What is Strategic Choice?
Strategic choice is the process of selecting a strategy from among several alternative strategies that a company can pursue to achieve its goals and objectives. It involves identifying and evaluating different strategic options, considering the strengths and weaknesses of each option, and making a decision about which option to pursue based on the company’s goals, resources, and capabilities.
Table of Content
- 1 What is Strategic Choice?
- 2 Process of Strategic Choice
- 3 What is Strategic Alternatives?
- 4 Role of TOWS Matrix in Developing Strategic Alternatives
- 5 Strategic Alternatives developed by TOWS Matrix
The strategy of an organization is related to various decisions, such as how, when, and where to compete in the market. In other words, a strategic choice refers to the process of selecting the best strategic alternatives from available strategies. For example, an organization has to decide whether to position its products in a niche market with a high price and high differentiation or in a mass market with a low price and low differentiation.
Making an accurate strategic choice is not an easy decision for an organization, as it has to select from various alternatives to achieve objectives in the best possible manner. For instance, an organization may decide to focus on the Indian market only; however, this choice would preclude the goal of becoming a global organization. This shows that choices may require giving up one aspect to gain the other.
Process of Strategic Choice
A strategic choice is a decision-making process, wherein the top management or decision-makers accept or reject a strategic alternative based on certain criteria. These criteria can cost, human resources, and technological considerations. A strategic choice can be made by the following steps.
Let us discuss the steps involved in the strategic choice process in detail:
- Identifying Strategic Alternatives
- Analysing Strategic Alternatives
- Evaluating Strategic Alternatives
- Selecting the Best Strategic Alternative
Identifying Strategic Alternatives
The first step in the strategic choice process is to categorize various strategic alternatives available to an organization. The step aims at focusing on a few strategic alternatives to narrow down the choices to a manageable number of feasible strategies. In other words, this step limits the strategic choice to a few alternatives.
An organization may face difficulty in identifying all the alternatives with equal transparency at the same time. It may make the process unwieldy and unproductive. However, if only a few strategic alternatives are considered, the decision-maker could effectively focus on those alternatives. Thus, strategic choice makers prefer to limit the choice to a few strategic alternatives. However, this may lead to the ignorance of some valuable alternatives.
An organization tries to focus on specific strategic alternatives with the help of a technique called gap analysis. Gap analysis involves visualizing the future goals of an organization and working towards them by finding ways to meet goals. Gap analysis helps organizations to know where they currently stand and how they can achieve the desired performance. A pictorial representation of gap analysis.
The gap size (narrow or wide) determines the strategic choice of available alternatives. Strategic alternatives available to an organization at the corporate level are expansion, stability, retrenchment, and combination.
A narrow gap implies that an organization is not too far from its goal, thus the feasible alternative, in this case, can be stability strategies. If the gap is wide due to potential environmental opportunities, expansion strategies could be followed. However, if the gap is wide due to poor performance in the past, retrenchment strategies can be implemented. In a complex scenario, where multiple reasons are responsible for the gap, combination strategies can be used.
Analysing Strategic Alternatives
This step focuses on examining available strategic alternatives. All strategic alternatives are studied thoroughly to discover their strengths, weaknesses, opportunities, and threats. An organization has to analyze various selection factors to finalize a strategy. Selection factors are further divided into objective and subjective factors.
An objective factor is based on data and facts, such as the percentage of market share or sales; whereas a subjective factor is based on the personal judgment of a decision maker, such as perceptions and beliefs of a decision maker. Thus, based on selection factors, strategic alternatives selected in the first stage are analyzed to ascertain their benefits and risks.
Evaluating Strategic Alternatives
This step involves assessing the strategic alternatives against the set criteria. An organization, before finalizing an alternative always, checks whether it has enough resources and capabilities to implement the selected strategic alternative. The long-term objectives of an organization are also taken into consideration before selecting the alternative.
Selecting the Best Strategic Alternative
This step involves choosing the best alternative that appears to be the most suitable under existing conditions. This step aims at making the strategic choice. Usually, more than one strategy is chosen for implementation. After finalizing the strategy, a blueprint should be prepared by an organization that details the conditions under which the alternative will be used.
However, an organization should be ready for unexpected events, which may arise later and create new opportunities or wipe out unforeseen threats. Therefore, an organization should also devise some contingency strategies that are devised in advance to deal with the changing circumstances. A contingency strategy acts as a proactive strategy that ensures the continuity of the business in case of uncertain events.
What is Strategic Alternatives?
Strategic alternatives are different courses of action that a company can pursue to achieve its goals and objectives. They are different ways to approach a problem or opportunity and can be seen as potential solutions to a strategic issue facing the company. Strategic alternatives are typically considered during the strategic planning process, where companies identify and evaluate different options to decide on a path forward.
Some common types of strategic alternatives include:
- Expansion: This involves expanding the company’s products, services, or operations to new markets, customers, or geographies.
- Diversification: This involves expanding the company’s business into new markets or industries that are related or unrelated to its current business.
- Cost leadership: This involves pursuing a strategy that focuses on achieving the lowest costs in the industry, often through operational efficiencies or economies of scale.
- Differentiation: This involves pursuing a strategy that focuses on creating a unique and valuable product or service that sets the company apart from its competitors.
- Alliance or partnership: This involves forming strategic alliances or partnerships with other companies to achieve a common goal or gain access to new markets or technologies.
Role of TOWS Matrix in Developing Strategic Alternatives
An organization can develop strategic alternatives by matching external opportunities and threats with internal strengths and weaknesses. TOWS is an acronym for Threats, Opportunities, Weaknesses, and Strengths. TOWS Matrix shows how external opportunities and threats can be matched with internal strengths and weaknesses. Thereby, the TOWS Matrix helps in developing four sets of strategic alternative strategies.
For developing a TOWS Matrix, an organization needs to take the following steps:
- Listing its internal strengths and weaknesses in the respective columns of the matrix
- Enumerating its external opportunities and threats in the respective columns of the matrix
- Developing four sets of alternative strategies by combining its various strengths, weaknesses, opportunities, and threats
Strategic Alternatives developed by TOWS Matrix
The four sets of strategic alternatives developed by the TOWS Matrix are as follows:
These are strategies, which mainly intend to capture external opportunities by utilizing the internal strengths of the organization. For example, a low-cost structure is the strength of Walmart. The organization can, therefore, capitalize on this strength by expanding into emerging markets such as India and Brazil where consumers are very price sensitive.
These strategies are formulated by considering the strengths of an organization, and the external threats faced by the organization. S-T strategies aim to avoid or minimize the effect of external threats by utilizing the organization’s strengths.
These strategies help in leveraging external opportunities by overcoming the weaknesses of an organization.
These strategies help in avoiding threats by minimising the weaknesses of an organization. The W-T strategy is the most defensive strategy among all four strategies.
These strategies help in avoiding threats by minimizing the weaknesses of an organization. The W-T strategy is the most defensive strategy among all four strategies.