Strategic Management Defined

The term strategic management is used to refer to the entire scope of strategic-decision
making activity in an organization. Strategic management as a concept has evolved over time
and will continue to evolve. As result there are a variety of meanings and interpretations
depending on the author and sources. For example, some scholars and practitioners the term
strategic planning connote the total strategic management activities. Moreover, sometimes
managers use the terms strategic management, strategic planning, and long-range planning
interchangeable. Finally, some of the phrases are used interchangeably with strategic
management are strategy and policy formulation, and business policy.

To purpose of this thesis I use the terminology strategy management, as opposed to the more
narrow term business policy.

The following statements serve as a number of workable definitions of strategic

management:

Strategic management is the process of managing the pursuit of organizational mission

while managing the relationship of the organization to its environment (James M.
Higgins).

Strategic management is defined as the set of decisions and actions resulting in the
formulation and implementation of strategies designed to achieve the objectives of the
organization (John A. Pearce II and Richard B. Robinson, Jr.).

Strategic management is the process of examining both present and future environments,
formulating the organization's objectives, and making, implementing, and controlling
decisions focused on achieving these objectives in the present and future environments
(Garry D. Smith, Danny R. Arnold, Bobby G. Bizzell).

Strategic management is a continuous process that involves attempts to match or fit the
organization with its changing environment in the most advantageous way possible
(Lester A. Digman).

The Scope Of Strategic Management

J. Constable has defined the area addressed by strategic management as "the management
processes and decisions which determine the long-term structure and activities of the
organization". This definition incorporates five key themes:

* Management process. Management process as relate to how strategies are created and
changed.

* Management decisions. The decisions must relate clearly to a solution of perceived

problems (how to avoid a threat; how to capitalize on an opportunity).

* Time scales. The strategic time horizon is long. However, it for company in real trouble can
be very short.
* Structure of the organization. An organization is managed by people within a structure.
The decisions which result from the way that managers work together within the structure can
result in strategic change.

* Activities of the organization. This is a potentially limitless area of study and we normally
shall centre upon all activities which affect the organization.

These all five themes are fundamental to a study of the strategic management field

The Nature And Value Of Strategic Management

All organizations engage in the strategic management process either formally or informally.
Strategic management is equally applicable to public, private, not-for-profit, and religious
organizations. An attempt is made in this thesis to show the applicability of strategic
management to all types of organizations, but the emphasis is on private-enterprise
organizations.

Organizations usually employ one of the three general decision-making processes:

1. Managers want to resolve current problems. Firms often face problems resulting from falling
sales, low profit rates, or production inefficiencies. Managers try to identify the sources of
those problems and resolve them as best they can.
2. Managers want to solve current problems and prevent future problems. For example, faced
with rising production costs, managers may apply statistical techniques to create an optimal
solution.
3. Managers want to design or create a better relationship between the firm and its operating and
general environments. That involves the firm in strategic decision making.

Three factors distinguish strategic decisions from other business considerations:

1. Strategic decisions deal with concerns that are central to the livelihood and survival of the
entire organization and usually involve a large portion of the organization's resources.
2. Strategic decisions represent new activities or areas of concern and typically address issues that
are unusual for the organization rather than issues that lend themselves to routine decision
making.
3. Strategic decisions have repercussions for the way other, lower-level decisions in the
organization are made.

To summarize, there are two essential areas of management tasks: strategic management and
operating management. Operating management deals with the ongoing, day-to day
"operations" of the business. However, my concern here is with the strategic management
alone.

Hierarchical Levels of Strategy

Strategy can be formulated on three different levels:

 corporate level
 business unit level
 functional or departmental level.
While strategy may be about competing and surviving as a firm, one can argue that products,
not corporations compete, and products are developed by business units. The role of the
corporation then is to manage its business units and products so that each is competitive and so
that each contributes to corporate purposes.

Consider Textron, Inc., a successful conglomerate corporation that pursues profits through a
range of businesses in unrelated industries. Textron has four core business segments:

 Aircraft - 32% of revenues

 Automotive - 25% of revenues
 Industrial - 39% of revenues
 Finance - 4% of revenues.

While the corporation must manage its portfolio of businesses to grow and survive, the success
of a diversified firm depends upon its ability to manage each of its product lines. While there
is no single competitor to Textron, we can talk about the competitors and strategy of each of
its business units. In the finance business segment, for example, the chief rivals are major
banks providing commercial financing. Many managers consider the business level to be the
proper focus for strategic planning.

Corporate Level Strategy

Corporate level strategy fundamentally is concerned with the selection of businesses in which
the company should compete and with the development and coordination of that portfolio of
businesses.

Corporate level strategy is concerned with:

 Reach - defining the issues that are corporate responsibilities; these might include
identifying the overall goals of the corporation, the types of businesses in which the
corporation should be involved, and the way in which businesses will be integrated and
managed.
 Competitive Contact - defining where in the corporation competition is to be localized.
Take the case of insurance: In the mid-1990's, Aetna as a corporation was clearly
identified with its commercial and property casualty insurance products. The
conglomerate Textron was not. For Textron, competition in the insurance markets took
place specifically at the business unit level, through its subsidiary, Paul Revere.
(Textron divested itself of The Paul Revere Corporation in 1997.)
 Managing Activities and Business Interrelationships - Corporate strategy seeks to
develop synergies by sharing and coordinating staff and other resources across business
units, investing financial resources across business units, and using business units to
complement other corporate business activities. Igor Ansoff introduced the concept of
synergy to corporate strategy.
 Management Practices - Corporations decide how business units are to be governed:
through direct corporate intervention (centralization) or through more or less
autonomous government (decentralization) that relies on persuasion and rewards.

Corporations are responsible for creating value through their businesses. They do so by
managing their portfolio of businesses, ensuring that the businesses are successful over the
long-term, developing business units, and sometimes ensuring that each business is compatible
with others in the portfolio.
Business Unit Level Strategy

A strategic business unit may be a division, product line, or other profit center that can be
planned independently from the other business units of the firm.

At the business unit level, the strategic issues are less about the coordination of operating units
and more about developing and sustaining a competitive advantage for the goods and services
that are produced. At the business level, the strategy formulation phase deals with:

 positioning the business against rivals

 anticipating changes in demand and technologies and adjusting the strategy to
accommodate them
 influencing the nature of competition through strategic actions such as vertical
integration and through political actions such as lobbying.

Michael Porter identified three generic strategies (cost leadership, differentiation, and focus)
that can be implemented at the business unit level to create a competitive advantage and
defend against the adverse effects of the five forces.

Functional Level Strategy

The functional level of the organization is the level of the operating divisions and departments.
The strategic issues at the functional level are related to business processes and the value
chain. Functional level strategies in marketing, finance, operations, human resources, and
R&D involve the development and coordination of resources through which business unit
level strategies can be executed efficiently and effectively.

Functional units of an organization are involved in higher level strategies by providing input
into the business unit level and corporate level strategy, such as providing information on
resources and capabilities on which the higher level strategies can be based. Once the higher-
level strategy is developed, the functional units translate it into discrete action-plans that each
department or division must accomplish for the strategy to succeed.

Strategic Management Process - Meaning,

Steps and Components
The strategic management process means defining the organization‟s strategy. It is also
defined as the process by which managers make a choice of a set of strategies for the
organization that will enable it to achieve better performance. Strategic management is a
continuous process that appraises the business and industries in which the organization is
involved; appraises it‟s competitors; and fixes goals to meet all the present and future
competitor‟s and then reassesses each strategy.

Strategic management process has following four steps:

1. Environmental Scanning- Environmental scanning refers to a process of collecting, scrutinizing

and providing information for strategic purposes. It helps in analyzing the internal and external
 factors influencing an organization. After executing the environmental analysis process,
management should evaluate it on a continuous basis and strive to improve it.

2. Strategy Formulation- Strategy formulation is the process of deciding best course of action for
accomplishing organizational objectives and hence achieving organizational purpose. After
conducting environment scanning, managers formulate corporate, business and functional
strategies.

3. Strategy Implementation- Strategy implementation implies making the strategy work as

intended or putting the organization‟s chosen strategy into action. Strategy implementation
includes designing the organization‟s structure, distributing resources, developing decision
making process, and managing human resources.

4. Strategy Evaluation- Strategy evaluation is the final step of strategy management process. The
key strategy evaluation activities are: appraising internal and external factors that are the root of
present strategies, measuring performance, and taking remedial / corrective actions. Evaluation
makes sure that the organizational strategy as well as it‟s implementation meets the organizational
objectives.

These components are steps that are carried, in chronological order, when creating a new
strategic management plan. Present businesses that have already created a strategic
management plan will revert to these steps as per the situation‟s requirement, so as to make
essential changes.

Components of Strategic Management Process

Strategic management is an ongoing process. Therefore, it must be realized that each

component interacts with the other components and that this interaction often happens in
chorus.

