This Is Business

Strategy evaluation and development
business.ulster.ac.uk
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Learning objectives
• Evaluate the performance outcomes of different strategies in terms of
direct economic outcomes and overall organisational effectiveness.
• Evaluate performance and the need for new strategies using gap analysis.
• Employ three success criteria for evaluating strategic options: suitability,
acceptability and feasibility.
• For each of these success criteria, use a range of different techniques for
evaluating strategic options, both financial and non-financial.
• Understand what is meant by deliberate and emergent strategy
development.
• Explain deliberate processes of strategy development in organisations.
• Explain processes that give rise to emergent strategy development.
2
Introduction
3
Organisational performance – performance measures
• Economic performance refers to direct measures of success in terms of
economic outcomes. Three main dimensions:
• Performance in product markets.
• Accounting measures of profitability.
• Financial market measures.
• Effectiveness refers to a broader set of performance criteria reflecting

internal operational efficiency or measures relevant to a wider range of
stakeholders.
• Balanced scorecard: considers four perspectives (i.e. financial, customer,
internal business process, and innovation and learning perspectives).
• Triple bottom line: reflects economic, social and environmental measures.
4
Organisational performance – performance comparisons
• Performance is measured in relation to:
Organisational Comparator
Trends
targets organisations
5
Organisational performance – gap analysis
Gap analysis
• compares actual or
projected
performance with
desired performance.
• Helps to identify
shortfalls in
performance.
6
Evaluating strategic initiatives – SAFE criteria
• SAFE: Suitability, acceptability, feasibility, evaluation.
Suitability Does a proposed strategy address the key opportunities and threats an
organisation faces?
Acceptability Does a proposed strategy meet the expectations of stakeholders?
• Is the level of risk acceptable?
• Is the likely return acceptable?
• Will stakeholder reactions be positive?
Feasibility Would a proposed strategy work in practice?
• Can the strategy be financed?
• Do people and their skills exist or can they be obtained?
• Can the required resources be obtained and integrated?
Evaluation Which of the strategies that are suitable, acceptable, and feasible satisfies
best these 3 requirements?
7
Suitability
• Suitability is concerned with assessing which proposed strategies address
the key opportunities and threats an organisation faces.
• It is concerned with the overall rationale of the strategy:
• Does it exploit the opportunities in the environment and avoid the
threats?
• Does it capitalise on the organisation’s strengths and avoid or remedy
the weaknesses?
8
Suitability
9
Suitability
10
Suitability
• Suitability screening
techniques include:
• Ranking.
• Screening through
scenarios.
• Screening for bases of
competitive advantage.
• Decision trees.
Fig: Decision tree example for a law firm
11
Acceptability
• Acceptability is concerned with whether the expected performance
outcomes of a proposed strategy meet the expectations of stakeholders.
• Need to consider the 3Rs:
• Risk.
• Return.
• Stakeholder reactions.
12
Acceptability
• Risk concerns the extent to which strategic outcomes are unpredictable,
especially with regard to negative outcomes… ‘risk return trade-offs’.
• Risk can be assessed using:
• Sensitivity analysis – ‘what if’ analysis.
• Financial risk – e.g. gearing and liquidity ratios.
• Break-even analysis – point at which fixed and variable costs are
recovered.
13
Acceptability
• Returns are a measure of the financial effectiveness of a strategy.
• Different approaches to assessing return include, for example:
• Financial analysis.
• Real options.
Fig: A real options approach to a brewery development 14

Acceptability
• Reaction of stakeholders
• Stakeholder mapping can be used to:
• Understand the political context of strategies.
• Understand the political agenda.
• Gauge the likely reaction of stakeholders to specific strategies.
15
Feasibility
• Feasibility is concerned with whether a strategy could work in practice.
• Do the resources and competences currently exist to implement the
strategy effectively?
• If not, can they be obtained?
• Need to consider:
• Financial feasibility – funding and cash flow.
• People and skills – competences, knowledge, and experience.

