers

Planning Analytical techniquesTested againstobjectivesQuantified wherepossible

Involve line managersAnalyse ‘holistic’pictureBuild in flexibilityCommunicationbetween analysts anddecision-makers

No ownershipFragmented analysisRigidity – lostopportunitiesDecision-makersdisown analysis

Enforced Choice Bend toenvironmental‘pressure

Assess riskPreparecontingencies

‘Victims ofcircumstances’Evaluation not done

Learning fromExperience

Reactive moves inseparate parts of theorganisationCultural / politicalcontext important

Processes needcredibilityAvenues of challengePromote inter-unitlearning

Fragmented /inefficientPragmatismRisk of strategic drift

Command Dominant stakeholderselects strategy

Inform / educatedecision-makerNeed ‘completeness’Challenges theparadigm

Incomplete visionVisioninstitutionalised

Criteria For Selecting A Policy

• Goal Consistency Test

• Frame Test

• Competence Test

• Workability Test

According to Byars but note similarity to Johnson and Scholes

(Acceptability)

(Feasibility)

(Feasibility)

(Suitability)

Methods Of Making The Choice

• Selection against pre-determined objectives

• Referral to a higher authority

• Incrementalism

• Using outside agencies

Influences On The Selection Decision

• Managerial perceptions of external dependence

• Managerial attitudes towards risk

• Managerial awareness of past policies

• Managerial power relationships

Making the Choice

Risks

Reactions

Resources

Requirements

Returns

Revenues

The Selection Decision

Perception

Judgement

Sentiment

Research

Analysis

Feelings

Intuition

Evaluation