Strategic Analysis & Choice
The first step in evaluating and choosing a strategy is to review the results of the strategic situation assessment consisting of an analysis of the general, industry, and internal environments, in terms of factors critical to the success of the business.
George Steiner stated that three types of data are required to perform a situation audit: identifying threats, strengths, and weaknesses.
- Past performance of the firm.
- Data about the current situation, including:
- Analysis of customers and markets.
- Resources of the company.
- Competition.
- Environmental setting.
- Other performance measures or areas of interest.
- Forecasts of the future.
Critical success factors (CSFs) for any business are the limited number of areas in which satisfactory results ensure successful competitive performance. Studies have shown that three to six factors are usually critical to success in most industries.
In general, at least five criteria tend to determine which factors are critical to the business and their relative importance:
- Impact on performance measures, such as market share, profits, cash flow, and the like.
- Relationship to strategic thrusts, such as differentiation, costs, segmentation, preemptive, turnaround, renewal, and the like.
- Relationship to the life-cycle stage, that is, introduction, growth, maturity, and aging and decline.
- Relates to a major activity of the business, such as marketing at IBM.
- Involves large amounts of money relative to other activities of the firm.
There are several techniques for identifying CSFs for a business, its industry, and its general environment. It is important to evaluate the firm, but it is equally important to evaluate the capabilities of competitors.
The development and evaluation of alternatives should be two separate and distinct steps. Three basic questions must be asked during strategy evaluation:
- How effective has the existing strategy been?
- How effective will that strategy be in the future?
- What will be the effectiveness of selected alternative strategies (or changes in the existing strategy) in the future?
The form of strategic analysis and choice varies considerably according to the stage of development of the firm, and the focus differs at the different firm levels.
The evaluation should take place at the corporate, business, and functional levels, with close scrutiny of policies and plans at each of these levels.
For multi-industry and multiproduct/product firms, strategic analysis begins at the corporate level.
The corporate strategy provides guidance for resource allocations among businesses and also indicates standards for adding new businesses or deleting existing ones.
Alternative business-level strategies must be examined within the context of each business unit in multi-industry firms.
Functional strategies must be identified to initiate and control daily business activities in a manner consistent with business strategy.