1. 1 ICS 462 Information Systems Strategy & Implementation 2.2 Strategic Choice Tools

2. 2 1. Introduction n The strategic choice is concerned with choosing a strategy based on the foundation laid by strategic analysis. n Elements associated with making strategic choices are u Generation of options u Evaluation of options u Selection of options n Generation of strategic options involves identifying as many as possible of potential courses of action. n Evaluation of strategic options involves testing of the alternatives listed for suitability, feasibility & acceptability (evaluation criteria). n Selection of strategy result in a single strategy or strategy set that will be the target for the strategic implementation element for the process

3. 3 n Example of strategy options to increase student access to network infrastructure in a university (strategic objective): 1.Create hotspots in campuses and halls of residence 2.Create large (100-200 PC) labs in all campuses 3.Add more PCs to existing computer labs 4.Implement a mechanism for students to own their PCs/Laptops 5.Outsource computer lab infrastructure and services 6.Implement thin client technologies

4. 4 2. Generation of strategic options n This element of the strategic choice process aims to generate strategic options for subsequent evaluation. n This is done in a number of ways, by identifying: u What basis? u Which direction? u How options?

5. 5 2.1 What basis? - Alternate competitive strategies n The question of what competitive strategy to adopt is answered by Porter’s classification of three possible ways for an organization to out perform its competitive rivals n Porter presented the choices as between 3 generic business strategies: u Product differentiation u Overall Cost leadership u Focus/Niche n In reality, you can have strategies that go beyond Porter’s three generic strategies

6. 6 n Product differentiation u The organization hope to win customers by offering better products or services than its competitors. The organization focus on building unique products n Overall cost leadership u The organization seeks to win customers on the basis of cost for a given level of quantity and services through good cost control and cost reduction n Focus or Niche u The organization is targeting particular parts of the market such as certain customers groups or regional areas

7. 7 2.2 Which direction?- Alternate directions n There are a number of directions an organization can pursue n Possible development strategies are modeled in which seven alternatives are suggested based upon the extent to which new markets and/or new products are sought as shown in fig.

8. 8 Do nothing Withdrawal Consolidation Market penetration Product development Market development Diversification Related Unrelated On existingOn new On existing Product focus Market focus Alternative Strategic Options

9. 9 n Do nothing u implies the continuation of existing direction u some growth may occur if the current market grows n Withdrawal u org. removes itself from the industry, e.g. because of an irreversible decline in demand, an over-extended position, etc. u a strategy of asset realization and resource deployment n Consolidation u when an industry dominant org. aims for stability in order to accumulate cash reserves for some future activities u done by cutting costs and/or increasing prices u aim is to obtain a better margin

10. 10 n Market penetration u org. seeks growth within the same market and using the same products u growth is achieved either by the market itself growing or by grabbing the market share of others u conservative growth strategy (no R&D investment) n Product development u keeps the org. operating within its current markets but competing on the basis of new products u growth is obtained if these new products are successful u relatively low-risk strategy and one that works well when product life cycles are short and products are the natural spin-off from the R&D process

11. 11 n Market development u org. takes its current product range into new markets u relatively high-risk strategy given the state of ignorance of this new market n Diversification u takes the org. away from both the existing markets and the existing products u the highest-risk strategy because of unfamiliarity u related diversification remains broadly within the same industry, either backward into the supply chain, forward into the distribution chain or horizontally into complementary activities, and so lowers the risk u unrelated diversification is a strategy popular with holding company conglomerates

12. 12 2.3 How? - Alternate methods n Possible ways to implement growth strategies in 2.2: u internal development of growth over time (this is slow) u external development via mergers and acquisitions (expensive but fast in gaining access to markets) u joint ventures n UoN ICT strategy example: Obj – To increase access to computer facilities by students via: u Implement hot spots in campus and halls u Create new student computer labs u Implement a student PC/laptop purchase scheme u Replace existing old computers and buy additional ones n The trade-offs between cost/ risk/ speed shape the choice between these alternatives

13. 13 3. Strategy evaluation & choice n Once the strategic options have been generated there must exist a framework within which they can be evaluated for u suitability u feasibility u fit to the organization n The evaluation process seeks to judge the appropriateness of the options with regard to organ.’s environment, culture and capabilities n The evaluation process can use some of the tools covered under strategic analysis, e.g. MCC matrix used to assess the fit of existing products to mission and core competences

14. 14 The mission core competence (MCC) decision matrix Dilution (Define framework) Drive (Cherish) Drain (Discard) Distraction (Develop) Fit with mission Fit with core competencies Poor Good Poor

15. 15 Strategic evaluation process Chosen strategies Rejected strategies Strategic options

16. 16 n The criteria against which the possible options can be evaluated: u Does the option take advantage of the strength of the organization? u Does the option avoid depending upon a weakness the organization suffers? u Does the option offer the organization the chance to gain a competitive advantage? u Is this strategy consistent with other strategies selected? u Does this option address a mission-related opportunity presented by the evolving market? u Is this option’s level of risk acceptable? u Is this option consistent with policy guidelines? n 3 evaluation/choice strategies u Strategic fit – is it in line with strategic analysis reality? u Strategic feasibility – will it work in practice? u Strategic desirability – is it acceptable to others?

17. 17 3.1 Strategic fit - appropriateness n This is the degree to which the options being reviewed fit the situation identified during the strategic analysis n A good fit: u maximizes available strengths and opportunities u minimizes weaknesses and threats n Tools that can be used include: u SWOT analysis u Product portfolio analysis u Life cycle analysis n Tools enable options to be matched against relative competitive position

18. 18 3.2 Strategic feasibility n This is the assessment of the extent to which the option will work in practice n The feasibility can be judged in terms of: u the returns that can be anticipated, and u the demands it will make n Tools/methods that may be used include: u Cost-benefit analysis (financial feasibility) u Organizational feasibility u Operational feasibility

19. 19 3.3 Strategic desirability n This is the extent to which the option is acceptable to the stakeholders of the organization n Options may be assessed in terms of: u Profitability u Risk profile u Cost/benefit appraisal u Shareholders expectations n The selection of a strategy will require a trade- off to be made that balances risks with returns

20. 20 n One very simple approach to judging the trade- off to ask two basic questions: u What is the pay-off of the proposed strategy, quantitatively, qualitatively or via a reasonably realistic estimate of the benefit return? u How far off are the goal posts in terms of the current capabilities, the business or technical difficulties to be overcome or the organizational barriers? n These key variables can be modeled on a 2x2 risks/returns portfolio matrix shown in fig.

21. 21 Risks and returns portfolio matrix Early Success Glittering Prize Sweetmeats Backburner Pay-Off Goal Posts Near Far High Low

22. 22 n Early success initiatives are needed to build confidence and provide returns to finance the glittering prizes that are of significant competitive value but more organizationally draining n To balance the strain sweetmeats are needed to reap the limited but easily achieved rewards, whereas the backburners are to be postponed until either the difficulty factor reduces or the pay-off factor increases (become a sweetmeat or a glittering prize) n Most of the tools are common-sense methods of prioritizing u Most organizations do not use hard/sophisticated methods to evaluate and choose strategy options