9 – Strategic Analysis and Choice

Introduction

Strategic analysis and selection are, at their core, a decision-making process. This entails developing viable options, analysing those alternatives, and deciding on a specific plan of action that will best enable the organisation to achieve its goals and objectives.

Alternative strategies do not emerge from thin air. They are derived from the firm’s current plans, considering the vision, goal, and objectives, as well as information obtained through external and internal analysis. They are consistent with or build on previous successful techniques.

9.1 Strategic Decision-Making Process

According to Glueck and Jauch, “strategic choice is the decision to select, from among the alternatives considered, the strategy that will best meet the enterprise objectives.”

This decision-making procedure is divided into four separate steps:

-Concentrating on a few alternatives.

-Considering the chosen criteria.

-Considering the possibilities.

-Making the final decision.

9.1.1 Concentrating on a Few Alternatives

Strategists never evaluate all viable solutions that could help the company since there are so many. As a result, strategists should restrict the field to a manageable number of options. However, determining what constitutes a reasonable number remains problematic. We can use the following concepts to choose a suitable number of alternatives:

-Analyze the gaps

-Business Defined

-Analysis of Gaps

In gap analysis, a corporation establishes goals for a future period, say three to five years, and then works backwards to see where it can get with its current level of effort. A performance gap could be discovered by analysing the difference between projected and desired performance.

Stability techniques appear to be a viable option where the gap is narrow. If the gap is substantial, growth options should be considered. If the gap is considerable owing to poor performance in the past and predicted in the future, retrenchment tactics must be explored.

Definition of Business

It is best to begin with the business definition when settling on a manageable number of possibilities. As previously stated, a firm’s business description determines the range of activities that it can engage in. It attempts to provide clear answers to three fundamental questions:

(i) Who is being pleased?

(ii) What is being fulfilled? and

(iii) How is the need being met?

9.1.2 Considering Selection Factors

The principles of Gap Analysis and Business Definition would assist the strategist in identifying a few viable options. These must next be evaluated against a set of selection criteria.

The criteria against which various solutions are evaluated are known as selection factors. These selection factors are as follows:

-Objective factors

-Subjective factors

Objective factors are concrete facts or data that support a strategic option. They are based on analytical approaches such as the BCG matrix, GE matrix, and so on. They may also be considered rational, normative, or prescriptive factors.

Subjective factors, on the other hand, are based on one’s judgement or descriptive characteristics such as consistency, feasibility, and so on, which were covered in the previous section.

9.1.3 Evaluating the Alternatives

After reducing the alternative methods to a few options, each option must be examined for its applicability in achieving the organisational goals. The process of evaluating strategic alternatives entails combining the results of analyses conducted using objective and subjective criteria.

9.1.4 Making the Actual Choice

An assessment of different strategies yields a clear assessment of which alternative is best suited to achieving organisational goals. As a result, the final stage is to make a decision. For implementation, one or more strategies must be chosen. In addition to the specified tactics, contingency plans should be developed to cover any eventuality. A variety of portfolio analyses, such as BCG, nine-cell matrix, and so on, can be helpful in both of the preceding two processes.

9.2 Strategic Evaluation

Fred R. David has created a thorough strategy formulation and analytical framework that is highly effective for strategic analysis and selection. We will now go over the framework briefly.

This structure is divided into three stages:

-Input stage

-Matching stage

-The decision-making stage

1) Input stage:

This stage summarises the fundamental input data required to generate alternative methods. This basic input information refers to the firm’s prospects and threats, strengths and weaknesses, and competitive profile. This information can be acquired from the three matrices shown below:

Evaluation Matrix for External Factors (EFE Matrix)

Matrix of Internal Factor Evaluation (IFE Matrix)

Matrix of Competitive Profiles (CPM Matrix)

Making minor decisions about the relative relevance of external and internal factors allows strategists to produce and assess various strategies more effectively. Furthermore, good intuitive judgement is always required when selecting appropriate weights and ratings.

2) Matching stage:

This stage matches an organization’s internal resources and talents and its external opportunities and risks. For this purpose, the following matrices can be used:

SWOT Analysis

SPACE Matrices

The BCG matrix

Matrix of Internal-External Relations

The Grand Strategy Matrix

These tools use the data provided by the input stage to assist strategists in matching external opportunities and threats with internal strengths and limitations.

For example, suppose a company has an internal problem of insufficient capacity and needs to capitalise on an external opportunity created by the exit of two large international competitors from the business. In that case, it may attempt horizontal integration by purchasing competitor’s facilities.