Resource-based view

The resource-based view (RBV) is a business management tool used to determine the
strategic resources available to a company. The fundamental principle of the RBV is that the
basis for a competitive advantage of a firm lies primarily in the application of the bundle of
valuable resources at the firm's disposal (Wernerfelt, 1984, p172; Rumelt, 1984, p557-558).
To transform a short-run competitive advantage into a sustained competitive advantage
requires that these resources are heterogeneous in nature and not perfectly mobile ([1]:p105-
106; Peteraf, 1993, p180). Effectively, this translates into valuable resources that are neither
perfectly imitable nor substitutable without great effort (Barney, 1991;[1]:p117). If these
conditions hold, the firm‟s bundle of resources can assist the firm sustaining above average
returns. The VRIN model also constitutes a part of RBV.
Concept

The key points of the theory are:

1. Identify the firm‟s potential key resources.

2. Evaluate whether these resources fulfill the following criteria (referred to as VRIN):
o Valuable – A resource must enable a firm to employ a value-creating strategy, by
either outperforming its competitors or reduce its own weaknesses ([1]:p99; [2]:p36).
Relevant in this perspective is that the transaction costs associated with the investment
in the resource cannot be higher than the discounted future rents that flow out of the
value-creating strategy (Mahoney and Prahalad, 1992, p370; Conner, 1992, p131).
o Rare – To be of value, a resource must be rare by definition. In a perfectly competitive
strategic factor market for a resource, the price of the resource will be a reflection of
the expected discounted future above-average returns (Barney, 1986a, p1232-1233;
Dierickx and Cool, 1989, p1504;[1]:p100).
o In-imitable – If a valuable resource is controlled by only one firm it could be a source
of a competitive advantage ([1]:p107). This advantage could be sustainable if
competitors are not able to duplicate this strategic asset perfectly (Peteraf, 1993, p183;
Barney, 1986b, p658). The term isolating mechanism was introduced by Rumelt (1984,
p567) to explain why firms might not be able to imitate a resource to the degree that
they are able to compete with the firm having the valuable resource (Peteraf, 1993,
p182-183; Mahoney and Pandian, 1992, p371). An important underlying factor of
inimitability is causal ambiguity, which occurs if the source from which a firm‟s
competitive advantage stems is unknown (Peteraf, 1993, p182; Lippman and Rumelt,
1982, p420). If the resource in question is knowledge-based or socially complex,
causal ambiguity is more likely to occur as these types of resources are more likely to
be idiosyncratic to the firm in which it resides (Peteraf, 1993, p183; Mahoney and
Pandian, 1992, p365;[1]:p110). Conner and Prahalad go so far as to say knowledge-
based resources are “…the essence of the resource-based perspective” (1996, p477).
o Non-substitutable – Even if a resource is rare, potentially value-creating and
imperfectly imitable, an equally important aspect is lack of substitutability (Dierickx
and Cool, 1989, p1509;[1]:p111). If competitors are able to counter the firm‟s value-
creating strategy with a substitute, prices are driven down to the point that the price
equals the discounted future rents (Barney, 1986a, p1233; sheikh, 1991, p137),
resulting in zero economic profits.
3. Care for and protect resources that possess these evaluations, because doing so can improve
organizational performance (Crook, Ketchen, Combs, and Todd, 2008).

The VRIN characteristics mentioned are individually necessary, but not sufficient conditions
for a sustained competitive advantage (Dierickx and Cool, 1989, p1506; Priem and Butler,
2001a, p25). Within the framework of the resource-based view, the chain is as strong as its
weakest link and therefore requires the resource to display each of the four characteristics to be
a possible source of a sustainable competitive advantage ([1]:105-107).

What constitutes a "resource"?

Jay Barney ([1]:p101) referring to Daft (1983)[3] says: "...firm resources include all assets,
capabilities, organizational processes, firm attributes, information, knowledge, etc; controlled
by a firm that enable the firm to conceive of and implement strategies that improve its
efficiency and effectiveness (Daft,1983)."

A subsequent distinction, made by Amit & Schoemaker (1993), is that the encompassing
construct previously called "resources" can be divided into resources and capabilities[2]. In this
respect, resources are tradable and non-specific to the firm, while capabilities are firm-specific
and are used to engage the resources within the firm, such as implicit processes to transfer
knowledge within the firm (Makadok, 2001, p388-389; Hoopes, Madsen and Walker, 2003,
p890). This distinction has been widely adopted throughout the resource-based view literature
(Conner and Prahalad, 1996, p477; Makadok, 2001, p338; Barney, Wright and Ketchen, 2001,
p630-31).

What constitutes a "capability"?

Makadok (2001) emphasizes the distinction between capabilities and resources by defining
capabilities as “a special type of resource, specifically an organizationally embedded non-
transferable firm-specific resource whose purpose is to improve the productivity of the other
resources possessed by the firm” [4](p389). “[R]esources are stocks of available factors that are
owned or controlled by the organization, and capabilities are an organization‟s capacity to
deploy resources” [2]:p.35. Essentially, it is the bundling of the resources that builds
capabilities. [5]

What constitutes "competitive advantage"?

A competitive advantage can be attained if the current strategy is value-creating, and not
currently being implemented by present or possible future competitors ([1]:102). Although a
competitive advantage has the ability to become sustained, this is not necessarily the case. A
competing firm can enter the market with a resource that has the ability to invalidate the prior
firm's competitive advantage, which results in reduced (read: normal) rents (Barney, 1986b,
p658). Sustainability in the context of a sustainable competitive advantage is independent with
regards to the time frame. Rather, a competitive advantage is sustainable when the efforts by
competitors to render the competitive advantage redundant have ceased ([1]:p102; Rumelt,
1984, p562). When the imitative actions have come to an end without disrupting the firm‟s
competitive advantage, the firm‟s strategy can be called sustainable. This is in contrast to
views of others (e.g., Porter) that a competitive advantage is sustained when it provides above-
average returns in the long run. (1985).

Criticism

Priem and Butler (2001) raised four key points of criticism:

 The RBV is tautological, or self-verifying. Barney has defined a competitive advantage as a

value-creating strategy that is based on resources that are, among other characteristics, valuable
(1991, p106). This reasoning is circular and therefore operationally invalid (Priem and Butler,
2001a, p31). For more info on the tautology, see also Collins, 1994
 Different resource configurations can generate the same value for firms and thus would not be
competitive advantage
 The role of product markets is underdeveloped in the argument
 The theory has limited prescriptive implications

However, Barney (2001) provided counter-arguments to these points of criticism.[1]

Further criticisms are:

 It is perhaps difficult (if not impossible) to find a resource which satisfies all of the Barney's
VRIN criteria.
 There is the assumption that a firm can be profitable in a highly competitive market as long as
it can exploit advantageous resources, but this may not necessarily be the case. It ignores
external factors concerning the industry as a whole; a firm should also consider Porter‟s
Industry Structure Analysis (Porter's Five Forces).
 Long-term implications that flow from its premises: A prominent source of sustainable
competitive advantages is causal ambiguity (Lippman & Rumelt, 1982, p420). While this is
undeniably true, this leaves an awkward possibility: the firm is not able to manage a resource it
 does not know exists, even if a changing environment requires this (Lippman & Rumelt, 1982,
p420). Through such an external change, the initial sustainable competitive advantage could be
nullified or even transformed into a weakness (Priem and Butler, 2001a, p33; Peteraf, 1993,
p187; Rumelt, 1984, p566).
 Premise of efficient markets: Much research hinges on the premise that markets in general or
factor markets are efficient, and that firms are capable of precisely pricing in the exact future
value of any value-creating strategy that could flow from the resource (Barney, 1986a, p1232).
Dierickx and Cool argue that purchasable assets cannot be sources of sustained competitive
advantage, just because they can be purchased. Either the price of the resource will increase to
the point that it equals the future above-average return, or other competitors will purchase the
resource as well and use it in a value-increasing strategy that diminishes rents to zero (Peteraf,
1993, p185; Conner, 1991, p137).
 The concept of rarity is obsolete: Although prominently present in Wernerfelt‟s original
articulation of the resource-based view (1984) and Barney‟s subsequent framework (1991),[1]
the concept that resources need to be rare to be able to function as a possible source of a
sustained competitive advantage is unnecessary (Hoopes, Madsen and Walker, 2003, p890).
Because of the implications of the other concepts (e.g. valuable, inimitable and
nonsubstitutability) any resource that follows from the previous characteristics is inherently
rare.
 Sustainable: The lack of an exact definition of sustainability makes its premise difficult to test
empirically. Barney‟s statement ([1]:p102-103) that the competitive advantage is sustained if
current and future rivals have ceased their imitative efforts is versatile from the point of view
of developing a theoretical framework, but is a disadvantage from a more practical point of
view, as there is no explicit end-goal.

Strategic fit
Strategic fit express the degree to which an organization is matching its resources and
capabilities with the opportunities in the external environment. The matching takes place
through strategy and it is therefore vital that the company have the actual resources and
capabilities to execute and support the strategy. Strategic fit can be used actively to evaluate
the current strategic situation of a company as well as opportunities as M&A and divestitures
of organizational divisions. Strategic fit is related to the Resource-based view of the firm
which suggests that the key to profitability is not only through positioning and industry
selection but rather through an internal focus which seeks to utilize the unique characteristics
of the company‟s portfolio of resources and capabilities[1]. A unique combination of resources
and capabilities can eventually be developed into a competitive advantage which the company
can profit from. However, it is important to differentiate between resources and capabilities.
Resources relate to the inputs to production owned by the company, whereas capabilities
describe the accumulation of learning the company possesses. Resources can be classified both
as tangible and intangible:

Tangible:

 Financial (Cash, securities)

 Physical (Location, plant, machinery)

Intangible:

 Technology (Patents, copyrights)

 Human resources
 Reputation (Brands)
 Culture

Several tools have been developed one can use in order to analyze the resources and
capabilities of a company. These include SWOT, value chain analysis, cash flow analysis and
more. Benchmarking with relevant peers is a useful tool to assess the relative strengths of the
resources and capabilities of the company compared to its competitors.

Strategic fit can also be used to evaluate specific opportunities like M&A opportunities.
Strategic fit would in this case refer to how well the potential acquisition fits with the planned
direction (strategy) of the acquiring company. In order to justify growth through M&A
transactions the transaction should yield a better return than Organic growth. The Differential
Efficiency Theory states that the acquiring firm will be able increase its efficiency in the areas
where the acquired firm is superior. In addition the theory argues that M&A transactions give
the acquiring firm the possibility of achieving positive synergy effects meaning that the two
merged companies are worth more together than the sums of their parts individually[2]. This is
because merging companies may enjoy from economics of scale and economics of scope.
However, in reality many M&A transactions fails due to different factors, one of them being
lack of strategic fit. A CEO survey conducted by Bain & Company showed that 94% of the
interviewed CEO‟s considered the strategic fit to be vitally influential in the success or failure
of an acquisition[3]. A high degree of strategic fit from can potentially yield many benefits for
an organization. Best case scenario a high degree of strategic fit may be the key to a successful
merger, an efficient organization, synergy effects or cost reductions. It is a vital term and it
should be taken into consideration when evaluating a company‟s strategy and opportunities.

