Strategic choice pretests for diversification


It is very difficult to check strategies.. Large industries on one hand find it difficult to change due to their large structures, while Small Industries are limited by their resources.

Manager's Perspective

In large corporations managers may find their range of choice minimal because of the fact that few of those choices are made & formulated at a higher level or in generally country.

Manager's decision also depends on the chance & opportunity available to make those decisions.. Wile considering future strategies, it is equally important that there are

clear choices to be formulated. Focusing on outcomes in retrospect, it is often

evident that events, and mostly unexpected events, play a pivotal role in

determining results.

It is equally necessary to take a prescriptive view, When considering choice. Descriptive ways of thinking might should a way in determining the outcome of the decisions.

Process of Choice

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The selection of choice rationally is divided into four steps-Firstly, identify the options, secondly,evaluate the options against the established preference criteria, thirdly, selection of the best option, and accordingly taking theaction. It suggests suggests that identifying and choosing options can be done purely analytically. Practically it is very difficult to identify all possible options with equal clarity or at the same time. Any unusual change can create new

opportunities, destroy foreseen opportunities, or alter the balance of advantage

between opportunities.

Identifying and Evaluating Options

This step is a useful approach but it suffers from numerous limitations.

An important role in making strategic choice is Analysis ,but other factors such as judgement and skill are equally critical. An example that can be followed in this context is, sometimes it is good to delay & discard a decision while on the other hand, at times a wrong decision may be better than no decision.

Choice and strategic choice refer to the process of selection of one option from the given options for implementation.

Option An appropriate definition of option is that, it suggests that is a course of action that makes it appear possible to take. The simplest form of choice therefore can be considered as between choosing an option and not taking it, in another form doing it or not doing it.

A strategic option is a set of related that can be summed as that form a potential strategy.

Chosen Strategy refers to the strategic option that has been chosen.

Structure of strategic choice

The diagrammatic representation of the structure basically consists of three elements.

The structure is in the form of three logical elements of the strategy formulation process

Actually interlocked.

The above figure illustrates the significance of the overlaps. The

Intersection between any two circles is of utmost interest while on the contrary all three circles overlap. The chosen viable option is the chosen strategy. It satisfies the varying requirements of intent and assessment.

The parameter for choice is derive from intent and assessment. Optimal & Feasible options may exist which might not be not aligned

to strategic intent.

Strategic Choice Structure

The options which are not feasible will seem to highly attractive and may

have powerful supporters, thats why the reason arises to study those infeasible

with clear evidence in support. Choices of what not to do may sometimes

be as important as choosing what to do.

An initiation to the process of choice starts by identifying available options. The chosen strategy

Should answer the questions 'what', 'how', 'why', 'who', and 'when', so each

option will provide clear cut view answers to each of these questions.

Markets and products/services- Various Options Available

(Ansoff, 2010)The most common type of option relates to which products or services will be offered in which geographical areas & locations. One of the most contemporary model is suggested by Igor Ansoff for structuring this decision.

There are four aspects of the diagram - product (including services and any form of offering),

market need (which can be potential customers whether defined by

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their needs, inclinations, or other parameters such as income bracket), and market geography (geographical location).

This model defines four boxes for the present market geography. The top-left

of these box represents the present status & form of the business. Future

choices about products and markets are represented as movements within or

away from this box.

One set of choices is possible within the existing product/market set.

'Do nothing'-represents the continue present strategies. The importance of this strategy is

To usual to compare any proposed change with the 'do nothing' option as a baseline.

'Consolidate'- It is an attempt to hold market share in existing markets. This is a defensive strategy.

'Withdraw'- Means leave the market by closing down or Liquidation or allowing another organisations to acquire it. Though it appears to

be a negative option but may be necessary to focus available resources into areas

of greater strength. It is quite common in declining markets to see some of the competitors

selling out to others who can operate the combined operation more

managed & in a profitable way by backing their extra resources.

Box 11.1 Example of options and a strategic choice

'Market Penetration'-This strategy involves to increase market share of the same market. It represents a choice as an aggressive option and usually involves investing in product improvement, advertising, or channel development.