3) The decision-making stage:

The abovementioned approaches reveal viable alternative strategies that must be investigated and appropriate strategies chosen for implementation. The strategy can be prioritised using methodologies such as QSPM (Quantitative Strategic Planning Model), allowing the best strategies to be picked.

9.3 Industry Analysis

The primary goal of industry analysis is to evaluate a company’s strengths and shortcomings in comparison to those of its competitors in the industry. It attempts to illustrate the structural realities of a specific sector and the degree of rivalry within that industry. An organisation can use industry analysis to determine whether or not the chosen field is appealing and to examine its position within the industry.

Importance of Industry Analysis

All industries share the macroenvironment, which has a minor impact on them. However, the structural realities of the individual industry, as well as the nature and intensity of competition unique to that industry, are of particular importance to the firm in developing strategy.

Factors that directly impact a firm’s prospects directly originate in its industry’s environment. Before developing a strategy, a thorough understanding of the industry and competitors is required. A well-executed analysis gives a clear, readily understood tale about the company’s environment, which is required for shrewdly matching strategy to the company’s external position.

Thus, the significance of industry analysis might be summarised as follows:

-Industry-specific factors directly impact the firm more than the overall environment.

-The dominant economic characteristics of an industry are essential because they have implications for strategy formulation.

-Industry analysis highlights the attractiveness of an industry as well as its growth possibilities.

-It assists the firm in identifying elements such as

(a) current industry size

(b) product offerings

(c) relative volumes

(d) recent industry performance

(e) forces determining industry rivalry.

-It draws attention to the firm’s competitors.

-It aids in the identification of critical success variables.

-A solid awareness of the sector gives a foundation for considering viable options available to the organisation.

9.4 Corporate Portfolio Evaluation

Many businesses sell many products and serve multiple customers. They have a product portfolio (i.e., a basket). This is a sensible strategy because a company reliant on a single product or customer faces significant risks. As a result, strategy decisions typically encompass a variety of products in a variety of markets.

Portfolio analysis is an analytical method that considers a firm to be a basket or portfolio of products or business units to be managed for the highest potential returns. It can assist a corporation in developing a multi-enterprise strategy.

When a company has several items in its portfolio, they are likely at various phases of development. Some will be newer, while others will be considerably older. Many businesses will not want to risk having all of their products at the same stage of development. It is beneficial to have certain products with low growth but consistent profitability and those with genuine growth potential but may still be in the early stages. Indeed, the consistently profitable items may be utilised to fund the development of those that will generate future growth and profitability.

As a result, the primary strategy is to create a well-balanced portfolio of products, some with low risk but slow growth and others with high risk but significant potential for development and profitability. This is referred to as portfolio analysis.

Portfolio analysis seeks to accomplish the following goals:

-To assess its current business portfolio and determine whether businesses require more or less investment.

-Create a growth strategy for adding additional companies to the portfolio.

-To determine which businesses should be phased out.

9.4.1 Display Matrices

“Display matrices” are basic frameworks that display items or business units as a sequence of investments from which senior management expects a successful return. They map and characterise various products or businesses in an organization’s investment portfolio in such a way that senior management continuously juggles them to ensure the highest returns.

As previously said, the primary goal of portfolio models is to aid in creating a well-balanced portfolio of enterprises. This means that the portfolio should include companies whose profitability, growth, cash flow, and risk factors complement one another and contribute to satisfactory overall corporate performance. For instance, excessive cash generation with insufficient growth opportunities or insufficient cash generation to meet the growth needs of other businesses in the portfolio could result in a portfolio imbalance.

9.4.2 Balancing the Portfolio

Balancing the portfolio entails balancing the various goods or businesses in the portfolio in four fundamental ways:

1. Profitability:

The primary goal of portfolio analysis is to maintain the corporation’s overall profitability, even if some businesses are losing money. This is accomplished by balancing investments.

2. Cash flow:

While a growing company may be lucrative, it will also require increased cash outflows for investment. Mature enterprises, while less profitable, do not require as much investment, even if they are not net cash generators. Thus, portfolio analysis must balance multiple businesses, providing a comfortable overall cash flow position based on the company’s planned strategy.

3. Growth:

All firms or products go through the inception, growth, maturity, and decline stages. If a corporation relies solely on one product, it will experience difficulties as the product ages. It may be too late to launch a new product at this point due to the time lag involved in waiting for it to reach its growth rate. It is thus preferable to match different firms at different stages of their life cycles to create stability, often known as “extended corporate immortality.” Thus, portfolio balancing implies that the corporation continues to grow even when individual businesses develop, mature, and fall.

