Question

What criteria should be used during the process of selecting amongst strategic alternatives? WHY?

The analytical reasoning and rationale is crucial. Answering WHY after explaining WHAT is very important.

Answer 1

Ans. The competitive intensity in the different regional and global markets has increased manifold. Choosing of the right strategies is crucial towards creating and improving organizational capabilities that can contribute towards the success, growth, and competitiveness of a business. But these strategies should be sustainable and should favorably provide for improved financial and operational performance, growth, and competitive advantage for a long period. An analysis of the environment (including external and internal environment) of the company helps it get a clear description of the situation and helps in exploring and formulating the various strategic alternatives available to it for achieving the goals and objectives. The external analysis may be carried out through measures like PESTLE (Political, Economic, Social, Technological, Legal And Economic) analysis framework where a firm explores and analyses the various dimensions of the external environment. Other methods for internal and external environment analysis include Porter five forces analysis, SWOT analysis, value chain analysis and VIRO (value, rarity, imitability, and organization) among others.

When a corporation is aware of the various threats, weaknesses, opportunities, and strengths it faces, it can choose the alternatives that best use its resources and capabilities, create maximum growth opportunities, and bring to the firm highest return on investment. A business strategy commonly has two main cores. The product-market investment-related decisions make the first core. This core element also includes aspects like resource allocation and investment intensity. The other or second core element of business strategy is the formulation of competitive advantage that is sustainable and creates synergy. Some of the criteria that can be used by a firm for selecting the best among all available strategic alternatives are given below.

Extent Of Objective Attainment- All business strategies may have some merits. Therefore a manager has to choose a strategic alternative that can provide for best and maximum results and attainment of the greatest number of goals and objectives. For instance, while one strategy may provide for better revenues in the short term while others may offer greater sustainability and revenues in the long term, and hence a manager needs to suit the best course of action. Managers may also work on hybrid strategies, and choose the best elements of strategies to formulate a plan that can bring to the firm greatest number of benefits. Implementation of strategies requires resources and the company would like to make maximum and wise use of them.

The Rational Choice- While an analysis of the external and internal environment may bring to fore several strategic alternatives, all of these may not have the same strength. The alternatives that are backed by data and figures carry greater weight. When it comes to getting approval, strategies that are backed by clear forecast and outcomes, which can be predicted in real numbers/figures/data charts/reports or are based on them will be preferred. Management also has a responsibility to mitigate the risks, related to strategy implementation. It would hence be preferring strategies that have a better and clear potential towards being realized, as per the quantitative and qualitative analysis and predictions. Managers try to make rational choices and decisions where the efficiency and effectiveness of the choice are more assured, and the likelihood of the attainment of the organizational objectives is maximum.

Appropriateness- The strategies need to be implemented in the real-world markets and scenarios, and are used by an organization to realize the goals and objectives. Therefore, only appropriate strategies can be chosen. There should be no ambiguity about the resources, time, management, processes and other aspects and dimensions related to a strategy and its implementation. The organization should have access to the required resources and other capabilities to implement the strategy and to carry it out to its logical end.

Market Scenario- A strategy should work well for the firm in the given market scenarios. Analysis frameworks and methods including Porter analysis and SWOT analysis help the company know more about its strengths and weaknesses. The analysis will also help the company gain insights related to the likeliness of a market in the long term. While a strategy may be highly lucrative and alluring, it should also fit the market conditions and should improve on the strengths and reduce the weaknesses of the business. The outcome of analytical frameworks and processes are quite beneficial for the firms in conceptualizing the best strategies.

Methods and Tools: A strategy that solely focuses on the external in the internal environment may not be beneficial for the firm, and the same can be said about a strategy that explores the internal dimensions only. This is one reason why the traditional strategy making approaches have now been abandoned and more modern approaches towards strategy making have been conceptualized and adopted. The modern approach of strategy making deals with the long-term issues that a business faces and considers both internal and external aspects including technological developments, competitor actions, economic trends, internal operating processes and results, and others. Within the modern strategy formulation approach, we have multiple tools and methods for formulating and choosing the best strategic alternative. These include the Ad Hoc Approach, Gap Analysis, Capital Investment Theory, Cascade Approach, and Portfolio Approach. All of these tools help in the selection of the best strategic option based on screening, shortlisting and in other ways.

Certain factors may influence the choice of strategic alternative. This may include the nature of the environment and the mission of the organization. The past strategies of the organization, its weaknesses and strengths, and personal factors including personal preference may impact the decision as well. Further, the power relations in management value systems and attitude or compulsions of the management towards risk may also impact the selection of a given strategic alternative