Defining Strategic Stretch Goals to Stimulate Innovation in Organizations

Take a random CEO and ask him what he expects from his employees and you will very often
hear that his employees should think outside-the-box, challenge the status quo and come up
with radical new ideas and execute them to achieve extraordinary business results.

Even though top-management encourages employees to try something new and give them a
“permission to fail”, many people do not go the extra mile but prefer to stay in a mode of
“comfortable apathy”. It is too risky for many employees because if their endeavor fails, they
risk their career, might lose their bonus, and in the worst case even their job. One can
understand employees when they ask themselves “Why should I go the extra mile, when I can
risk my bonus and career chances?”

Overcoming these challenges is difficult and there is definitely no silver bullet but with a
different take on performance goals, it might be possible to stimulate the willingness to
innovate and drive change while at the same time providing measure that limit the employee‟s
risks.

Strategic stretch goals to stimulate innovation

By reaching for what appears to be the impossible, we often actually do the impossible. And
even when we do not quite make it, we inevitably wind up doing much better than we would
have done.Jack Welch

The concept of stretch goals has been broadly applied at General Electric in order to limit the
annual bargaining between managers and their employees on performance goals. Stretch goals
should limit such negotiating and improve long-term view, stimulate breakthrough ideas and
justify trade-offs in one year to harvest the benefits in the following years.

A definition of stretch goals

Strategic stretch goals are goals that cannot be achieved with what is known and how is
worked today. They aim for something that is impossible today.
This definition is important because setting the wrong stretch goals will burnout your people.
Such tactical stretch goals are goals that can be achieved with the current way of work and
they usually result in employees doing more of the same – which ultimately means longer
hours.

Strategic stretch goals really push the boundaries of what is assumed to be possible to strive
for the impossible. Only when you aim for the impossible, something that cannot be achieved
with existing practices, you have the “pressure” to come up with radical new ideas instead of
increasing your workload.

An example

Let us assume that you have defined a 10% growth goal for your business segment in the
coming year. Instead of defining a tactical stretch goal of 15% growth for next year, a strategic
stretch goal would aim for a 50% growth. Confronted with such a growth target, managers
would have to come up with different solutions than simply working harder and longer. Maybe
new distribution channels, new partnerships or other strategies could be a solution but working
longer hours will not even bring you close to the 50% growth.

The “urgency” to innovate

Defining strategic stretch goals gives employees that are willing to innovate an opportunity to
realize their ideas. For those that do not see the need to innovate yet, stretch goals can create a
“sense of urgency” that stimulates and forces them to work on ideas that help to achieve these
goals. The point of “pressure” and “sense of urgency” is not to get people working harder. It is
to get people to do things differently and raise the capability of the organization.

Elements of Strategic Management

Figure: Elements of Strategic Management

(i) Strategic Analysis

Strategic analysis is concerned with understanding the strategic position of the organisation.
What changes are going on in the environment, and how will they affect the organisation and
its activities? What is the resource strength of the organisation in the context of these changes?
What is it that those people and groups associated with the organisation -- managers,
shareholders or owners, unions and so on -- aspire to, and how do these affect the present
position and what could happen in the future?

The aim of strategic analysis is, then, to form a view of the key influences on the present and
future well-being of the organisation and therefore on the choice of strategy. These influences
are discussed briefly below. Understanding these influences is an important part of the wider
aspects of strategic management.

(a) The environment

The organisation exists in the context of a complex commercial, economic, political,

technological, cultural, and social world. This environment changes and is more complex for
some organisations than for others. Since strategy is concerned with the position a business
takes in relation to its environment, an understanding of the environment‟s effects on a
business is of central importance to strategic analysis. The historical and environmental effects
on the business must be considered, as well as the present effects and the expected changes in
environmental variables. This is a major task because the range of environmental variables is
so great. Many of those variables will give rise to opportunities of some sort, and many will
exert threats upon the firm. The two main problems that have to be faced are, first, to distil out
of this complexity a view of the main or overall environmental impacts for the purpose of
strategic choice; and second, the fact that the range of variables is likely to be so great that it
may not be possible or realistic to identify and analyse each one.

(b) The resources of the organisation

Just as there are outside influences on the firm and its choice of strategies, so there are internal
influences. One way of thinking about the strategic capability of an organisation is to consider
its strengths and weaknesses (what it is good or not so good at doing, or where it is at a
competitive advantage or disadvantage, for example). These strengths and weaknesses may be
identified by considering the resource areas of a business such as its physical plant, its
management, its financial structure, and its products. Again, the aim is to form a view of the
internal influences -- and constraints -- on strategic choice.

(c) The expectations of different stakeholders

The expectations are important because they will affect what will be seen as acceptable in
terms of the strategies advanced by management. However, the beliefs and assumptions that
make up the culture of an organisation, though less explicit, will also have an important
influence. The environmental and resource influences on an organisation will be interpreted
through these beliefs and assumptions; so two groups of managers, perhaps working in
different divisions of an organisation, may come to different conclusions about strategy,
although they are faced with similar environmental and resource implications. Which
influence prevails is likely to depend on which group has the greatest power, and
understanding this can be of great importance in recognising why an organisation follows or is
likely to follow, the strategy it does.

Together, a consideration of the environment, the resources, the expectations, and the
objectives within the cultural and political framework of the organisation provides the basis of
the strategic analysis of an organisation. However, to understand the strategic position an
organisation is in, it is also necessary to examine the extent to which the direction and
implications of the current strategy and objectives being followed by the organisation are in
line with and can cope with the implications of the strategic analysis. In this sense, such
analysis must take place with the future in mind. Is the current strategy capable of dealing with
the changes taking place in the organisation‟s environment or not? If so, in what respects and,
if not, why not?

It is unlikely that there will be a complete match between current strategy and the picture
which emerges from the strategic analysis. The extent to which there is a mismatch here is the
extent of the strategic problem facing the strategist. It may be that the adjustment that is
required is marginal, or it may be that there is a need for a fundamental realignment of
strategy.

(ii) Strategic Choice

Strategic analysis provides a basis for strategic choice. This aspect of strategic management
can be conceived of as having three parts.

(a) Generation of strategic options

There may be several possible courses of action. At a given time a company might face a
decision about the extent to which it has to become a multinational firm. But, at a later time,
the international scope of the company's operations might bring up other choices: which areas
of the world are now the most important to concentrate on; is it possible to maintain a common
basis of trading across all the different countries? Is it necessary to introduce variations by
market focus? All of these considerations are important and need careful consideration:
indeed, in developing strategies, a potential danger is that managers do not consider any but
the most obvious course of action -- and the most obvious is not necessarily the best. A helpful
step in strategic choice can be to generate strategic options.

(b) Evaluation of strategic options

Strategic options can be examined in the context of the strategic analysis to assess their
relative merits. In deciding any of the options a company might ask a series of questions. First,
which of these options built upon strengths, overcame weaknesses and took advantage of
opportunities, while minimising or circumventing the threats the business faced? This is called
the search for strategic fit or suitability of the strategy. However, a second set of questions is
important. To what extent could a chosen strategy be put into effect? Could the required
finance be raised, sufficient stock be made available at the right time and in the right place,
staff be recruited and trained to reflect the sort of image the company wants to project? These
are questions of feasibility. Even if these criteria could be met, would the choice be acceptable
to the stakeholders?

(c) Selection of strategy

This is the process of selecting those options which the organisation will pursue. There could
be just one strategy chosen or several. There is unlikely to be a clear-cut „right‟ or „wrong‟
choice because any strategy must inevitably have some dangers or disadvantages. So in the
end, choice is likely to be a matter of management judgement. It is important to understand
that the selection process cannot always be viewed or understood as a purely objective, logical
act. It is strongly influenced by the values of managers and other groups with interest in the
organisation, and ultimately may very much reflect the power structure in the organisation.

(iii) Strategy Implementation

Strategy implementation is concerned with the translation of strategy into action.

Implementation can be thought of as having several parts.

(a) Planning and allocating resources

Strategy implementation is likely to involve resource planning, including the logistics of

implementation. What are the key tasks needing to be carried out? What changes need to be
made in the resource mix of the organisation? By when? And who is to be responsible for the
change?

(b) Organisation structure and design

It is also likely that changes in organisational structure will be needed to carry through the
strategy. There is also likely to be a need to adapt the systems used to manage the organisation.
What will different departments be held responsible for? What sorts of information system are
needed to monitor the progress of the strategy? Is there a need for retraining of the workforce?

(c) Managing strategic change

The implementation of strategy also requires managing of strategic change and this requires
action on the part of managers in terms of the way they manage change processes, and the
mechanisms they use for it. These mechanisms are likely to be concerned not only with
organisational redesign, but with changing day-to-day routines and cultural aspects of the
organisation, and overcoming political blockages to change.

A Summary of the Strategic Management Process

The influences on, and elements of, strategic management discussed above are summarised in the figure above.
The figure is intended not as a prescription of what strategic management should be, but as a framework which
readers can use to think through strategic problems.

It was stated earlier that there is a danger of thinking of the process of strategic management as an orderly
sequence of steps; the danger is that readers might not find the elements described here existing in practice, and
might therefore argue that strategic management in their organisation does not take place. It is important to stress
that the model summarised here is a useful device for structuring the study of strategic management and a means
by which managers and students of strategy can think through complex strategic problems. It is not, however, an
attempt to describe how the processes of strategic management necessarily take place in the political and cultural
arenas of an organisation. The traditional view of strategic management, common in books of the 1960s and
1970s, was that strategy was, or should be, managed through planning processes, in the form of a neat sequence
of steps building on objective setting and analysis, through the evaluation of different options, and ending with
the careful planning of the strategy implementation. Many organisations do have such systems, and find that they
contribute usefully to the development of the strategy of their organisations. However, not all organisations have
them, and even when they do, it would be a mistake to assume that the strategies of organisations necessarily
come about through them.

