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 higherlevel 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

in chronological order. measuring performance. and managing human resources. 4. 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. so as to make essential changes.Strategy evaluation is the final step of strategy management process. Strategy implementation includes designing the organization‟s structure. . Effectively. Therefore. distributing resources. After executing the environmental analysis process. Resource-based view The resource-based view (RBV) is a business management tool used to determine the strategic resources available to a company.Strategy formulation is the process of deciding best course of action for accomplishing organizational objectives and hence achieving organizational purpose. If these conditions hold. when creating a new strategic management plan.[1]:p117). this translates into valuable resources that are neither perfectly imitable nor substitutable without great effort (Barney. the firm‟s bundle of resources can assist the firm sustaining above average returns. Strategy Formulation. Components of Strategic Management Process Strategic management is an ongoing process. The key strategy evaluation activities are: appraising internal and external factors that are the root of present strategies. Rumelt. 3. 1984.factors influencing an organization. 2. p180). and taking remedial / corrective actions. it must be realized that each component interacts with the other components and that this interaction often happens in chorus. managers formulate corporate. 1984. Present businesses that have already created a strategic management plan will revert to these steps as per the situation‟s requirement. The VRIN model also constitutes a part of RBV. management should evaluate it on a continuous basis and strive to improve it. p172. developing decision making process.Strategy implementation implies making the strategy work as intended or putting the organization‟s chosen strategy into action. Strategy Evaluation. Strategy Implementation. 1993. p557-558). business and functional strategies. These components are steps that are carried. 1991. After conducting environment scanning. 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]:p105106. Evaluation makes sure that the organizational strategy as well as it‟s implementation meets the organizational objectives. Peteraf.

1983). Conner. Dierickx and Cool. If the resource in question is knowledge-based or socially complex. etc. 2001. such as implicit processes to transfer knowledge within the firm (Makadok. . p365. o Rare – To be of value. 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. 1982. 1992. p388-389. p1504. 1986a. Within the framework of the resource-based view. Mahoney and Pandian. 1986b. 2. p25). Ketchen. Conner and Prahalad go so far as to say knowledgebased resources are “…the essence of the resource-based perspective” (1996. p370. Care for and protect resources that possess these evaluations. p183. 1989. 1991. p131). 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. information. p182. organizational processes. [2]:p36). 2001a. 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. If competitors are able to counter the firm‟s valuecreating strategy with a substitute. capabilities. Hoopes. 1989. o In-imitable – If a valuable resource is controlled by only one firm it could be a source of a competitive advantage ([1]:p107).[1]:p110). controlled by a firm that enable the firm to conceive of and implement strategies that improve its efficiency and effectiveness (Daft. p1232-1233. This advantage could be sustainable if competitors are not able to duplicate this strategic asset perfectly (Peteraf. while capabilities are firm-specific and are used to engage the resources within the firm. p183. p1509. Mahoney and Pandian. which occurs if the source from which a firm‟s competitive advantage stems is unknown (Peteraf. The term isolating mechanism was introduced by Rumelt (1984. 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.firm resources include all assets. the price of the resource will be a reflection of the expected discounted future above-average returns (Barney. 1993. 1992. The VRIN characteristics mentioned are individually necessary.Concept The key points of the theory are: 1. p371). p1233. Lippman and Rumelt. 1986a. 2008). p137). an equally important aspect is lack of substitutability (Dierickx and Cool. p420). prices are driven down to the point that the price equals the discounted future rents (Barney. Barney..[1]:p100). resulting in zero economic profits. 1992. An important underlying factor of inimitability is causal ambiguity.[1]:p111).. 1993. In this respect. is that the encompassing construct previously called "resources" can be divided into resources and capabilities[2]. p658). Combs. sheikh. 1992. Madsen and Walker. In a perfectly competitive strategic factor market for a resource. knowledge. o Non-substitutable – Even if a resource is rare. by either outperforming its competitors or reduce its own weaknesses ([1]:p99. resources are tradable and non-specific to the firm. 3. a resource must be rare by definition. potentially value-creating and imperfectly imitable. made by Amit & Schoemaker (1993). What constitutes a "resource"? Jay Barney ([1]:p101) referring to Daft (1983)[3] says: ". Identify the firm‟s potential key resources. 1989. p182-183. 1993. 1993. but not sufficient conditions for a sustained competitive advantage (Dierickx and Cool. p477). firm attributes. because doing so can improve organizational performance (Crook. p1506. and Todd. 2003. Priem and Butler. 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)." A subsequent distinction.

this is not necessarily the case. This distinction has been widely adopted throughout the resource-based view literature (Conner and Prahalad. What constitutes a "capability"? Makadok (2001) emphasizes the distinction between capabilities and resources by defining capabilities as “a special type of resource. Barney (2001) provided counter-arguments to these points of criticism. 2001. This reasoning is circular and therefore operationally invalid (Priem and Butler. Criticism Priem and Butler (2001) raised four key points of criticism:     The RBV is tautological. This is in contrast to views of others (e. Sustainability in the context of a sustainable competitive advantage is independent with regards to the time frame. Rather.. There is the assumption that a firm can be profitable in a highly competitive market as long as it can exploit advantageous resources. A competing firm can enter the market with a resource that has the ability to invalidate the prior firm's competitive advantage. but this may not necessarily be the case. Rumelt. When the imitative actions have come to an end without disrupting the firm‟s competitive advantage. 1982.g. and not currently being implemented by present or possible future competitors ([1]:102). the firm‟s strategy can be called sustainable. (1985). It ignores external factors concerning the industry as a whole.35. p31). 1996. valuable (1991. p562). Long-term implications that flow from its premises: A prominent source of sustainable competitive advantages is causal ambiguity (Lippman & Rumelt. 2001a. 1986b. 1984. 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.[1] Further criticisms are:    It is perhaps difficult (if not impossible) to find a resource which satisfies all of the Barney's VRIN criteria. p658). and capabilities are an organization‟s capacity to deploy resources” [2]:p. Makadok. Porter) that a competitive advantage is sustained when it provides aboveaverage returns in the long run. Although a competitive advantage has the ability to become sustained. or self-verifying. p630-31). a competitive advantage is sustainable when the efforts by competitors to render the competitive advantage redundant have ceased ([1]:p102. which results in reduced (read: normal) rents (Barney. While this is undeniably true. a firm should also consider Porter‟s Industry Structure Analysis (Porter's Five Forces). p477. this leaves an awkward possibility: the firm is not able to manage a resource it . among other characteristics. p420). Barney has defined a competitive advantage as a value-creating strategy that is based on resources that are. see also Collins. specifically an organizationally embedded nontransferable firm-specific resource whose purpose is to improve the productivity of the other resources possessed by the firm” [4](p389). Barney. p338.p890). “[R]esources are stocks of available factors that are owned or controlled by the organization. p106). For more info on the tautology. 2001. Wright and Ketchen. [5] What constitutes "competitive advantage"? A competitive advantage can be attained if the current strategy is value-creating. it is the bundling of the resources that builds capabilities. Essentially.

