In deciding between the remaining alternatives the decision maker should reexamine all major assumptions on which they based. In the final analysis, the decision may come down to the risks inherent in the alternatives as opposed to their potential return. For each major risk, the following questions should be answered:
- What are the consequences?
- Will the "worst case" scenario seriously hurt the company, the division, or finances?
- What level of risk am I willing to accept?
- What if I do not accept the risk? Will the competition accept it?
- How can the risks be reduced?
Strategy Formulation Constraints
In order for managers to formulate useful strategies, they must be aware of certain organizational constraints. Some of the major ones are:
- Availability of financial resources
- Even when a particular strategy appears optimal for an organization, serious consideration must be given to where the money to finance the strategy is going to come from.
- Attitude toward risk
- Some firms are willing to accept only minimal levels of risk, regardless of the level of potential return.
- Organizational capabilities
- Some otherwise excellent strategies may require capabilities beyond those an organization currently possesses.
- Channel relationships
- Strategies that call for the development of new channels of distribution or that involve new suppliers require careful consideration of the availability of these other organizations and their willingness to work with the firm.
- Competitive retaliation
- Some strategies may have the unintended effect of dramatically increasing competitors' efforts in the marketplace.