STAGE 3b) CREATE OPTIONS: EVALUATE ALTERNATIVES
“Whenever you see a successful business, someone once made a courageous decision.”
Once we have fully developed some alternative directions, it is time for us to evaluate them.
We should think about how fundamentally attractive this strategic position will be in the future. It should fit with the future trends/scenarios we identified and have the potential to generate a significant financial return.
Separately, we should think about whether our starting position is ahead of competitors. We want to avoid “stern chases” - racing a competitor who has a head-start on us. Unless we can run much faster than them! We can consider how this alternative strategy will play to our strengths - and what remaining gaps we have.
Finally, we should consider our will to execute. Does this strategy fit with our fundamental values and purpose, thus inspiring and energising our organisation?
If none of the opportunities appear to meet our financial ambitions, should we loop back and revisit our strategic process, or should we revise our financial goals?
Questions to answer
- How many opportunities are we able to fully resource?
- How attractive is each opportunity? What is the size-of-the-prize?
- Will we be able to win?
- Can we implement? Will we need partners/acquisitions?
- What are the criteria for choosing between alternative strategies?
- What tests/experiments do we want to set up to explore potentially interesting opportunities that we are not ready to commit full resources to?
Example Framework: GE Matrix
The GE Matrix is a resource allocation framework to help us decide which opportunities to invest in. We can use it to plot our new opportunities as well as our existing businesses.
The GE Matrix has two axes which are assessed independently. We have some discretion in the criteria compared to the BCG Matrix which is just growth and market share.
- Market Attractiveness - based on the size, growth and potential future profitability of the business
- Competitive Position - based on our market share, differentiation, competitive advantage, cost structure and capabilities
The principle behind the GE Matrix is that we will get the highest returns from investing in attractive opportunities where we have a competitive advantage.
Once we have the GE Matrix plotted, we can use it to drive decisions:
- We should fully invest in opportunities in the top right boxes, extending out until we reach the limits of our discretionary resources
- We should consider experimenting with opportunities in the top left if we can test them cheaply
- We should disinvest or exit from opportunities in the bottom left boxes
- Evaluation vs Criteria
- Impact/Ease Matrix
- Make vs Buy vs Borrow