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Topic 6.

Strategy evaluation and


selection tools
Grado en Turismo

Strategic Management
Prof.: Mara Razumova

Contents
4.1 Where to search for competitive advantage
4.2 Alternative strategies evaluation tools
4.3 Alternative strategies selection tools

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Where to search?
Value chain inside the firm
SWOT
Benchmarking

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Escuela de Turismo de Baleares www.etb-baleares.ess

Where to search? Value chain


Value chain is a sequence of value adding activities in a firm

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Escuela de Turismo de Baleares www.etb-baleares.ess

Where to search? Value chain


or in an industry
An industry value chain
Suppliers own
value chain

Firms value
chain

Distributors
own value
chain

Hotel industry value chain


Food, equipment,
linen.. suppliers
value chains

Hotel s
value chain

Tour operator
value chain

Travel agency
value chain

Escuela Universitaria de Turismo Felipe Moreno


Escuela de Turismo de Baleares www.etb-baleares.ess

Where to search? Value chain


or in an industry
Hotel industry value chain

Food, equipment,
linen.. suppliers
value chains

Hotel s value
chain

Opportunity for
cost reduction?

Tour operator value


chain

Opportunity for
integration ?

Escuela Universitaria de Turismo Felipe Moreno


Escuela de Turismo de Baleares www.etb-baleares.ess

Where to search?
SWOT
analysis of the actual position of a firm

analysis of a specific strategic decision

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Escuela de Turismo de Baleares www.etb-baleares.ess

SWOT analysis:
actual competitive position of a firm
Factors which help the
organization achieve its
objectives
Internal factors
under the control
of managers

External factors
outside the control
of managers

Factors which prevent the


organization achieving its
objectives

Strength

Weakness

Opportunity

Threat

Possible source of CA: a new product


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Escuela de Turismo de Baleares www.etb-baleares.ess

SWOT analysis:
analysis of a specific strategic decision
Competitive advantage evaluated: launch of a new
product

Strength

Weakness

(what are the strong points of


the new product)

(what are the weak points of


the new product)

Opportunity

Threat

(what external factors favor


the launch of this product)

(what external factors threat


the success of this product)

Escuela Universitaria de Turismo Felipe Moreno


Escuela de Turismo de Baleares www.etb-baleares.ess

Where to search? Benchmarking


Benchmarking is a collection of techniques used to
compare certain aspects of business practice and
the transfer of good practices procedures from
benchmark companies to the followers

Objective! Not copy, but learn

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Where to search? Benchmarking


Phase 1.

What activity we want to improve?

Do we have sufficient human, financial and


technical resources for the benchmarking?

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Where to search? Benchmarking


Phase 2.

What firms are the best in this activity?


Internal benchmarking (inside an organization a
chain - independent hotels, restaurants, TO..)
Benchmarking of competitors. Learning from:
Sector leaders
Firms with clear competitive advantage
Specific competitors (ex. big carriers learnt
from the low cost carriers)
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Where to search? Benchmarking


Phase 2.

What firms are the best in this activity?


Generic benchmarking. Learning from other
industries very different from tourism.
Example: some airlines improved their processes
learning from the box teams in car rides
competitions

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Where to search? Benchmarking


Phase 3.

Analysis
Identify our reference firm success factors

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Where to search? Benchmarking


Phase 4.

Adaptation
Analyze how the success factors can be applied
them to our firm. We will need to:

Analyze the differences in internal and external


environment
The degree the success factors can be copied / applied
Possibility to implement new processes

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Contents
4.1 Where to search for competitive advantage
4.2 Alternative strategies evaluation tools
4.3 Alternative strategies selection tools

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Strategic choice
How we will compete?
What are our strategic directions?
Which methods we use?
Strategic
option 1
Strategic
analysis

Key
issues

Strategic
option 2
Strategic
option 3

Evaluation
and
selection
criteria

Strategic
option
selected

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Applying evaluation criteria


When considering which course of actions to
pursue
Main evaluation criteria:
Suitability
Feasibility
Acceptability

Achieve competitive advantage


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Applying evaluation criteria


Suitability
A strategic option is suitable if it:

Enables the organization actually to achieve its


strategic objectives

Exploit opportunities / avoid treats

Capitalize on firms strength and address the


weaknesses

Address the expectation of key stakeholders

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Applying evaluation criteria


Suitability
A strategic option is unsuitable if:

There are more suitable options

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Applying evaluation criteria


Suitability
At this stage we can apply screening technique
(cribado) - discard some unsuitable options to
save the efforts, time and expense involved in
applying further criteria

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Applying evaluation criteria


Feasibility = possibility
An option can be feasible to some degree:
o Completely unfeasible
o Might be feasible
o Definitely feasible

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Applying evaluation criteria


Feasibility = possibility

The feasibility will depend on:


1. Internal considerations
o Resources
o Culture
o Skills
Example: Establishing a presence in Heathrow airport can
be suitable, but not feasible no free slots)

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Applying evaluation criteria


Check list on internal feasibility:

Capital investment required: do we have funds?

Is it sufficiently profitable?

Do we have enough working capital?

