Discuss appropriate strategic choice techniques that SC’s directors could use to
help them decide between options A and option B.
Strategic choice is a logical element in the decision making process. It is
concerned with the identification of different strategic options such as Ansoff,
force field analysis and decision trees and using these techniques to help make
decisions between alternative long term plans of action.
Ansoffs matrix is a concept splitting growth strategies into four parts, market
penetration, product development, market development and diversification. The
model is used to show the degree of risk associated with the different strategies.
Option A is diversification, this is considered the riskiest form of strategic growth
according to Ansoff because it is the process of selling different, unrelated goods
or services, in this instance it is owning and operating the hotel and country club.
They have no previous experience in operating a hotel and would be considered
highly risky. In the data a critical pathway is used to identify the length of both
projects this could be helpful to assist strategic choice, however will the
estimations be accurate as they have no experience or past data to go off.
Diversifying the business could mean that Senbo Construction is moving away
from there core competencies, this would be deemed a disadvantage as they are
moving on from what they are good at potentially making them less competitive
as a whole. However diversifying may allow them to use forward integration
and take advantage of an expanding industry. In the short run diversification will
be risky, long run could be an advantage to the business as if the building market
depletes, Senbo Construction having another avenue of business such as hotel
management would be useful.
Option B is market development according to Ansoff this is less risky than
diversification, this would therefore be useful as it categorizes growth options,
helping Senbo choose what the appropriate option would be. According to
Ansoff option B would be the preferred, however joint ventures could create new
dynamics. If there is culture or management clashes between partners this could
create risk. They have never ventured with another company so it’s uncertain
how it will affect the project and the possible conflict of ideas. Market
development also incudes selling overseas to a new market segment, this will be
the first time Senbo Construction will have operated in a new country, this
increases risk more so than if they were already a global company. The might
have to go through different government laws, ethics and language barriers, all
things Senbo wont have dealt with before increasing the risk of this option.
However expanding to country Y could potentially be beneficial for a growth
strategy as they have high average incomes leaving consumers with more
disposable incomes, gives Senbo a good opportunity to make more profits this is
also backed by an economy that is rapidly expanding and interest rates are low.
This would make borrowing during the expansion low when capital costs are
likely to be high. Consequently Senbo should consider that country Y is in a
boom and these economy conditions could change.
Force field analyse is another strategic choice technique that could be used in
this case, as it analyses the positive factors that support a decision and negative
factors that constrain it. By comparing driving forces and restraining forces for
each one will allow the manager to see pros and cons of the option. For option A
driving forces would be factors such as forwards vertical integration therefore
more secure structure and also option A would be completed quicker than
option B. Managers can now indicate the positive factors and gives them insight
into strengthening the forces supporting the decision and reduce the forces that
oppose it. Forces again option A for Senbo would be there lack of experience and
also change may be feared, this would be because the firm hasn’t done this
before. It would be important that all forces are identified to ensure a
constructive and useful evaluation can be given from the analyse.
Another force field analyse could then be done for Option B, this would be useful
to managers giving them insights in both projects rather than just indicating how
risky an option is. Driving forces for option B would include scope for high
profits as incomes are high and consumer spending will be up during a boom
period. There are also low interest rates so borrowing will be cheaper, the
economy seems to be in a good and stable therefore a positive driving force
towards option B. Staying within core competency just in a different country
could also be a driving force as they already good at this, just expanding their
strengths rather than switching to a new segment of the industry. However there
would be driving forces against option B also such as it’s the first joint venture
and again change may upset staff. Also longer to compete than option A could be
a restraining force if they want the expansion to be completed in a shorter time
frame. Each companies pro’s and con’s will then be able to be compared aiding
the firm to come to a decision.
Lastly decision trees could be used to eliminate the riskiest option, it is the one
method where you can compare all the options available. It is a diagram that sets
out the decisions and the outcomes and economic returns that may result. The
decision trees encourage discussion, such as how many staff would be
satisfactory to undertake the managing of the hotel, this can be motivating for
managers. It will show the expected payoffs and returns the firm could expect
from each decision, however there is no numerical data given in the data so the
accuracy could be questioned. However if the numerical data was given for
option A & B it would be a good way to compare risk to profits and which would
give the overall best benefit.
On balance all strategic choice techniques will point out the risks involved in
every decision, Ansoffs matrix does not direct a business towards one particular
future strategy, however by identifying the different strategic areas in which the
business could expand, the matrix allows managers to analyse the degree of risk
associated with each one. Therefore as Senbo construction have two strategies
singled out in mind already it might be more beneficial to use the force-field
anaylse as it is widely used when change situations are taking place. It would
help the business to compare the pros and cons of each situation and come to
informative decision. Decision tress would be unsuitable in this situation due to
the lack of numerical data.