(upbeat music)
-: We can use Rumelt's Criteria to help an organisation
evaluate strategic themes to determine which ones
should be prioritised for implementation.
Rumelt's four evaluation criteria are
external consistency, internal consistency,
feasibility and competitive advantage.
Consistency is the focus of this clip,
so let's consider the first two criterion,
starting with external consistency.
Imagine you are a low-tech smartphone manufacturer.
You offer a different product from Apple and Samsung
because your phones have less features,
your hardware is more robust, your software simpler,
battery life longer and your phone is less expensive
than your rivals'.
You are looking to enter markets in Africa,
where the environment phones operate in is harsh
and the purchasing power of customers is low.
You have specifically designed new phone models
to survive high dust and humidity areas
common in African countries.
They have taken nearly two and a half years to develop.
Before implementing this significant move
into a new market, what external factors
would you like to be confident are still supporting
your strategic theme?
A review of PESTEL would be a good start.
Is economic growth in African countries
still providing enough income to enable people
to purchase low-cost smartphones?
Do government policies still support foreign companies
entering these markets?
What are the social attitudes to phone technology?
You may find that in the time it has taken
to develop your phone,
your competitors have already entered the market
and African customers now want only high-end smartphones.
Along with PESTEL, you should review your five forces
analysis of the new market.
You would want to assess the level of industry rivalry
and where your competitors are positioned compared to you.
Are the industry's key success factors in Africa
different from other geographic areas you operate in?
And does your strategic theme help or hinder you
in delivering against these success factors?
What you are trying to understand here
is whether your entry into this new market
is consistent with the current market dynamics.
Internal consistency is the second of Rumelt's Criteria.
This means, does the strategic theme
align with the organisation's strategy?
So, the focus is on alignment here,
not on capabilities or feasibility.
Here, the strategic theme is entering a new market
with a new product, a diversification strategy.
Is this theme consistent with the organisation's
corporate strategy?
If the current corporate strategy is to expand
our products and brand into new markets
to drive revenue growth,
then it is consistent with the theme
but if the strategy is to consolidate operations
and deliver high product margins, then that would not
be consistent with the high capital investment
required to develop a new product and enter a new market.
You also want to evaluate whether the theme is consistent
with stakeholder expectations.
Your stakeholders, who are players or context setters
in your power interest map, have an ability to influence
the company strategy and so it must be considered.
As you are entering a new market, you will have considered
the mode of entry.
Does this mode change the way you operate
in the industry value chain?
For instance, the African distribution channels
for your product may not be very good.
So you might need to establish your own outlets.
This is not something you do in your existing markets.
You have now forward integrated down the value chain
and need to consider whether you have the resources,
the capabilities and capital to set up
your own distribution network.
This leads to understanding whether the risks
of success for this strategic theme
are of a similar nature and rating
as other key organisational risks.
The fact is, in many companies,
strategic proposals are rejected by boards
because the risk of that strategy failing
is too high or not in line with the board's
appetite for risk.
Let's recap.
We have discussed the first two of Rumelt's
evaluation criteria.
External consistency and internal consistency.
The key questions you are trying to answer are
is the proposed strategy consistent with industry
and markets the organisation operates in?
And is the strategy consistent with the internal
strategic drivers for the organisation, it's stakeholders
and it's operational and organisational drivers?