Strategic alternative and choice sjbss

Strategic Journal of Business and Social Science (SJBSS) Volume 2. Issue 2 Feb, 2019
Website: www.sj-bss.com Email: editor@sj-bss.com
Okah Vincent: Strategic Alternative and Choice: Organizational perspective 2019
pg. 1
Strategic Journal of Business and Social Science (SJBSS) www.sj-bss.com
STRATEGIC ALTERNATIVE AND CHOICE: ORGANIZATIONAL PERSPECTIVE
1
Okah Vincent, 2
Opara Darlington Osondu and 3
Ugwuegbu Charles Onyemachi
1, 2, 3,
Discipline: Business Management Imo State University Nigeria
Abstract:
A basic strategic and sustained advantage to win and prevail over rivals in the red ocean market
will definitely come from the differentiated use of such resources, organizational capabilities, and
the choice made from various strategic alternatives. This study discussed strategic alternative and
choice from the organizational perspective. Strategic alternatives refer to different courses of action
which an organization may pursue at a point in time while strategic choice is a whole process
through which a decision is taken to choose a particular option from various alternatives. Brain-
storming sessions; special meetings for the purpose; services of an outside consultant; joint
meetings of the consultant and the senior employees of the organization are various ways of
generating strategic alternatives in large organizations. Stability, expansion, retrenchment and
combination strategies are the various strategic alternatives options available to the organization.
Keywords: Strategic Alternative, Choice, Organization
1.1 INTRODUCTION
Today’s world of business has become a battle ‘survival of the fittest’. The old expression
‘Business means war’ reflects the competitive mood and the strategic nature of the business world.
In that world according to Jofre (2011), rivals compete for the ultimate dominance in a
battleground (market) in which each contender has access to and makes use of common resources
(e.g. available human and technological resources). A basic strategic and sustained advantage to
win and prevail over rivals in the red ocean market will definitely come from the differentiated use
of such resources, organizational capabilities, and the choice made from various strategic
alternatives.
Strategic alternatives refer to different courses of action which an organization may pursue at a
point in time. In their view, Glueck & Jauch cited in Agulanna & Madu (2008) argued that strategic
alternative revolves around the question of whether to continue or change the business the

pg. 2
enterprise an organization is currently in or improve the efficiency and effectiveness with which
the firm achieves its corporate objectives in its chosen business sector.
These alternatives are crucial to the success of the organization. More often than not, these are
influenced by factors external to the organization and over which the organization has limited
control. For example, consider a situation where a firm is experiencing increased competition of
its products. How should the organization respond? Should it reduce the price? Should it improve
the quality of the product? Should it use a mix of' the two? Should it improve the distribution
network? Should it improve promotional effort? Is there a set of guidelines which could be
followed by the organization? Alternatives external to the organization such as mergers,
acquisitions, and joint ventures may also be considered (Ugwuegbu & Onwudiwe, 2018).
The list of alternatives will be incomplete without the alternative of disinvestment. There are
situations when withdrawal from an existing business is the most suitable course of action. In fact,
it may be wrong to consider that continuing to produce a particular product or service is a must. A
firm may consider withdrawal from a business if the present value of the anticipated stream of
earnings from that business is less than its present worth. For instance, in 2016, May & Baker
deviated from its norm (pharmaceuticals) and diversified into the food processing industry. One
can say that they were attracted by the opportunities in the food industry (high demand and high
consumptions of noodles by Nigerians) and haven’t seen GlaxoSmithKline (GSK) doing well in
the beverage lines with pharmaceutical producing outfit.
Today, business clime has changed. The fall in oil and the recession that hit Nigeria ravaged the
economy which has affected the purchasing power of the consumers in the food industry whom
most of the firms have targeted. These forces have forced firms to reformulate strategies. Like
GlaxoSmithKline (GSK) producers of Lucozade and Ribena that May & Baker modeled after were
forced to divest their beverage arm to Suntory a Japanese firm in Septemeber, 2013 (Kayode in
Ugwuegbu & Onwudiwe, 2018). On the side of May & Baker, they were forced to divest its noodle
subsidiary (Mimee Noodles) to Dufil Nigeria Limited makers of Indomine Noodles in 2017 since
it cannot compete favorably with other brands in the market. It can be said that the competition in
the noodle industry affected it from generating enough revenue to supplement the parent
company’s annual profits despite the billions of naira that had been invested in it.