4. Risk:

Another key goal of portfolio analysis is to reduce the risk associated with a country’s economic trends and market dynamics. The goal is to bring together varied businesses with different or opposing market forces to ensure the corporation’s financial performance is steady and smooth.

For example, one option could be diversifying worldwide because markets in different nations are susceptible to diverse economic factors. Similarly, in domestic markets, businesses with diverse seasonal cycles could be integrated to ensure the overall corporation’s performance is more consistent and smoother.

9.4.3 Portfolio and Other Analytical Models

Several top consulting organisations have created a plethora of analytical models. Among the most well-known models are:

1. BCG matrix
2. GE Nine-cell Matrix
3. Hofer’s Product/Market Evolution Matrix
4. Directional Policy Matrix
5. Arthur D Little’s Portfolio Matrix
6. Profit Impact of Market Strategy (PIMS) Matrix
7. SPACE Matrix
8. Quantitative Strategic Planning Matrix (QSPM)

1. The BCG Matrix:

The Boston Consultancy Group created the BCG matrix in the 1970s. It is also known as the “Growth share matrix.” This is the most common and straightforward matrix for describing a corporation’s portfolio of operations or goods. The BCG matrix is based on the assumption that most organisations engage in various business activities across various product-market categories. These several enterprises combine to form the company’s business portfolio, which must be balanced for overall profitability.

A company’s business portfolio should include high-growth products that require capital inputs and low-growth products that generate extra cash to ensure long-term success.

The BCG matrix helps determine product portfolio priorities. Its main goal is to invest where the firm can benefit from growth and divest enterprises with low market share and limited growth prospects.

Each of the goods or business units is represented on a two-dimensional matrix that includes the following columns:

1. Relative market share

2. Market expansion rate

Relative Market Share: The ratio of the market share of the concerned product or business unit in the industry divided by the share of the market leader is described as relative market share. According to this assessment, the market leader has a relative market share of 1.0

For example, if the market share of three companies A, B, and C is A – 10%,

20 percent for B

60 percent C

A’s market share is 10/60=1/6. B’s relative market share is 20/60=1/3, while C’s relative market share is 60/20=3.

The firm’s proportional market share represents its ability to produce cash. It is anticipated that if a business unit has a large market share, its cash earnings will be large as well, and vice versa.

Market Growth Rate: This is the percentage of market growth or the percentage by which sales of a specific product or business unit have increased.

A rapid pace of growth allows the company to extend its operations. It makes it easy for the company to enhance its market share and give profitable investment opportunities. The company may reinvest its profits in the business, increasing the rate of return on investment even further. Additional funds will be required to take advantage of the investment potential for expansion. A low market growth rate, on the other hand, signals stagnation with little room for expansion, and beneficial investments may be risky to make. Increasing market share is only attainable in such a case by undercutting the competitor’s market pricing.

Creating the BCG Matrix

The following is a step-by-step approach for creating the BCG matrix:

The company’s diverse activities are divided into several business units or SBUs.

1. The market’s growth rate is calculated and represented on the Y-axis.

2. The assets used by the company in each business unit are totalled to calculate the business unit’s proportional size concerning the company.

3. The relative market share of various business units is calculated and plotted on the X-axis.

4. Each business unit or product’s position is shown on a matrix of market growth rate and relative market share. The company’s size is indicated by a circle with a diameter equal to the amount of money invested in the company.

5. Each unit must have its strategy created based on its position in the 2 x 2 matrix.

6. It is critical not to adjust the criteria to group favourite projects and items into more favourable groups, as this would negate the exercise’s aim.

BCG Matrix Analysis

The BCG matrix represents the cash flow contribution of the goods or business units. According to this analysis, the products or business units are classified as follows:

1. Stars
2. Cash cows
3. Question marks
4. Dogs

1. Stars (High Growth, High Market Share)

Stars are products with a reasonably high market share in a rapidly expanding market. They are (possibly) profitable and have the potential to expand into a significant product or category for the company. The company should prioritise and invest in these items or business units. The following are the general characteristics of stars:

-Rapid expansion necessitates significant investment.

-Having a huge market share means they have economies of scale and produce a lot of money.

-However, they require more money than they create.

Because of the fast growth rate, they will require significant investment and be cash users. The primary strategy is to divert capital from cash cows and invest it in stars. Cash may also be spent selectively on some problem youngsters (question marks) to transform them into stars. Other troubled youngsters may be milked or sold to fund different causes.