The management of the strategy of an organisation can also be thought of as a process of crafting. Here strategic
management is seen not so much as a formal process, but rather as a process by which strategies develop in
organisations on the basis of managers‟ experience, their sensitivity to changes in their environments, and what
they learn from operating in their markets. This does not mean that managers are not thinking about the strategic
position of their organisation, or the choices it faces; but this may not be taking place in a highly formalised way.

Key Terms In Strategic Management

Strategic management, like many other subjects, has developed terminology to identify
important concepts. Each of the following definitions is amplified and supplemented with
additional examples in subsequent chapters.

Purpose

The organization's purpose outlines why the organization exists; it includes a description
of its current and future business (Leslie W. Rue, and Loyd L. Byars) The purpose of an
organization is its primary role in society, a broadly defined aim (such as manufacturing
electronic equipment) that it may share with many other organizations of its type.

Mission

The mission of an organization is the unique reason for its existence that sets it apart
from all others (A. James, F. Stoner, and Charles Wankel) The organization's mission
describes why the organization exists and guides what it should be doing. Often, the
organization's mission is defined in a formal, written mission statement. Decisions on mission
are the most important strategic decisions, because the mission is meant to guide the entire
organization. Although the terms "purpose" and "mission" are often used interchangeably, to
distinguish between them may help in understanding organizational goals.
Goals

A goal is a desired future state that the organization attempts to realize (Amitai Etzioni).

Objectives

The term objective is often used interchangeably with goal but usually refers to specific
targets for which measurable results can be obtained. Organizational objectives are the end
points of an organization's mission. Objectives refer to the specific kinds of results the
organizations seek to achieve through its existence and operations (William F. Glueck, and
Lawrence R. Jauch) Objective define what it is the organization hopes to accomplish, both
over the long and short term.

In this paper the terms "goals" and "objectives" are used interchangeably. Specifically, where
other works are being referred to and those authors have used the term goal as opposed to
objective, their terminology is retained.

Strategy

Strategies are the means by which long-term objectives will be achieved. "A strategy is a
unified, comprehensive, and integrated plan that relates the strategic advantages of the
firm to the challenges of the environment. It is designed to ensure that the basic
objectives of the enterprise are achieved through proper execution by the organization"
(William F. Glueck, and Lawrence R. Jauch). The role of strategy is to identify the general
approaches that the organization utilize to achieve its organizational objectives. Therefore, the
choice of strategy is so central to the study and understanding of strategic management.

Tactics

In contrast, tactics are specifics actions the organization might undertake in carrying its
strategy.

Policy

In years past it was common practice to title courses and books in the strategic management
areas as "Business policy," if one wished to take up broader range of organizations. In one
sense, what has happened is that word strategy has replaced policy. But there is another sense
in which the term policy is used that differentiates it from strategy, and from tactics as well. In
this view, policies are the means by which objectives will be achieved. "Policies are guide to
action. They include how resources are to be allocated and how tasks assigned to the
organization might be accomplished ... (William F. Glueck, and Lawrence R. Jauch "

Policies include guidelines, procedures, rules, programs, and budgets established to support
efforts to achieve stated objectives. Therefore, policies become important management tools
for implementing them.

Strategists

The final key term to be highlighted here is "strategists". Strategists are the individuals who
are involved in the strategic management process. Several levels of management may be
involved in strategic decision making. However, the people responsible for major strategic
decisions are the board of director, president, the chief executive officer, the chief operating
officer, and the division managers.

Four Basic Elements of Strategic Management

1.
o Effective strategic management is essential in the business world. Without
planning, goal setting and other steps in the strategic management process,
accomplishing both large and small business goals is difficult, if not impossible.
The strategic management process has four basic steps or elements. Depending
on the individual situation and goals of your organization, these steps can be
shortened or expanded.

Vision

o The vision or mission statement of your business or organization helps to define

your purpose and your goals. Mission statements that are too broad or too
limiting will limit the company's ability to set effective goals and grow, so
include specific objectives in your mission statement to prevent this.

Identifying Goals

o Using the objectives outlined in your mission statement, the next step is to
identify the goals of your business. Both long- and short-term goals should be
developed with the intention of meeting these objectives. As goals are met,
your objectives will change to match up with new goals.

Developing and Implementing a Plan

o Analyzing a task or set of goals will help you and your organization to
determine the best way to delegate duties and responsibilities to individuals.
This is the foundation of your strategic management plan. Identify individual
steps and mini-goals and objectives within the larger goals and objectives, and
assign these accordingly, making sure that everyone is aware of the part he
plays in the plan. Set deadlines for the mini-goals, as well as a deadline for each
goal and objective, to keep employees on track.

Evaluating and Tracking Results

o Once the process of meeting goals and objective begins, track the results
through deadlines met (or not met). Are your goals and objectives realistic? Is
your plan working? Post-project evaluation is also helpful when planning and
strategizing for future projects.

The external Environment

Introduction

The external environment is a crucial factor that determines to a great extent the success of
your company. You have to fulfil customer expectations, while on the other hand suppliers
must provide you with important resources. Technology is the driving force behind your
processes and your competitors want to expand their market shares at the cost of your
company. Porter´s Five Forces model will help you analyse all stakeholders and your company
position in terms of the competition. Strategic groups are another, more detailed way to
observe your company´s position with regards to market competition.

PEST Analysis

A scan of the external macro-environment in which the firm operates can be expressed in
terms of the following factors:

 Political
 Economic
 Social
 Technological

The acronym PEST (or sometimes rearranged as "STEP") is used to describe a framework for
the analysis of these macroenvironmental factors. A PEST analysis fits into an overall
environmental scan as shown in the following diagram:

Environmental Scan

/ \

External Analysis Internal Analysis

/ \

Macroenvironment Microenvironment

P.E.S.T.

Political Factors

Political factors include government regulations and legal issues and define both formal and
informal rules under which the firm must operate. Some examples include:

 tax policy
 employment laws
 environmental regulations
 trade restrictions and tariffs
 political stability
Economic Factors

Economic factors affect the purchasing power of potential customers and the firm's cost of
capital. The following are examples of factors in the macroeconomy:

 economic growth
 interest rates
 exchange rates
 inflation rate

Social Factors

Social factors include the demographic and cultural aspects of the external macroenvironment.
These factors affect customer needs and the size of potential markets. Some social factors
include:

 health consciousness
 population growth rate
 age distribution
 career attitudes
 emphasis on safety

Technological Factors

Technological factors can lower barriers to entry, reduce minimum efficient production levels,
and influence outsourcing decisions. Some technological factors include:

 R&D activity
 automation
 technology incentives
 rate of technological change

External Opportunities and Threats

The PEST factors combined with external microenvironmental factors can be classified as
opportunities and threats in a SWOT analysis.

Techniques for environmental Scanning

Environmental scanning is usually used at the start of a futures project. It aims at broad exploration of all major
trends, issues, advancements, events and ideas across a wide range of activities. Information is collected from
many different sources, such as newspapers, magazines, Internet, television, conferences, reports, and also
science- fiction books. Various tools and methodologies are used by large corporations to systematically scope
their external environment.

Delphi method

The Delphi method is a very popular technique used in Futures Studies. It was developed by Gordon and H
elmer in 1953 atRA ND. It can be defined as a method for structuring a group communication process, so that
the process is effective in allowing a group of individuals, as a whole, to deal with a complex problem. It uses the
iterative, independent questioning of a panel of experts to assess the timing, probability, significance and
implications of factors, trends and events in the relation to the problem being considered. Panelists are not
brought together but individually questioned in rounds. After the initial round, the panelists are given lists of
anonymous answers from other panelists which they can use to refine their own views.
Scenario planning

Scenarios are one of the most popular and persuasive methods used in the Futures Studies. Government
planners, corporate strategists and military analysts use them in order to aid decision-making. The term
scenario was introduced into planning and decision-making by Herman Kahn in connection with military and
strategic studies done by RAND in the 1950s.

It can be defined as a rich and detailed portrait of a plausible future world, one sufficiently vivid that a planner
can clearly see and comprehend the problems, challenges and opportunities that such an environment would
present.

A scenario is not a specific forecast of the future, but a plausible description of what might happen. Scenarios
are like stories built around carefully constructed plots based on trends and events. They assist in selection of
strategies, identification of possible futures, making people aware of uncertainties and opening up their
imagination and initiating learning processes.

One of the key strengths of the scenario process is its influence on the way of thinking of its participants. A
mindset, in which the focus is placed on one possible future, is altered towards the balanced thinking about a
number of possible alternative futures.

Cross-impact analysis

The method was developed by Theodore Gordon and Olaf Helmer in 1966 in an attempt to answer a question
whether perceptions of how future events may interact with each other can be used in forecasting. As it is well
known, most events and trends are interdependent in some ways.

Cross-impact analysis provides an analytical approach to the probabilities of an element in a forecast set, and it
helps to assess probabilities in view of judgments about potential interactions between those elements.

Simulation and modeling

Simulation and modeling are computer-based tools developed to represent reality. They are widely used to
analyse behaviours and to understand processes. Models allow demonstration of past changes as well as the
examination of various transformations and their impact on each other and other considered factors. They can
help to understand the connections between factors and events and to examine their dynamics. Simulation is a
process that represents a structure and change of a system. In simulation some aspects of reality are duplicated
or reproduced, usually within the model. The main purpose of simulation is to discern what would really happen
in the real world if certain conditions, imitated by the model, developed.

Trend analysis

Trend analysis is one of the most often used methods in forecasting. It aims to observe and register the past
performance of a certain factor and project it into the future. It involves analysis of two groups of trends:
quantitative, mainly based on statistical data, and qualitative, these are at large concerned with social,
institutional, organizational and political patterns. In the quantitative trend analysis data is plotted along a time
axis, so that a simple curve can be established. Short term forecasting seems quite simple; it becomes more
complex when the trend is extrapolated further into the future, as the number of dynamic forces that can
change direction of the trend increases. This form of simple trend extrapolation helps to direct attention
towards the forces, which can change the projected pattern.

