Strategic ManagementUnit-4Choice of Selecting the Best StrategyAfter the pros and cons of the potential strategic alternatives havebeen identified and evaluated, a feasible one must be selected forimplementation. How is the best strategy determined?It should be feasibleThe proposed strategy has the capability to deal with the specificfactors developed earlier, in the SWOT analysis or soIt must take the advantage of environmental opportunities andcorporate strengths/ competencies.Another important consideration in the selection of a strategy isthe ability to each alternative to satisfyagreed-on objectives withthe least resources and fewest negative side effectsTo develop a tentative implementation plan in order to address thedifficulties that management likely face.Constructing Corporate Scenarios.Balance sheets and income statements that forecast the effect of eachalternative strategy and its various programs will likely to havecorporate return on investment. To construct a corporate scenario,follow these steps:1.To develop a set of assumption about the task environment. Thisunderlying assumption should be listed for each of the alternativescenarios to be developed.2. Develop common-size financial statements for the company’sbusiness units previous years, to serve the basis for the trendanalysis projectiona.Use the historical common size percentage to estimate thelevel of revenue
b. Develop for each strategic alternative a set of – Optimistic(O), Pessimistic (P) and More-Likely (ML) assumptions aboutthe impact of key variables.c.Forecast three sets of sales and cost of goods sold figuresfor at least five years into future.d.Analysis historical data and make adjustments based on theenvironmental assumptionse. Consider not only historical tends but also programs thatmight be needed to implement each alternative strategy.3. Construct detailed pro forma financial statement for eachstrategic alternativea.List the actual figures from this year’s financial statementsb.List the optimistic figures for years 1 through 5c.List the pessimistic figures for the next five yearsd. Develop for each strategic alternative a set of – Optimistic(O), Pessimistic (P) and More-Likely (ML) pro forma for thesecond strategic alternativee. Calculate financial ratios and common size incomestatement and create balance sheet to accompany the proforma statementsf.Compare the assumptions.a. Management’s Attitude Towards risks.Risk is composed not only of the probability that the strategy will beeffective but also of the amount of assetsthe corporation mustallocate to that strategy and the length of timethe assets will beunavailable for other uses. Risk might be one reason that significantinnovations often occurs in small firms than in large establishedcorporations. A small firm often managed by entrepreneur is oftenwilling to accept greater risk than large firms.