Some problems with the prescriptive process

							     Corporate Strategy
Evaluation and Development:
    the prescriptive process
         Distinguishing between content
                   and process

    Strategy selection involves two elements that need to be
     distinguished: content and process
1.   Content: the actual strategy selected – what is in the
     plan?
2.   Process: the way that the strategy is developed and
     selected – why choose this strategy, who undertakes the
     task and how the task is undertaken?
    Both are important and inter-related
    There is a third element – strategy context – that may
     also need to be considered at some stage.
              Developing the strategy
               selection criteria – 1

   There are six main criteria for evaluating strategy
   options for the selection process:

1. Consistency
2. Suitability
3. Validity
4. Feasibility
5. Business risk
6. Attractiveness to stakeholders.
                     Consistency

   Consistency means to be in agreement with the
    objectives of the organisation

   If an option does not meet these criteria, there is a strong
    case for

–   either changing the mission and objectives, if they are
    too difficult or inappropriate;
–   or rejecting the option.
                       Suitability

   Some options may be more suitable for the organisation
    than others.

   Suitability means to be appropriate for the strategic
    context of the strategy both internally and externally.

   The environment can be explored from the mixture of
    opportunities to be taken and threats to be avoided.

   Competitive advantage can be built on the organisation’s
    strengths, especially its core competencies, and may try
    to rectify weaknesses that exist.
                         Validity

   Assumptions about the future need to be tested to
    ensure they are logically sound and conform with
    research evidence.

   Many options will use business information grounded in
    background material (doubtful in its nature).


   Overlap exists between suitability and validity.
          Feasibility and management
                  commitment

    Feasibility explores whether proposed strategies are
     capable of being carried out.

    An option may lack feasibility in three areas:

1.   Culture, skills and resources internal to the organisation
2.   Competitive reaction and external factors
3.   Lack of commitment from managers and employees.
           Analysis of business risk

   Financial risk analysis: Cash flow, breakeven,
    company borrowing requirements, financial ratio analysis
   Sensitivity analysis: Optimistic assessment, pessimistic
    assessment
   Scenario projections: Broader view of future
    developments; can take qualitative as well as
    quantitative view; less concerned with future and more
    with contrasting views
   Simulation modelling.
    Assessing stakeholders’ reactions

Likely to include:

   Financial risks to shareholders
   Employment levels for employees
   Management opportunities or redundancies
   Broader community issues such as environmental
    concerns
   Government response to strategy initiatives.
          Prescriptive strategy content:
           procedures and techniques

   Evaluation against mission and objectives: purpose
   Non-quantified objectives may be important for some
    organisations
   In not-for-profit organisations, criteria may need to
    reflect the broader aspects of service or role
   Building on strengths or core resources often important
   Strengths more important than weaknesses, but
    sometimes weaknesses cannot be ignored
   Different parts of the organisation will have different
    perspectives on evaluation.
         Exploring the initial evaluation
                 in more depth

   Evaluation usually employs common and agreed criteria
    across the organisation, e.g. profitability
   Strengths and weaknesses of such criteria need to be
    understood
   Shareholder Value Added approach takes a broader
    perspective on evaluation: seeks to determine the
    benefits to the whole business area, rather than just the
    strategy itself
   Cost/benefit analysis has been successfully employed
    in the public sector. Main difficulty is where to place
    limits on benefits and costs.
          Applying empirical evidence
              and guidelines – 1

    Business judgement needs to be applied to selection
     because outcomes of strategy proposals are uncertain.
    Generic industry environments have been analysed to
     provide some guidance on strategy evaluation. They are
     based on two broad categories:
1.   the stage of industry maturity and;
2.   the competitive position of the organisation involved.
    After identifying where the organisation fits on these two
     parameters, simple choices then suggest themselves.
         Applying empirical evidence
             and guidelines – 2

    Guidance on appropriate strategies has been
    developed for specific types of industry
    situation:

   Fragmented industries
   Emerging industries
   Mature markets
   Declining markets.
         Applying empirical evidence
             and guidelines – 3

   According to the Profit impact of market strategy
    (PIMS) database empirical evidence exists on the
    connection between strategic actions and the results
    (profitability)
   According to PIMS, high quality and strong market
    share can make a positive contribution to profitability.
   High capital intensity is less likely to have a positive
    impact (cause and effect relationship is doubted here).
   Evidence suggests that many acquisitions and mergers
    have uncertain impacts on profitability.
          A model of prescriptive strategy




Table 14.2a ‘The prescriptive model of the corporate strategy process’
            A model of prescriptive strategy
                     (continued)




Table 14.2b Continued
        The prescriptive model of corporate
          strategy: exploring the process

   The prescriptive model of the strategic process
    is largely linear.

   It has feedback mechanisms at various points
    to ensure that objectives, options and strategy
    choice are consistent with each other.
           Some problems with the
           prescriptive process – 1

Environment:
 Assumed to be predictable
 Numerous instances where this has proved to be
   incorrect.

Planning procedure:
 Assumed that major strategic decisions are initiated by
   clear planning procedure
 Decisions in practice are complex, multi-layered and
   subject to management whim.
           Some problems with the
           prescriptive process – 2

Top-down procedures:

   Assumed that such procedures from group HQ to
    individual strategic business units represent the
    most efficient method for allocating funds and
    gaining management commitment
   Whereas research evidence suggests that some
    managers find the process demotivating and
    unwieldy.
           Some problems with the
           prescriptive process – 3

Organisational culture:

   Assumed that organisational culture will allow the
    prescriptive model to operate

   Whereas some cultures are in practice more suited
    to prescriptive approach than others.
            Some problems with the
            prescriptive process – 4

    More general criticisms of the prescriptive approach
    include:

   Need for more dialogue in the development of strategy
   Innovation needs a greater flow of ideas and is ill-
    served by rigid reporting and information flows
   More adaptable organisation is essential where the
    environment is changing rapidly: emergent approaches
    are essential in these circumstances.
             International corporate
                strategy selection

   International strategy selection is more complex. The
    starting point is clarity on the objectives and reasons for
    international expansion.
   Conflicting views on objectives, resources and cultures
    may exist between different international subsidiaries of
    an organisation.
   Such differences may make it more difficult to make
    strategic choices.
   There are dangers in the centre imposing its choice on
    subsidiaries.