Environmental Scanning Techniques

ENVIRONMENTAL SCANNING :
ENVIRONMENTAL SCANNING External: Societal, Technological, economic, regulatory,competitive
environment- PEST analysis ETOP analysis Industry Analysis- Porter’s Model, Strategic groups

Internal SCANNING: Organisational Capabalitiy analysis- SWOT, TOWS matrix, Value Chain analysis
Organisation Structure Culture (Belief, expectation, Values) Resources (Assets, skills, competencies,
knowledge) BACK

STRATEGY FORMULATION :
STRATEGY FORMULATION Mission Reason for existence Objectives What results to accomplish when
Strategies Plan to achieve the mission & objective Policies Broad guidelines for decision making BACK

STRATEGY IMPLEMENTATION BACK

EVALUATION AND CONTROL :

EVALUATION AND CONTROL Process to monitor performance and take corrective action Performance
BACK

STRATEGY FORMULATION :
STRATEGY FORMULATION Development of long range plans for effective management of
environmental opportunities and threats in the light of corporate strengths and weaknesses.

DIVERSIFIED COMPANY 3 LEVELS OF STRATEGY :

DIVERSIFIED COMPANY 3 LEVELS OF STRATEGY Corporate-Level Strategy Growth of business as a
whole Business-Level Strategy Division/business unit/product level Functional-Level Strategy support
corporate & business level strategy

STRATEGIC CHOICES :
STRATEGIC CHOICES Understanding the bases for future strategy at both corporate and business unit
levels and the options open for developing strategy in terms of both Corporate level – Highest level
and is concerned with the scope of an organisation’s strategies and the adding of value through its
relationship with the separate parts of the business and the synergies created between these parts
Business level – The competitive advantage that is created from the understanding of both markets
and customers based on specific competences Directions and methods – How an organisation
develops in terms of feasibility and acceptability

STRATEGY INTO ACTION :

STRATEGY INTO ACTION This is where strategies are working in practice Structuring – structure in
terms of processes, boundaries and relations and their interactions Enabling – Creation of support
mechanisms in the organisation in order to support strategy implementation and development
Change – Creating an environment that facilitates change throughout the organisation

nternal Organizational Analysis

In formulating a strategy, the strategic decision makers must also analyze conditions internal
to the organization. An internal analysis leads to a realistic company profile, which is the
determination of a firm's strategic competencies and weaknesses.

The development of a company profile in four-step process:

* In step 1, managers audit and examine key aspects of the business's operation, seeking to
target key areas for further assessment.

* Step 2 has managers evaluating the firm's status on these factors by comparing their current
condition with past abilities of the firm.

* In step 3, managers seek some comparative basis - linked to key industry or product/market
conditions - against which to more accurately determine whether the company's condition on a
particular factor represents a potential strength or weakness.

* The final step in internal analysis is to provide the results, or company profile, as input into
the strategic management process.

This explains internal analysis as a process, but in practice, efforts to distinguish each step are
seldom emphasized because the process is very interactive.

The Areas That Most Businesses Should Analyze

An internal organizational analysis evaluates all relevant factors in an organization in order to

determine its strengths and weaknesses. Some of the areas that most businesses should analyze
include the following:

1. Financial position. The financial position of a business plays a crucial role in determining what
it can or cannot do in the future.
2. Product position. For a business to be successful, it must be acutely aware of its product
position in the marketplace.
3. Marketing capability. Closely allied with an organization's product position is its marketing
capabilities (i.e., its ability to deliver the right product at the right time at the right price).
4. Research and development capability. Every organization must be concerned about its ability
to develop new products.
5. Organizational structure. Organizational structure can either help or hinder an organization in
achieving its objectives.
6. Human resources. All the activities of an organization are significantly influenced by the
quality and quantity of its human resources.
7. Condition of facilities and equipment. The condition of an organization's facilities and
equipment can either enhance or hinder its competitiveness.
8. Past objectives and strategies. In assessing its internal environment, every business should
attempt to explicitly describe its past objectives and strategies.

Internal analysis is difficult and challenging. The checklists provided above can be helpful in
determining specific strengths and weaknesses in the functional areas of business.

What Is an Internal Company Analysis?

By Isobel Washington, eHow Contributor
An internal company analysis is a business term strongly associated with a "SWOT"
(strengths, weaknesses, opportunities, threats) analysis. An internal company analysis is an
evaluation of a company's current position from the combined perspectives of marketing,
operations, and finance for strategic use.

1. Purpose
o The ultimate purpose of an internal analysis is to use the information for
strategic planning, meaning the company's plan for furthering growth, success,
and leadership in the marketplace. Determining the business's strengths and
weaknesses translates into the steps necessary for achieving goals.

Source and Content

o This analysis is for internal management use only (not for shareholders), and is
comprised of assessments made by heads of finance, operations, and marketing,
based on data provided by these departments.

Core Competencies

o Core competencies are a company's strengths within their market. The strengths
could be of any or all of the following: products and services offered, customer
relationship management, product development and technological innovation,
or financial position and pricing, among others. These strengths are the business
muscles that keep the company in the game with competition.

Customer Relationship Management

o Customer relationship management (CRM) has become a key business attribute

since the infancy of the Information Age, since the multiplication and
accessibility of communication channels has allowed businesses to better
understand and serve their customers. CRM weighs heavily as an aspect of
internal analysis.

Competitive Advantage

o Business success is often contingent on a company's competitive advantage,

which is what sets the company's products or services apart from the
competition, and is important to the internal analysis. Competitive advantage
could be in price, benefits offered, or some brand attribute that distinguishes the
company from its competitors.

Weaknesses

o Effective strategic management requires the identification of weaknesses,

which could range from product pricing to human resource issues. For the
internal analysis, it is important to approach the business's weaknesses from
both the internal perspective (those that come from within the organization) and
from the perspective of the marketplace as a whole, as in how the company is
positioned relative to competing companies and alternative products.
 Business Environment Analysis

Background

Environmental analysis is a systematic process that starts from identification of

environmental factors, assessing their nature and impact, auditing them to find their
impact to the business, and making various profiles for positioning. A common
process of environmental analysis or scanning is discussed in the following
section.

Environmental Analysis Process

A business manager should be able to analyze the environment to grasp

opportunities or face the threats. Organizations need to build strength and repair
their weakness available in the business environment. Therefore, this process
consists not only a single steps but a process of various steps.

Environmental analysis comprises scanning, monitoring, analyzing, and

forecasting the business situation. Scanning is to get the relevant information
from the information overload. It is to focus on the most relevant information.
Monitoring is to check the nature of the environmental factors. Analyzing
requires data collection and use of different required tools and techniques.
Forecasting is to find the future possibilities based on the past results and
present scenario.

Environmental analysis process is not static but a dynamic process. It may

differ depending on the situation. However, a general process with few common
steps can be identified as the process of environmental analysis these are a)
Monitoring or identifying environmental factors, b) Scanning and selecting the
relevant factors and grouping them, c) Defining variables for analysis, d) Using
different methods, tools, and techniques for analysis, e) Analyzing environmental
factors and forecasting, f) Designing profiles, and g) Strategic positioning and
writing a report. Brief discussion is made on each of the step of this environmental
analysis process.

Identifying environmental factors

First of all a strategist should identify all the relevant factors that might affect
his or her business. In this process, one should first know what the internal areas
of the business are. This includes all the systems, internal structure, strategies
followed, and culture of the organization. All these areas can be covered into the
five functional areas in classical approach. Similarly, a business daily interacts
with the close environmental components outside the business such as customer,
competitor, and supplier. It might cover all other stakeholders such as trade union,
media, and pressure group. Furthermore, general such business environment
factors as political-legal, economic, socio-
cultural, and technological factors are to be identified
Scanning and selecting relevant and key factors

Out of all the business environmental factors, a strategist should focus only on
the relevant factors for further analysis. All the factors are not equally important
and affecting to the business. In this context, a strategist has to scan the
environmental trend to select only the most affecting environmental factors from the
information overload. This step paves the way of environment analysis and
forecasting.

Defining Variables for Analysis

Selected environmental factors are to be further specified into the variables. A

concept can be interpreted into different variables. For example, political situation
can be measured using few variables such as instability, reliability, and long-term
effect. Economic environment might cover many variables such as Per Capita,
GDP, and Economic policies that can be further classified into many other
variables. Variables are the basis of measurement in environmental analysis
process. Variables can be compared, grouped, correlated, and predicted to find
the clearer picture of the broader concept. It is, therefore, necessary to define the
variables first in any kind of analysis including the environmental analysis.

Using Different Methods, Techniques, and Tools

Different types of methods, tools, and techniques are used for analysis. Some
of the major methods of analysis can be Scenario Building, Benchmarking,
and Network methods. Scenario presents overall picture of its total system with
affecting factors. Benchmarking is to find the best standard in an industry and to
compare the one's strengths and weakness with the standard. Network method is to
assess organizational systems and its outside environment to find the strength and
weakness, opportunity and threats of an organization. ...
Some of the techniques of primary information collection can be Delphi,
Brainstorming, Survey, and Historical enquiry. Delphi technique collects
independent information from the experts without mixing them. Brainstorming is
information collection technique being open minded without criticizing others.
Survey is to design questions and to ask them to the participants
whereas the historical enquiry is a kind of case analysis of past period.

Analysis tools can be statistical such general descriptive tools as mean,

median, mode, frequency. Tools can be inferential as ANOVA, correlation,
regression, factor, cluster, and multiple regression analysis. There are many tools
of analyzing functional areas. Finance and accounting use mostly profitability,
leverage, fund flow and other similar accounting and financial tools for analysis.
Human resources use employee turnover, training, satisfaction and many others
as the basis of evaluating strength and weakness. Production area is assessed
using quality control, productivity, breakdown, and many others. Similarly,
marketing effectiveness is judged from the sales
 volume and market coverage. Research and development is perceived
successful if it can really develop the strength in an organization.