p33. whereas capabilities describe the accumulation of learning the company possesses. Dierickx and Cool argue that purchasable assets cannot be sources of sustained competitive advantage. 2001a. Resources can be classified both as tangible and intangible: Tangible:   Financial (Cash. Peteraf. Strategic fit Strategic fit express the degree to which an organization is matching its resources and capabilities with the opportunities in the external environment. plant. p1232). the initial sustainable competitive advantage could be nullified or even transformed into a weakness (Priem and Butler. However.[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. Resources relate to the inputs to production owned by the company. 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. 1993. 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]. value chain analysis. p420). but is a disadvantage from a more practical point of view. 1986a. 1984. valuable. cash flow analysis and . 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. p137). Because of the implications of the other concepts (e. inimitable and nonsubstitutability) any resource that follows from the previous characteristics is inherently rare.   does not know exists. p187. p185. p566). 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. 1993. p890). Madsen and Walker. just because they can be purchased. 1991. securities) Physical (Location. Either the price of the resource will increase to the point that it equals the future above-average return. These include SWOT. it is important to differentiate between resources and capabilities. even if a changing environment requires this (Lippman & Rumelt.g. Sustainable: The lack of an exact definition of sustainability makes its premise difficult to test empirically. Conner. machinery) Intangible:     Technology (Patents. or other competitors will purchase the resource as well and use it in a value-increasing strategy that diminishes rents to zero (Peteraf. 2003. as there is no explicit end-goal. 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. Rumelt. 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). 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. Premise of efficient markets: Much research hinges on the premise that markets in general or factor markets are efficient. 1982. A unique combination of resources and capabilities can eventually be developed into a competitive advantage which the company can profit from. Through such an external change.

one of them being lack of strategic fit. in reality many M&A transactions fails due to different factors. They aim for something that is impossible today. It is a vital term and it should be taken into consideration when evaluating a company‟s strategy and opportunities. they risk their career. This is because merging companies may enjoy from economics of scale and economics of scope. It is too risky for many employees because if their endeavor fails. many people do not go the extra mile but prefer to stay in a mode of “comfortable apathy”. . Strategic stretch goals to stimulate innovation By reaching for what appears to be the impossible. 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]. 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]. an efficient organization. Stretch goals should limit such negotiating and improve long-term view. 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. we often actually do the impossible. synergy effects or cost reductions. Strategic fit would in this case refer to how well the potential acquisition fits with the planned direction (strategy) of the acquiring company. However. 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. Strategic fit can also be used to evaluate specific opportunities like M&A opportunities. and in the worst case even their job. A definition of stretch goals Strategic stretch goals are goals that cannot be achieved with what is known and how is worked today. And even when we do not quite make it. 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.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. 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. The Differential Efficiency Theory states that the acquiring firm will be able increase its efficiency in the areas where the acquired firm is superior. we inevitably wind up doing much better than we would have done. might lose their bonus. A high degree of strategic fit from can potentially yield many benefits for an organization. challenge the status quo and come up with radical new ideas and execute them to achieve extraordinary business results. Best case scenario a high degree of strategic fit may be the key to a successful merger. stimulate breakthrough ideas and justify trade-offs in one year to harvest the benefits in the following years.more. Even though top-management encourages employees to try something new and give them a “permission to fail”. In order to justify growth through M&A transactions the transaction should yield a better return than Organic growth.

For those that do not see the need to innovate yet. The point of “pressure” and “sense of urgency” is not to get people working harder. a strategic stretch goal would aim for a 50% growth. It is to get people to do things differently and raise the capability of the organization. The “urgency” to innovate Defining strategic stretch goals gives employees that are willing to innovate an opportunity to realize their ideas. stretch goals can create a “sense of urgency” that stimulates and forces them to work on ideas that help to achieve these goals. Maybe new distribution channels. you have the “pressure” to come up with radical new ideas instead of increasing your workload. Confronted with such a growth target. An example Let us assume that you have defined a 10% growth goal for your business segment in the coming year. new partnerships or other strategies could be a solution but working longer hours will not even bring you close to the 50% growth. managers would have to come up with different solutions than simply working harder and longer. Instead of defining a tactical stretch goal of 15% growth for next year. Only when you aim for the impossible. Elements of Strategic Management Figure: Elements of Strategic Management . something that cannot be achieved with existing practices. 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.This definition is important because setting the wrong stretch goals will burnout your people.

Since strategy is concerned with the position a business takes in relation to its environment. and social world. and many will exert threats upon the firm. 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 -. as well as the present effects and the expected changes in environmental variables. unions and so on -.managers. political. technological. and how do these affect the present position and what could happen in the future? The aim of strategic analysis is. 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. Many of those variables will give rise to opportunities of some sort. What changes are going on in the environment. then. to distil out .(i) Strategic Analysis Strategic analysis is concerned with understanding the strategic position of the organisation. Understanding these influences is an important part of the wider aspects of strategic management. The historical and environmental effects on the business must be considered. These influences are discussed briefly below. (a) The environment The organisation exists in the context of a complex commercial. shareholders or owners. first. This is a major task because the range of environmental variables is so great. The two main problems that have to be faced are. This environment changes and is more complex for some organisations than for others. an understanding of the environment‟s effects on a business is of central importance to strategic analysis. cultural.aspire to. economic.

at a later time. will also have an important influence. (b) The resources of the organisation Just as there are outside influences on the firm and its choice of strategies. the beliefs and assumptions that make up the culture of an organisation. so two groups of managers.on strategic choice. if not. and the objectives within the cultural and political framework of the organisation provides the basis of the strategic analysis of an organisation. and understanding this can be of great importance in recognising why an organisation follows or is likely to follow.of this complexity a view of the main or overall environmental impacts for the purpose of strategic choice. its financial structure. In this sense. and its products. However. in what respects and. such analysis must take place with the future in mind. The environmental and resource influences on an organisation will be interpreted through these beliefs and assumptions. (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. But. 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. It may be that the adjustment that is required is marginal. though less explicit. the aim is to form a view of the internal influences -. These strengths and weaknesses may be identified by considering the resource areas of a business such as its physical plant. 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. Again. This aspect of strategic management can be conceived of as having three parts. At a given time a company might face a decision about the extent to which it has to become a multinational firm. a consideration of the environment. the resources. 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. perhaps working in different divisions of an organisation. or it may be that there is a need for a fundamental realignment of strategy. and second. or where it is at a competitive advantage or disadvantage. Together. so there are internal influences. Which influence prevails is likely to depend on which group has the greatest power. (a) Generation of strategic options There may be several possible courses of action. Is the current strategy capable of dealing with the changes taking place in the organisation‟s environment or not? If so. its management. However. the expectations. The extent to which there is a mismatch here is the extent of the strategic problem facing the strategist. (ii) Strategic Choice Strategic analysis provides a basis for strategic choice. to understand the strategic position an organisation is in. why not? It is unlikely that there will be a complete match between current strategy and the picture which emerges from the strategic analysis. may come to different conclusions about strategy. the strategy it does.and constraints -. for example). the international scope of the company's operations might bring up other choices: which areas . although they are faced with similar environmental and resource implications.

