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PART III
STRATEGY IN ACTION
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C H A P T E R 1 1
EVALUATING STRATEGIES
Introduction
In this edition, this chapter has a greater emphasis on evaluating the performance of existing
strategies, as well as evaluating strategic options. Gap analysis is a central concept now, linking
the two, as in Figure 11.1.
Illustration 11.1
Poor performance?
This illustration raises issues about the appropriate measures of performance, accountability and
communications.
1. What mistakes did Moss make?
Clearly, Moss (and Lord Sharman) had got their big bet on Europe wrong, whereas the
Prudential had invested more successfully in Asia. Since the economic crisis of 2008,
2. Should Andrew Moss and Lord Sharman be held responsible for their strategic bet on
European markets rather than Asian markets?
Sharman seems to be claiming that the European strategys failure was not their fault.
Perhaps, but shareholders will be understandably impatient given that their stock was worth
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Illustration 11.2
Ranking options for SRR Consulting
1. Are there other options or factors that you think Simon, Ruth and Raj should consider?
2. How could you improve the ranking analysis?
3. Consider the most favoured options in terms of acceptability and feasibility criteria.
There is an overriding issue that should be worked into the discussion about this illustration:
This point should also emerge via the questions that are posed. For example:
Question 1: Students may consider other options and especially other factors than those
Question 2 asks the students to consider how they could improve the analysis. They may
argue that a greater range of factors would be important to include. The point that needs to
Illustration 11.3
A strategic decision tree for a law firm
1. Try reversing the sequence of the three parameters (to diversification, investment and
growth) and redraw the decision tree. Do the same eight options still emerge?
2. Add a fourth parameter to the decision tree. This new parameter is development by internal
methods or by acquisition. List your 16 options in the right-hand column.
Decision trees can be useful, provided students understand that (looking at this example):
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Illustration 11.4
Sensitivity analysis
1. Push to achieve more sales volume/capacity fill?
2. Reduce unit costs of production?
3. Something else?
Students find sensitivity analysis a user-friendly technique. This illustration allows them to see
Illustration 11.5
Using break-even analysis to examine strategic options
1. Which option would you choose? Why?
2. What would be the main risks attached to that option and how would you attempt to
minimise these risks?
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Illustration 11.6
Sewerage construction project
1. What do you feel about the appropriateness of the listed benefits?
2. How easy or difficult is it to assign money values to these benefits?
The illustration provides the basis for a critique of costbenefit analysis in terms of both the
factors chosen as benefits and the monetary value assigned to each factor. The following points
Illustration 11.7
Real options evaluation for developing premium beers in India
1. What are the advantages of the real options approach to this evaluation over other
approaches (a) to building the brewery; and (b) to other ideas being considered?
This illustration provides a basis upon which students can understand and discuss some of
Key Debate
What is the best approach to strategic investment decisions?
In relation to Question 1, the main criticisms typically levelled the most often-used techniques of
financial appraisal (including DCF) in relation to strategic investment decisions are as follows:
Being suited to evaluating one-off projects rather than complex, interlinked issues as in
strategic decisions.
Where benefits can be quantified readily (so there is the danger of discounting benefits that
cannot be).
In relation to Question 2, some of the suggestions include the following:
Ensure thorough and visible analysis of the underlying rationales for strategic options, so
that decision makers can ensure sensible assumptions are built into the financial analyses.
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Nonetheless, there are many decisions which are subject to fundamental uncertainty,
especially in highly dynamic or innovative domains. In the case of such uncertainty, financial
evaluation is unlikely to be helpful, putting too much emphasis on the quantifiable, and liable
to underestimate the importance of the unquantifiable. Sometimes, therefore, managers may
Video assignment
South Western Ambulance Service Trust (SWAST)
This video case is focused on issues of evaluation of strategy and in particular performance
management and performance measures see Section 11.2. The South Western Ambulance
Service Trust was formed after a series of mergers and now serves over 5.3 million people,
employs over 4,000 staff and operates 96 ambulance stations. In 201112, the service responded
to over 690,000 emergency calls and the Patient Transport Service completed over 350,000
patient journeys. Ken Wenman, as the chief executive, and Norma Lane as the Director of
delivery, discuss the performance management framework used in the Trust and the
performance measures they use. The case is particularly useful in reminding students that issues
in strategy apply equally well to not-for-profit organisations and that in such organisations a
much broader set of performance measures are required as it is not about profit.