Forecasting Environmental Factors

Collecting relevant information from the selected areas and to identify the
variables in such areas are the basics of analysis. Analyzing the past
information to predict the future is the main objective of this step. As discussed
earlier, use of different methods, techniques, and tools comes under the analysis
process. It is, therefore, a comprehensive process that analyzes collected
information using different tools and techniques.

Designing Profiles

After analyzing the environmental factors they are recorded into the profiles.
Such profiles record each component or variables into left side and their positive,
negative, or neutral indicators including their statement in the right side. Internal
areas are recorded in Strategic Advantages Profile (SAP) and external areas are
recorded in Environmental Threat and Opportunity Profile (ETOP). Strength,
Weakness, Opportunity, and Threat (SWOT) profile can be designed combining
both of these two profiles into one.

There are varieties of reporting formats or profiles used for external and
internal business environment analysis. Environmental Threat and Opportunity
Profile (ETOP) is commonly used to report the external environmental situation
whereas Strategic Advantages Profile (SAP) to report the internal
environmental situation1. Both of these profiles2can be merged into Strength-
Weakness-Opportunity-Threat (SWOT) profile. (See: annex...). David used
External Factor Evaluation (EFE) Matrix to present weighted score of external
environmental factors. Similarly, he used Internal Factor Evaluation (IFE) Matrix
to make the reporting of internal environmental audit. (See: annex-...). Whellen &
Hunger used External Factors Analysis Summary (EFAS) and
Internal Factors Analysis Summary (IFAS) that are presented in annex- ....

Environmental threats and opportunities profile (ETOP) is a commonly used

profile related to external business environment. Strategic advantages profile
(SAP) is related to internal business environment. Nowadays, strength &
weakness and opportunities & threats (SWOT) profile has become very popular.
Present writing pursued the approach of reporting external and internal business
environment using the same approach. ...
Preparing ETOP

Environmental threat and opportunity profile is referred as ETOP profile. It

identifies the relevant environmental factors. Such factors might be general
environmental factors and task environment factors. Thereafter, it is necessary to
identify their nature. Some factors are positive to the organization whereas

1
see Jauch, Gupta, and Glueck, 2003
2
see Jauch, Gupta, and Glueck, 2003; Johnson & Scholas, 2003
 others are negative. Therefore, it is necessary to find out their impact to the
organization. Positive, neutral, and negative sign in ETOP denotes the relevant
impact of environmental factors.

Preparing SAP

Strategic advantage profile is known as SAP. It shows strength and weakness

of an organization. Preparation of SAP is very similar process to the ETOP. There
are generally five functional areas in most of the organizations. These areas are
Production or Operation, Finance or Accounting, Marketing or Distribution, Human
Resource & Corporate Planning, and Research & Development. These functional
areas are listed to identify their relative strength and weakness in SAP. Very similar
to the ETOP, positive, neutral, and negative signs are denoted and brief description
is written in SAP profile. Each functional area is very broad having many components
inside.

All these above described profiles provide a clear picture to understand the
strategic position of an organization.

Strategic Position and Report Writing

After analysis of business environment a strategist knows the actual situation

and can make some future forecasting based on the environmental analysis. After
preparing the profiles strategists prepare formal report that describes the business
environment. The report might present issues and best strengths of business
environment in a systematic process. One can draw future strategies based on the
strategic analysis followed.

In conclusion, a strategist or a manager first identifies the relevant

environmental factors then analyzes using different tools and techniques to find out
the actual situation. This overall process is sometimes known as SWOT analysis,
environmental scanning, environmental analysis, or monitoring-forecasting. This
process is very important for a manager to make his or her organization success by
choosing the best available alternative strategy.

Some Approaches of Specific Environmental Scanning

In this section, a brief discussion is made on the potential approaches, tools,

and techniques that are commonly used to analyze the sector wise business
environment. The sectors of business environment are external business
environment, industry level business environment, and internal business
environment.

Gap analysis
In business and economics, gap analysis is a tool that helps a company to compare its actual
performance with its potential performance. At its core are two questions: "Where are we?" and
"Where do we want to be?" If a company or organization is not making the best use of its current
resources or is forgoing investment in capital or technology, then it may be producing or
performing at a level below its potential. This concept is similar to the base case of being below
one's production possibilities frontier.

The goal of gap analysis is to identify the gap between the optimized allocation and integration
of the inputs (resources) and the current level of allocation. This helps provide the company with
insight into areas which could be improved. The gap analysis process involves determining,
documenting and approving the variance between business requirements and current capabilities.
Gap analysis naturally flows from benchmarking and other assessments. Once the general
expectation of performance in the industry is understood, it is possible to compare that
expectation with the company's current level of performance. This comparison becomes the gap
analysis. Such analysis can be performed at the strategic or operational level of an organization.

Gap analysis is a formal study of what a business is doing currently and where it wants to go in
the future. It can be conducted, in different perspectives, as follows:

1. Organization (e.g., human resources)

2. Business direction
3. Business processes
4. Information technology

Gap analysis provides a foundation for measuring investment of time, money and human
resources required to achieve a particular outcome (e.g. to turn the salary payment process from
paper-based to paperless with the use of a system). Note that 'GAP analysis' has also been used
as a means for classification of how well a product or solution meets a targeted need or set of
requirements. In this case, 'GAP' can be used as a ranking of 'Good', 'Average' or 'Poor'.

The need for new products or additions to existing lines may have emerged from portfolio
analyses, in particular from the use of the Boston Consulting Group Growth-share matrix, or the
need will have emerged from the regular process of following trends in the requirements of
consumers. At some point a gap will have emerged between what the existing products offer the
consumer and what the consumer demands. That gap has to be filled if the organization is to
survive and grow.

To identify a gap in the market, the technique of gap analysis can be used. Thus an examination
of what profits are forecasted for the organization as a whole compared with where the
organization (in particular its shareholders) 'wants' those profits to be represents what is called
the 'planning gap': this shows what is needed of new activities in general and of new products in
particular.

The planning gap may be divided into three main elements:

Usage gap

This is the gap between the total potential for the market and the actual current usage by all the
consumers in the market. Clearly two figures are needed for this calculation:

 market potential
 existing usage
 Current industrial potential

Market potential

The maximum number of consumers available will usually be determined by market research, but
it may sometimes be calculated from demographic data or government statistics. Ultimately there
will, of course, be limitations on the number of consumers. For guidance one can look to the
numbers using similar products. Alternatively, one can look to what has happened in other
countries.[citation needed] The increased affluence of all the major Western economies means that
such a lag can now be much shorter.

at least the maximum attainable average usage (there will always be a spread of usage across a
range of customers), will usually be determined from market research figures. It is important,
however, to consider what lies behind such usage

Existing usage

The existing usage by consumers makes up the total current market, from which market shares,
for example, are calculated. It is usually derived from marketing research, most accurately from
panel research such as that undertaken by the Nielsen Company but also from ad hoc work.
Sometimes it may be available from figures collected by government departments or industry
bodies; however, these are often based on categories which may make sense in bureaucratic
terms but are less helpful in marketing terms.

The 'usage gap' is thus:

usage gap = market potential – existing usage

This is an important calculation to make. Many, if not most marketers, accept the existing market
size, suitably projected over the timescales of their forecasts, as the boundary for their expansion
plans. Although this is often the most realistic assumption, it may sometimes impose an
unnecessary limitation on their horizons. The original market for video-recorders was limited to
the professional users who could afford the high prices involved. It was only after some time that
the technology was extended to the mass market.

In the public sector, where the service providers usually enjoy a monopoly, the usage gap will
probably be the most important factor in the development of the activities. But persuading more
consumers to take up family benefits, for example, will probably be more important to the
relevant government department than opening more local offices.
The usage gap is most important for the brand leaders. If any of these has a significant share of
the whole market, say in excess of 30 per cent, it may become worthwhile for the firm to invest
in expanding the total market. The same option is not generally open to the minor players,
although they may still be able to target profitably specific offerings as market extensions.

All other gaps relate to the difference between the organization's existing sales (its market share)
and the total sales of the market as a whole. This difference is the share held by competitors.
These gaps will, therefore, relate to competitive activity.

Product gap

The product gap, which could also be described as the segment or positioning gap, represents
that part of the market from which the individual organization is excluded because of product or
service characteristics. This may have come about because the market has been segmented and
the organization does not have offerings in some segments, or it may be because the positioning
of its offering effectively excludes it from certain groups of potential consumers, because there
are competitive offerings much better placed in relation to these groups.

This segmentation may well be the result of deliberate policy. Segmentation and positioning are
very powerful marketing techniques; but the trade-off, to be set against the improved focus, is
that some parts of the market may effectively be put beyond reach. On the other hand, it may
frequently be by default; the organization has not thought about its positioning, and has simply
let its offerings drift to where they now are.

The product gap is probably the main element of the planning gap in which the organization can
have a productive input; hence the emphasis on the importance of correct positioning.

Market gap analysis

In the type of analysis described above, gaps in the product range are looked for. Other
perspective (essentially taking the "product gap" to its logical conclusion) is to look for gaps in
the "market" (in a variation on "product positioning", and using the multidimensional
"mapping"), which the company could profitably address, regardless of where the current
products stand.

Many marketers would question the worth of the theoretical gap analysis described earlier.
Instead, they would immediately start proactively to pursue a search for a competitive advantage.

SWOT Analysis

A scan of the internal and external environment is an important part of the strategic
planning process. Environmental factors internal to the firm usually can be classified as
strengths (S) or weaknesses (W), and those external to the firm can be classified as
opportunities (O) or threats (T). Such an analysis of the strategic environment is
referred to as a SWOT analysis.