2. Cash Cows (Low Growth, High Market Share)

These are the product categories with significant relative market shares yet are found in low-growth markets. The business is mature, and it is expected that less investment would be required. As a result, they will likely be able to create both cash and profits. Such revenues may subsequently be used to help the stars. Cash cows have the following characteristics:

-They produce both cash and profits.

– The company is mature and requires less investment.

-Profits are passed to question marks and support stars.

-There is a risk that cash cows will become under-supported and lose market share.

Even though the market is no longer growing, cash cows may have a relatively high market share and generate substantial earnings. Maintaining the status quo requires no effort or investment. Cash cows, on the other hand, may eventually become dogs if they lose market share.

3. Question Marks (High Growth, Low Market Share)

Problem children and wild cats are other names for question marks. In high-growth markets, these are products with low relative market shares. Due to the high market growth, significant investment may still be necessary, and due to the low market share, such items may have trouble generating substantial profits. These companies are called “question marks” since the organisation must determine whether to strengthen or sell them.

The following are the general characteristics of question marks:

-They have a high cash requirement.

-However, their cash generation is modest.

-The organisation must determine whether to fortify them or sell them.

4. Dogs (Low Growth, Low Market Share)

These are products with low market share in low-growth industries. These products will require little investment but are unlikely to provide significant profits. In practice, they may absorb the funds needed to maintain their position. They are frequently viewed as unappealing in the long run and are recommended for removal. Dogs have the following general characteristics:

-They do not make a profit.

-They absorb money

-They are unsightly and are frequently advised to be disposed of.

Turnaround is one strategy to consider because many dogs have recovered and become sustainable and profitable after reducing assets and costs. When the dogs are not lucrative, the proposed strategy is to drop or divest them. If they are profitable, do not invest, but rather make the most of their current value. This could even include selling the division’s activities.

The BCG growth-share matrix connects the industry growth characteristic with the company’s market share (i.e., competitive strength). It visually represents the company’s market involvement, reflecting current resource deployment indirectly. The fundamental assumption is that investment is necessary for growth while retaining or increasing market share. However, a highly competitive business, i.e. with a high market share operating in a low-growth industry, will produce surplus capital for deployment elsewhere in the corporation. Thus, growth consumes capital, whereas market share might be a source of cash.

Thus, the BCG matrix can be considered a graphical representation of the sources and uses of money statements. Market share is valuable since it provides a source of profit. Projects are the result of acquired experience, resulting in a cost advantage.

The model implies that the strong market growth of star enterprises would eventually decrease, and stars may become cash cows, allowing the market leader to withdraw funds from them to invest in other businesses.

However, some of the BCG matrix’s underlying assumptions may not apply to all firms.

For example, some technological equipment and so-called fashion goods have relatively short life cycles, whereas essentials like bread have very long life cycles. As a result, the business may deviate from the conventional behaviour pattern indicated by the BCG matrix.

2. Ge Nine Cell Matrix:

The General Electric Company created this matrix in the 1970s with the help of the consulting firm McKinsey & Co., USA. This is often referred to as the GE Multifactor Portfolio matrix.

The GE matrix was created to address the evident shortcomings of the BCG matrix. This matrix is made up of nine cells (3 3) that are based on two essential variables:

-The business’s strength; and

-The industry’s appeal.

“Business strength” is represented by the horizontal axis, and “industry attractiveness” is represented by the vertical axis.

The strength of a business is measured by taking into account factors such as:

-Market share (relative)

-Gross profit margins

-Capability to compete in terms of price and quality

-Customer and market knowledge

-Competitive advantages and disadvantages

-Technological capability

-Management calibre

The attractiveness of an industry is determined by characteristics such as:

-Market size and growth rate

-Profitability in the industry

-Competitive ferocity

-Scale economies

-Technology

-Consider the social, environmental, legal, and human aspects.

The graph represents individual product lines or business units as circles. The area of each circle is proportional to the industry’s sales, and the pie within the circles reflects the product line’s or business unit’s market share.

The GE matrix’s nine cells indicate various levels of industry attractiveness (high, medium, or low) and business strength (strong, average, and weak). After each product line or business unit is placed on the nine-cell matrix, strategic decisions are made based on its location.

Stoplight Approach

The GE matrix is also known as the “Stoplight” strategy matrix because the three zones are similar to traffic lights: green, yellow, and red.

The strategies are determined based on the zone into which the product or business unit falls:

-If the product is in the ‘green zone,’ that is, if the business is solid and the industry is at least medium in attractiveness, the strategic decision should be to expand, invest, and grow.

