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ExploringStrategy
Summary
Strategic Management 3
Gerry Johnson
,Chapter 12. Evaluating Strategies
12.1 Introduction
This chapter is about assessing current organizational performance, evaluating different strategic
options. The chapter proposes three criteria for evaluating possible strategic initiatives, SAFe:
Suitability, Acceptability and Feasibility evaluation.
12.2 Organizational performance
Use performance measures to assess performance and analyze the gap.
12.2.1 Performance Measures
There are two basic approaches to performance: direct economic performance and overall
organizational effectiveness:
1. Economic performance refers to direct measures of success in terms of economic outcomes:
1) Product markets: market share, sales growth
2) Profitability: Profit margin, ROI
3) Financial markets: movements in share price
2. The effectiveness of organizations can be measured with the use of the balanced score card
(customer perspective, internal business perspective, innovation & learning perspective, and
financial perspective) or triple bottom line (profit, planet, people).
12.2.2 Performance comparisons
There are three main comparisons:
1. Organizational targets – A key set of performance criteria are management’s own targets,
whether expressed in terms of overall vision and mission or more specific objectives
(through gap analysis).
2. Trends over time – Investors and other stakeholders are clearly concerned about whether
performance is improving or declining over time.
3. Comparator organizations – Performance relative to other comparable organizations, as in
benchmarking.
12.2.3 Gap analysis
Gap analysis compares actual or projected performance with desired performance.
1
,12.2.4 Complexities of performance measures
• Some measures might be contradictory on short term (e.g. sales growth obtained through
reducing profit margins).
• Organizations are liable to manipulate outcomes in order to meet key performance
indicators (e.g. book sales orders early).
• Organizations can legitimately manage performance perceptions and expectations: they are
not wholly objective and fixed (e.g. influencing stakeholders).
• What matters in terms of performance often changes over time (e.g. shift in KPIs).
12.3 Suitability
New initiatives can be evaluated using the SAFe evaluation criteria of suitability, acceptability and
feasibility.
Suitability is concerned with assessing which proposed strategies address the key opportunities and
threats an organization faces through an understanding of the strategic position of an organization.
A suitability analysis involves assessing the extent to which a proposed strategy:
• exploits the opportunities in the environment and avoids the threats;
• capitalizes on the organization’s strengths and avoids or remedies the weaknesses.
2
, 12.3.1 Ranking
Here possible strategies are assessed against key factors relating to the strategic position of the
organization and a score (or ranking) established for each option. More sophisticated approaches to
ranking can assign weightings to factors in recognition that some will be of more importance in the
evaluation than others.
12.3.2 Screening through scenarios
Here strategic options are considered against a range of future scenarios. This is especially useful
where a high degree of uncertainty exists. The options with is ‘best’ scenario is most suited. An
outcome could be that a contingency plan is needed.
12.3.3 Screening for bases of competitive advantage
Competitive advantage reside in the strategic resources and capabilities of an organization.
Screening for bases of competitive advantage therefore requires an analysis of how the proposed
strategy is underpinned by resources and capabilities that satisfy the VRIO criteria:
1. Value. Does the strategy provide value to customers? One test of this is whether the
strategy would command a premium price in the marketplace. Alternatively, the strategic
capabilities should support a cost advantage.
2. Rarity. Does the strategy draw on assets that are sufficiently rare to prevent rapid copying
by competitors?
3. Inimitability. Is the strategy sufficiently complex or non-transparent to be difficult for
competitors to imitate (or substitute)?
4. Organizational support. Does the organization have in place the organizational means
actually to implement the strategy (also discussed under Feasibility)?
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