Evaluation of Strategic Options in Business Plan:- Following the analysis of the environment (external diagnosis) and the internal diagnosis of the strengths and weaknesses of the company, the business plan designer offers a range of strategic options to guide the future of the company.
It then evaluates each of these options based on their relevance to the strategic diagnosis, the acceptability of the stakeholders and their feasibility. Defining the strategic options is a real exercise of creativity that reinforces the option finally chosen.
Emoff matrix, Synthesis of the Strategic Analysis
The financial business plan of a company consists of a first phase of strategic diagnosis:
- External diagnosis, of the business environment: the market, customers, competitors, substitutes,
- Internal diagnosis of the strengths and weaknesses of the company, on all of its functions.
The Emoff matrix (threat opportunities, strengths and weaknesses, preceded by issues) is the synthesis of the strategic analysis. It highlights the opportunities and threats (synthesis of external analysis) and the strengths and weaknesses of the company. This analytical matrix is intended to lead to choices that engage the future of the company.
Propose different Strategic Options
It’s about engaging in a real creative exercise by imagining a variety of possible options. These options may include:
- The product or service itself: diversification, concentration on a niche, modification of the positioning, range of the range, etc …;
- Geographical radius of action;
- Development modalities: organic growth, acquisition of existing entities, conclusion of partnerships;
- The economic model: production or outsourcing?
Let’s briefly recall the key principles of a collective brainstorming session or “brainstorming”.
At first, each participant freely expresses his suggestions without censorship. The person leading the meeting and the other participants do not express criticism of the ideas. At this stage, avoiding self-censorship and criticizing the suggestions of others is an essential condition for giving free rein to the production of ideas which is a real activity of the mind. An idea emitted may at first sight seem far-fetched, but produce as if by rebound another suggestion that will be retained.
Striving to imagine a wide variety of strategic options brings a “breath” into the business plan between a first analytical part and a second descriptive part.
Evaluate the Different Options to Select one
In a second step, the different ideas emitted are sifted through the different criteria of relevance, acceptability and feasibility.
The relevance of the Options
A strategic option is relevant when it is consistent with the strategic diagnosis summarized in the Emoff matrix:
- It exploits opportunities and helps counter threats identified in external analysis;
- It capitalizes on the strengths of the company, including competitive advantages and mitigates its weaknesses.
The Acceptability of the options
Next, it should be discerned whether the option is acceptable to all stakeholders:
- Does the option provide shareholders with the expected value creation? The profitability calculations (Van, Sorting, recovery period,) provide the answer to these questions. Is it compatible with their objectives in terms of independence or control of capital?
- What are the consequences of the chosen option on employees, in terms of career development, motivation, competence?
- Will customers accept the merger of two of their suppliers that would end a variety of sources of supply?
- Will the banker’s lenders not fear an increase in the risk of default? Some loan agreements condition future investments and subscriptions to the prior authorization of the banker to the extent that these investments or new financing increase the credit risk of the company;
- Are competition regulators not likely to block an operation that could create a de facto monopoly?
- The municipality may oppose the establishment of a waste sorting center if the company does not provide sufficient guarantees as to the respect of the local living environment;
The Feasibility of the Options
Finally, the feasibility is evaluated in particular with regard to skills and financial resources.
- Does the company have the necessary skills; can it acquire the missing skills through recruiting or training?
- Does it have sufficient financial resources, alone or by partnering with an investor?
- Does it have enough space to expand its business to its current production site?
Illustration: Evaluation of the Strategic Options of a Tannery of Calfskin
This company carries out a financial business plan following several years of losses. She buys raw hides and processes them. High quality skins sell quite easily to French luxury groups at a high price. Second-choice skins, damaged by ringworms or barbed wire, are sold at a loss to wholesalers because they have not looked for direct commercial opportunities. The production is divided into two activities: cleaning – tanning of raw hides and finishing operations (texture and color of the skin). It is only after the tannery operation that the quality of the skin can be evaluated, the proportion of skins of choice being only 10%. Over the years, the company has acquired a know-how which guarantees a high quality of its products.
A first option is to sell to a large French luxury group that wants to secure its supplies. This solution is in the state not acceptable for the family shareholder wishing to continue the adventure of the company and aware of the potential for improvement of the result;
A second option is to partner with breeders to improve the quality of the skins by vaccinating the animals and avoiding barbed wire fences. This option is particularly relevant as it significantly increases the proportion of top quality skins and therefore the average selling price; In addition, it secures the supply while the decline in calf meat consumption fears a shortage of skins;
A third option is to look for direct sales opportunities in France and Italy to better value second-choice skins. It is also very relevant insofar as the resale of these skins to wholesalers is at a loss;
A fourth option is to also prospect for large export (Asia, United States) to sell at a better price second-choice skins. This option is currently irrelevant as European outlets will be sufficient to sell second choice skins;
A fifth option is to exploit the excess tannery capacity to outsource the tanning operation on behalf of other companies in the same sector. This option is considered unacceptable because these companies do not wish to abandon an operation at the heart of their business even if it is the finishing operation that creates the most added values;
A sixth option leads the company to diversify its activity in the tannery of cowhides. This option is irrelevant because the industrial know-how is very different from that of calf hides; the activity is less profitable and not feasible because it requires significant productive investments that the company does not currently have the means to finance.
A seventh option was quickly put aside but denotes a great effort of creativity. It consists of diversifying into the tannery of crocodile skins, also very popular with luxury groups. A crocodile farm would have been established in the village both to secure supplies and to generate additional income from amusement park. With an expression of dread, the leaders rejected this option, believing that this activity would have been unacceptable for both employees and the municipality fearing for their safety and that of the inhabitants of the village! The director of the finishing activity, however, retained the idea of offering customers calf skin with a crocodile skin relief!