(iii) Strategy Implementation Strategy implementation is concerned with the translation of strategy into action. So in the end. and ultimately may very much reflect the power structure in the organisation. a second set of questions is important. while minimising or circumventing the threats the business faced? This is called the search for strategic fit or suitability of the strategy. In deciding any of the options a company might ask a series of questions. There is also likely to be a need to adapt the systems used to manage the organisation. (a) Planning and allocating resources Strategy implementation is likely to involve resource planning. (b) Evaluation of strategic options Strategic options can be examined in the context of the strategic analysis to assess their relative merits. It is important to understand that the selection process cannot always be viewed or understood as a purely objective. Even if these criteria could be met. which of these options built upon strengths. 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. 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. Implementation can be thought of as having several parts. A helpful step in strategic choice can be to generate strategic options. staff be recruited and trained to reflect the sort of image the company wants to project? These are questions of feasibility. There could be just one strategy chosen or several. in developing strategies.and the most obvious is not necessarily the best. It is strongly influenced by the values of managers and other groups with interest in the organisation. sufficient stock be made available at the right time and in the right place.of the world are now the most important to concentrate on. 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 unlikely to be a clear-cut „right‟ or „wrong‟ choice because any strategy must inevitably have some dangers or disadvantages. overcame weaknesses and took advantage of opportunities. choice is likely to be a matter of management judgement. and the . 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. First. However. To what extent could a chosen strategy be put into effect? Could the required finance be raised. logical act. including the logistics of implementation. a potential danger is that managers do not consider any but the most obvious course of action -.

and what they learn from operating in their markets. because the mission is meant to guide the entire organization. However. the organization's mission is defined in a formal. Here strategic management is seen not so much as a formal process. however. Rue. through the evaluation of different options. the danger is that readers might not find the elements described here existing in practice. Purpose The organization's purpose outlines why the organization exists. and elements of. A Summary of the Strategic Management Process The influences on. The management of the strategy of an organisation can also be thought of as a process of crafting. These mechanisms are likely to be concerned not only with organisational redesign. a broadly defined aim (such as manufacturing electronic equipment) that it may share with many other organizations of its type. Many organisations do have such systems. it would be a mistake to assume that the strategies of organisations necessarily come about through them.mechanisms they use for it. It was stated earlier that there is a danger of thinking of the process of strategic management as an orderly sequence of steps. and find that they contribute usefully to the development of the strategy of their organisations. was that strategy was. not all organisations have them. common in books of the 1960s and 1970s. Often. and overcoming political blockages to change. but as a framework which readers can use to think through strategic problems. but this may not be taking place in a highly formalised way. written mission statement. their sensitivity to changes in their environments. Decisions on mission are the most important strategic decisions. like many other subjects. James. has developed terminology to identify important concepts. in the form of a neat sequence of steps building on objective setting and analysis. but with changing day-to-day routines and cultural aspects of the organisation. 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. managed through planning processes. The traditional view of strategic management. or should be. Byars) The purpose of an organization is its primary role in society. but rather as a process by which strategies develop in organisations on the basis of managers‟ experience. or the choices it faces. and might therefore argue that strategic management in their organisation does not take place. Each of the following definitions is amplified and supplemented with additional examples in subsequent chapters. Stoner. it includes a description of its current and future business (Leslie W. and Charles Wankel) The organization's mission describes why the organization exists and guides what it should be doing. . and even when they do. It is not. and ending with the careful planning of the strategy implementation. Mission The mission of an organization is the unique reason for its existence that sets it apart from all others (A. F. This does not mean that managers are not thinking about the strategic position of their organisation. strategic management discussed above are summarised in the figure above. Key Terms In Strategic Management Strategic management. Although the terms "purpose" and "mission" are often used interchangeably. an attempt to describe how the processes of strategic management necessarily take place in the political and cultural arenas of an organisation. and Loyd L. The figure is intended not as a prescription of what strategic management should be. to distinguish between them may help in understanding organizational goals.

and Lawrence R. comprehensive. procedures. In this view. the people responsible for major strategic . However. policies become important management tools for implementing them. and budgets established to support efforts to achieve stated objectives. "Policies are guide to action. But there is another sense in which the term policy is used that differentiates it from strategy. both over the long and short term. and from tactics as well. Organizational objectives are the end points of an organization's mission. Jauch) Objective define what it is the organization hopes to accomplish. and Lawrence R." if one wished to take up broader range of organizations. Therefore. Policy In years past it was common practice to title courses and books in the strategic management areas as "Business policy. They include how resources are to be allocated and how tasks assigned to the organization might be accomplished . "A strategy is a unified. Glueck. Strategy Strategies are the means by which long-term objectives will be achieved. rules.. In one sense. In this paper the terms "goals" and "objectives" are used interchangeably. Several levels of management may be involved in strategic decision making. and Lawrence R.Goals A goal is a desired future state that the organization attempts to realize (Amitai Etzioni). Glueck. It is designed to ensure that the basic objectives of the enterprise are achieved through proper execution by the organization" (William F. programs. Tactics In contrast. Therefore. what has happened is that word strategy has replaced policy. their terminology is retained. The role of strategy is to identify the general approaches that the organization utilize to achieve its organizational objectives. Jauch). (William F. where other works are being referred to and those authors have used the term goal as opposed to objective. policies are the means by which objectives will be achieved. Strategists are the individuals who are involved in the strategic management process. Jauch " Policies include guidelines. Glueck. the choice of strategy is so central to the study and understanding of strategic management. Specifically.. Strategists The final key term to be highlighted here is "strategists". Objectives refer to the specific kinds of results the organizations seek to achieve through its existence and operations (William F. Objectives The term objective is often used interchangeably with goal but usually refers to specific targets for which measurable results can be obtained. tactics are specifics actions the organization might undertake in carrying its strategy. and integrated plan that relates the strategic advantages of the firm to the challenges of the environment.