pg. 3
On the other hand, Glueck & Jauch in Agulanna & Madu (2008) defined strategic choice as the
decision of selecting from among the grand strategies (Stability strategies, Expansion/Growth
strategies, Retrenchment strategies, and Combination strategies) considered the strategy which
will best meet the enterprise's objectives. The decision involves focusing on a few alternatives,
considering the selection factors, evaluating the alternatives against these criteria and making the
actual choice.
2.1 GENERATING STRATEGIC ALTERNATIVES
How does an organization identify alternative courses of action for its survival and growth? The
procedure may differ from organization to organization depending upon its size, style of
management, work ethos and industry characteristics.
In a small organization, all decisions are made by the owner himself or by the chief executive.
These decisions deal with what an organization should do under alternative situations. What new
businesses should be added or what existing businesses should be done away with, the success or
failure of the organization depends upon the experience and technical competence of the chief
executive. Thus, in small organizations, strategic alternatives are identified by the owner-manager.
Of course, his decision may be influenced by some bureaucrats, industrialists, etc. with whom he
interacts. The procedure used for identifying alternatives may be intuitive rather than based on a
well-defined procedure. The process of implementing alternatives in small business is however
reasonably fast. However, in organizations of medium to large size, the following mechanisms
may be employed for identifying strategic alternatives (Azhar, 2008).
a. brain-storming sessions;
b. special meetings for the purpose;
c. services of an outside consultant;
d. joint meetings of the consultant and the senior employees of the organization.

pg. 4
A. Brain Storming Session
In most organizations, strategic alternatives are identified during the brain-storming sessions. In
such meetings, participants are encouraged to come out with any course of action which they feel
is possible. At this stage, no importance is attached to relative merits and demerits of the
alternatives. In the next stage, each alternative is reviewed and subjected to close scrutiny. The
alternatives which are considered fairly appealing are further examined and analyzed for final
selection of one or more alternatives. Consider the case of power shortage in an organization which
produces an energy-intensive product such as aluminum. What should the organization do? Since
the decision is, bound to affect the organization crucially, the alternatives are of critical,
importance. These may include: i) buy a generator, ii) start producing those products which are
not very energy intensive, iii) have a standby generator for meeting part of the, requirements; iv)
introduces a change in, the product mix, with an emphasis on; those products which, have a higher
contribution per unit of investment.
The few alternatives listed above have their own: implications in, terms of financial, physical
facilities, manpower requirements, etc. The chief executive has to select the alternative which is
the most appropriate in his opinion. The current resource position of the organization will be a
major influencing factor in this decision.
B. Special Meetings
Large organizations, recognizing the signs of generating strategic alternatives, hold special
meetings away from the place of their work in a hotel or a holiday resort. This is to ensure that the
process of thinking, is, not disturbed by interruptions during the course of deliberations. The
participants present alternative scenarios along with their recommended courses of action.
Alternative scenarios may be based upon assumptions regarding.
i. the rate of growth of the economy,
ii. Position, regarding foreign exchange,
iii. rate of inflation
iv. rate of unemployment
v. the ideology of the political party in power

pg. 5
vi. the rate of change in technology
vii. socio-cultural factor having a bearing on the profitability of the organization
Depending on the assumptions, regarding the values and future trends of the above parameters,
alternative courses of action, are often recommended. An attempt is made through the discussions
to arrive at a consensus. The divestment strategy adopted by May & Baker over divesting its
subsidiary Mimee Noodles was conceived in a series of meetings the Chief Executive had with his
senior managers.
C. Outside Consultants
This procedure of identifying strategic alternatives is based on the premise that an outsider can
observe the phenomenon in an objective manner. It is recognized that the executives who have
been actively associated with, a particular project, are often so involved with it that they tend to,
be subjective and overlook its shortcomings. Others, from within the organization may also be
unable to see its limitations. Under such conditions, engaging outside consultant may be a more
effective way to generate, strategic alternatives on an objective basis. The outside viewpoint is
expected to, be new and fresh, and thus, can show, up many new opportunities, to the organization.
D. Joint Meeting
Another desired way of generating alternatives is to hire the services of a consultant but also
associate some internal members in the process. This method is able to combine the advantages of
the new ideas contributed by outsiders being blended with workable solutions from within the
organisation. In, any case, an, outside consultant may like to seek the opinion of the internal
members on his proposals.
2.2 Strategic Alternatives
From an organization perspective, strategic alternatives may be classified under following
(Adeleke, 2003):

