Skip to main content

Strategy Analysis and Choice Process

The Strategy Analysis and Choice Process is a critical component of strategic management. It involves evaluating potential strategies, selecting the best fit for the organization, and preparing to implement it. This process ensures that an organization chooses strategies that align with its goals, resources, and market conditions. Here’s a breakdown of each step involved in the process:

Step 1: Situational Analysis

Situational analysis is the foundation of strategic choice. It involves assessing internal and external factors that influence the organization’s position, capabilities, and opportunities.

  • Internal Analysis: Evaluates the organization's strengths, weaknesses, resources, and competencies. Common tools include SWOT analysis and value chain analysis.
  • External Analysis: Examines external opportunities and threats, industry trends, and competitive forces. Tools such as PESTEL analysis and Porter’s Five Forces are often used.

Purpose: To gather comprehensive information on factors that can influence strategic choices.

Example: A retail company might analyze its strengths (brand loyalty, distribution network), weaknesses (high costs, reliance on suppliers), opportunities (e-commerce growth), and threats (new competitors).

Step 2: Identifying Strategic Alternatives

Based on the situational analysis, the organization identifies several possible strategies. These alternatives represent different paths the organization can take to achieve its objectives.

  • Types of Strategies:
    • Growth Strategies: Expansion, diversification, market penetration.
    • Stability Strategies: Maintaining the current position to focus on internal improvements.
    • Defensive Strategies: Retrenchment, divestiture, and liquidation to protect resources and reduce costs.

Purpose: To create a list of feasible strategies that align with organizational goals and market conditions.

Example: A tech company could consider growth strategies (new product development), stability strategies (improving current offerings), or defensive strategies (exiting unprofitable markets).

Step 3: Evaluating Strategic Alternatives

Each strategic alternative is carefully evaluated based on specific criteria. This evaluation phase helps prioritize strategies that are feasible, effective, and sustainable.

  • Criteria for Evaluation:
    • Suitability: Does the strategy align with the organization’s mission and goals?
    • Feasibility: Are the required resources (financial, human, technological) available?
    • Acceptability: Will stakeholders support the strategy? What are the potential risks and rewards?
    • Sustainability: Can the strategy provide a long-term competitive advantage?

Purpose: To assess each strategy’s potential impact and practicality.

Example: A manufacturing company might assess whether expanding into new regions is feasible based on its financial capacity and supply chain network.

Step 4: Choosing the Best Strategy

After evaluating all strategic alternatives, the organization selects the best option. This choice is based on which strategy offers the highest likelihood of success while aligning with organizational values and resources.

  • Decision-Making Models:
    • Quantitative Models: Tools like Cost-Benefit Analysis, Risk Assessment, and Decision Trees can provide data-driven insights.
    • Qualitative Models: Techniques like Scenario Analysis and Judgement-Based Models allow for subjective considerations.
    • Hybrid Approach: Combines both quantitative and qualitative data for a balanced decision.

Purpose: To make an informed choice that balances potential rewards with risks and aligns with organizational goals.

Example: A financial services firm might use a cost-benefit analysis to decide between entering a new market or focusing on digital transformation.

Step 5: Strategy Implementation Planning

Once a strategy is chosen, planning for its implementation is essential. This step involves designing a roadmap for executing the strategy, allocating resources, and setting key performance indicators (KPIs).

  • Key Components:
    • Resource Allocation: Assign necessary resources (budget, personnel, technology) to the strategy.
    • Timeline: Establish a timeline for each phase of the strategy.
    • Performance Metrics: Define KPIs to measure success and track progress.
    • Contingency Plans: Prepare backup plans for potential obstacles or changes in market conditions.

Purpose: To create a structured plan for executing the chosen strategy effectively.

Example: A non-profit organization implementing a fundraising strategy might set a timeline, allocate staff, and establish KPIs like donation targets.

The Strategy Analysis and Choice Process enables organizations to make well-informed strategic decisions. By analyzing the situation, evaluating alternatives, and planning for implementation, organizations increase their chances of success and align their actions with long-term goals.

Back to top