track the results through deadlines met (or not met). Set deadlines for the mini-goals. these steps can be shortened or expanded. president.and short-term goals should be developed with the intention of meeting these objectives. if not impossible.decisions are the board of director. This is the foundation of your strategic management plan. Are your goals and objectives realistic? Is your plan working? Post-project evaluation is also helpful when planning and strategizing for future projects. The strategic management process has four basic steps or elements. to keep employees on track. Without planning. your objectives will change to match up with new goals. Both long. accomplishing both large and small business goals is difficult. Identifying Goals o Using the objectives outlined in your mission statement. and the division managers. Depending on the individual situation and goals of your organization. Mission statements that are too broad or too limiting will limit the company's ability to set effective goals and grow. The external Environment . Four Basic Elements of Strategic Management 1. As goals are met. 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. the next step is to identify the goals of your business. so include specific objectives in your mission statement to prevent this. Evaluating and Tracking Results o Once the process of meeting goals and objective begins. and assign these accordingly. making sure that everyone is aware of the part he plays in the plan. Vision o The vision or mission statement of your business or organization helps to define your purpose and your goals. goal setting and other steps in the strategic management process. Identify individual steps and mini-goals and objectives within the larger goals and objectives. as well as a deadline for each goal and objective. the chief operating officer. o Effective strategic management is essential in the business world. the chief executive officer.

Porter´s Five Forces model will help you analyse all stakeholders and your company position in terms of the competition. Some examples include:      tax policy employment laws environmental regulations trade restrictions and tariffs political stability . Strategic groups are another. \ Microenvironment \ Internal Analysis Political Factors Political factors include government regulations and legal issues and define both formal and informal rules under which the firm must operate. 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.Introduction The external environment is a crucial factor that determines to a great extent the success of your company.S.T. A PEST analysis fits into an overall environmental scan as shown in the following diagram: Environmental Scan / External Analysis / Macroenvironment | P.E. You have to fulfil customer expectations. more detailed way to observe your company´s position with regards to market competition. 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.

advancements.Economic Factors Economic factors affect the purchasing power of potential customers and the firm's cost of capital. After the initial round. to deal with a complex problem. It aims at broad exploration of all major trends. and also science. It uses the iterative. reduce minimum efficient production levels. Techniques for environmental Scanning Environmental scanning is usually used at the start of a futures project. It was developed by Gordon and H elmer in 1953 atRA ND. These factors affect customer needs and the size of potential markets. as a whole. so that the process is effective in allowing a group of individuals. Internet. events and ideas across a wide range of activities. It can be defined as a method for structuring a group communication process. conferences. probability. television.fiction books. independent questioning of a panel of experts to assess the timing. Panelists are not brought together but individually questioned in rounds. reports. issues. Delphi method The Delphi method is a very popular technique used in Futures Studies. magazines. Information is collected from many different sources. trends and events in the relation to the problem being considered. significance and implications of factors. Various tools and methodologies are used by large corporations to systematically scope their external environment. 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. and influence outsourcing decisions. the panelists are given lists of anonymous answers from other panelists which they can use to refine their own views. 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. 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. such as newspapers. .

Scenario planning Scenarios are one of the most popular and persuasive methods used in the Futures Studies. in which the focus is placed on one possible future. The main purpose of simulation is to discern what would really happen in the real world if certain conditions. which can change the projected pattern. making people aware of uncertainties and opening up their imagination and initiating learning processes. It can be defined as a rich and detailed portrait of a plausible future world. One of the key strengths of the scenario process is its influence on the way of thinking of its participants. Short term forecasting seems quite simple. Cross-impact analysis provides an analytical approach to the probabilities of an element in a forecast set. A mindset. 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. 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. developed. mainly based on statistical data. challenges and opportunities that such an environment would present. most events and trends are interdependent in some ways. This form of simple trend extrapolation helps to direct attention towards the forces. In simulation some aspects of reality are duplicated or reproduced. It aims to observe and register the past performance of a certain factor and project it into the future. corporate strategists and military analysts use them in order to aid decision-making. They are widely used to analyse behaviours and to understand processes. institutional. It involves analysis of two groups of trends: quantitative. it becomes more complex when the trend is extrapolated further into the future. Simulation and modeling Simulation and modeling are computer-based tools developed to represent reality. They assist in selection of strategies. Models allow demonstration of past changes as well as the examination of various transformations and their impact on each other and other considered factors. A scenario is not a specific forecast of the future. usually within the model. one sufficiently vivid that a planner can clearly see and comprehend the problems. Government planners. so that a simple curve can be established. and qualitative. and it helps to assess probabilities in view of judgments about potential interactions between those elements. is altered towards the balanced thinking about a number of possible alternative futures. They can help to understand the connections between factors and events and to examine their dynamics. As it is well known. these are at large concerned with social. organizational and political patterns. Trend analysis Trend analysis is one of the most often used methods in forecasting. but a plausible description of what might happen. In the quantitative trend analysis data is plotted along a time axis. identification of possible futures. imitated by the model. Simulation is a process that represents a structure and change of a system. Environmental Scanning Techniques . Scenarios are like stories built around carefully constructed plots based on trends and events. as the number of dynamic forces that can change direction of the trend increases.

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 . 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.Porter’s Model. economic. 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.competitive environment.PEST analysis ETOP analysis Industry Analysis. Strategic groups Internal SCANNING: Organisational Capabalitiy analysis. TOWS matrix. expectation.SWOT. Values) Resources (Assets. Value Chain analysis Organisation Structure Culture (Belief.ENVIRONMENTAL SCANNING : ENVIRONMENTAL SCANNING External: Societal. skills. Technological. regulatory. competencies.

The development of a company profile in four-step process: * In step 1. Research and development capability. Marketing capability. In assessing its internal environment. 7. 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. Internal analysis is difficult and challenging. or company profile.linked to key industry or product/market conditions . which is the determination of a firm's strategic competencies and weaknesses. Closely allied with an organization's product position is its marketing capabilities (i. seeking to target key areas for further assessment. managers audit and examine key aspects of the business's operation. 2. Some of the areas that most businesses should analyze include the following: 1. This explains internal analysis as a process. Condition of facilities and equipment. Organizational structure can either help or hinder an organization in achieving its objectives. The checklists provided above can be helpful in determining specific strengths and weaknesses in the functional areas of business. Past objectives and strategies. the strategic decision makers must also analyze conditions internal to the organization. as input into the strategic management process. * Step 2 has managers evaluating the firm's status on these factors by comparing their current condition with past abilities of the firm. An internal analysis leads to a realistic company profile. efforts to distinguish each step are seldom emphasized because the process is very interactive.e. What Is an Internal Company Analysis? By Isobel Washington. 3. 6. eHow Contributor . 8. Product position. For a business to be successful.against which to more accurately determine whether the company's condition on a particular factor represents a potential strength or weakness. Every organization must be concerned about its ability to develop new products. Financial position. * In step 3. it must be acutely aware of its product position in the marketplace. The condition of an organization's facilities and equipment can either enhance or hinder its competitiveness. but in practice. every business should attempt to explicitly describe its past objectives and strategies. Human resources. The financial position of a business plays a crucial role in determining what it can or cannot do in the future.In formulating a strategy. its ability to deliver the right product at the right time at the right price). All the activities of an organization are significantly influenced by the quality and quantity of its human resources. managers seek some comparative basis .. 4. Organizational structure. 5. * The final step in internal analysis is to provide the results.