The SWOT analysis provides information that is helpful in matching the firm's resources
and capabilities to the competitive environment in which it operates. As such, it is
instrumental in strategy formulation and selection. The following diagram shows how a
SWOT analysis fits into an environmental scan:

SWOT Analysis Framework

Environmental Scan
/ \
Internal Analysis External Analysis
/\ /\
Strengths Weaknesses Opportunities Threats
|
SWOT Matrix

Strengths

A firm's strengths are its resources and capabilities that can be used as a basis for
developing a competitive advantage. Examples of such strengths include:

 patents
 strong brand names
 good reputation among customers
 cost advantages from proprietary know-how
 exclusive access to high grade natural resources
 favorable access to distribution networks

Weaknesses

The absence of certain strengths may be viewed as a weakness. For example, each of
the following may be considered weaknesses:

 lack of patent protection

 a weak brand name
  poor reputation among customers
 high cost structure
 lack of access to the best natural resources
 lack of access to key distribution channels

In some cases, a weakness may be the flip side of a strength. Take the case in which a
firm has a large amount of manufacturing capacity. While this capacity may be
considered a strength that competitors do not share, it also may be a considered a
weakness if the large investment in manufacturing capacity prevents the firm from
reacting quickly to changes in the strategic environment.

Opportunities

The external environmental analysis may reveal certain new opportunities for profit and
growth. Some examples of such opportunities include:

 an unfulfilled customer need

 arrival of new technologies
 loosening of regulations
 removal of international trade barriers

Threats

Changes in the external environmental also may present threats to the firm. Some
examples of such threats include:

 shifts in consumer tastes away from the firm's products

 emergence of substitute products
 new regulations
 increased trade barriers

The SWOT Matrix

A firm should not necessarily pursue the more lucrative opportunities. Rather, it may
have a better chance at developing a competitive advantage by identifying a fit between
the firm's strengths and upcoming opportunities. In some cases, the firm can overcome
a weakness in order to prepare itself to pursue a compelling opportunity.

To develop strategies that take into account the SWOT profile, a matrix of these factors
can be constructed. The SWOT matrix (also known as a TOWS Matrix) is shown below:
 SWOT / TOWS Matrix

Strengths Weaknesses

Opportunities S-O strategies W-O strategies

Threats S-T strategies W-T strategies

 S-O strategies pursue opportunities that are a good fit to the company's
strengths.
 W-O strategies overcome weaknesses to pursue opportunities.
 S-T strategies identify ways that the firm can use its strengths to reduce its
vulnerability to external threats.
 W-T strategies establish a defensive plan to prevent the firm's weaknesses from
making it highly susceptible to external threats.

SPACE ANALYSIS

SPACE Matrix Strategic Management Method

The SPACE matrix is a management tool used to analyze a company. It is used to determine
what type of a strategy a company should undertake.

The Strategic Position & ACtion Evaluation matrix or short a SPACE matrix is a strategic
management tool that focuses on strategy formulation especially as related to the competitive
position of an organization.

The SPACE matrix can be used as a basis for other analyses, such as the SWOT analysis, BCG
matrix model, industry analysis, or assessing strategic alternatives (IE matrix).

What is the SPACE matrix strategic management method?

To explain how the SPACE matrix works, it is best to reverse-engineer it. First, let's take a look
at what the outcome of a SPACE matrix analysis can be, take a look at the picture below. The
SPACE matrix is broken down to four quadrants where each quadrant suggests a different type
or a nature of a strategy:

 Aggressive
 Conservative
 Defensive
  Competitive

This is what a completed SPACE matrix looks like:

This particular SPACE matrix tells us that our company should pursue an aggressive strategy.
Our company has a strong competitive position it the market with rapid growth. It needs to use
its internal strengths to develop a market penetration and market development strategy. This can
include product development, integration with other companies, acquisition of competitors, and
so on.

Now, how do we get to the possible outcomes shown in the SPACE matrix? The SPACE Matrix
analysis functions upon two internal and two external strategic dimensions in order to determine
the organization's strategic posture in the industry. The SPACE matrix is based on four areas of
analysis.

Internal strategic dimensions:

Financial strength (FS)

Competitive advantage (CA)

External strategic dimensions:

Environmental stability (ES)

Industry strength (IS)

There are many SPACE matrix factors under the internal strategic dimension. These factors
analyze a business internal strategic position. The financial strength factors often come from
company accounting. These SPACE matrix factors can include for example return on
investment, leverage, turnover, liquidity, working capital, cash flow, and others. Competitive
advantage factors include for example the speed of innovation by the company, market niche
position, customer loyalty, product quality, market share, product life cycle, and others.
Every business is also affected by the environment in which it operates. SPACE matrix factors
related to business external strategic dimension are for example overall economic condition,
GDP growth, inflation, price elasticity, technology, barriers to entry, competitive pressures,
industry growth potential, and others. These factors can be well analyzed using the Michael
Porter's Five Forces model.

The SPACE matrix calculates the importance of each of these dimensions and places them on a
Cartesian graph with X and Y coordinates.

The following are a few model technical assumptions:

- By definition, the CA and IS values in the SPACE matrix are plotted on the X axis.
- CA values can range from -1 to -6.
- IS values can take +1 to +6.

- The FS and ES dimensions of the model are plotted on the Y axis.

- ES values can be between -1 and -6.
- FS values range from +1 to +6.

How do I construct a SPACE matrix?

The SPACE matrix is constructed by plotting calculated values for the competitive advantage
(CA) and industry strength (IS) dimensions on the X axis. The Y axis is based on the
environmental stability (ES) and financial strength (FS) dimensions. The SPACE matrix can be
created using the following seven steps:

Step 1: Choose a set of variables to be used to gauge the competitive advantage (CA),
industry strength (IS), environmental stability (ES), and financial strength (FS).

Step 2: Rate individual factors using rating system specific to each dimension. Rate
competitive advantage (CA) and environmental stability (ES) using rating scale from -6 (worst)
to -1 (best). Rate industry strength (IS) and financial strength (FS) using rating scale from +1
(worst) to +6 (best).

Step 3: Find the average scores for competitive advantage (CA), industry strength (IS),
environmental stability (ES), and financial strength (FS).

Step 4: Plot values from step 3 for each dimension on the SPACE matrix on the appropriate
axis.

Step 5: Add the average score for the competitive advantage (CA) and industry strength (IS)
dimensions. This will be your final point on axis X on the SPACE matrix.

Step 6: Add the average score for the SPACE matrix environmental stability (ES) and financial
strength (FS) dimensions to find your final point on the axis Y.
Step 7: Find intersection of your X and Y points. Draw a line from the center of the SPACE
matrix to your point. This line reveals the type of strategy the company should pursue.

SPACE matrix example

The following table shows what values were used to create the SPACE matrix displayed above.

Each factor within each strategic dimension is rated using appropriate rating scale. Then
averages are calculated. Adding individual strategic dimension averages provides values that are
plotted on the axis X and Y.

The BCG Growth-Share Matrix

The BCG Growth-Share Matrix is a portfolio planning model developed by Bruce Henderson of
the Boston Consulting Group in the early 1970's. It is based on the observation that a company's
business units can be classified into four categories based on combinations of market growth and
market share relative to the largest competitor, hence the name "growth-share". Market growth
serves as a proxy for industry attractiveness, and relative market share serves as a proxy for
competitive advantage. The growth-share matrix thus maps the business unit positions within
these two important determinants of profitability.
 BCG Growth-Share Matrix

This framework assumes that an increase in relative market share will result in an increase in the
generation of cash. This assumption often is true because of the experience curve; increased
relative market share implies that the firm is moving forward on the experience curve relative to
its competitors, thus developing a cost advantage. A second assumption is that a growing market
requires investment in assets to increase capacity and therefore results in the consumption of
cash. Thus the position of a business on the growth-share matrix provides an indication of its
cash generation and its cash consumption.

Henderson reasoned that the cash required by rapidly growing business units could be obtained
from the firm's other business units that were at a more mature stage and generating significant
cash. By investing to become the market share leader in a rapidly growing market, the business
unit could move along the experience curve and develop a cost advantage. From this reasoning,
the BCG Growth-Share Matrix was born.

The four categories are:

 Dogs - Dogs have low market share and a low growth rate and thus neither generate nor
consume a large amount of cash. However, dogs are cash traps because of the money tied
up in a business that has little potential. Such businesses are candidates for divestiture.
 Question marks - Question marks are growing rapidly and thus consume large amounts
of cash, but because they have low market shares they do not generate much cash. The
result is a large net cash comsumption. A question mark (also known as a "problem
child") has the potential to gain market share and become a star, and eventually a cash
cow when the market growth slows. If the question mark does not succeed in becoming
the market leader, then after perhaps years of cash consumption it will degenerate into a
dog when the market growth declines. Question marks must be analyzed carefully in
order to determine whether they are worth the investment required to grow market share.
 Stars - Stars generate large amounts of cash because of their strong relative market share,
but also consume large amounts of cash because of their high growth rate; therefore the
cash in each direction approximately nets out. If a star can maintain its large market
 share, it will become a cash cow when the market growth rate declines. The portfolio of a
diversified company always should have stars that will become the next cash cows and
ensure future cash generation.
 Cash cows - As leaders in a mature market, cash cows exhibit a return on assets that is
greater than the market growth rate, and thus generate more cash than they consume.
Such business units should be "milked", extracting the profits and investing as little cash
as possible. Cash cows provide the cash required to turn question marks into market
leaders, to cover the administrative costs of the company, to fund research and
development, to service the corporate debt, and to pay dividends to shareholders. Because
the cash cow generates a relatively stable cash flow, its value can be determined with
reasonable accuracy by calculating the present value of its cash stream using a discounted
cash flow analysis.

Under the growth-share matrix model, as an industry matures and its growth rate declines, a
business unit will become either a cash cow or a dog, determined soley by whether it had become
the market leader during the period of high growth.

