Strategic Choice

Ansoff's matrix (1957) identifies four growth directions based on whether the firm is pursuing existing or new products in existing or new markets:

Diversification types:

• Related diversification: Entering new markets/products that share resources, capabilities, or value chain activities with existing businesses. Potential for synergies — economies of scope, shared brands, cross-selling, transfer of skills. Example: Disney diversifying from films to theme parks, merchandise, streaming (all leveraging Disney IP and brand).
• Unrelated diversification: Entering markets/products with no connection to existing businesses (conglomerate strategy). Limited operational synergies — value creation relies on: financial synergies (portfolio risk reduction), superior management skills applied across diverse businesses, or capital allocation efficiency. Example: Berkshire Hathaway (insurance, railroads, utilities, consumer goods). Generally riskier and harder to justify than related diversification.

BCG Growth-Share Matrix (Boston Consulting Group):

Classifies a firm's business units (SBUs) based on market growth rate (attractiveness) and relative market share (competitive strength):

A balanced portfolio contains: cash cows (funding the business today), stars (the future cash cows), and selected question marks (future potential). Too many dogs or question marks without cash cows to fund them is problematic.

Limitations of BCG: Oversimplifies (only two dimensions), assumes market share correlates with profitability (not always true), ignores synergies between SBUs, difficult to define "market" and "relative share," and may lead to over-aggressive divestment of "dogs" that contribute to the overall business.

Ashridge Portfolio Display (Goold and Campbell):

Evaluates whether the corporate parent adds value to each SBU. Two dimensions:

• "Feel" (fit between parent skills and SBU needs): Does the parent have the management skills, knowledge, and experience relevant to the SBU's critical success factors?
• "Benefit" (fit between parent opportunities and SBU characteristics): Can the parent improve the SBU (through resources, capabilities, synergies with other SBUs)?

Four categories: Heartland (high feel, high benefit — core businesses), Ballast (high feel, low benefit — well-managed but parent adds little), Value trap (low feel, high benefit — potential but parent may mismanage), Alien (low feel, low benefit — divest).

Porter's generic strategies (1980) describe three fundamental approaches to achieving competitive advantage at the business level:

Stuck in the middle: Porter warned that firms attempting to pursue both cost leadership and broad differentiation simultaneously risk being "stuck in the middle" — they achieve neither the lowest costs nor meaningful differentiation, and earn below-average returns. The discipline required for each strategy is fundamentally different.

Hybrid strategies: More recent thinking challenges the "stuck in the middle" concept. Some firms successfully combine elements of both cost and differentiation — for example, IKEA (functional, well-designed furniture at low cost), Zara (fast fashion combining trend responsiveness with cost-efficient production), Toyota (reliability + cost efficiency through lean manufacturing). Hybrid strategies can be sustainable when supported by unique capabilities (e.g., innovative business models, superior technology, or supply chain excellence).

Bartlett and Ghoshal (1989) identified four international strategies based on two pressures: local responsiveness (the need to adapt products/services to local markets) and global integration (the need for standardisation and cost efficiency across markets).

Choosing the method: The choice depends on: the speed required (M&A fastest, organic slowest), available resources (M&A requires capital, organic uses internal resources), the need for control (organic = full control, licensing = least), the risk appetite (organic = lowest risk, M&A = highest), and the nature of the capability being sought (if tacit/complex, M&A or organic may be needed; if codifiable, licensing or franchising works).

Johnson, Scholes, and Whittington proposed three criteria for evaluating strategic options:

1. Suitability — "Does it make strategic sense?"

• Does the strategy address the key issues identified in the strategic analysis (SWOT)?
• Does it exploit opportunities and address threats in the environment?
• Does it build on strengths and address weaknesses?
• Is it consistent with the organisation's objectives and mission?
• Tools to assess suitability: ranking strategic options against SWOT factors, life cycle analysis, portfolio analysis (BCG)

2. Acceptability — "Is it acceptable to stakeholders?"

• Return: Does the strategy generate acceptable returns for shareholders? (NPV, IRR, payback, ROCE, earnings impact)
• Risk: Is the level of risk acceptable? (sensitivity analysis, scenario planning, financial modelling, break-even analysis). What could go wrong? Can the organisation survive if it does?
• Stakeholder reactions: How will different stakeholders respond? (employees — job security; customers — service impact; suppliers — contractual changes; regulators — compliance; communities — social impact). Use Mendelow's stakeholder matrix (power/interest) to prioritise stakeholder management.

3. Feasibility — "Can we actually do it?"

• Financial feasibility: Can the strategy be funded? (cash flow projections, capital requirements, available financing, debt capacity)
• Resource feasibility: Does the organisation have (or can it acquire) the necessary resources and capabilities? (people, technology, skills, infrastructure)
• Timing: Can the strategy be implemented within the required timeframe?
• Integration: Can the necessary changes be managed successfully? (change management, cultural alignment, system integration)

A good strategy must pass all three tests. A strategy that is suitable and acceptable but not feasible will fail in implementation. One that is feasible and suitable but not acceptable to key stakeholders will face resistance. One that is acceptable and feasible but not suitable will not address the strategic issues.