Source and Content o This analysis is for internal management use only (not for shareholders). Customer Relationship Management o Customer relationship management (CRM) has become a key business attribute since the infancy of the Information Age. 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. Determining the business's strengths and weaknesses translates into the steps necessary for achieving goals. which is what sets the company's products or services apart from the competition. opportunities. among others. Competitive Advantage o Business success is often contingent on a company's competitive advantage. or some brand attribute that distinguishes the company from its competitors. Purpose o The ultimate purpose of an internal analysis is to use the information for strategic planning.An internal company analysis is a business term strongly associated with a "SWOT" (strengths. For the internal analysis. An internal company analysis is an evaluation of a company's current position from the combined perspectives of marketing. product development and technological innovation. and marketing. success. based on data provided by these departments. weaknesses. and is comprised of assessments made by heads of finance. and leadership in the marketplace. customer relationship management. meaning the company's plan for furthering growth. Competitive advantage could be in price. CRM weighs heavily as an aspect of internal analysis. These strengths are the business muscles that keep the company in the game with competition. or financial position and pricing. operations. threats) analysis. . and is important to the internal analysis. and finance for strategic use. Core Competencies o Core competencies are a company's strengths within their market. 1. The strengths could be of any or all of the following: products and services offered. operations. which could range from product pricing to human resource issues. as in how the company is positioned relative to competing companies and alternative products. since the multiplication and accessibility of communication channels has allowed businesses to better understand and serve their customers. benefits offered. Weaknesses o Effective strategic management requires the identification of weaknesses.

d) Using different methods. It might cover all other stakeholders such as trade union. e) Analyzing environmental factors and forecasting. internal structure. Forecasting is to find the future possibilities based on the past results and present scenario. and culture of the organization. auditing them to find their impact to the business. It is to focus on the most relevant information. one should first know what the internal areas of the business are. Therefore. All these areas can be covered into the five functional areas in classical approach. c) Defining variables for analysis. tools. and making various profiles for positioning. a general process with few common steps can be identified as the process of environmental analysis these are a) Monitoring or identifying environmental factors. Furthermore. A common process of environmental analysis or scanning is discussed in the following section. This includes all the systems. general such business environment factors as political-legal. and g) Strategic positioning and writing a report. a business daily interacts with the close environmental components outside the business such as customer. and techniques for analysis. and technological factors are to be identified . and supplier. b) Scanning and selecting the relevant factors and grouping them. Monitoring is to check the nature of the environmental factors. In this process. analyzing. Identifying environmental factors First of all a strategist should identify all the relevant factors that might affect his or her business. media. and pressure group. and forecasting the business situation. monitoring. competitor.Business Environment Analysis Background Environmental analysis is a systematic process that starts from identification of environmental factors. However. assessing their nature and impact. Scanning is to get the relevant information from the information overload. Similarly. strategies followed. economic. this process consists not only a single steps but a process of various steps. It may differ depending on the situation. Brief discussion is made on each of the step of this environmental analysis process. sociocultural. Environmental Analysis Process A business manager should be able to analyze the environment to grasp opportunities or face the threats. Environmental analysis comprises scanning. f) Designing profiles. Organizations need to build strength and repair their weakness available in the business environment. Analyzing requires data collection and use of different required tools and techniques. Environmental analysis process is not static but a dynamic process.

productivity. correlation. and Economic policies that can be further classified into many other variables. frequency. Benchmarking.. grouped. There are many tools of analyzing functional areas. training. breakdown. a strategist should focus only on the relevant factors for further analysis. Production area is assessed using quality control. and multiple regression analysis.. Finance and accounting use mostly profitability. Some of the major methods of analysis can be Scenario Building. Delphi technique collects independent information from the experts without mixing them. Using Different Methods. . and many others. For example. and Tools Different types of methods. regression. a strategist has to scan the environmental trend to select only the most affecting environmental factors from the information overload. Variables can be compared. fund flow and other similar accounting and financial tools for analysis. and techniques are used for analysis. Brainstorming is information collection technique being open minded without criticizing others. factor. tools. Tools can be inferential as ANOVA. Brainstorming. All the factors are not equally important and affecting to the business. 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. Techniques. mode. It is. Analysis tools can be statistical such general descriptive tools as mean. and Network methods. Network method is to assess organizational systems and its outside environment to find the strength and weakness. satisfaction and many others as the basis of evaluating strength and weakness. Some of the techniques of primary information collection can be Delphi. Economic environment might cover many variables such as Per Capita. reliability. therefore. In this context. leverage. GDP. Variables are the basis of measurement in environmental analysis process. Similarly. and Historical enquiry. opportunity and threats of an organization. median.Scanning and selecting relevant and key factors Out of all the business environmental factors. This step paves the way of environment analysis and forecasting. necessary to define the variables first in any kind of analysis including the environmental analysis. Benchmarking is to find the best standard in an industry and to compare the one's strengths and weakness with the standard. Human resources use employee turnover. marketing effectiveness is judged from the sales . cluster. Survey. A concept can be interpreted into different variables. Scenario presents overall picture of its total system with affecting factors. political situation can be measured using few variables such as instability. Defining Variables for Analysis Selected environmental factors are to be further specified into the variables. and long-term effect. correlated. and predicted to find the clearer picture of the broader concept.

