The SFA matrix is a framework that helps businesses evaluate strategic options. Gerry Johnson and Kevan Scholes created the SFA matrix to help businesses evaluate their strategic options before committing. Evaluation of strategic opportunities is performed by considering three criteria that make up the SFA acronym: suitability, feasibility, and acceptability.
Understanding the SFA matrix
With many strategic options to choose from, it can sometimes be hard for a business to determine which will produce the best outcome. Most choices have significant and far-reaching consequences for the business or the individual, so it’s important to choose wisely.
To help businesses evaluate their strategic options before committing, Gerry Johnson and Kevan Scholes created the SFA matrix. Evaluation of strategic opportunities is performed by considering three criteria that make up the SFA acronym.
The most important factor in a strategic decision. Will the strategy achieve what the business wants it to achieve? Does it address key opportunities and threats? Suitability encompasses a broad range of criteria such as environmental, market, and expectational suitability.
Can the business execute the strategy effectively? Can it be financed? Are the right skills or expertise in place? Can resources be obtained in adequate quantities? Is the structure of the organization a good fit for the strategic plan? Are there moral, ethical, or legal concerns?
Does the proposed strategy meet stakeholder expectations? In other words, is the level of financial or reputational risk acceptable? Do potential project outcomes justify the expense? What will be the impact on capital structure, and will any function of the individual, group, or department be altered significantly?
Use of the SFA matrix normally takes place at the end of strategic planning once a strategic analysis has been performed. As a result, complementary frameworks such as Five Forces, SWOT, PESTLE, and SOAR are ideal.
Evaluating strategic opportunities using the SFA matrix
Evaluating opportunities involves scoring each of them against the three criteria listed above.
Here is the process in more detail:
Define key elements for each of the three criteria
Depending on the industry, each business should qualitatively define several key elements. A logging company, for example, will list environmental impact as a key suitability element and access to electricity as a key feasibility element.
Using a spreadsheet, list each element under its relevant criteria heading in a column on the left-hand side.
Weight each element according to importance. The logging company may assign a weight of 0.7 to low environmental impact and a weight of 0.3 for market demand. Ensure that the sum of all weights for each of suitability, feasibility, and acceptability adds up to 1.
Then, score every key element against each strategic opportunity using a scale of 1 to 10. For example, the logging company may assign the environmental impact of clear-cut logging (a strategy option) a score of 3. On the other hand, more environmentally friendly selective logging may be given an impact score of 8.
Multiply the weight of each element by the score assigned in step four. Selective logging is a low environmental impact strategy, so it would receive a score of 8 x 0.7 = 5.6. Then, add each score together. The strategy with the highest score is deemed the most suitable, but teams must avoid combining the best parts of multiple strategies into one.
Some extra guidance on evaluating suitability
Many businesses will find the evaluation of feasibility and acceptability straightforward. However, evaluating suitability can be more problematic.
To make this process easier, it can be useful to consider suitability in terms of three factors.
Since the 1950s, strategic logic has been quantified by rational or economic assessments that compare potential strategies with a firm’s market position and core competencies. While not an exhaustive list, several methods are used to establish the logic behind a strategy:
- Portfolio analysis – this provides clarity on how a potential strategy may help improve the mix or balance of activities in a company.
- Value system analysis – an analysis to determine how a potential strategy may improve value system performance. One example is a synergy assessment, which looks at how extra benefit can be derived by connecting activities outside the value system.
- Life cycle analysis – these analyses determine where an initiative is likely to be suitable for a specific product life cycle stage. It also considers the relative positional strength of a company in the market.
This measures the extent to which a strategy will be assimilated within the organization. Cultural fit is not the most important determiner of whether a strategy is accepted. Instead, such strategies must be able to shape and influence culture according to whether or not the company wants to introduce a new way of operating.
If the firm is not seeking to adopt a new paradigm, the best strategies are those that are the most easily assimilated. If, on the other hand, the firm is looking to implement a new culture, the SFA matrix can be used to formulate a strategy that will help employees adapt to the change.
Research evidence clarifies the concrete relationship between strategy choice and organizational performance. This relationship has been studied extensively since the 1970s, with a landmark study of over 3,000 businesses by the Strategic Planning Institute (SPI) just one example.
Collectively, these studies have arrived at several important conclusions for a business assessing suitability in terms of diversification and performance:
- Diversification is not always profitable and is difficult to achieve in practice. Above a certain threshold, profit potential is reduced by increasing complexity.
- Similarly, the benefits of synergy vis-à-vis diversification make sense on paper but are harder to achieve in the real world. This is particularly true of companies that attempt to diversify through acquisitions.
- The success of any diversification initiative relies on a set of circumstances unique to each company, such as market structure, company size, or the level of industry growth. It was also found that some initiatives are more successful when enacted over a longer period.
- The SFA matrix enables businesses to evaluate and then select a strategic option from a range of choices. It was created by Gerry Johnson and Kevan Scholes.
- The SFA matrix considers three key criteria of strategy development: suitability, feasibility, and acceptability. Suitability may be the hardest of three criteria to assess accurately.
- The SFA matrix calculates weighted scores for predetermined elements the business deems important. Although the elements can be adapted depending on the industry, there must be standardization in scoring and in element identification itself.
- Definition of SFA Matrix: The SFA (Suitability, Feasibility, Acceptability) matrix is a framework designed by Gerry Johnson and Kevan Scholes to help businesses assess and evaluate strategic options before making decisions. It involves evaluating potential strategies based on three key criteria: suitability, feasibility, and acceptability.
- Purpose of SFA Matrix:
- Businesses face multiple strategic options, and the SFA matrix assists in making informed decisions by systematically evaluating these options.
- The SFA matrix is typically applied after strategic analysis, utilizing complementary frameworks like Five Forces, SWOT, PESTLE, and SOAR.
- SFA Criteria:
- Suitability: Determines if a strategy aligns with the business’s goals and addresses opportunities and threats. It encompasses environmental, market, and expectational suitability.
- Feasibility: Assesses if the strategy can be executed effectively, considering factors like financing, resources, organizational structure, and ethical considerations.
- Acceptability: Evaluates if the strategy meets stakeholder expectations and financial/reputational risk levels. It considers impacts on capital structure and functional aspects.
- Process of Using the SFA Matrix:
- Define Key Elements: Qualitatively define key elements for each criterion based on the industry and business context.
- Assign Weights: Assign relative weights to each criterion, reflecting their importance. Total weights for each criterion sum up to 1.
- Construct Matrix: Create a matrix with decision alternatives as rows and criteria as columns.
- Evaluate Alternatives: Score each alternative against criteria using a consistent rating scale (e.g., 1-10).
- Calculate Weighted Scores: Multiply element scores by their respective weights and sum to get total scores for each alternative.
- Guidelines for Evaluating Suitability:
- Strategic Logic: Analyze the rational or economic basis of the strategy by methods like portfolio analysis, value system analysis, and life cycle analysis.
- Cultural Fit: Assess how well the strategy aligns with the organization’s culture and whether it requires adapting or shaping the culture.
- Research Evidence: Consider research findings on strategy-choice and organizational performance relationships, especially regarding diversification and synergy.
- Key Takeaways:
- The SFA matrix is a valuable tool for evaluating and selecting strategic options based on suitability, feasibility, and acceptability.
- It involves defining key elements, assigning weights, evaluating alternatives, and calculating weighted scores.
- Suitability assessment involves considering strategic logic, cultural fit, and research evidence.
- While assessing suitability might be challenging, the SFA matrix aids businesses in making strategic decisions aligned with their goals and stakeholder expectations.
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