• Integrating resources – obtaining and integrating new resources.
16
Evaluation
• Evaluation is concerned with identifying strategies that can pass all the
hurdles of suitability, acceptability, and feasibility.
• Four qualifications:
• Be aware of conflicting conclusions and the need for management
judgement.
• Consistency between the different elements of a strategy is essential.
• The implementation and development of strategies might reveal
unanticipated problems.
• Strategy development in practice isn’t always a logical or even rational
process.
17
Deliberate and emergent strategy development
Source: Adapted from H. Mintzberg and J.A. Waters, ‘Of strategies, deliberate and emergent’, Strategic Management Journal, vol. 6, no. 3 (1985), p.
258, with permission from John Wiley & Sons Ltd. 18
Deliberate strategy
• Deliberate strategy involves intentional formulation or planning.
Deliberate strategy can come about through:
• Strategic leaders.
• Strategic planning mechanisms.
• External imposition.
19
Deliberate strategy
• Strategic leaders
• Strategy may be the deliberate intention of a leader. This may manifest
itself in different ways:
• Strategic leadership as command.
• Strategic leadership as vision.
• Strategic leadership as decision-making.
• Strategic leadership as the embodiment of strategy.
20
Deliberate strategy
• Strategic planning mechanisms
• Strategic planning takes the form of systematic analysis and exploration to
develop an organisation’s strategy.
• Stages of strategic planning:
Initial guidelines from corporate centre
Business-level planning
Corporate-level integration of business plans
Financial and strategic targets
21
Deliberate strategy
• Strategic planning may play several roles:
• Formulating strategy: a means by which managers can understand
strategic issues and decide future strategy.
• Learning: a means of questioning and challenging current strategy and
future strategic options.
• Integration: coordinating business-level strategies within an overall
corporate strategy.
• Communicating intended strategy and providing strategic milestones.
22
Deliberate strategy
• External imposition
• Strategies may be imposed by powerful external stakeholders. Examples
include:
• Government can shape strategy in public sector organisations and
regulated industries.
• Multinational companies may have elements of strategy imposed by
host governments.
• Business units may have their strategy imposed by head office.
• Venture capital firms may impose strategy on companies they buy into.
23
Emergent strategy
• Emergent strategy: strategies emerge on the basis of a series of
decisions, which form a pattern that becomes clear over time.
• Strategy is not a ‘grand plan’ – rather a ‘pattern in a stream of decisions’.
• Different views on emergent strategy.
24
Emergent strategy
• Logical incrementalism is the development of strategy by
experimentation and learning ‘from partial commitments rather than
through global formulations of total strategies’.
• Three main characteristics:
• Environmental uncertainty – constant environment scanning and
change.
• General goals – avoiding too early commitment to specific goals.
• Experimentation – building a strong but flexible core business but
engaging in ‘side bet’ ventures to test out new strategies.
25
Emergent strategy
• Strategy as the outcome of political processes
• The political view of strategy development is that strategies develop as
the outcome of bargaining and negotiation among powerful interest
groups (or stakeholders).
• The approach of different people to strategic problems is influenced by:
• Position and personal experience.
• Competition for resources and influence.
• The relative influence of stakeholders.
• Different access to information.
26
Emergent strategy
• Strategy as the outcome of organisational structures and systems
• Strategy development as the outcome of managers making sense of, and
dealing with, strategic issues by applying established ways of doing things.
• Strategy development is influenced by the systems and routines managers
are familiar with in their particular context.
27
Summary
• Performance can be assessed in terms of both economic performance
and overall organisation effectiveness.
• Gap analysis indicates the extent to which achieved or projected
performance diverges from desired performance and the scale of the
strategic initiatives required to close the gap.
• Strategies can be evaluated according to the three SAFe criteria of
suitability in view of organisational opportunities and threats,
acceptability to key stakeholders and feasibility in terms of capacity for
implementation.
• It is important to distinguish between deliberate strategy – the desired
strategic direction deliberately planned by managers – and emergent
strategy, which may develop in a less deliberate way from the behaviours
and activities inherent within an organisation.
28
Reading
Lecture material based on:
• Whittington, R., Regner, P., Scholes, K., Angwin, D., and Johnson, G. (2020).
Exploring Strategy: Text and Cases, Pearson, 11th Edition, Chapter 12, 13.
29

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Strategy evaluation and development

• Effectiveness refers to a broader set of performance criteria reflecting

Fig: Decision tree example for a law firm

Fig: A real options approach to a brewery development 14

• People and skills – competences, knowledge, and experience.

Corporate-level integration of business plans

Financial and strategic targets

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