There are varieties of reporting formats or profiles used for external and internal business environment analysis. 2003 see Jauch. Research and development is perceived successful if it can really develop the strength in an organization. David used External Factor Evaluation (EFE) Matrix to present weighted score of external environmental factors. Preparing ETOP Environmental threat and opportunity profile is referred as ETOP profile. Strategic advantages profile (SAP) is related to internal business environment. or neutral indicators including their statement in the right side. (See: annex.. it is necessary to identify their nature.. a comprehensive process that analyzes collected information using different tools and techniques. Johnson & Scholas.). Analyzing the past information to predict the future is the main objective of this step.. Designing Profiles After analyzing the environmental factors they are recorded into the profiles. Present writing pursued the approach of reporting external and internal business environment using the same approach.. Whellen & Hunger used External Factors Analysis Summary (EFAS) and Internal Factors Analysis Summary (IFAS) that are presented in annex. use of different methods. he used Internal Factor Evaluation (IFE) Matrix to make the reporting of internal environmental audit. . and Glueck. Strength. Nowadays. Environmental threats and opportunities profile (ETOP) is a commonly used profile related to external business environment. and Glueck. As discussed earlier. Internal areas are recorded in Strategic Advantages Profile (SAP) and external areas are recorded in Environmental Threat and Opportunity Profile (ETOP).. 2003.. Thereafter. and Threat (SWOT) profile can be designed combining both of these two profiles into one.. Such profiles record each component or variables into left side and their positive. It is. 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.). 2003 . techniques. negative.. strength & weakness and opportunities & threats (SWOT) profile has become very popular.. It identifies the relevant environmental factors. Such factors might be general environmental factors and task environment factors. therefore.. Similarly. Opportunity. Some factors are positive to the organization whereas 1 2 see Jauch. Both of these profiles2can be merged into StrengthWeakness-Opportunity-Threat (SWOT) profile.volume and market coverage. Gupta. Weakness. (See: annex-. and tools comes under the analysis process. Gupta. Forecasting Environmental Factors Collecting relevant information from the selected areas and to identify the variables in such areas are the basics of analysis.

industry level business environment. Some Approaches of Specific Environmental Scanning In this section. Preparing SAP Strategic advantage profile is known as SAP. a strategist or a manager first identifies the relevant environmental factors then analyzes using different tools and techniques to find out the actual situation. Gap analysis . Therefore. The report might present issues and best strengths of business environment in a systematic process.others are negative. environmental scanning. This process is very important for a manager to make his or her organization success by choosing the best available alternative strategy. One can draw future strategies based on the strategic analysis followed. All these above described profiles provide a clear picture to understand the strategic position of an organization. After preparing the profiles strategists prepare formal report that describes the business environment. Each functional area is very broad having many components inside. Positive. environmental analysis. it is necessary to find out their impact to the organization. neutral. positive. and internal business environment. Finance or Accounting. and negative sign in ETOP denotes the relevant impact of environmental factors. 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. There are generally five functional areas in most of the organizations. and negative signs are denoted and brief description is written in SAP profile. neutral. Very similar to the ETOP. These functional areas are listed to identify their relative strength and weakness in SAP. This overall process is sometimes known as SWOT analysis. The sectors of business environment are external business environment. Human Resource & Corporate Planning. tools. Preparation of SAP is very similar process to the ETOP. and techniques that are commonly used to analyze the sector wise business environment. or monitoring-forecasting. Marketing or Distribution. It shows strength and weakness of an organization. a brief discussion is made on the potential approaches. In conclusion. These areas are Production or Operation. and Research & Development.

money and human resources required to achieve a particular outcome (e. in different perspectives. 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 gap analysis process involves determining. At some point a gap will have emerged between what the existing products offer the consumer and what the consumer demands. to turn the salary payment process from paper-based to paperless with the use of a system).g. human resources) Business direction Business processes Information technology Gap analysis provides a foundation for measuring investment of time. Gap analysis is a formal study of what a business is doing currently and where it wants to go in the future. then it may be producing or performing at a level below its potential. as follows: 1. Organization (e. 'GAP' can be used as a ranking of 'Good'. Once the general expectation of performance in the industry is understood. This comparison becomes the gap analysis. or the need will have emerged from the regular process of following trends in the requirements of consumers.In business and economics. it is possible to compare that expectation with the company's current level of performance. gap analysis is a tool that helps a company to compare its actual performance with its potential performance. 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. the technique of gap analysis can be used.. This concept is similar to the base case of being below one's production possibilities frontier. documenting and approving the variance between business requirements and current capabilities. In this case. 4. To identify a gap in the market. The need for new products or additions to existing lines may have emerged from portfolio analyses. The planning gap may be divided into three main elements: . 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. in particular from the use of the Boston Consulting Group Growth-share matrix. Gap analysis naturally flows from benchmarking and other assessments. 3. It can be conducted. 2. This helps provide the company with insight into areas which could be improved.g. 'Average' or 'Poor'. That gap has to be filled if the organization is to survive and grow. Such analysis can be performed at the strategic or operational level of an organization. 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.

be limitations on the number of consumers. if not most marketers. as the boundary for their expansion plans. will usually be determined from market research figures. accept the existing market size. it may sometimes impose an unnecessary limitation on their horizons. to consider what lies behind such usage Existing usage The existing usage by consumers makes up the total current market. however. but it may sometimes be calculated from demographic data or government statistics. It was only after some time that the technology was extended to the mass market. however. for example. most accurately from panel research such as that undertaken by the Nielsen Company but also from ad hoc work. will probably be more important to the relevant government department than opening more local offices. are calculated. suitably projected over the timescales of their forecasts. Many. For guidance one can look to the numbers using similar products. It is usually derived from marketing research. Alternatively. for example. these are often based on categories which may make sense in bureaucratic terms but are less helpful in marketing terms. of course. from which market shares. Although this is often the most realistic assumption. the usage gap will probably be the most important factor in the development of the activities. at least the maximum attainable average usage (there will always be a spread of usage across a range of customers). The original market for video-recorders was limited to the professional users who could afford the high prices involved.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. .[citation needed] The increased affluence of all the major Western economies means that such a lag can now be much shorter. But persuading more consumers to take up family benefits. 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. Sometimes it may be available from figures collected by government departments or industry bodies. In the public sector. one can look to what has happened in other countries. It is important. Ultimately there will. The 'usage gap' is thus: usage gap = market potential – existing usage This is an important calculation to make. where the service providers usually enjoy a monopoly.

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. but the trade-off.The usage gap is most important for the brand leaders. The product gap is probably the main element of the planning gap in which the organization can have a productive input. the organization has not thought about its positioning. is that some parts of the market may effectively be put beyond reach. Many marketers would question the worth of the theoretical gap analysis described earlier. On the other hand. Environmental factors internal to the firm usually can be classified as strengths (S) or weaknesses (W). 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". hence the emphasis on the importance of correct positioning. and has simply let its offerings drift to where they now are. gaps in the product range are looked for. relate to competitive activity. This may have come about because the market has been segmented and the organization does not have offerings in some segments. represents that part of the market from which the individual organization is excluded because of product or service characteristics. or it may be because the positioning of its offering effectively excludes it from certain groups of potential consumers. Product gap The product gap. The same option is not generally open to the minor players. to be set against the improved focus. These gaps will. regardless of where the current products stand. This difference is the share held by competitors. which could also be described as the segment or positioning gap. SWOT Analysis A scan of the internal and external environment is an important part of the strategic planning process. Instead. they would immediately start proactively to pursue a search for a competitive advantage. say in excess of 30 per cent. although they may still be able to target profitably specific offerings as market extensions. and those external to the firm can be classified as . This segmentation may well be the result of deliberate policy. it may become worthwhile for the firm to invest in expanding the total market. Segmentation and positioning are very powerful marketing techniques. therefore. which the company could profitably address. because there are competitive offerings much better placed in relation to these groups. and using the multidimensional "mapping"). Market gap analysis In the type of analysis described above. it may frequently be by default. If any of these has a significant share of the whole market.