-If the product is in the ‘yellow zone,’ that is, if the company strength is low but the industry attractiveness is strong, the strategic decision must be made with care and managerial judgement.

-If the product falls in the ‘red zone’, i.e. the company strength is average or poor and attractiveness is likewise ‘low’ or ‘medium’, the suitable option should be disposed of.

Thus, in the BCG matrix, items or business units in the green zone are similar to “stars” or “cash cows,” whereas those in the yellow zone are akin to “question marks”, and those in the red zone are similar to “dogs.”

Evaluation of the GE Matrix

Merits

a. The GE matrix outperforms the BCG matrix in the following ways:

b. It employs nine cells as opposed to four.

c. It takes into account many aspects and does not reach simplistic conclusions.

d. The high/medium/low and strong/average/low classifications allow for a more precise separation between business portfolios.

e. It assesses industry attractiveness and business strength using several elements, allowing customers to choose criteria relevant to their circumstances.

Demerits

a. The GE matrix, on the other hand, has some flaws.

b. As the number of businesses grows, it can become complicated and time-consuming.

c. Although industry attractiveness and business strength appear objective, they are subjective assessments that can differ from person to person.

d. It cannot accurately depict the status of new business units in developing sectors.

e. It only provides broad strategic prescriptions rather than specific business policy recommendations.

3. Hofer’s Product/Market Evolution Matrix:

Hofer proposed a three-by-five matrix in which firms are plotted based on two parameters: the firm’s business strength (competitive position) and the stage of the product-market life cycle. As in the GE nine-cell matrix, circles represent industry size, while darker segments represent market share.

4. Directional Policy Matrix(DPM)

Shell Chemicals in the United Kingdom created this matrix. It employs two dimensions: “business sector prospects” and “competitive capabilities of the enterprise.” Prospects for business sectors are classified as appealing, average, or unattractive, while a company’s competitive capabilities are classified as strong, average, or weak.

Divestment

The business units’ competitive capabilities and business prospects are both weak. This quadrant contains loss-making units with uncertain cash flows. These firms should be divested since the situation is unlikely to improve in the foreseeable future. The resources freed up could be put to better use.

Phased Withdrawal

In this case, the SBU is in an average to weak competitive position in a low-growth, unattractive business with a limited likelihood of generating sufficient cash flows. The technique to be used is to disengage from such SBUs gradually. The freed-up funds might be invested in more productive ventures.

Double or Quit

Though the commercial prospects appear promising, the company’s competitive capabilities are lacking. Either invest more to capitalise on the opportunities or, if that is not possible, better “leave” the SBU.

Custodial

Both competitive capabilities and business prospects are unappealing or ordinary in this region. With a little help from other product divisions, bear with the situation or exit the SBU to focus more on other appealing businesses.

Try Harder

The company prospects are appealing, but the competitive capabilities are average; they should increase their capabilities with additional resources.

Cash Generation

The SBU has excellent competitive capability, but its business prospects are unappealing. Its operations can be carried out at least to generate cash flows and profits. However, additional investments cannot be made due to unappealing business prospects.

Growth

The SBU has good competitive qualities in this market, but its business prospects are average. Therefore, it necessitates additional funding, which would aid its growth.

Market Leadership

The SBU has great expertise in this area, and its business possibilities are particularly appealing. Maintaining the SBU’s market leadership must be a top priority.

5. Portfolio Matrix by Arthur D. Little (ADL)

The Arthur D. Little Company matrix connects the stages of the product life cycle to a company’s strength. On the vertical axis, businesses are classed as weak, tenable, favoured, strong, or dominant based on their business strength. The horizontal axis depicts four stages of the product life cycle: embryonic, growth, maturity, and decline.

The strategic strategy would naturally differ depending on the business’s situation in terms of its business strength (competitive strength) and the stage in the product life cycle. Thus, the aim should be to invest in a business in its infancy or growth stage if it has favourable or strong business fundamentals. For such a business unit, the “BUILD” strategy is recommended. However, the “HOLD” strategy is recommended for organisations with mature products, even if they have a favourable, firm, or dominant business strength. The “HARVEST” strategy is recommended for businesses with declining products and a strong or dominant business strength. If the business is mature yet has weak business strength, the “DIVEST” strategy is required. This is because any business with weak strength will have a low return on investment, making divestment the preferred strategy.

