Selecting Options
Strategy is about making choice, about allocating resource to the best projects or strategic options.
A firm usually faces several options : for instance developing new products or entering a new business (diversification). Not all the options can be pursued at the same time (remember scarcity of resources). The firm needs to prioritize the various options and down-select the few it wants to implement.
Even a single strategy elaboration project can produce more than one proposal. It is not uncommon that several strategic profiles are generated out of the formulation phase. It is then necessary to rank the various profiles and point out a rationale for recommending one option/profile rather than the others. Many criteria and attributes can be taken into account to compare the various strategic options. One obvious criterion is the total amount of resources (financial, human, lead-time) that the firm is ready or capable to engage into the strategic move. Risk level is also a major aspect to consider (some firms are more risk avert than others). These two criteria define a kind of envelope within which several options can be ranked
Selection is usually a twofold process: first, the options that wouldn’t work or could be achieved are eliminated. Then the remaining options are ranked according to some objective function.
The options that are eliminated can correspond to many different situations. It can for instance, be a scenario that proved not to be technically feasible. It can be a strategic move that would be prevented by too many and/or too high barriers. It may also be a project for which the inherent risk is not compensated by a sufficient return on investment. Last but not least, it may be a proposal that would be too remote from the firm’s culture or wouldn’t meet its corporate social responsibility values.
Criteria are used to down select the options that can work and reject the others. Down selection can start very early during the analysis & formulation phase (especially to reject options). It is always a good practice to explicit all the criteria used to rank the various options. Even if evaluating an option against such criteria can be to some extend subjective, it is better to try to make explicit appraisals.
The down-selection occurs at the end of the formulation phase (at least to check that the proposals meet the objectives while complying with the constraints). However, option elimination usually starts very early. It is therefore very important to record the reasons for which an idea / option is kept or rejected. Indeed, criteria can evolve during the analysis and it might be necessary to revisit some ranking/selection/rejection.