1. It is worth starting with a discussion of the difference between economic performance and
effectiveness as explained in Section 11.2.1. Clearly, a non-profit organisation like an
ambulance service cannot measure performance in terms of profit (it doesnt make any) or
growth (this is determined by need) but there are measures of effectiveness that are very
2. Both Ken Wenman and Norma Lane refer to the increasing role of technology in improving
performance and in measuring it. Wenman refers to the importance of investing in new
technology in the control room in order to deploy ambulances more effectively and
improve response times. Modern technology allows the control to track where every
ambulance is and they can respond accordingly. He also refers to the computer systems that
Assignment 11.1
Share price performance
This is a useful exercise to promote students financial literacy and knowledge of financial
websites. Most websites of this kind identify the relevant index for a particular company and at
least some of the relevant competitors. Comparisons of this sort are very important for assessing
Assignment 11.2
Ranking
Students could use the table in Illustration 11.2 as a model against which they could undertake a
ranking exercise. Issues to look for are the following:
The need to identify a manageable list of factors to build into the exercise by prior analysis
of the strategic position of the organisation concerned.
Assignment 11.3
SAFe
The teaching notes provided on the easySolution and Aids Alliance cases provide guidance on
what students might cover in such an assignment.
The important lesson from this assignment is to distinguish between the bases of evaluation.
The criteria for suitability should arise from the students understanding of the strategic position
of the organisation, especially in terms of the forces at work in its environment and the strategic
Assignment 11.4
Risk assessment
A significant issue with regard to acceptability is the level of risk associated with different
strategic options. This assignment encourages students to look at this systematically. This could
be for an organisation of their choice or for an allocated case study, perhaps the AIDS Alliance
case again.
Students may be familiar with risk assessment tools. These vary in the extent of not only their
complexity and detail but also their level of application. So many risk assessment tools are
associated with highly operational matters. Here, the aim is to encourage students to look at
major strategic options in terms of risk assessment.
A base line analysis would require students to try to identify all the major risks associated with
Assignment 11.5
Sources of funding
This assignment encourages students to consider the feasibility of funding strategies in terms of
the guidelines provided in Section 11.5.1 (and Table 11.6). Clearly, the danger here is that
Assignment 11.6
Strategic choice
This is an in-depth assignment for students. It allows them to understand that managers motives
for preferring specific options are, at least partially, subjective. This is why an attempt to be
more objective through the systematic use of success criteria can be valuable. You should be
looking for students to argue and justify the case that, strategic choice should be a blend
between the outcomes of analytical concepts and frameworks and management judgement. As
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Integrative assignment 11.7
The purposes of an organisation clearly dictate the way that success criteria might be applied in
different sectors. Here are a few pointers:
Suitability links strategic choices to the major factors in an organisations strategic position
(Chapters 25). First, there are clearly different emphases in the business environment for
Case Example
EasySolution
1. Imagine that you are a potential investor hearing a short pitch from the EasySolution team
based on the 2009 business plan. Using the SAFe framework, what questions would you
raise with the team under:
a. Suitability?
b. Acceptability?
c. Feasibility?
The SAFe framework is outlined in Chapter 11 and raises key issues, as follows:
Suitability: Here, this refers particularly to the suitability of the EasySolution product
for the market. The founding entrepreneurs know the laboratory world well as research
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2. If you were interested in investing in EasySolutions, which round of investment would you
prefer to participate in? Why?
Students might be surprised at how the smaller investment rounds of the first year would
harvest the larger share of the equity. On the face of it, the first year rounds are the more