Safe framework suitability acceptability feasibility

O e : Ne M e S a e

Myer in 2015 Performance was deteriorating Share price continued decline Online retailing increased rapidly and Amazon was poised to enter Australian market Several new international specialized (Uniqlo, Zara. H&M) stores opened in Australia

CEO, B e, B , Ma c 2015; R c a d U be a promoted from CIO to CEO

A $10.4 million of strategy review

was undertaken in 2015

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O e : Ne M e S a e

Faced with the deteriorating performance, Myer announced its new strategy in Sep 2015. They are

Enhanced customer led offer Wonderful experiences Omni-channel shopping Productivity step change Organisational capability

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O e : Ne M e S a e (c d)

Key stakeholders, including institutional investors, shareholders, board of directors, and employees, were concerned with the success of these new strategic initiatives, particularly how to evaluate them.

Moreover, what strategy could be more effective to the e e M e a c a e a ce?

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Learning Objectives

After you have studied this module, you should be able to Employ three success criteria for evaluating strategic options:

Suitability: whether a strategy addresses the key issues relating to the opportunities and constraints an organisation faces.

Acceptability: whether a strategy meets the expectations of stakeholders. Feasibility: whether a strategy could work in practice.

Describe the four aspects of balance scorecard (BSC) and strategy map and apply them in measuring strategy

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EVALUATING STRATEGY

1. How do we use the SAFe framework to evaluate strategy?

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Strategy evaluation- The SAFe criteria

Table 11.1 The SAFe criteria and techniques of evaluation

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Suitability

Suitability is concerned with assessing which proposed strategies address the key opportunities & constraints an organisation faces, through an understanding of the strategic position of an organisation.

It is concerned with the overall rationale of the strategy:

Does it exploit the opportunities in the environment and avoid the threats?

D e ca a e e a a strengths and strategic capabilities and avoid or remedy the weaknesses?

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Strategic fit (suitability): Combining both positioning and RBV

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Organization's strategic capability

Environment attractiveness

Strategic fit

How should organizations develop to achieve their sustainable competitive advantage?

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Suitability of strategic options in relation to strategic position (1/2)

Concept Help with understanding Suitable strategies address issues such as

PESTEL (Module 2) Opportunities and threats; Keu environmental drivers; Industry growth rate

Major environmental changes; Industry cycle; Industry convergence

Five force model (Model 3)

Industry attractiveness; Competitive forces.

Reducing competitive intensity; Development of new barriers to new entrants

Strategic groups (Module 3)

Group attractiveness; Mobility barriers; Strategic spaces.

Need to position a more attractive group or to a available strategic space.

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Suitability of strategic options in relation to strategic position (2/2)

Concept Help with understanding Suitable strategies address issues such as

Strategic capabilities (Module 5)

Industry threshold capabilities; Base of competitive advantage

Eliminating weakness; Exploiting strengths (strategic capabilities)

Value chain (Module 5) Opportunities for vertical integration or outsourcing;

Extent of vertical integration and outsourcing

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Suitability – screening techniques

There are several useful techniques:

¾ Ranking.

¾ Decision trees.

¾ Using scenarios.

¾ Screening for competitive advantage.

¾ Life cycle analysis.

Ranking for selecting the most suitable strategic option

Strategic options/initiatives

PESTEL analysis 5 force analysis Strategic capabilities

Oppor- tunities

Threats (avoid)

Oppor- tunities

Threats (avoid)

Strengths Weaknes ses

OP1 Op2 T1 T2 OP3 OP4 T3 T4 S1 S2 W1 W2

Strategic option 1 / Initiative 1 (5-1)

? ? ? ? ? ?

Strategic option 2 / Initiative 2 (4-2)

? ? ? ? ? ?

Strategic options3 /initiative 3

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= Fa ab e; = a ab e ; ? = ce a A = Most favorable; B = Possible; C = Unsuitable

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Selecting the most suitable strategic option through ranking

Strategic options

Key Strategic Factors

Ranking

Slowing market growth rate

High developing country growth

Creation of AB InBev SABMillier giant

Consumer shifting to craft beers in mature market

Fit with technical competence s

Fits with sector know- how

Builds on reputation for corporate sustainability

Grow Heineken Premium beer

? 4-2 (B)

Introduce cider and Weiss beer

? ? ? ? 3-0 (A)

Merge with Carlsberg

? 5-1 (A)

Merge with Daigeo ? ? 4-1 (A)

Acquire Moulson Coors (US

? 4-2 (B)

Fund local craft beers

? ? ? ? 1-2 (C)

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= Fa ab e; = a ab e ; ? = ce a A = Most favorable; B = Possible; C = Unsuitable

An illustrative example Strategic options for Myer and their suitability evaluation

PESTEL analysis Changes in technology (Internet) and social culture (online shopping) Opportunities or threat for retailers?

