C M Clarke-Hill1 Strategic Evaluation. Evaluation - Two Basic Types Post Hoc Evaluation - evaluation...
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Transcript of C M Clarke-Hill1 Strategic Evaluation. Evaluation - Two Basic Types Post Hoc Evaluation - evaluation...
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