pg. 6
1. Stability Grand Strategies and when to pursue them
The first strategic alternative is stability strategies. This alternative is useful when a firm pursues
its original objective or objectives similar to the original one, or when the focus of its main
strategic decision is on the incremental improvement of functional performance. In this case,
achievement level is fixed on the basis of past performance corrected for the known rate of
inflation (Azhar, 2008).
A company adopts stability grand strategies when:
i. It is operating in a very stable and comfortable environment
ii. It is not facing any threatening situation like stiff competition and
iii. Management is not being in favor of undertaking a high degree of risk that is when it is
risky to embark on expansion programmes.
De-United Foods Industries Limited (DUFIL) makers of Indomie Noodles, since its inception,
have followed a stable growth strategy in Nigeria. It has concentrated on a narrow range of
products and quality aspect of Noodles. Similarly, at current Coca-Cola and Pepsi have been
operating in the soft drinking beverage for ages.
Stability Grand Strategies
Expansion/Growth Strategie
Retrenchment Strategies
Combination Strategie
Figure 1 Classifying Strategic Alternatives and when to Pursue Each

pg. 7
2. Expansion/Sustainable Growth Strategies) when to pursue them
The expansion and growth strategy is aimed at increasing an organization’s size through an
increase in its volume, market share or number of markets served. An example is widening product
lines, diversifying into a new market of business, expanding operations into new geographical
areas, and the adoption of new technology in order to improve efficiency and effectiveness.
It can be achieved through either of the following; Concentration, Diversification, and Merger and
Acquisition (Adeleke, 2003).
a. Expansion through Concentric
The concentric growth strategy is an alternative where the firm goes into businesses which are
related to the existing ones, say from the manufacture of spare parts for passenger cars to the
manufacture of spare parts for tractors. This no doubt is an example of the product related to
concentric growth. An example of customer related concentric growth is when a firm producing
farm equipment decides to enter the business of chemicals and fertilizers.
b. Expansion through Diversification
Diversification according to Agulanna & Madu (2008) involves changes either in terms of
customer groups (the types of customers being served), customers functions (the types of goods
or services being sold to customers), or alternative technologies (the production process being
adopted). The following are the types of diversification strategies;
a. Horizontal Integration
Under this method, business firms from the same type of business or producing the same
product, with the same technologies and who use the same marketing process in marketing their
products come together to form a group. An example is Ecobank Plc and defunct Oceanic Bank
Plc and the geographical expansion of Heritage bank from regional to the national bank through
the acquisition of Enterprise Bank Plc from AMCON in 2016. The main objectives underlying
horizontal integration area) to reduce the degree of competition and to improve the position in
the market, b) to follow common policies relating to production, distribution and pricing so as to
control market c) to secure benefits of large scale production and reduce cost of production d) to

pg. 8
acquire control over market and thereby, make higher profits, e) to adjust supply according to
demand in the market by adjusting or regulating the production of goods.
b. Vertical Integration
This is also called a processor industry integration. Under this method business units from the
same industry but carrying on different processes or product come together to form a group to
acquire control over all stages of production and distribution of goods. It is a type of integration
in which a firm combines with another firm that supplies raw materials to it or some components
of its finished products. Vertical integration may be backward or forward.
i. Backward Vertical Integration Here the manufacturer joins hands with the supplier of
raw materials having a tie-up with a manufacturer. For example, a readymade garment unit
can associate with cloth manufacturer to supply cloth at reasonable rates and of standard
quality. Like-wise Bata Shoe Co. has an association with raw leather suppliers (Daft, 2000).
ii. Forward Integration In order to have control over distribution, a manufacturer may
integrate with retailers or open his own retail outlets to ensure control over distribution and
to reduce dependence on distributors. Many reputed firms like, LG electronics has tied up
with retailers and also have their own chain of retail outlet all over the country (LG
showroom).
c. Conglomerate diversification Conglomerate means a group or corporation formed by the
merging of separate and diverse companies. A company on its own may also diversify into
different fields like oil, iron and steel, cars etc. or it may tie up with some other firm for
diversifying into a new area. In other words, conglomerate diversification involves entering
into those areas which have no relation with the existing line of business. E.g. Dangote Plc
is into Sugar, Salt, Cement, Noodles etc, Nigeria Brewery Plc is into the production of
alcoholic and non-alcoholic drinks. The company entered into the soft drink market when
it acquired Schweppes soft drinks
A company adopts expansion grand strategies when;
i. When a firm wants to increase its market share

