Strategic alternatives: what is it?

Every organization that is thinking about successful long-term development should think about how to achieve it. For this, an enterprise (company, institution) strategy is developed, which contains the main points for achieving the established goals.

general information

But not so simple. There is no simple universal plan by which everyone can work. In practice, there are strategic alternatives and it is necessary to make a choice in favor of one of them. What exactly should be done depends on what specific situation has developed for a particular organization. Fortunately, there are general approaches to their development and formulation:

Limited growth strategy. This alternative is followed by most existing organizations. It is characteristic for her to set goals on the basis of the already achieved level with the implementation of a correction taking into account inflation. Why is this organization development strategy so popular? The fact is that for many it is much easier to go along the beaten track, which also carries minimal risk.
Growth strategy. The essence of this approach is to annually increase the level of short- and long-term goals compared to last year. It is used, as a rule, in dynamically developing industries where technologies are changing rapidly. Moreover, growth can be internal or external. As an example of the first case, we can cite the expansion of the range of goods offered. In the second case, they mean the union of several organizations, the acquisition by one enterprise of another, and so on.
Reduction strategy. She is left for the worst case. Its essence is to set goals below the level achieved in the past. As an example, one can cite reductions, reorientation, cutting off excess.
Combination strategy. It consists in combining the above options. Large and financially stable enterprises that have launched activities in several industries like to use it.

As you can see, there are strategic alternatives, and there are quite a few of them. And these are only the most general provisions! How to make a choice in favor of something specific?

M. Porter's Approach

What to bet on? You can refer to the opinion of M. Porter, one of the leading theorists and specialists in this field. He argues that there are three key points to consider. The advantages of the system proposed by him include a rather high level of specificity. In short, then:

It is necessary to take a leading position in minimizing production costs. Firms that rely on the development of this type of strategy should have a good organization of production and supply, well-developed technology and a high-quality engineering base. We should not forget about the effective system of distribution of products.
It is necessary to rely on specialization in the production of products. What conditions should be in order to set such strategic goals? First of all, the company should carry out highly specialized production, not forgetting about advertising and product promotion. The aim is to become a leader in the production of our products. This pays off, because often buyers rely on a quality brand, even if it has a fairly high price.
It is necessary to fix a certain segment of the market and concentrate the efforts of the enterprise on it. In this case, the organization does not seek to capture everything and everyone.The goal is to become a leader in a certain segment of the market, thoroughly figuring out the need for products of a certain type. Such an enterprise strategy may include cost reduction, specialization policies, or even a combination of the two. But it is absolutely necessary to analyze customer requests in a specific market segment.

Another approach

Strategic alternatives exist in large numbers. So, based on the established priority goals, we can distinguish:

Advertising and promotion strategy. It involves the flexible adaptation of the enterprise to existing market conditions, which takes into account the position of the product on the market, the level of costs for its research, a set of measures for the implementation of sales and so on.
Innovation Strategy (also known as innovation policy). It involves the combination of various aspects of activity, which together allow the introduction of new technologies and types of products.
Investment strategy. It involves determining the level of investment based on calculating the scale of production of certain types of products and / or activities of the entire enterprise as a whole.
Foreign investment strategy. It involves the creation of their own manufacturing enterprises abroad.
Development strategy. It is aimed at the implementation and achievement of established goals, as well as the steady pace of development and successful functioning of the company as a whole, as well as its subsidiaries and branches.

As you can see, if it comes to strategic alternatives, there is plenty to choose from. The main thing is not to make a mistake.

How to make a choice?

It would be logically more correct to start the consideration by developing your own alternatives, but there are certain reasons according to which it is better to change the order of presentation of the material. When creating a long-term development strategy for an organization, the top management of the enterprise plays a crucial role in its formation. After all, it is she who makes the choice in favor of a certain option, which is designed to increase the effectiveness of the organization. The decision made has a significant impact on the entire organization. This must be remembered. The selection process includes analysis of previously adopted strategies, product portfolio and decision making. What are they?

Analysis of past (and current) strategies

It is built on the principle of evaluating external and internal factors. The first include:

The scope of the enterprise.
A variety of products.
The nature and general nature of the organization and its sales.
The focus and structure of the company.
Attitude to external threats.

Internal factors:

The goals of the enterprise.
Attitude to financial risk from management.
Criteria for the distribution of resources and the existing structure of investment for manufactured products.
The degree and level of concentration of efforts in the field of research and development.
Strategies of individual functional areas (production, finance, personnel).

All this must be taken into account not only for enterprises that have already successfully worked in the market for a certain time, but also for those organizations that are only gaining their place. True, in the second case, the data will be hypothetical, and not based on the experience of past years. But the analysis of strategic alternatives for reality and feasibility should not be thrown back. After all, even if there is no real data, to think about what and how will be superfluous.

Product Portfolio Analysis

Allows you to visually evaluate how the individual parts of the business are connected. Moreover, the portfolio is more important for the enterprise than its individual parts. Thanks to his analysis, a number of important business factors can be balanced: risk, renewal, cash flow, and so on.In this case, it is always assumed to compare the share of the company (as an option - its products) in the market with the growth rate of economic activity.

As a case study, we can recall the matrix of the Boston Consulting Group. It consists of a choice of various combinations of strategy, investment and product life cycle. Why is this matrix necessary? Its meaning is to help you choose the best strategy. For example, there is a product (service) of a company that occupies a large market share and is characterized by a high growth rate. In this case, using the matrix, it is easy to conclude that the most optimal is a growth strategy. Or if a product (service) takes up too small a share, and its increase either does not pay off, or has a low priority, then you can choose to cut off the excess.

