Chapter 7

EVALUATION OF
ALTERNATIVES AND
STRATEGIC CHOICE

Faculty:
DR. ASIMA FAISAL
LEARNING OBJECTIVES
i. Understand the rationale underlying the various strategic thinking maps used to
evaluate strategic alternatives.
ii. Discuss, evaluate, and select appropriate adaptive strategic alternatives for a
health care organization.
iii. Discuss, evaluate, and select appropriate market entry strategic alternatives.
iv. Discuss, evaluate, and select appropriate strategic posture and generic
positioning alternatives.
v. Determine whether selected strategies are consistent, coordinated, and fit the
situation.
vi. Understand the role of the service delivery and support strategies.
EVALUATION OF THE ALTERNATIVES
• There are several frameworks or maps that may be used to guide strategic
thinking about the appropriate strategic alternatives for an organization
• These strategic thinking maps incorporate the results of external and
internal analyses as well as the development of directional strategies.
• These are actually constructs or frameworks for helping managers
strategically think about the organization and its situation (strengths and
weaknesses) relative to the general environment, competitors, and
consumers.
EVALUATION OF THE ADAPTIVE
STRATEGIES
• Once the directional strategies have been developed, consideration is given
to the adaptive strategies
• The adaptive strategies are central to strategy formulation and are the
broadest interpretation of the directional strategies.
• Several constructs help strategic managers think about adaptive strategic
decisions.
METHODS TO EVALUATE THE
ADAPTIVE STRATEGIES
• Threats, opportunities, weaknesses, and strengths (TOWS) matrix
• Product life cycle (PLC) analysis
• Boston Consulting Group (BCG) portfolio analysis
• Extended portfolio matrix analysis
• Strategic position and action evaluation (SPACE)
• Program evaluation
TOWS MATRIX
• The TOWS matrix indicates four strategic conditions that the organization
may encounter

• The internal strengths and weaknesses that result in competitive

advantages and disadvantages for the organization are summarized on the
horizontal axis and the external environmental opportunities and threats
are summarized on the vertical axis.
 TOWS MATRIX
Internal Strengths Internal Weaknesses
(competitive advantages) (competitive disadvantages)

External Opportunities

External Threats
PRODUCT LIFE CYCLE ANALYSIS
• Product life cycle (PLC) analysis can be useful in selecting strategic
alternatives based on the principle that all products and services go
through several distinct phases or stages.

• These stages relate primarily to the changing nature of the marketplace,

the product-development process, and the types of demands made on
management.
PRODUCT LIFE CYCLE ANALYSIS
STRATEGIC CHOICES FOR STAGES
OF THE PRODUCT LIFE CYCLE
Stage 1 - Introduction Stage 2 - Growth
• Market Development • Market Development
• Product Development • Product Development
• Penetration
• Vertical Integration
Stage 3 – Maturity • Related Diversification
• Market Development
• Product Development
• Stage 4 – Decline
Penetration
• Enhancement • Divestiture
• Status Quo • Liquidation
• • Harvesting
Retrenchment
• • Unrelated Diversification
Divestiture
• Unrelated Diversification
PORTFOLIO ANALYSIS
• Portfolio analysis, popularized by the Boston Consulting Group (BCG), has
become a fundamental tool for strategic analysis.

• The market position of the health care organization as a whole or its

separate programs can be examined in terms of its share of the market and
the rate of service category growth
PORTFOLIO ANALYSIS
BCG PORTFOLIO ANALYSIS FOR A
HEALTH CARE INSTITUTION
EXTENDED PORTFOLIO MATRIX
ANALYSIS
• It includes a profitability dimension.

• The profitability dimension is measured by high or low profitability

according to positive or negative cash flow or return on invested
capital.
EXTENDED PORTFOLIO MATRIX
ANALYSIS
STRATEGIC POSITION AND ACTION
EVALUATION
• It is an extension of two-dimensional portfolio analysis (BCG)

• It is used to determine the appropriate strategic posture of the

organization.