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. For example. 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. Such an analysis of the strategic environment is referred to as a SWOT analysis.opportunities (O) or threats (T). 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. each of the following may be considered weaknesses:   lack of patent protection a weak brand name .

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. it may have a better chance at developing a competitive advantage by identifying a fit between the firm's strengths and upcoming opportunities. To develop strategies that take into account the SWOT profile. 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. 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. In some cases. Opportunities The external environmental analysis may reveal certain new opportunities for profit and growth. a matrix of these factors can be constructed.    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. Take the case in which a firm has a large amount of manufacturing capacity. the firm can overcome a weakness in order to prepare itself to pursue a compelling opportunity. The SWOT matrix (also known as a TOWS Matrix) is shown below: . a weakness may be the flip side of a strength. Rather. While this capacity may be considered a strength that competitors do not share.

W-T strategies establish a defensive plan to prevent the firm's weaknesses from making it highly susceptible to external threats. or assessing strategic alternatives (IE matrix). SPACE ANALYSIS SPACE Matrix Strategic Management Method The SPACE matrix is a management tool used to analyze a company. S-T strategies identify ways that the firm can use its strengths to reduce its vulnerability to external threats. take a look at the picture below. BCG matrix model. it is best to reverse-engineer it. such as the SWOT analysis. 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. What is the SPACE matrix strategic management method? To explain how the SPACE matrix works. The SPACE matrix can be used as a basis for other analyses. industry analysis. First. W-O strategies overcome weaknesses to pursue opportunities. let's take a look at what the outcome of a SPACE matrix analysis can be. It is used to determine what type of a strategy a company should undertake.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. 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 .

These factors analyze a business internal strategic position. and so on. Competitive advantage factors include for example the speed of innovation by the company. working capital. leverage. product quality. It needs to use its internal strengths to develop a market penetration and market development strategy. This can include product development. customer loyalty. These SPACE matrix factors can include for example return on investment. Competitive This is what a completed SPACE matrix looks like: This particular SPACE matrix tells us that our company should pursue an aggressive strategy. liquidity. product life cycle. Our company has a strong competitive position it the market with rapid growth. . 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. integration with other companies. 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. acquisition of competitors. Now. turnover. market niche position. and others. and others. market share. cash flow. The financial strength factors often come from company accounting.

price elasticity. This will be your final point on axis X on the SPACE matrix. the CA and IS values in the SPACE matrix are plotted on the X axis. industry growth potential. 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. technology. The following are a few model technical assumptions: . and financial strength (FS). .FS values range from +1 to +6.Every business is also affected by the environment in which it operates. .CA values can range from -1 to -6.IS values can take +1 to +6. and financial strength (FS). . . The SPACE matrix calculates the importance of each of these dimensions and places them on a Cartesian graph with X and Y coordinates. competitive pressures. Rate competitive advantage (CA) and environmental stability (ES) using rating scale from -6 (worst) to -1 (best). and others. . Step 5: Add the average score for the competitive advantage (CA) and industry strength (IS) dimensions. Step 3: Find the average scores for competitive advantage (CA). 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). The Y axis is based on the environmental stability (ES) and financial strength (FS) dimensions. industry strength (IS).By definition. 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. industry strength (IS). GDP growth. inflation. environmental stability (ES). These factors can be well analyzed using the Michael Porter's Five Forces model. Step 4: Plot values from step 3 for each dimension on the SPACE matrix on the appropriate axis. . SPACE matrix factors related to business external strategic dimension are for example overall economic condition. Step 2: Rate individual factors using rating system specific to each dimension. environmental stability (ES).ES values can be between -1 and -6. Rate industry strength (IS) and financial strength (FS) using rating scale from +1 (worst) to +6 (best). barriers to entry.The FS and ES dimensions of the model are plotted on the Y axis.

This line reveals the type of strategy the company should pursue. Each factor within each strategic dimension is rated using appropriate rating scale.Step 7: Find intersection of your X and Y points. and relative market share serves as a proxy for competitive advantage. Market growth serves as a proxy for industry attractiveness. The growth-share matrix thus maps the business unit positions within these two important determinants of profitability. hence the name "growth-share". Adding individual strategic dimension averages provides values that are plotted on the axis X and Y. . Then averages are calculated. 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. Draw a line from the center of the SPACE matrix to your point. 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. SPACE matrix example The following table shows what values were used to create the SPACE matrix displayed above.

Question marks must be analyzed carefully in order to determine whether they are worth the investment required to grow market share.Question marks are growing rapidly and thus consume large amounts of cash. therefore the cash in each direction approximately nets out.BCG Growth-Share Matrix This framework assumes that an increase in relative market share will result in an increase in the generation of cash. Such businesses are candidates for divestiture.Stars generate large amounts of cash because of their strong relative market share. dogs are cash traps because of the money tied up in a business that has little potential. This assumption often is true because of the experience curve. By investing to become the market share leader in a rapidly growing market. then after perhaps years of cash consumption it will degenerate into a dog when the market growth declines. thus developing a cost advantage. Question marks . the business unit could move along the experience curve and develop a cost advantage. increased relative market share implies that the firm is moving forward on the experience curve relative to its competitors. A question mark (also known as a "problem child") has the potential to gain market share and become a star.Dogs have low market share and a low growth rate and thus neither generate nor consume a large amount of cash. Thus the position of a business on the growth-share matrix provides an indication of its cash generation and its cash consumption. the BCG Growth-Share Matrix was born. but also consume large amounts of cash because of their high growth rate. A second assumption is that a growing market requires investment in assets to increase capacity and therefore results in the consumption of cash. and eventually a cash cow when the market growth slows. However. If the question mark does not succeed in becoming the market leader. Stars . If a star can maintain its large market . The four categories are:    Dogs . but because they have low market shares they do not generate much cash. 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. From this reasoning. The result is a large net cash comsumption.