In modern conditions, the approach to creating a strategy is changing. So, for example, if it was previously believed that it should be known only to a narrow circle of leaders, now the process of its formation, as a rule, is open. Moreover, the position according to which the strategy should occupy not only managers, but also direct executors, is becoming increasingly widespread.

What does the alternative development process look like?

But in order to choose, it is necessary to have a certain set from which it is possible to make. And for this it is necessary that the development of strategic alternatives be implemented. In fact, this process is their creation, evaluation and selection. The key to success is the availability of a wide and varied choice, which gradually narrows under the influence of advanced criteria. And the final point is the final selection of the basic strategy. Before starting the process, boundary areas for the search for possible solutions should be established. This is determined by two components:

Criteria for evaluating alternatives.
Limitations of the implementation of decisions.

Their combination allows us to determine the field of future decisions. This approach enhances the targeting of the developed alternatives. But at the same time, if erroneous evaluation criteria are chosen, then only the appearance of the right decision will be created. Therefore, when a strategy is being developed, it is necessary to carefully and seriously take this process.

About the difference of approaches

Strategic alternatives offer a variety of tools and opportunities. Since the goals pursued include, to one degree or another, the development of the organization, based on the chosen approach, we can distinguish the following groups:

Alternatives to gradual improvement. They are options for continuing and / or adjusting previously adopted strategies. The vast majority of developments belong to this group.
Alternatives to updates. Based on the existing strategy of the organization. But at the same time, they significantly change the direction of activity, providing for the implementation of major changes in the goals, appearance and scale of the strategy. In addition, a critical review of dominant market ideas and existing ways of doing business can be introduced.
Innovative alternatives. Representatives of this group are distinguished by a radical change in the adopted strategy of the organization, for which they use new breakthrough products (or unprecedented ways to compete). Their development requires a new approach to thinking and analysis.

It should be noted that in practice, alternatives to updates are often completely unreasonably ignored. But they can completely unexpectedly give rise to new lines of thinking, show the organization’s activities from a different perspective, and contribute to development.

About decision making

What will be the strategy? Strategic alternatives provide various options, but what exactly will be accepted and used is up to people to decide.It looks something like this:

Top management is developing a large number of possible alternatives with middle managers. This approach minimizes the chance of missing a potentially better option.
Strategic developments are being finalized and refined in terms of the influence of the external environment and possible changes in the organization itself. The result is a “nesting structure” for each alternative. Moreover, it has several levels of hierarchy.
Strategic alternatives proposed for consideration are being evaluated. Attention is paid to achieving the goals and objectives. As well as restrictions on the path to achieving strategic goals.
The choice is made that best fits the current situation.

A few words should be said separately about the "nesting structure." It represents a certain combination of possible solutions. Another designation for them is a portfolio of strategies. Conventionally, they distinguish here:

Corporate level. It contains investment or portfolio strategies of companies that specialize in a large number of products.
The level of individual businesses. It is a development strategy for individual enterprises.
Functional level. Here are the strategies of the main subsystems of the organization, as well as individual specialized areas.

To succeed, all three levels must be coordinated and work closely together.

How is the formation system built?

A common strategy can be created using the following approaches:

Top down. In this case, senior management starts the process of forming a strategy and authorizes functional units to propose their best practices.
Down up. In this case, the formation process begins with the proposals of functional and business units.

For both approaches, it is important how effective the interaction of different levels is. After all, if the approval process fails, then this is fraught with significant problems. And in such a situation, it can be argued that management functions are not performed. It should be remembered that the main goal is to obtain the desired result. And besides, one should not forget about the constant presence of external and internal factors. After all, they can significantly affect business management. In this case, it is necessary not only to determine their current state, but also to forecast changes for the planning period. Consider a small example. When considering such a factor as “technology”, one should not only analyze existing developments, but also try to determine what new things can appear in the foreseeable future, which way their development will go. Another example is the state regulation factor. In this case, you can try to predict the possible actions of the authorities, as well as their consequences for the organization. And here a big role is played by forecasting.

How to predict the future?

Alas, this is impossible. But to create a realistic scenario, which with a high degree of probability will be realized, is not from the realm of fantasy. To carry out forecasting help:

The method of weak and strong signals. The focus here is on issues. If there is no relatively complete and / or reliable information about them, then they are called weak signals. But when the problem is already clearly manifested and understandable, this means that you have to deal with the strong. It is advisable to respond to calls when they are still in the status of weak signals.
Extrapolation methods. Suitable for scientific research, for which the conclusions obtained by observing a certain part of the process will be extended to the entire population. In other words, these methods are based on the assumption that future events are fully dependent on the past.If the external situation is stable and predictable, then this is pretty good for managing a business. But in conditions of uncertainty and instability, extrapolation does not work well. They are used to determine trends and seasonal fluctuations.
Causal methods. Based on identifying relationships. Namely, causal. Their practical application involves the use of regressive mathematical methods, neural networks, and other complex tools.
Subjective methods. As a basis, they use the estimates and opinions of experts, specialists and other similar persons obtained using special algorithms.

Conclusion

Performing managerial functions, the top management of the organization constantly has to deal with situations in which various decisions must be made. The process of resolving them will be greatly facilitated if there is a carefully designed and prepared strategy. And this is possible only if truthful and accurate information was collected, the necessary data was extracted from it, and their reliable processing was carried out. And already on the basis of the available arrays of indicators, a certain choice of strategic alternatives can be formed (this is not possible for organizations that exist for a considerable time, for newly created structures).