S .M UNIT 4_1437577118576.docx - Strategic Management...

Strategic Management
Unit-4
Choice of Selecting the Best Strategy
After the pros and cons of the potential strategic alternatives have
been identified and evaluated, a feasible one must be selected for
implementation. How is the best strategy determined?
 It should be feasible
 The proposed strategy has the capability to deal with the specific
factors developed earlier, in the SWOT analysis or so
 It must take the advantage of environmental opportunities and
corporate strengths/ competencies.
 Another important consideration in the selection of a strategy is
the ability to each alternative to satisfy agreed-on objectives with
the least resources and fewest negative side effects
To develop a tentative implementation plan in order to address the
difficulties that management likely face.
Constructing Corporate Scenarios .
Balance sheets and income statements that forecast the effect of each
alternative strategy and its various programs will likely to have
corporate return on investment. To construct a corporate scenario,
follow these steps:
1. To develop a set of assumption about the task environment. This
underlying assumption should be listed for each of the alternative
scenarios to be developed.
2. Develop common-size financial statements for the company’s
business units previous years, to serve the basis for the trend
analysis projection
a. Use the historical common size percentage to estimate the
level of revenue

b. Develop for each strategic alternative a set of – Optimistic
(O), Pessimistic (P) and More-Likely (ML) assumptions about
the impact of key variables.
c. Forecast three sets of sales and cost of goods sold figures
for at least five years into future.
d. Analysis historical data and make adjustments based on the
environmental assumptions
e. Consider not only historical tends but also programs that
might be needed to implement each alternative strategy.
3. Construct detailed pro forma financial statement for each
strategic alternative
a. List the actual figures from this year’s financial statements
b. List the optimistic figures for years 1 through 5
c. List the pessimistic figures for the next five years
d. Develop for each strategic alternative a set of – Optimistic
(O), Pessimistic (P) and More-Likely (ML) pro forma for the
second strategic alternative
e. Calculate financial ratios and common size income
statement and create balance sheet to accompany the pro
forma statements
f. Compare the assumptions.
a. Management’s Attitude Towards risks.
Risk is composed not only of the probability that the strategy will be
effective but also of the amount of assets the corporation must
allocate to that strategy and the length of time the assets will be
unavailable for other uses. Risk might be one reason that significant
innovations often occurs in small firms than in large established
corporations. A small firm often managed by entrepreneur is often
willing to accept greater risk than large firms.