Strategic choice refers to choosing the option to get where the business wants to be from previously identified opportunities. After the business has identified its current position on the market, it must examine current market opportunities and threats to be able to plan for the future.
Strategic choice is the next step in the strategic management process. Identification of different strategic options, deciding between them and choosing the most beneficial one is at the center of strategy formulation.
Good strategic choices should be achievable for the firm within its limited resources and allow the business to gain competitive advantage. It is important to use the appropriate techniques to make the right choice as well use judgement.
Strategic choice uses a number of different business techniques. Let’s take a look at them in details.
Strategic choice – 2nd step of strategic management process
STAGE 2: Choosing the option to get there from previously identified opportunities.
After the business has identified its current position on the market, the business must examine current market opportunities and threats to be able to plan for the future. The following business tools can be used in order to do so:
1. Market Research. Primary Market Research and Secondary Market Research will help to determine which new market opportunities are available and what are the future directions available to the firm. Questions to be considered may include the following:
- How should current product be improved?
- Which new products should be developed?
- Which new technologies could be applied to increase productivity?
- Is the expansion desirable and achievable?
- Which growth methods can and should be selected – Internal Growth or External Growth?
- How can differentiation be achieved?
- How can the core competencies of the business be developed?
- Should the business enter into foreign markets?
- Should E-Commerce be used at all?
- Is there a chance to increase the number of distribution channels?
2. Sales Forecasting. Sales forecasting helps to assess how markets are developing in terms of sales – whether sales are growing, remaining flat or declining. Additionally, Cash-Flow Forecasts, Gearing Ratio, sources of finance and human resource planning should be analyze to decide on the future directions available to the firm.
3. Benchmarking. This will make possible to find out what are competitors doing, and how can their offer be matched or improved upon.
4. Ansoff Matrix. This business tool looks at potential growth strategies in a given situation. It also helps to analyze the link between business strategy and the level of risk.
5. Investment Appraisal. For each growth option, Investment Appraisal will give quantitative answer whether the business should invest in new projects or not.
6. Fishbone Diagram. It is a graphical representation of the most likely causes and effects of a problem or an issue.
7. Force Field Analysis (FFA). Scientific decision-making should be used as much as possible to direct the business based on strong numerical evidence rather than unrealistic expectations. Force Field Analysis (FFA) will assist in making strategic choices in a given situation based on facts and data.
8. Decision Tree. Decision Tree should be constructed based on available information. It will help to calculate the expected monetary values for each choice to assist in selecting the most appropriate strategy.
9. Return on Capital Employed (ROCE). Using Return on Capital Employed (ROCE) for each potential future decision can quantitatively measure the success of each opportunity. In addition, gaining market share, improving motivation and increasing labor productivity can also be used to evaluate different choices.
In summary, Strategic Choice of the present opportunities and threats will dictate corporate objectives in the short-term, medium-term and long-term. If there are no important choices to be made, most likely it does not make much sense to consider the decision-making process at all.
