A new approach to developing and optimizing organization strategy based on stochastic quantitative model of strategic performance

Abstract

This paper presents a highly formalized approach to strategy formulation and optimization of strategic performance through proper resource allocation. A stochastic quantitative model of strategic performance (SQMSP) is used to evaluate the efficiency of the strategy developed. The SQMSP follows the theoretical notions of the balanced scorecard (BSC) and strategy map methodologies, initially developed by Kaplan and Norton. Parameters of the SQMSP are suggested to be random variables and be evaluated by experts who give two-point (optimistic and pessimistic values) and three-point (optimistic, most probable and pessimistic values) evaluations. The Monte-Carlo method is used to simulate strategic performance. Having been implemented within a computer application and applied to solve the real problem (planning of an IT-strategy at the Faculty of Economics, University of Split) the proposed approach demonstrated its high potential as a basis for development of decision support tools related to strategic planning.

Keywords

• strategic management
• quantitative model of strategic performance
• optimal resource allocation
• Monte-Carlo simulation
• expert evaluations