While originally developed as a model for resource allocation among the various business units
in a corporation, the growth-share matrix also can be used for resource allocation among
products within a single business unit. Its simplicity is its strength - the relative positions of the
firm's entire business portfolio can be displayed in a single diagram.

Limitations

The growth-share matrix once was used widely, but has since faded from popularity as more
comprehensive models have been developed. Some of its weaknesses are:

 Market growth rate is only one factor in industry attractiveness, and relative market share
is only one factor in competitive advantage. The growth-share matrix overlooks many
other factors in these two important determinants of profitability.
 The framework assumes that each business unit is independent of the others. In some
cases, a business unit that is a "dog" may be helping other business units gain a
competitive advantage.
 The matrix depends heavily upon the breadth of the definition of the market. A business
unit may dominate its small niche, but have very low market share in the overall industry.
In such a case, the definition of the market can make the difference between a dog and a
cash cow.

While its importance has diminished, the BCG matrix still can serve as a simple tool for viewing
a corporation's business portfolio at a glance, and may serve as a starting point for discussing
resource allocation among strategic business units.

GE / McKinsey Matrix
In consulting engagements with General Electric in the 1970's, McKinsey & Company
developed a nine-cell portfolio matrix as a tool for screening GE's large portfolio of
strategic business units (SBU). This business screen became known as the
GE/McKinsey Matrix and is shown below:

GE / McKinsey Matrix

Business Unit Strength

High Medium Low

High

Medium

Low

The GE / McKinsey matrix is similar to the BCG growth-share matrix in that it maps
strategic business units on a grid of the industry and the SBU's position in the industry.
The GE matrix however, attempts to improve upon the BCG matrix in the following two
ways:

 The GE matrix generalizes the axes as "Industry Attractiveness" and "Business

Unit Strength" whereas the BCG matrix uses the market growth rate as a proxy
for industry attractiveness and relative market share as a proxy for the strength of
the business unit.
 The GE matrix has nine cells vs. four cells in the BCG matrix.

Industry attractiveness and business unit strength are calculated by first identifying
criteria for each, determining the value of each parameter in the criteria, and multiplying
that value by a weighting factor. The result is a quantitative measure of industry
attractiveness and the business unit's relative performance in that industry.

Industry Attractiveness

The vertical axis of the GE / McKinsey matrix is industry attractiveness, which is

determined by factors such as the following:
  Market growth rate
 Market size
 Demand variability
 Industry profitability
 Industry rivalry
 Global opportunities
 Macroenvironmental factors (PEST)

Each factor is assigned a weighting that is appropriate for the industry. The industry
attractiveness then is calculated as follows:

Industry attractiveness = factor value1 x factor weighting1

+ factor value2 x factor weighting2

.
.
.

+ factor valueN x factor weightingN

Business Unit Strength

The horizontal axis of the GE / McKinsey matrix is the strength of the business unit.
Some factors that can be used to determine business unit strength include:

 Market share
 Growth in market share
 Brand equity
 Distribution channel access
 Production capacity
 Profit margins relative to competitors

The business unit strength index can be calculated by multiplying the estimated value of
each factor by the factor's weighting, as done for industry attractiveness.

Plotting the Information

Each business unit can be portrayed as a circle plotted on the matrix, with the
information conveyed as follows:
  Market size is represented by the size of the circle.
 Market share is shown by using the circle as a pie chart.
 The expected future position of the circle is portrayed by means of an arrow.

The following is an example of such a representation:

The shading of the above circle indicates a 38% market share for the strategic business
unit. The arrow in the upward left direction indicates that the business unit is projected
to gain strength relative to competitors, and that the business unit is in an industry that
is projected to become more attractive. The tip of the arrow indicates the future position
of the center point of the circle.

Strategic Implications

Resource allocation recommendations can be made to grow, hold, or harvest a strategic

business unit based on its position on the matrix as follows:

 Grow strong business units in attractive industries, average business units in

attractive industries, and strong business units in average industries.
 Hold average businesses in average industries, strong businesses in weak
industries, and weak business in attractive industies.
 Harvest weak business units in unattractive industries, average business units in
unattractive industries, and weak business units in average industries.

There are strategy variations within these three groups. For example, within the harvest
group the firm would be inclined to quickly divest itself of a weak business in an
unattractive industry, whereas it might perform a phased harvest of an average
business unit in the same industry.

While the GE business screen represents an improvement over the more simple BCG
growth-share matrix, it still presents a somewhat limited view by not considering
interactions among the business units and by neglecting to address the core
competencies leading to value creation. Rather than serving as the primary tool for
resource allocation, portfolio matrices are better suited to displaying a quick synopsis of
the strategic business units.

Strategic Analysis and Choice

Strategic analysis and choice are two important components of the implementation stage of the
strategic management plan. These two components are crucial links in the strategic management
implementation procedure. Strategic analysis involves a number of steps.

About Strategic Analysis and Choice

Strategic implementation is the penultimate stage of strategic management and strategic analysis
and choice are two significant constituents of that process.

The strategy of a company refers to its all-inclusive plan or program for the purpose of
accomplishing its aims and targets in the long run. Different types of strategies include business
unit strategy, corporate strategy, operational strategy and others.

Strategic analysis implies the examination of the present condition of a business and
consequently developing an appropriate business strategy.

Strategic analysis carries higher importance with regards to conglomerates that offer a wide
range of diversified products. Strategic choice refers to the selection of the appropriate business
strategy.

At the time of performing strategic analysis and arriving at strategic choices, long term goals are
fixed and different types of strategies are chosen that are most appropriate for the mission of the
company and the variable conditions.

Strategic analysis and choice of strategies are done with the help of a number of techniques. If
the appropriate strategy is chosen, a company would become more efficient to establish
sustainability in competitive advantage and maximize firm valuation.

Factors Taken into Consideration for Strategic Analysis and Choice

Key Internal Factors

 Marketing
 Management
 Operations/Production
 Accounting/Finance
 Computer Information Systems
 Research and Development

Key External Factors

 Political/Governmental/Legal
 Economy
 Technological
 Social/Demographic/Cultural/Environmental
 Competitive
Techniques Used in Strategic Analysis
The following devices or techniques are used in the procedure of strategic analysis:

 Five Forces Analysis

 PEST Analysis (Political, Economic, Social and Technological Analysis)
 Market segmentation
 Scenario planning
 Competitor analysis
 Directional policy matrix
 SWOT Analysis (Strength, Weaknesses, Opportunities, and Threats Analysis)
 Critical Success Factor Analysis

Characteristics of Strategic Analysis and Choice

Following are the features of strategic analysis and choice:

 Establishment of long term goals

 Producing strategy options
 Choosing strategies to act on
 Selecting the best option and accomplishing mission and goals

Strategic intent

IT is about clarity, focus and inspiration

Vision points the way to the future and strategic intent provides clarity of what a company must get after immediately in
order to realize the vision. In other words strategic intent of a company describes how a company is going to realize its
vision. Strategic intent provides a particular point of view about the long term vision or aspiration of the company.

Gary Hamel and C.K. Prahlad in their book “competing for the future”, say that since strategic intent provides a specific
point of view of the future aspired, it conveys sense of direction. And since it provides an opportunity to explore new
competitive possibilities, it conveys a sense of discovery and since it provides a goal for the company which people
perceive as inherently worthwhile, it implies sense of destiny.

Why vision remains only on board

Companies have ambitious long term aspiration that we call vision, which broadly sets the future the company wishes to
pursue. Though companies craft Big Audacious Hairy Goal (BHAG) as their vision statement, they do little else.
Managements expect people to be enthused and encouraged by the vision statement that they have so meticulously
crafted. They “communicate” the vision by displaying it around every corner. And yet over a period of time they find that
the company is just following the expected curve that the industry in general traverses. Management fails to take the
company towards its cherished vision and people have no inkling of what the vision means to them in their day-to-day
work. It simply does not influence them or impact them in their day-to-day jobs.

Where strategic intent fits

It is where strategic intent can help a company – its strategic planners and as well as people. It clarifies the vision and tells
everyone in the company about how it is going to realize its vision. Vision can be related to a marathon race where you do
not know what the terrain will look like at mile 26; the strategic intent of the company is like running the marathon in
short races of say 400 meters, where top management focuses attention to the ground to be covered in the next 400
meters.

To illustrate the point let us take an example of hypothetical company having a vision of becoming a “world class”
company. This is the most common vision statement of companies that we come across so very frequently. Now what do
people do to make the company truly “world class”. How a strategic intent can be developed to bring about more clarity to
the vision statement, so that people can direct their efforts and energies for the cause.
Strategic intent provides clarity
Continuing with the example of vision of being a “world class” company, how can we define the strategic intent of the
company that not only will take the company towards its vision but also clarify the meaning of the vision in such terms that
it can influence the day-to-day work of the people? Considering that “world class” in general means competitive
performance. So initially, being “world class” may be interpreted as surpassing competitors on all competitive parameters
that are important for the customers and the company. So the strategic intent during initial period can be to “beat the
competitors”. So “beat the competitors” represents a particular point of view of the long term vision of being a “world
class” company.

Strategic intent brings about focus

Once the clarity of desirable future is obtained, the management and people can ponder on issues to focus. From our
example, the strategic intent of “beat the competitors”, the company may apply its thinking on the competitive factors
which are important for the customers and the company and plan for surpassing the competitors performance on these
parameters.

Strategic intent inspires the people

Strategic intent creates meaning for the people. It must exude confidence in the people that the intended goals that
company is focusing on will not only make a difference but also a worthwhile challenge to pursue. Strategic intent is
worded in such a way that it arouses passion in the people – in our example – “make competition irrelevant”. The key here
is to build emotional energy into the strategic intent of the company, which captures the hearts of the people.

So, strategic intent is the immediate point of view of a long term future that company would like to create. It
is the intent of the strategies that company may evolve i.e. it creates spotlight for directing the strategy in a
company. When carefully worded, provides a strategic theme filled with emotion for the whole organization..