Strategic Choices

10: Strategy Methods

and Evaluation

Learning Outcomes
Identify the methods by which strategies
can be pursued: organic development,
mergers and acquisitions, and strategic
alliances
Employee three success criteria for
evaluating strategic options: suitability,
acceptability, and feasibility
Use a range of different techniques for
evaluating strategic options

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Exhibit 10.1 Strategy Methods

and Evaluation

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What is a Strategic Method?

A strategic method is the means by
which a strategy can be pursued.
Organic
development

Mergers and
acquisitions
Strategic
alliances

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What is
Organic Development?
Organic development is where
strategies are developed by building
on and developing an organisations
own capabilities.

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Reasons for Using

Organic Development
Highly technical products
Knowledge and capability development
Spreading investment over time
Minimising disruption
Nature of markets

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What are
Mergers and Acquisitions?
A merger is a mutually agreed
decision for joint ownership
beween organisations
An acquisition is where an
organisation takes ownership of
another organisation

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Environmental Motives for

Acquisitions and Mergers

Speed of entry

Competitive
situation

Consolidation
opportunities

Financial
markets

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Capability Motives for

Acquisitions and Mergers

Exploitation of
strategic capabilities

Cost efficiency

Obtaining new
capabilities

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Stakeholder Expectations for

Acquisitions and Mergers

Institutional
shareholder
expectations

Managerial
ambition

Speculative
motives

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Issues Affecting Success of

Acquisitions and Mergers
Can value be added to acquisition?
Can the commitment of middle managers
be gained?

Will expected synergies be realised?

Are there problems of cultural fit?

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What is a Strategic Alliance?

A strategic alliance is where
two or more organisations share
resources and activities
to pursue a strategy.

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Motives for Strategic Alliances

Need for critical mass
Co-specialisation
Learning

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Types of Alliances
Joint ventures

Franchising

Consortia

Licensing

Networks

Subcontracting

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Exhibit 10.3 Types of

Strategic Alliance

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Success Criteria
of Strategic Options

Suitability

Acceptability

Exploring Corporate Strategy 8e, Pearson Education 2008

Feasibility

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Exhibit 10.4 Strategic Options

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Evaluation Tools for

Assessing Suitability
TOWS Matrix
Relative suitability of options
Ranking strategic options
Decision trees

Scenarios

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Assessing Acceptability
Return

Risk

Profitability

Financial ratios

Cost-benefit

Sensitivity analysis

Real options
Shareholder
value analysis

Stakeholder reactions

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Exhibit 10.8 Assessing Profitability:

Return on Capital Employed

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Exhibit 10.8 Assessing Profitability:

Payback Period

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Exhibit 10.8 Assessing Profitability:

Discounted Cash Flow

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Exhibit 10.10 Measures

of Shareholder Value

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Stakeholder Reactions
Financial restructuring
Acquisitions/Mergers
New business model

Outsourcing

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Case Example: Tesco

Using Exhibit 7.2, identify the
development directions that Tesco
had followed from its origins as a UKbased grocer retailer

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