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ii. Expansion strategies can also be pursued when it becomes necessary to meet or beat the
competition.
3. Retrenchment Strategies: when to pursue them
Retrenchment strategies involve the reduction in the scope of diversification to a smaller number
of businesses. It is usually pursued when a company is in too many businesses and there is a
need to concentrate its capability in a few core viable ones. It is all about trimming off the
excess operations in order to remain healthier.
Retrenchment can be internal or external (Jofre, 2011);
a. Internal Retrenchment
This is also known as 'turnaround' in which the Organization starts generating profit after
incurring losses for a number of years. This may be brought about through the restructuring of
capital, changes in management personnel and better control in functional areas.
b. External Retrenchment
This expression is used as a synonym for divestiture. Thus an organization may like to withdraw
from a business incurring a loss over a period of time. The divestiture is prompted by factors such
as inadequate market, lower profits, and availability of better alternatives, technological changes
requiring investment which the management is unable to undertake. External retrenchment may
take any of the following forms; Divestment, or Liquidation or both (Adeleke, 2003). The dropping
of activities or businesses can be attained under through sale or liquidation. Selling a division or
part of an organization is called divestment. It is often used to raise additional capital for further
strategic acquisitions or investment. It can be a part of an overall retrenchment strategy to rid an
organization of businesses that are unprofitable, that require too much capital, or that do not fit
well with the firm’s other activities. An example of this strategy is the divestment made by Dangote
by selling off its Noodles and Sugar subsidiaries, the divestment carried out by Chevron Nigeria
Plc by selling off some oil blocks to Seplat Plc, the divestment strategy pursued by May & Baker
when it sold its food subsidiary to Indomie Noodles etc.

pg. 10
Liquidation is the final decision or withdrawal of commercial activities of the firm forever.
Liquidation of a company is the irretrievable closing down of the business of a company. Basically,
it refers to a proceeding by which a company is permanently dissolved example is the departure of
one of the International Oil Companies (IOC) ConocoPhillips in 2014.
The above strategies are pursued when (Azhar (2008);
i. When an organization has pursued both a retrenchment strategy and a divestiture strategy
and neither has been successful.
ii. When an organization only alternative is bankruptcy; liquidation represents an orderly
and planned means of obtaining the greatest possible cash for an organization’s assets. A
company can legally declare bankruptcy first and then liquidate various divisions to raise
needed capital.
iii. When the stockholders of a firm can maximize its losses by selling the organization’s
assets.
iv. Obsolescence of products, which no longer brings good returns to the firm, and therefore,
they can be divested
v. A business that has been acquired by the firm proves to a mismatch and cannot be
integrated within the company
vi. High competition in the market and the liability of the firm to cope up with the
competitive pressures.
vii. Negative cash flows from a particular business create a financial problem for the entire
organization, thus creating a need to divest that business.
viii. Technological up gradation is required for survival of the business, but the cost of up
gradation is quite high, and the firm may not be in a position to invest in such
technological up gradation.
ix. A firm may find it difficult to manage a growing business, and therefore it may divest
non-core business to concentrate on core business
x. A firm may find a better alternative to invest, and as such, it may divest a part of the
business, in order to take advantage of the alternative business area.

