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 organisation’s
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
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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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Chapter Summary
The three broad methods of strategy
development are organic development,
mergers and acquisitions, and alliances
The success or failure of strategies will be
related to the success criteria of suitability,
acceptability, and feasibility
Competitive strategy, strategy direction,
and method must be consistent with each
other
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Key Debate: Merger Madness:
How Wisely is Merger Money
Being Spent?
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Key Debate: Merger Madness:
How Wisely is Merger Money
Being Spent?
For a recent large merger or acquisition,
track the share prices of the companies
involved for several weeks before and
after the announcement. What do the
share price movements suggest about the
merits of the deal?
Identify a hostile takeover threat from
press reports. What action did the
company’s management do to resist the
takeover?
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Case Example: Tesco
 Using Exhibit 7.2, identify the development
directions that Tesco had followed from its origins
as a UK-based grocer retailer
 Identify the development directions available to
the company in the future and assess the relative
suitability of each option by ranking them
 For each of the top four directions in your ranking,
compare the merits of each
 Complete your evaluation of the options that now
appear most suitable by applying the criteria of
acceptability and feasibility
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