• By using SPACE, the manager can incorporate a number of factors into the
analysis and examine a particular strategic alternative from several
perspectives
STRATEGIC POSITION AND ACTION
EVALUATION
 EXAMPLE
California-based regional hospital system specializing in health
services for the elderly and chemically dependent.
STRATEGIC POSITION AND ACTION
EVALUATION FACTORS
Factors Determining Environmental Stability

Critical factors
Fairly turbulent environment; strong competition: many technological changes.
Comments
Necessary to maintain financial stability because of turbulence in the environment; demand in market segments relatively stable;
protect market niche against competition.
STRATEGIC POSITION AND ACTION
EVALUATION FACTORS
Factors Determining Service Category Strength

Critical factors
Good growth and profit potential; strong competition.
Comments
Very attractive service category, but strong competition; degree of capital intensity increasing.
STRATEGIC POSITION AND ACTION
EVALUATION FACTORS
Factors Determining Competitive Advantage

Critical factors
Market share low; product/service quality very good.
Comments
The organization still enjoys slight competitive advantage because of quality and customer loyalty; can be expected to diminish,
however, because of improving performance of competitive organizations.
STRATEGIC POSITION AND ACTION
EVALUATION FACTORS
Factors Determining Financial Strength

Critical factors
Very little liquidity; too much debt.
Comments
Financial position very weak; cash inflow has to be increased in order to improve liguidity; outside financing difficult because of high
leverage.
INFERENCES FROM EXAMPLE
• California-based regional hospital system specializing in health services for the elderly and
chemically dependent.
• This hospital system is operating in a fairly turbulent environment with many competitive
pressures and many technological changes (environmental stability axis).
• The hospital’s service category segments show good growth potential that attracts strong
competition. Increasing competition requires increased investment in new facilities and
technology.
• The hospital still has a competitive advantage (competitive advantage axis) derived from early
entry into the market and it has been able to retain customer loyalty because of high quality
service.
• The hospital’s financial position (financial strength axis) is weak because it financed new
facilities through a substantial amount of debt.
• Its liquidity position has eroded and cash flow continues to be a problem.
SPACE PROFILE FOR A REGIONAL
HOSPITAL SYSTEM
INFERENCES FROM EXAMPLE
• The hospital is competing fairly well in an unstable but attractive
service category segment.

• This organization cannot be too aggressive because it has few

financial resources and the environment is a bit unstable.

• Therefore, it should adopt a competitive posture.