In such a case. McKinsey & Company developed a nine-cell portfolio matrix as a tool for screening GE's large portfolio of . While originally developed as a model for resource allocation among the various business units in a corporation. 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. Its simplicity is its strength . but have very low market share in the overall industry.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. to service the corporate debt. Cash cows . The portfolio of a diversified company always should have stars that will become the next cash cows and ensure future cash generation. the growth-share matrix also can be used for resource allocation among products within a single business unit. as an industry matures and its growth rate declines. a business unit will become either a cash cow or a dog. but has since faded from popularity as more comprehensive models have been developed. Under the growth-share matrix model. a business unit that is a "dog" may be helping other business units gain a competitive advantage. its value can be determined with reasonable accuracy by calculating the present value of its cash stream using a discounted cash flow analysis. cash cows exhibit a return on assets that is greater than the market growth rate. Because the cash cow generates a relatively stable cash flow. Cash cows provide the cash required to turn question marks into market leaders. Some of its weaknesses are:    Market growth rate is only one factor in industry attractiveness. While its importance has diminished. it will become a cash cow when the market growth rate declines. determined soley by whether it had become the market leader during the period of high growth. to cover the administrative costs of the company. extracting the profits and investing as little cash as possible. the definition of the market can make the difference between a dog and a cash cow. and may serve as a starting point for discussing resource allocation among strategic business units. the BCG matrix still can serve as a simple tool for viewing a corporation's business portfolio at a glance.As leaders in a mature market. Such business units should be "milked". The matrix depends heavily upon the breadth of the definition of the market. share. and to pay dividends to shareholders. The framework assumes that each business unit is independent of the others. GE / McKinsey Matrix In consulting engagements with General Electric in the 1970's. and thus generate more cash than they consume. In some cases. A business unit may dominate its small niche. to fund research and development.

and multiplying that value by a weighting factor.strategic business units (SBU). which is determined by factors such as the following: . 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. 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. 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. determining the value of each parameter in the criteria. The GE matrix has nine cells vs. four cells in the BCG matrix. The GE matrix however. Industry attractiveness and business unit strength are calculated by first identifying criteria for each.

. 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.       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. Plotting the Information Each business unit can be portrayed as a circle plotted on the matrix. + factor valueN x factor weightingN Business Unit Strength The horizontal axis of the GE / McKinsey matrix is the strength of the business unit. as done for industry attractiveness. . The industry attractiveness then is calculated as follows: Industry attractiveness = factor value1 x factor weighting1 + factor value2 x factor weighting2 . with the information conveyed as follows: .

and weak business units in average industries. average business units in unattractive industries. 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. whereas it might perform a phased harvest of an average business unit in the same industry. Harvest weak business units in unattractive industries. Strategic Implications Resource allocation recommendations can be made to grow. Rather than serving as the primary tool for resource allocation. within the harvest group the firm would be inclined to quickly divest itself of a weak business in an unattractive industry. For example. Hold average businesses in average industries. or harvest a strategic business unit based on its position on the matrix as follows:    Grow strong business units in attractive industries. portfolio matrices are better suited to displaying a quick synopsis of the strategic business units. average business units in attractive industries. The tip of the arrow indicates the future position of the center point of the circle. There are strategy variations within these three groups. and weak business in attractive industies.   Market size is represented by the size of the circle. and that the business unit is in an industry that is projected to become more attractive. The arrow in the upward left direction indicates that the business unit is projected to gain strength relative to competitors. The expected future position of the circle is portrayed by means of an arrow. 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. While the GE business screen represents an improvement over the more simple BCG growth-share matrix. hold. strong businesses in weak industries. Strategic Analysis and Choice . Market share is shown by using the circle as a pie chart. and strong business units in average industries.

At the time of performing strategic analysis and arriving at strategic choices. Strategic choice refers to the selection of the appropriate business strategy. 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. These two components are crucial links in the strategic management implementation procedure. Strategic analysis implies the examination of the present condition of a business and consequently developing an appropriate business strategy. Strategic analysis involves a number of steps. Different types of strategies include business unit strategy. 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 . a company would become more efficient to establish sustainability in competitive advantage and maximize firm valuation. If the appropriate strategy is chosen. operational strategy and others. 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. corporate strategy. 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. Strategic analysis carries higher importance with regards to conglomerates that offer a wide range of diversified products.Strategic analysis and choice are two important components of the implementation stage of the strategic management plan.

Where strategic intent fits It is where strategic intent can help a company – its strategic planners and as well as people. which broadly sets the future the company wishes to pursue. 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.Techniques Used in Strategic Analysis The following devices or techniques are used in the procedure of strategic analysis:         Five Forces Analysis PEST Analysis (Political. 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. where top management focuses attention to the ground to be covered in the next 400 meters. And since it provides an opportunity to explore new competitive possibilities. they do little else. Gary Hamel and C. 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. the strategic intent of the company is like running the marathon in short races of say 400 meters. 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 a sense of discovery and since it provides a goal for the company which people perceive as inherently worthwhile. so that people can direct their efforts and energies for the cause. it implies sense of destiny. Economic. And yet over a period of time they find that the company is just following the expected curve that the industry in general traverses. 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”. It clarifies the vision and tells everyone in the company about how it is going to realize its vision. Though companies craft Big Audacious Hairy Goal (BHAG) as their vision statement. Managements expect people to be enthused and encouraged by the vision statement that they have so meticulously crafted. It simply does not influence them or impact them in their day-to-day jobs. Social and Technological Analysis) Market segmentation Scenario planning Competitor analysis Directional policy matrix SWOT Analysis (Strength. Vision can be related to a marathon race where you do not know what the terrain will look like at mile 26. Weaknesses. it conveys sense of direction. To illustrate the point let us take an example of hypothetical company having a vision of becoming a “world class” company. In other words strategic intent of a company describes how a company is going to realize its vision. How a strategic intent can be developed to bring about more clarity to the vision statement. Strategic intent provides a particular point of view about the long term vision or aspiration of the company. Why vision remains only on board Companies have ambitious long term aspiration that we call vision. They “communicate” the vision by displaying it around every corner.K.

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 provides clarity Continuing with the example of vision of being a “world class” company. It is the intent of the strategies that company may evolve i. The key here is to build emotional energy into the strategic intent of the company. So. the strategic intent of “beat the competitors”. Strategic intent brings about focus Once the clarity of desirable future is obtained.e. 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 the strategic intent during initial period can be to “beat the competitors”. Strategic intent is worded in such a way that it arouses passion in the people – in our example – “make competition irrelevant”. 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. When carefully worded.. provides a strategic theme filled with emotion for the whole organization. So “beat the competitors” represents a particular point of view of the long term vision of being a “world class” company. the management and people can ponder on issues to focus. From our example. Strategic intent inspires the people Strategic intent creates meaning for the people. So initially. which captures the hearts of the people. strategic intent is the immediate point of view of a long term future that company would like to create. it creates spotlight for directing the strategy in a company. being “world class” may be interpreted as surpassing competitors on all competitive parameters that are important for the customers and the company.

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