TERM 2 WEEK 1

EVALUATING STRATEGIC CHOICES AND DECISION MAKING

STRATEGIC DECISIONS:

Decision making process:

-Identifying problem
-Developing alternatives
-Making a choice

Does it work in practice? Sometimes. Not always.

How do we really make decisions?

 Rational decision making
- How do we actually evaluate stuff? What should we actually measure?
- You’re looking back at past, it’s fine if you’re reporting stuff
- But when making a strategy it’s not really feasible
- If you’re only basing your performance evaluation on financial performance, then
you’re in trouble
- You can’t fly a plane just looking at the airspeed and similarly you can’t manage a
company only looking at finance
- With a broader basket of measures, you’re much better off
- Jack welsh’s view is that you only need to measure customer employee satisfaction
and cash flow.
- The three tests: Overarching framework for strategic decisions
 The fit test
- 4 elements to this: External : Scenario planning PESTL Porters 5 forces 7 questions,
Internal: Alignment with purpose , Dynamic : Capacities to change, Dynamic
capabilities , Summary SWOT TOWS LISA
The external environment of the company, the internal Conditions of the company,
Dynamic situation of the firm, and to put it all in summary
Does the strategy rest on privileged insights?
Does the strategy embrace uncertainty?
Does the strategy put the firm ahead of trends?

- Is the strategy producing good org performance?

Financial results and other market driven quantitative measures such as market
share
Stakeholder satisfaction
Admiration, for ex: annual reviews

- Assessing performance
Profitability and ratios in chapter 4
 Stakeholder reactions How stakeholders responded to changes in strategic might do
a focus group
Real options
Shareholder value analysis (Not just profit, but other factors)
Financial ratios
Sensitivity analysis

 The competitive advantage test

Will the strategy beat the market?

Is the strategy granular about where to compete?

You need to look at not just 5 or 4 segments but need to break up more dig deeper

Does the strategy tap a true source of advantage?

Are we really the cost leader, Superior position in the market,

 The performance test

 Political
 Cognitively
 Garbage can method of strategy decision making
No linear model
 Sense making
 Psychological
- Politics often get in way of good strategies.
- There’s a lot of psychology that goes into this.

**** The frame that we put around the decision is actually more important than the
decision itself :;; ALPHA BETA