Acquiring the businesses of competitors who are Leaving from the market may be a necessary related resource option.

The other possible options are either to develop or acquire new products (product development) or to address new market needs (market development).

The above explained two choices are easy to understand at the generic level but clearly have to be spelt out in detail before they form any practical meaning for a real discussion in a particular context.


Diversification is defined as the entry into new markets with new products. Diversification may

May be classified as two types-related and unrelated.

Related diversification

(Faulkner)It is again divides into backward, forward, and horizontal integration. Backward integration is defined as a strategy towards suppliers and raw materials in the same overall business. An example that can be quoted in this context is brewer acquiring malting facilities or growing hops.

Forward integration is a strategy that aims towards the market place or consumers in the business scenario. An

example that can be quoted in this context is that of a manufacturer acquiring retail outlets or a hop grower started to brew his own beer.

Horizontal integration

It is a lateral move into a closely related business for example selling by-products.

Diversification which is not of above of categories mentioned is 'unrelated'. Even unrelated

diversification usually has (or is thought to have) some degree of synergy (or fit) with

the original business.

Porter, for instance, studied the 1950-86 diversification of thirty-three leading US companies

and proposed(Porter 1987) that the track record of diversification was poor , more over in many cases acquisitions it was seen that they were subsequently divested.

Building resources, capabilities, and competence- Options Available.

Strategic choice has to look upon the options about resources, capabilities, and competencies along withthose for markets and products. It can be suggested that the strategic assessment has identified strengths and weaknesses in the current line of business resources and capabilities in comparison with the competitors. This may further allow in identifying the improvements needed either find the weakness or to build on

existing strengths.

It can be also indicate that potential market/product options will equally require

supporting changes inform resources and capabilities .

The time required for developing resources and capabilities might be very long and may

be longer than the time required for market entry. For example, people are a major

resource, but it would take years or decades to change the overall mix of people in a company.

Grouping options into strategic Options Available

Options regarding product/markets, resources/capabilities, and the method of implementation necessarily have to be combined into a much smaller number of strategic

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options. This may involve a bottom-up or top-down process. The bottom-up approach

implies the linking that what might be done in detail manner to see into potential strategies that seem to

infer wider sense. The top-down approach denotes testing the general ideas of future

direction against detailed options. In practice, the process is most likely to combine & include top-down and bottom-up thinking.

General tests of strategic options

Each strategic option is allowed to pass two tests based on the logic which are descried in brief.

Attractiveness test: The industry that has been chosen must be either attractive or capable of being able to make attractive. For example, the population is around 1.2 Billion in India, but according to a study the mobile penetration is just 13% in India.

Cost-of-entry test: The cost of entry must not necessarily capitalize all future profits.

Better-off test: The new unit must in a way gain competitive advantage through its link with the corporation otherwise vice versa.

It must be:

Aligned in away that it conforms to the strategic intent. This test answers the basic question

'Does this option will us towards where we want to go?'

Feasible in a sense that how the capabilities and resources required for success can be made

available. This answers the question:

'Will it work?' This test is most supposed to draw on the

analysis done of the strategic assessment.

A third test goes beyond the logic to answer the another basic question:

'Will this option be acceptable?'

It means that it will win the approval of those who will have to

approve it finally and thus have to implement it.

Any strategic option to become a final solution has to pass all three tests to be viable. If in case more than one strategic

option passes all these tests, they might have to be compared with each other to

held as the 'best'. The judgement necessarily has to take into account both tangible characteristics

for example as risk and return and less tangible matters up to match to values and



The total process of choice can only be described & provide insight that as deciding between

different options, but all together this makes the process as neater and tidier than it is really.

There are likely to be possible feasible options about product and services and also market

segments defined by both consumer need and geography. There might be options

on what resources and capabilities are really needed and how to build these-

& thus implementation options. Indicators of what is possible & thus what is required might be wellfollowed derived from the results of a strategic assessment.

The various options are thus likely to be inter-related & inter-connected so it is necessary to identify a small Group or sets of strategic options made up of appropriately formed options.