Do we have enough qualified employees? Is any additional


training / formation needed?

Do we need to recruit some specialists?

Will we gain the commitment of the managers and


employees required to implement the required changes?

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Applying evaluation criteria


Feasibility = possibility
The feasibility will depend on:
2. External considerations
o

Reaction of competitors

Acceptance of clients and suppliers

Approvals from government

Example: A tour operator wish to double its capacity, but the licensing
body may consider that such a growth is unsustainable and reject
issuing the license
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Applying evaluation criteria


Check list on external feasibility:

How will our customers respond to the strategies we are


proposing?

How will our competitors react? Do we have the sufficient


resources to respond?

Do we have the necessary support from our suppliers?

Do we need government of regulatory approval?

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Applying evaluation criteria


Acceptability
The acceptability will depend on:
o

Acceptance by the most influential stakeholders

Commitment of managers and employees


(example: use of mystery shopper tool)

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Applying evaluation criteria


Competitive advantage

o Will this option result in superior


performance?
o Will this option result in higher than industryaverage profitability?

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Applying evaluation criteria


Financial evaluation criteria
o Cash flow forecasting
o Investment appraisal

Payback period
Accounting rate of return
Discounted cash flow
Net present value
Internal rate of return
Risk

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Applying evaluation criteria


Other tools for evaluation: Cost-benefit analysis
o Putting financial value to all costs and
benefits
o Intangible costs and benefits - how to
evaluate them?

o Social and environmental costs how to


evaluate them?

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Applying evaluation criteria


Other tools for evaluation: Sensitivity analysis
(aka Scenario Planning)

o What if?
o Strategy outcome is based on a number of
assumptions (inflation rate, interest rate,
exchange rate, input prices, etc)
o Sensitivity analysis demonstrates
how sensitive is the project outcome to the
assumptions?
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Applying evaluation criteria


Other tools for evaluation: Sensitivity analysis
(aka Scenario Planning)
Example: Airline is launching a new long-haul route
o

Scenario A input costs are stable (e.g. fuel)


Probability 20%

Scenario B 20% increase in the input costs


Probability 60%

Scenario C 40% increase in the input costs


Probability 10%

Scenario B 10% decrease in the input costs


Probability 10%

Escuela Universitaria de Turismo Felipe Moreno


Escuela de Turismo de Baleares www.etb-baleares.ess

32

Applying evaluation criteria


Other tools for evaluation: Sensitivity analysis
(aka Scenario Planning)
Example: Hotel chain entering a new destination with certain
political risk
o

Scenario A the new government will support tourism


development
Probability 70%

Scenario B the new government will cut tourism development


expenses
Probability 30%

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Contents
4.1 Where to search for competitive advantage
4.2 Alternative strategies evaluation tools
4.3 Alternative strategies selection tools

Escuela Universitaria de Turismo Felipe Moreno


Escuela de Turismo de Baleares www.etb-baleares.ess

34

Applying selection criteria


Doing nothing option do we have motives to
change?
Doing nothing option represents the likely outcome if
the organization were to continue with current
strategies, disregarding any changes occurring in
the environment or resource position of the
company.

Escuela Universitaria de Turismo Felipe Moreno


Escuela de Turismo de Baleares www.etb-baleares.ess

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Applying selection criteria


Ranking is a selection technique. Each strategic
option is assessed against a number of key factors.
Step 1. Decide on the key factors (highest social benefits,
lowest environmental impact, less sensitive to the external
changes, etc.)

Step 2. Weighting technique

Simple (all factors have the same importance)

Weighted (some factors have a higher importance;


possible subjectivity problem)

Escuela Universitaria de Turismo Felipe Moreno


Escuela de Turismo de Baleares www.etb-baleares.ess

36

Applying selection criteria


Ranking - simple
Long
term
benefits

Short
term
benefits

Robust to
changes

No
negative
environm.
Impact

Total
score

Ranking

Option 1

No

Yes

No

Yes

Option 2

Yes

Yes

No

Yes

Option 3

No

Yes

Yes

Yes

Doing
nothing

Yes

No

Yes

No

Ranking
Factor

Strategic
options

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Escuela de Turismo de Baleares www.etb-baleares.ess

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Applying selection criteria


Ranking - weighted
Ranking
Factor

Long
term
benefits

Short
term
benefits

Robust to
changes

No
negative
environm.
Impact

weight

30%

10%

35%

25%

Option 1

No

Yes

No

Option 2

Yes

Yes

Option 3

No

Doing
nothing

Yes

Total
score

Ranking

Yes

35

No

Yes

65

Yes

Yes

Yes

70

No

Yes

No

65

Strategic
options

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Escuela de Turismo de Baleares www.etb-baleares.ess

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Basic reading
Evans et al.: Chapter 12

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Review questions
Describe the main evaluation criteria applied to
strategic options
What is screening? When it can be applied?
What is cost-benefit analysis? What advantages and
disadvantages has this technique?
What is sensitivity analysis?

Explain the difference between weighted and simple


ranking? What advantages and disadvantages each
approach has?

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Escuela de Turismo de Baleares www.etb-baleares.ess

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