Discuss whether strategic choice techniques can eliminate risk from the strategic decisions that the directors of DA have to make.

Mark scheme

Marking points from the official mark scheme (May/June 2018). The mark or mark type is shown in brackets.

1. [3] Knowledge: Strategic choice is an element of the strategic decision making process; It is concerned with the identification of different strategic options and deciding between them; Force Field Analysis: Technique for identifying and analysing the positive factors that support a decision (driving forces) and negative factors that constrain it (restraining factors); This can be useful for a business to consider how to overcome the restraining forces; Decision tree: Sets out options connected with a decision and the outcomes and economic returns that may result; Ansoff Matrix: Strategic planning tool that provides a framework to help devise future growth strategies (market penetration, market development, product development, diversification); Investment Appraisal: Evaluation of the attractiveness of an investment proposal, using methods such as payback, average rate of return and net present value
2. [3] Application: Classification of takeover of Outdoor Life in Ansoff Matrix; Expected monetary values are Strategy 1 $1.8m, Strategy 2 $7.2m – Strategy 2 would be chosen on basis of decision tree; Payback favours strategy 1, ARR favours strategy 2; Strategy 1 is market development
3. [4] Analysis: Quicker payback may be beneficial to satisfy shareholders – relates to risk of decisions causing shareholder dissatisfaction; Strategic choice techniques attempt to apply a more scientific approach to decision making. This can improve the quality of decisions and ensure that more factors are considered hence reducing risk; Identifying restraining factors can enable to DA to reduce risk by developing strategies to overcome the restraining factors; Analysis of risks of market development; Analysis of implication of unsaturated market for Strategy 1; Analysis of exchange rate risks for Strategy 1; Analysis of lack of experience of retailing for Strategy 2; Analysis of benefit of distribution channel for Strategy 2
4. [10] Evaluation: Reference to role that SA and SI will also contribute to reducing risk; How useful is Ansoff's Matrix in assessing risk, it is a very blunt instrument; A key issue is the cost of investment and the ability of DA to absorb potential losses from any strategic decision; Dependence of techniques on estimation and role of subjectivity, both of which mean that risk still remains; ARR and payback this doesn't take into the difference in capital cost. Can DA afford the $20m capital cost of strategy 2?; Strategic implementation will have a significant bearing on the success of any decision. Strategic choice techniques are helpful in identifying risk but cannot eliminate risk; For all of these techniques issue of estimation is important. Inflation is predicted to be high in country B – this could make estimates of revenue difficult to forecast with any accuracy