Focusing on strategic alternatives: It involves identification of all alternatives. The strategist examines what the organization wants to achieve (desired performance) and what it has really achieved (actual performance). The gap between the two positions constitutes the background for various alternatives and diagnosis. This is gap analysis. The gap between what is desired and what is achieved widens as the time passes if no strategy is adopted.
Evaluating strategic alternatives: The next step is to assess the pros and cons of various alternatives and their suitability. The tools which may be used are portfolio analysis, GE business screen and corporate Parenting. [Describe each of these]
Considering decision factors:
(i) Objective factors:-
¨ Environmental factors
– Volatility of environment
– Input supply from environment
– Powerful stakeholders
¨ Organizational factors
– Organization’s mission
– Strategic intent
– Business definition
– Strengths and weaknesses
(ii) Subjective factors:-
– Strategies adopted in the previous period;
– Personal preferences of decision- makers;
– Management’s attitude toward risk;
– Pressure from stakeholders;
– Pressure from corporate culture; and
– Needs and desires of key managers.
Constructing Corporate scenario: Corporate scenario consists of proforma balance sheets and income statement which forecasts the strategic alternative’s impact on various divisions.
First: 3 sets of estimated figures for optimistic, pessimistic and most likely conditions are manipulated for all economic factors and key external strategic factors.
Second: Common size financial statements with projections are drawn.
Third: Based on historical data from previous years balance sheet projection for next 5 years for Optimistic (O), Pessimistic (P), and Most likely (M) are developed.
Corporate scenario is constructed for every strategic alternative considering both environmental factors and market conditions. It provides sufficient information for a strategist to make final decision.
Process of Strategic Choice:
Two techniques are used in the process of selection of a strategy, namely:
(i) Devil’s Advocate – in strategic decision- making is responsible for identifying potential pitfalls and problems in a proposed strategic alternative by making a formal presentation.
(ii) Dialectical inquiry – involves making two proposals with contrasting assumptions for each strategic alternative. The merits and demerits of the proposal will be argued by advocates before the key decision-makers. Finally one alternative will emerge viable for implementation.
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