SPACE STRATEGY PROFILES
SPACE STRATEGY PROFILES
STRATEGIC ALTERNATIVES FOR
SPACE QUADRANTS
PROGRAM EVALUATION
• It is especially useful in organizations where market share, service category
strength, and competitive advantage are not particularly important or are
not relevant
• Such organizations are typically not-for-profit, state- or federally-funded
institutions such as state and county public health departments, state
mental health departments, Medicaid agencies, community health centers,
and public community hospitals.
• Two program evaluation methods that have been used successfully:
• Needs/capacity assessment
• Program priority setting.
NEEDS/CAPACITY ASSESSMENT
• The set of programs in not-for-profit organizations such as public health
departments essentially are determined by (1) community need and (2)
the organization’s capacity to deliver the program to that community.
• In developing a strategy for a public health organization or not-for-profit
organization serving the community, a needs/capacity assessment must be
undertaken – community needs must be assessed vis-à-vis the
organization’s ability (capacity) to address those needs.
NEEDS/CAPACITY ASSESSMENT
• Community need is a function of
1. Clear community requirements (environmental, sanitation, disease
control, and so on) and personal health care (primary care) gaps,
2. The degree to which other institutions (private and public) fill the
identified health care gaps
3. Public/community health objectives
• Organizational capacity is the organization’s ability to initiate, maintain, and
enhance its set of adaptive strategy programs. Organizational capacity is
composed of
1. Funding to support programs
2. Other organizational resources and skills
3. The program’s fit with the mission and vision of the organization
PUBLIC HEALTH AND NOT-FOR-
PROFIT ADAPTIVE STRATEGIC
DECISIONS
PROGRAM PRIORITY SETTING
• It involves ranking programs and setting priorities
• It is significant because community needs (both the need itself and the
severity of the need) are constantly changing & Organizational resources,
in terms of funding and organization capacity, are almost always limited.
• The most important may be expanded or maintained
• The organization must have an understanding of which programs are the
most important
PROGRAM PRIORITY SETTING
• The Q-sort method provides a more formal method of differentiating the
importance of programs and setting priorities
• Q-sort is a ranking procedure that forces choices along a continuum in
situations where the difference between the choices may be quite small.
• The program Q-sort evaluation is particularly useful when experts may
differ on what makes one choice preferable over another
• Q-sort evaluation helps overcome the problem of all programs being
ranked as very important by forcing a ranking based on some set of
assumptions
EXAMPLE
EVALUATION OF THE MARKET
ENTRY STRATEGIES
• One or more of the market entry strategies must be used to break into or
capture more of the market
• The market entry strategy depends on
1. The external conditions
2. Internal Resources, Competencies, and Capabilities
3. Organizational goals
• The market entry strategies include acquisition, licensing, venture capital
investment, merger, alliance, joint venture, internal development, and
internal venture.
MARKET ENTRY STRATEGIES AND
ORGANIZATIONAL GOALS
EVALUATION OF THE COMPETITIVE
STRATEGIES
• After the market entry strategies have been selected, the strategic
posture must be specified
• The products/services must be positioned within the market using the
generic strategies of cost leadership, differentiation, or focus.
• All of the adaptive strategies (expansion, contraction, and
maintenance of scope) require explicit strategic posture and
positioning strategies
STRATEGIC POSTURE
• The relationship between the organization and the market and
describes the pattern of strategic behavior.
• Appropriate strategic postures include defender, prospector, and
analyzer.
• These are subject to:
• The external environment
• Internal resources, competencies, and capabilities of the organization
POSITIONING STRATEGIES
• Products/services may be positioned market-wide or for a particular
market segment.
• Positioning depends upon the strengths and weaknesses of the
organization and the opportunities and threats in the external environment
• Positioning depends on the organization’s competitive situation
• Positioning strategies must be selected based on resources, competencies,
and capabilities (strengths), as well as environmental risks
FIT WITH SITUATIONAL ANALYSIS AND
STRATEGY MAPPING
• After all of the strategy formulation decisions have been made, they
should be evaluated in combination to ensure they are logical and fit
together
• The strategies selected must
• Address an external opportunity or threat
• Draw on an internal and competitively relevant strength or fix a competitively
relevant weakness
• Keep the organization on mission
• Move the organization toward the vision
• Make progress toward achieving one or more of the organization’s goals
MAP OF SELECTED STRATEGIES FOR
LONG-TERM CARE ORGANIZATION
MANAGING STRATEGIC MOMENTUM – ADAPTIVE,
MARKET ENTRY, AND COMPETITIVE STRATEGIES

• It entails deciding if a completely new track or approach is warranted

• Managers must decide if conditions require a change in the organization’s

fundamental strategies
SUMMARY AND CONCLUSIONS
• There are several methods for deciding which of the adaptive strategic
alternatives is most appropriate for an organization.
• The TOWS (threats, opportunities, weaknesses, and strengths) matrix,
product life cycle (PLC) analysis, portfolio analyses (BCG and extended),
strategic position and action evaluation (SPACE) analysis, and program
evaluation
• After which a market entry strategy is selected.
• Entry strategies include acquisition, licensing, venture capital
investment, merger, alliance, joint venture, internal development, and
internal venture.
• After which competitive strategies should be evaluated and selected
• It include strategic posture and positioning strategies,