Evaluate strategic options: criteria, a scoring model and the step into execution

The last step of the strategy process is often the hardest. You have three to five good options, and now you have to evaluate the strategic options, pick one and let the others go. Many processes stall here. Each option has a champion, so the outcome becomes a compromise in which every option survives in a smaller form, and none gets enough money or attention to work. Michael Porter put it plainly: the essence of strategy is choosing what not to do.

The way through is to evaluate strategic options on criteria agreed in advance, test the favourite before you commit, and turn the choice into goals, owners and a rhythm of meetings. The example ends where the series began: Norvane Building Services, the fictitious building services firm with 35 staff, now choosing between four options.

How to evaluate strategic options: three tests

The textbook Exploring Strategy, started by Gerry Johnson and Kevan Scholes and now written with Richard Whittington and others, judges options on three criteria.

McKinsey's ten tests of strategy go further, with questions such as whether the strategy rests on privileged insight, whether it is contaminated by bias and whether it has been translated into an action plan. In a survey of more than two thousand executives, few strategies passed more than three of the ten tests (source: McKinsey, January 2011). The tests make a good final check on your favourite.

A simple scoring model for strategic options

Turn the three tests into criteria, give each a weight, and agree both before anyone scores. Norvane fixed them in session 1 of the process. Each option then scores from one (poor) to five (excellent) per criterion.

Fictitious Firmfocus example. Example for option B: 0.25 x 5 + 0.15 x 5 + 0.20 x 4 + 0.10 x 4 + 0.10 x 4 + 0.20 x 3 = 4.20.

Option B wins clearly. Its weak spot is feasibility, a 3, because of the technicians it needs; that gap becomes the first task in execution. Energy services (C) scores no better than carrying on as now, mainly because Norvane lacks the skills; it stays in as a small pilot with one client. Joining a national group (D) is feasible but hard to reverse and has little support from Ines, who wants to keep the firm independent for now. It goes on the watch list for later succession planning.

Check how sensitive the result is. Norvane raised the weight of feasibility to 30% and cut the fit with opportunities and threats to 15%: B still came first with 4.00, against 3.20 for carrying on as now. A choice that survives a reasonable change of weights is a choice you can defend.

Risk, reversibility and the premortem

Some decisions are easy to undo, such as a pilot, a new service or a price test. Others are not, such as selling a stake, a large acquisition or closing a site. Treat the two kinds differently: decide reversible moves quickly and learn from them, and take more time and evidence for the irreversible ones. Option B was partly reversible, because Norvane could return to new-build within a year or two; option D was not.

Before the final decision, run a premortem, the method Gary Klein described: imagine it is four years from now and the chosen option has failed, and let everyone write down why. Norvane's team came up with three main reasons, each with a measure.

• Landlords postponed their programmes: sign framework agreements before new-build work stops completely.
• Trainees left once they were certified: a clear career path and a retention bonus after two years.
• New-build stopped too fast and cash dipped: phase it out over eighteen months, with a monthly cash forecast.

Make the decision and write it down

Record the decision in a short note of one page at most. It forces clarity and gives you something to return to at every review.

• The choice: become a retrofit and maintenance specialist for existing building portfolios.
• The reason: it uses the two strongest combinations in the confrontation matrix and scores highest on the agreed criteria.
• What we stop: tendering as a subcontractor for new-build.
• Key assumptions: three landlords sign within twelve months; the retrofit margin holds; two extra technicians a year, net.
• Signals to review: fewer than two signed agreements after twelve months, or technician turnover above plan for two quarters.

From choice to execution

The gap between strategy and results is large: Michael Mankins and Richard Steele found that companies typically realise only about 60% of their strategies' potential value (source: Harvard Business Review, July 2005). Four moves narrow that gap.

1. 01

   A few goals

   Three to five measurable goals for the horizon, with a starting point and a target.

2. 02

   Initiatives with an owner

   For each goal, projects with a name, a deadline and a budget.

3. 03

   Shift resources

   Move money and people away from what you stop. Without that, the new course has no room.

4. 04

   A fixed rhythm

   A short monthly review of the key figures, a quarterly strategy review and an annual reset.

Fictitious Firmfocus example. Year 4 plan: revenue €5.0 million, of which new-build €0.6 million (12%), maintenance €2.0 million and retrofit €2.4 million. Contribution €48,000 + €600,000 + €600,000 = €1,248,000; overheads €880,000 including the training academy; operating profit €368,000, or 7.4% of revenue.

The first initiatives followed directly: retrofit proposals to the six landlords, a training academy with a local technical college with a first intake of four trainees in month six, no new subcontract bids for new-build after month six, and two estimators moved from new-build tenders to retrofit surveys. Frameworks such as OGSM and OKRs help you structure goals and initiatives, and the one-page strategic plan puts it all on a single sheet.

Small business or larger organisation

Pitfalls when you choose

• The compromise: every option survives in a smaller form and none gets enough to work.
• Criteria after the favourite: weights adjusted until the preferred option wins.
• Several routes at once: money and attention spread too thin.
• Last year's budget: nothing moves to the new course.
• No owner: initiatives that belong to everyone belong to no one.
• No look back: never comparing results with the forecasts made at the time of the choice.

Once the choice is made and the first initiatives are running, the work moves to execution and control. To start a new round, go back to the strategy process in five steps; earlier options are in step 4b, the TOWS matrix, and every other topic in Strategy.