pg. 11
xi. Growing financial burden such as debt servicing may force the company to divest a part
of the business so as to repay loans.
4. Combination Grand strategy when to pursue them
Combination strategy is when an organization adopts any of the following; merger, takeover, and
joint venture/strategic alliance (Jofre, 2011).
In merger, a firm may acquire another firm or two or more firms may combine together to improve
their competitive strength or to gain control over additional facilities. It is a combination of two or
more companies into one company, wherein only one company survives and the other company
ceases to exist. The merger takes place for a consideration, which the acquiring company pays
either in cash or by offering its share. E.g. is the merger of Heritage Bank Plc with Enterprise
Bank.
Reason for mergers includes; undertaking diversification, to secure scare sources of supply, to
secure economies of scale, to have better management, to improve the financial standing, and to
achieve a monopoly position.
Joint ventures, on the other hand, are common in international business. In simple words, a joint
venture is a temporary partnership between two or more companies to achieve certain objectives.
It is an agreement entered into for a specific purpose or period. After the purpose is served, joint
venture ceases to exist. It is a legal organization which takes the form of a short-term partnership
in which the companies jointly undertake a project or an assignment for mutual benefit. It has
been observed that joint ventures are widely used by companies to gain entrance into foreign
markets. Foreign companies form joint ventures with domestic companies already present in the
markets the foreign companies would like to enter Azhar (2008). This is because the domestic
company is well versed with the conditions prevailing in the local market.
The following are the merits of a joint venture (Azhar, 2008).
a. Transfer of capital and technology: Joint venture agreements are generally entered into
between a company from a developed country and a company from a developing country
for the inflow of capital and technology. They thus help to reduce technological gaps
between these two types of countries.

pg. 12
b. Faster industrial growth: The inflow of foreign capital and technology boosts the
industrial activities of the developing country. These, in turn, provide job opportunities,
increase the income of the people, improve their standard of living and thereby help in the
economic development of the country.
c. Transfer of expertise No company possesses expertise in all the areas. Through joint
ventures, it is possible to club skills like technical, human skills, marketing skills etc. This
benefits all the parties in the joint venture.
d. Spreading of risks Joint ventures spread risk among the partners. Each partner risks only
its own contribution. This joint venture is advisable when market entry requires a large
investment or when there is significant political or social instability in the target market.
e. Synergy means increased effectiveness or achievement produced by combined action or
co-operation. Joint ventures provide synergy due to combined efforts of varied parties.
2.3 Strategic Choice
Once the analysis of the current and projected performance of the company based on existing
strategies and the assessment of desired performance is done, the strategic gap is identified.
Strategic alternatives are then generated to bridge the gap if the projected performance in future
falls short of the expected or desired performance (Johnsons & Peter, 2008). A number of
alternatives may be possible but only one or a few of them may finally be accepted as a strategy
or strategies for the future. "Strategic choice is the decision to select from among the alternative
strategies considered, the strategy that will meet the enterprise's objectives. The decision involves
focusing on a few alternatives, considering the selection factors, evaluating the alternatives against
these criteria, and making the actual choice".
The process of narrowing down a large number of possible strategic alternatives starts with the
consideration of the strategic gap. The strategic gap is the perceived difference between the
targeted performance and projected performance following the present strategies. The strategic
gap could be very narrow or quite large. If the perceived gap is narrow or the projected
performance is likely to be better than targeted, one would expect that the stability strategy would
be followed. A large gap could be caused by an increase in the targeted level of performance or
the adverse changes in the environment which would lead to poor performance in the future from