Five force analysis New entrant, e.g., Amazon What can be done? M&As? Government lobby?

Strategic group What new strategic spaces are available? Brick and click as a new strategic group?

Strategic capability Exploit/leverage current SC: 63 store nationwide, rich experience in retailing Develop new SC: online retailing or e-commence

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An overview of strategic options (initiatives) with some examples

Directions and methods

Internal development Acquire/merger Joint development

Market penetration Operational productivity improvement (brand mgt; customer services, etc);

Acquire new brands, new outlets;

Joint development of e-tailing

Product (service) development

Develop e-commerce (e.g., click and pick; new services);

Acquire new service providers;

Joint new product/service development with partners.

Market development

Diversification

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A strategic decision tree for a law firm

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Acceptability Acceptability is concerned with whether the expected performance measures/outcomes of a proposed strategy meet the expectations of stakeholders.

There are three key aspects of acceptability - e 3 R : Risk

Sensitivity analysis, financial ratio (gearing and liquidity), breakeven analysis Return

Financial analysis (ROCE, payback period, DCF); shareholder value analysis (TSR, EVA), cost benefits, real options. Reactions (of stakeholders)

Key shareholders: bankers, regulators, employees, the local community, customers.

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Feasibility

Feasibility is concerned with whether a strategy could work in practice i.e. whether an organisation has the capabilities to deliver a strategy

Two key questions:

Do the resources and competences currently exist to implement the strategy effectively?

If not, can they be obtained?

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MEASURING PERFORMANCE How do we use the Balanced Scorecard to measure performance?

The balanced scorecard approach

It was developed by David Kaplan and Robert Norton in 1992

Involves the measurement of four critical perspectives of organisational performance:

financial customer internal, and learning and growth

I a e acc e e e e e a a stakeholders

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Four distinctive perspectives of Balanced Scorecard

Financial T cceed a c a d e a ea our shareholders? Customer To achieve our vision, how should we appear to our customers? Internal business process To satisfy our shareholders and customers, at what business process must we excel? Learning and growth To achieve our vision, how will we sustain our ability to change and improve?

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W ca ed ba a ced ?

It balanced measures of Short- and long-term objectives Financial and non-financial measures Leading and lagging indicators Internal and external perspectives

https://hbr.org/2007/07/using-the-balanced-scorecard-as-a-strategic- management-system

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https://hbr.org/2007/07/using-the-balanced-scorecard-as-a-strategic-management-system
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Example of a balanced scorecard

Financial Perspective •Shareholder return •Cash flow •Major customer profitability •Profit forecast reliability •Sales backlog

Customer perspective •Relative pricing index •Customer ranking survey •Customer satisfaction index •Market share

Innovation and Learning Perspective •% revenue from new services •Rate of improvement index •Staff attitude survey •No. of employee suggestions

Internal Business Perspective •Hours with customers on new work •Revenue per employee •Returns •Safety incident index •Order-delivery cycle

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Strategy map

A Strategy Map is a diagram that describes how an organisation creates value by connecting strategic objectives in

explicit cause-and-effect relationship with each other in the four Balanced Scorecard (BSC) objectives (financial, customer, processes, and learning and growth).

It shows the causes and effect models of relationships between the key strategic aspects and variables.

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Why drawing a strategy map?

Through connecting four distinctive perspectives with one another in one graphical representation, strategy mapping can help in describing the strategy and communicate the strategy among executives and employees involved

Thus, alignment can be created around strategy, which help successful implementation of the strategy developed

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Some examples of strategic maps

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How to draw a strategy map?

Developed within a top-down process Strategy map development is a top-down process beginning with the

a c a ( a e) e ec e a d e d e ea a d ( e orientation) perspective. Financial and customer perspectives represent the expected outcomes of strategy (i.e., make money and have happy customers). The internal process and learning and growth perspectives represent the drivers of those outcomes.

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Module summary (1/2)

Proposed strategies may be evaluated using the three SAFe criteria:

¾Suitability is concerned with assessing which proposed strategies address the key opportunities and constraints an organisation faces. It is about the rationale of a strategy.

¾The acceptability of a strategy relates to three issues: the level of risk of a strategy, the expected return from a strategy and the likely reaction of stakeholders.

¾Feasibility is concerned with whether an organisation has or can obtain the capabilities to deliver a strategy.

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Module Summary (2/2)

Balanced scorecard can be used to measure strategic performance in four distinctive perspectives

Financial measures Customer measures Internal process Learning and growth

A strategy map can logically and hierarchically link these four distinctive perspective together.

Strategy mapping can help in describing the strategy and communicate the strategy among executives and employees involved.

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Next week

Strategy implementation Read Chapters 14 Organising and strategy Read Chapter 15 Leadership and strategic change