6. Profit Impact of Market Strategy (PIMS)

General Electric developed PIMS in the 1960s to investigate which strategic elements have the greatest influence on cash flows, investment needs, and success. The PIMS model examines data supplied by businesses to develop general laws.

The model is based on statistical associations established from previous company experience. Typically, the Strategic Planning Institute generates an industry characteristic by analysing the profitability of over 2000 enterprises using multidimensional cross-sectional regression research. The industry characteristic is compared to the performance of the relevant company to find a clue to appropriate strategic approaches. Its scientific objectivity distinguishes the model, but it also includes an analysis of relationships based on business and period heterogeneity.

Of course, PIMS has some disadvantages. It assumes that the firm’s principal purpose is short-term profitability. The research is based on historical data, and the model does not account for future changes in the company’s external environment.

The model does not take into account internal dependencies and possible synergies within organisations. It investigates each company separately.

7. SPACE Matrix

Another helpful tool is the Strategic Position and Action Evaluation (SPACE) matrix. It reveals which of the following techniques is most suited to a company:

1. Aggressive strategies
2. Conservative strategies
3. Defensive strategies
4. Competitive strategies

The space matrix’s axes indicate two internal aspects, financial strength and competitive advantage, and two external dimensions, environmental stability and industry strengths.

Each profile’s directional vector defines the type of strategy to pursue: conservative, aggressive, defensive, or competitive.

1. Aggressive strategies

When a firm’s directional vector falls in the matrix’s “aggressive quadrant.” It is in a great position to leverage its internal strength to:

1. take advantage of external opportunities
2. overcome internal weaknesses
3. avoid or minimize external threats

Market penetration, market development, product development, backwards and forward integration, horizontal integration, concentric and conglomerate diversification, or a combination strategy are all options for aggressive growth.

2. Conservative strategies

When a company’s directional vector falls in the “conservative quadrant,” it suggests it should stick to its core capabilities and avoid taking unnecessary risks. Market penetration, product development, and concentric diversification are examples of conservative strategies.

3. Defensive strategies

When the directional vector is in the “defensive quadrant,” the firm should address internal vulnerabilities and external threats through defensive methods. Turnaround, divestment, bankruptcy, and liquidation are examples of defensive or retrenchment strategies.

4. Competitive strategies

When a directional vector falls within the “competitive quadrant,” the firm should pursue competitive strategies such as backward, forward, horizontal integration, market penetration, market development, product development, joint ventures, and strategic alliances.

8. Quantitative Strategic Planning Matrix (QSPM):

The QSPM tool enables strategists to objectively evaluate alternative strategies based on key internal and external success factors. QSPM, like other analytical tools, necessitates excellent intuitive judgement.

The basic format of QSPM is as follows:
• Key external factors
• Economic
• Political, legal and governmental
• Social, cultural and demographic
• Technological
• Competitive
• Key internal factors
• Management
• Marketing
• Finance
• Production
• HR
• R&D

The six steps required to create a QSPM are as follows:

Step 1: List the firm’s external opportunities/threats and its internal strengths/weaknesses.

Step 2: Assign weights to each important aspect.

Step 3: Determine which alternative tactics the organisation want to explore.

Step 4: Calculate the attractiveness scores. They are numerical values that indicate how appealing each strategy in a given set of strategies is.

Step 5: Determine the overall attractiveness scores by multiplying the weights by the attractiveness values in each row.

Step 6: Add the total attractiveness scores from each strategy column in QPSM. The sum of the total attractiveness scores reveals which strategy is the most appealing.

9.5 Contingency Plans

Certain assumptions and conditions are used to make strategic decisions. If the circumstances change dramatically, the planned strategies may be abandoned entirely. The strategies may need to be tweaked if they aren’t too extreme. However, changes do not occur in a logical order, nor do they provide any forewarnings. They appear unexpectedly, leaving deep scars on the faces of unprepared managers. To be on the safe side, strategists always prepare contingency plans. Such contingency plans are developed to deal with unknown events and unexpected challenges. Successful managers, as correctly summarised by Peter Drucker, do not wait for the future. They shape the future through proactive planning and forethought. They take original action by removing current difficulties, anticipating future problems, changing goals to accommodate internal and external changes, experimenting with creative ideas taking initiative, attempting to shape the future and creating a more desirable environment.

Contingencies could include a labour strike, a downturn in the economy, or an abrupt change in government policy. If such instances are discovered, managers could develop alternative plans for the organisation. Firms that use this method identify specific trigger points to warn management that a contingency strategy should be activated. Mid-course corrections can be carried out smoothly if alternative plans are implemented.