Evaluate the techniques that SA could use to make the strategic choice between the two options for growth.

Mark scheme

Marking points from the official mark scheme (Feb/Mar 2017). The mark or mark type is shown in brackets.

1. [K] Strategic choice – using appropriate techniques to help make decisions between alternative long term plans of action.
2. [K] Decision trees; force field analysis; Ansoff’s matrix to assess risk involved. Also investment appraisal; break-even.
3. [APP] Option A is market development. Lack of experience in market.
4. [APP] Option B is diversification.
5. [APP] SA successful airline with core competence.
6. [APP] Cost comparison and comments, e.g. the joint venture sum of $35m is initial cost only.
7. [AN] Option A - quite risky due to new market/country and lack of experience in international flying. However, SA is successful airline/core competency issues.
8. [AN] Option B - but starting within the existing country, and linked with existing service. Potentially risky, though, as SA has no experience of managing hotels. How reliable is joint venture partner?
9. [AN] Both options rely on continued growth of travel industry, so some links between them meaning factors in strategic choice may be similar.
10. [AN] Decision trees could be very useful to assess risk involved and to compare this with expected payoffs – but how reliable would these estimates be? Could other hotel businesses be investigated to assess returns from Option B? Could joint venture partner help.
11. [AN] Force field analysis – important as option A involves operating to and from different countries and Option B entering a new market. Will SA and its staff be able to adapt to these changes? What are likely to be the main driving and restraining forces?
12. [EVAL] Important to use scientific methods of strategic choice as these are both likely to be costly and expensive strategies and only potentially profitable in the long run. No one technique better than the others. Lack of experience in either market could make estimating cash flows very difficult. May need to use advice from external consultants?
13. [EVAL] Comparison of costs has been given and SA’s profit margin is low, finance and the ability to borrow or raise more funds from shareholders must also be an important factor here.