Strategic Choice


Strategic choices concern the “decisions about an organization’s future and the way in which it needs to respond to pressures and influences” (p. 235, Macmillan & Tampoe 2000). Strategic choice is a part of the strategic process and involves elements like the identification and evaluation of alternatives which then leads to a choice. Once you have conducted the external and internal analyses the different alternatives available to you should be clear. Identifying them is however not always easy, and asking yourself questions like what the future focus is and what the expansion plans are might facilitate the identification process of these alternatives. There are three aspects that you should consider when you choose a strategy. Porter’s generic strategies help you identify the grounds you stand on, then the possible directions that should be considered, and possible methods. Strategic choices also occur at different levels, at the business level, at the corporate and at the international level. The available options can develop into different directions and different methods can be of relevance when evaluating them. A great challenge is to get choices on different levels to be consistent with each other.

Identification

 
Generic strategies

The generic strategies function as a foundation when you choose a future strategy. There are three generic strategies; overall cost leadership, differentiation, and focus. These strategies can be used to develop the future strategy. If you follow the cost leadership strategy, basically you sell your products cheaper than your competitors. This requires that the overall cost level in the organization is kept at a minimum. Cost leaders that you probably have heard about are companies like IKEA and Wal-Mart. Differentiation involves the offering of a unique product, where the brand or service offering makes the product unique. These two strategies are usually not compatible. Focus is about focusing on a single segment or market. This strategy can be combined with the other two and create a focused cost leadership or focused differentiation.

Directions

A company can choose four different directions that can be based on the product-market grid. The market penetration is for companies who are already present with a product in a market who wish to penetrate the market more and turn more customers into regular customers. The market development focuses on breaking new grounds for existing products. Exporting is one option. Product development is about offering new or improved products in existing markets. Diversification is the last direction available where a company offers new products in new markets.

Methods

There are two ways to get the company started in the strategic direction you choose, either through internal development or through cooperation. Internal development has usually been preferred by companies since it gives more control and lower risk, and gives the opportunity for internal development. Cooperation on the other hand might be necessary in order to gain new knowledge and access into new markets.

Evaluation

Evaluation of alternatives can be made based on three criteria; the consequent criterion, the acceptable criterion, and the possible criterion. The consequent criterion  is about making sure that the decision is consistent with previous decisions and the company’s objectives in order to avoid conflicts. The acceptable criterion  makes sure that the choice is acceptable economically as well as politically, both internally and externally. Other possible criteria  might also be relevant, like if the company has the right resources.

Making a choice

How a decision is taken and how choices are made has been subject to a number of theories. Choice can be made analytically-rationally, intuitively-emotionally, or politically-behaviorally. The two latter are the most common ones in practice, even though the first one is very useful to have in mind. Decision support tools can be very useful where certain criteria are given certain weights of importance and thereafter a ranking of the alternatives is made. Barriers to choice can be a lack of preparation, a lack of knowledge about strategic processes, narrow-mindedness, lack of control, over-optimistic capability assessment, and short-term shortcuts.

As was mentioned in the beginning, strategic choices can be made at different levels. At the business level there are several choices that a manager has to make in order to attain competitive advantage. A company is usually made up of a number of business units where each unit is responsible for its own competitive strategy since they often compete in different markets under different conditions. A competitive strategy can be viewed in different ways and there are usually several options available. The strategy clock can be used to evaluate the different options available to differentiate your firm and what kinds of strategies that are likely to fail. The strategies in the strategy clock have different focuses; there are strategies based on price, on product differentiation, a mixture of the two, or more focused strategies, and some strategies that are just doomed to fail. Regardless of what strategy you have, the competitive advantage that a company might have in the hypercompetitive markets today is only temporary, which requires more options and more choices that have to be acted on more rapidly than before. Choices you make are also likely to have an affect on the available options for others. Game theory is a theory about competitive moves in a market where every choice made affects the choices for the others.

At the corporate level  the choice is about product and market diversity. There are different diversification strategies as has already been touched upon, as well as different types of integration.

At the international level  the choice concerns market selection and market entry modes. You can read more about these in the International Management section.

 


Analytical Tools

The Prisoner’s Dilemma  is a game that illustrates the basics of game theory.

A Decision Tree Analysis  can be useful when choosing between options.

Cost/Benefit Analysis  helps you decide if you wish to follow the course of action or not.

The Ansoff matrix, or product-market grid, can be used to analyze the direction options:

A Force field analysis  is useful when evaluating pros and cons.

Matrix diagrams  are useful when two or more elements can be compared and you wish to assess their relative strengths.

The strategy clock by Bowman helps you evaluate differentiation options:


 

Links and Further Readings


Tips on research sources of information  and authors and their works about concerning strategic management and leadership.

Decision making  – suggested steps and tips as well as and traps that you should be aware of and have in mind when making a decision.

Decision making techniques  – here is some information that will help you on the way to make better decisions.

Tutor2u – strategy  – here are some introductions to different concepts and models in strategy

Strategic Intent  - learn more here.

 

Different integration concepts


Vertical Integration  (Backward Integration  & Forward Integration)
Horizontal Integration

 
Journal Articles


*Child, J. (1997). Strategic Choice in the Analysis of Action, Structure, Organizations and Environment: Retrospect and Prospect. Organization studies, Vol. 18, No. 1, pp. 43-76.
The author develops his earlier framework from the 70’s on strategic choice in organizations.

 
Books

**Faulkner, D. O., & Campbell, A. (Eds.). (2003). The Oxford Handbook of Strategy, Vol. 2. This handbook offers a description of diversification strategies.

MacMillan, H., & Tampoe, M. (2000). Strategic Management – process, content, and implementation. Ch. 11: Strategic Choice
The authors consider strategic choice to be the third element in the strategy formulation process and develop on the structure of strategic choice and options for products and markets as well as implementation options. Porter’s generic strategies are also explained as is the strategy clock.

Dixit, A. K., & Nalebuff, B. J. (1991). Thinking Strategically. This book explains the game theory in a quite easy way and the prisoner’s dilemma.

**Porter, M. (1980). Competitive Strategy: Techniques for Analyzing Industries and Competitors.

 
Swedish books

**Porter, M. (1980). Konkurrensstrategi: tekniker för att analysera branscher och konkurrenter. Read more about generic strategies in this classic.

**Roos, G., von Krogh, G., Roos, J., & Jacobsen, K. (2004). Strategi: en introduktion.
This is a basic textbook that covers the fundamental issues about strategic choices.

 

Refrences

Johnson, G., Scholes, K., & Whittington, R. (2005). Exploring Corporate Strategy. Harlow: Prentice Hall.

Macmillan, H., & Tampoe, M. (2000). Strategic Management – process, content, and implementation. London: Oxford University Press.

Porter, M. (1980). Competitive strategy: Techniques for analyzing industries and competitors. New York: The Free Press

Roos, G., Krogh von, G., & Roos, J. (1998). Strategi. Lund: Studentlitteratur

 

 

*Available online for students at Jönköping University
**Available at the Jönköping University Library

***Available both online for students at Jönköping University as well
as at the Jönköping University Library