pg. 13
the present strategies. In the former case, the strategic gap may be said to be positive while in the
latter it is negative. One would expect the growth strategy to be followed in case of large positive
strategic gap and retrenchment strategy in case the strategic gap is negative and large. A large
positive gap is likely to occur due to environmental opportunities and a large negative gap due to
environmental threats (Johnson & Peter, 2008).
It must be noted that the importance of leadership in any situation cannot be underestimated. The
same environment may be viewed by one as threatening and by another as providing an
opportunity. Thus a large positive strategic gap is more likely to be associated with dynamic
leadership which may have substantially higher aspiration levels of performance. The
transformational type of leaders will, in all probability, have a large positive strategic gap. Like
environmental conditions, the strengths and weakness of the organization also determine the
strategic alternatives to be considered. If the internal analysis shows strength, the growth strategies
are more likely to be considered. Organizational weaknesses may push for retrenchment strategies.
The vehicle for infecting the strategy is likely to be internal if the gap is small or large positive. It
is likely to be external if the gap is very large as the organization may find it difficult to cope with
the demands of implementation following internal approach (Jofre, 2011). Same is the case with
the relatedness of strategies. It is to be noted that while in small organizations and in some medium
size organizations, only one of the strategies may be followed. In large, complex, multi-product /
business organizations a combination of strategies is most likely.
According to Agulanna & Madu (2008), choosing a choice among alternatives which is suitable
is influenced by the following factors:
1. Managerial Perceptions of External Dependence.
What should be clear by now is that managers do not think alike about strategic choice. They
operate in different environments but perceive the same environments differently. Their freedom
of choice is not unlimited.
a. The strategic choice is limited by the extent to which the firm is dependent for its survival
on the “small publics”- owners, competitors, customers, the government, and the
community.

pg. 14
b. The more independent the firm the more flexibility it has in strategic choice, except,
perhaps in crisis condition.
c. The strategic choice is affected by the relative volatility of market sector the firm chooses
to operate in. the more volatile, the sector, the more flexible the strategic response needs
to be ineffective organizations.
2. Managerial Attitudes Towards Risks:
A second filter on the choice is how much risk the firm, its stockholders, and management feel
comfortable with. Managerial attitudes towards risk vary from the comfort if not exhilaration
with high risk to strong aversion. The risk averters probably view the firm as very weak and will
accept only defensive strategies with very low risks. Thus, in so far as they influence managerial
attitudes, the risk attitudes of managers will eliminate some strategic alternatives and highlight
others.
3. Managerial Attitudes Towards Previous Strategies:
If a manager believes that previous strategies were effective, he is likely to “toe the line”;
otherwise, flexibility or “dynamism” will be his watch-word.
4. Managerial Power Relationships:
Those with experience know that the power relationships (cliques) are a key reality in
organizational life. In many enterprises, If top management begins to advocate one alternative, it
is soon unanimous. In others, cliques develop and if one clique begins to support one, the other
opposes it. No one doubts that power or politics influences decisions, including strategic
decisions. It has been found that when politics was an influencing factor, it slowed the decision-
making process down.
5. Impact Of Lower-Level Managers:
Of course, top managers make strategic choices. But earlier choices made by their subordinates
limit the choices usually considered. In very large organizations, executives on different levels
affect the process in such a way that the final choice does not consider all alternatives. This is to
say that a lot of the filtering and choices were made at lower levels before they got to the top
levels.

pg. 15
Conclusion
Strategic Choice is a whole process through which a decision is taken to choose a particular
option from various alternatives. Brain-storming sessions; special meetings for the purpose;
services of an outside consultant; joint meetings of the consultant and the senior employees of
the organization are various ways of generating strategic alternatives in large organizations.
Stability, expansion, retrenchment and combination strategies are the various strategic
alternatives options available to the organization. The selection of one or combination of these
strategies is called strategic choice and is made based on the identified strategic gap (s). Factors
that can affect the strategic choice of a company are environmental constraints and management
power relationships, values and preferences, management`s attitude towards risk, the impact of
past strategy, time constraints, time pressure, frame horizon, the timing of the decision,
information constraints and competitors reaction.
References
Agulanna & Madu (2008), the face of strategic management. Owerri, Imo state Joe Mankpa
Publishers.
Adeleke Adepoju. (2003). Business Policy and Strategy, 2nd edition, Lagos, Concept
Publication Limited.
Azhar, .K. (2008). Strategic Management and Business Policy, Tata, New Delhi McGraw-Hill
Publishing Company Limited.
Daft. R (2000). Management. The Dryden Press Harcourt Brace College Publishers
Jofre, S. (2011). Strategic Management: The theory and practice of strategy in (business)
organizations. Kgs. Lyngby: DTU Management. (DTU Management 2011; No.1).
Johnsons. T & Peter G (2008), Business policy and strategy New York: Addison- Wesly
Publishing Company.
Ugwuegbu Charles & Onwudiwe Uju (2018). Issues in Strategic Management. Asia Pacific
Journal of Research in Business Management Vol. 9, Issue 2,

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