Lesson 2: The Strategic-Management Model and SWOT Analysis

Topic: The Strategic-Management Model

Learning Outcomes: At the end of this module, you are expected to:

1. Distinguish the key components of strategic management;

2. Describe the strategic management model.

LEARNING CONTENT

Introduction:

The strategic management model identifies concepts of strategy and the elements necessary for
development of a strategy enabling the organization to satisfy its mission. Historically, a number of
frameworks and models have been advanced which propose different normative approaches to
strategy determination.

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Lesson Proper:

Levels of Strategy

The strategy can be broadly classified into three levels:

A. Corporate Strategy
- It describes a company’s overall direction in terms of its general attitude towards growth and the
management of its various business and product lines. The corporate strategy typically fits within the
three main categories:
 Stability Strategy
 Growth Strategy
 Retrenchment Strategy

1. Stability Strategy
Firm using stability strategy try to hold on to their current position in the product market. The firms
concentrate on the same products and in the same markets. The stability strategy is followed by those
firms which are satisfied with their present position. This strategy is suitable in a simple and stable
environment. A stability strategy is less risky as it offers safe business to the organization unless there are
major changes in the environment.

2. Growth Strategy
It is also called as expansion strategy, when a firm aims at substantial growth strategy. A growth strategy is
one that an enterprise pursues when it increases its level of objectives upward in significant increment,
much
higher than an exploration of its past achievement level. The most request increase indicating a growth
strategy is to raise the market share and/ or sales.

In order to achieve higher targets than before, a firm may enter into new markets, introduce new product
lines, serve additional market segments and so on. This strategy involves greater effort and risk as
compared to stability strategy.

B. Business Strategy
- It usually occurs at the strategic business unit level or product level. It emphasizes improvement of the
competitive position of a firm’s products or services in a specific industry or market segment served by
that business unit. There can be two types of business strategy- Competitive and Cooperative strategy
unit or firm may try to co-operate with another firm in production and marketing of goods or services by
forming alliances like Joint ventures.

C. Functional Strategy
- It relates to the functional areas such as production, marketing, finance, personnel, etc. The functional
strategy aims at achieving functional objectives which in turn would help to achieve business unit and
overall organizational objectives.

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7-S FRAMEWORK
It is essential for an organization to know whether the time is right for change. In this context, the 7-S
framework, developed by Mc.Kinsey Company, a well-known consulting firm in the United States, in the late
70’s, can be helpful. It can provide insight into an organization’s working and help in formulating plans for
improvement.

The main thrust of change is not connected only with the organizational structure. It has to be understood by
the complex relationship that exists between strategy, structure, system, style, staff, skill and super-ordinated
goal. This is called the 7-S of the organization.

The 7-S framework suggests that there are several factors that influence an organization’s ability to change.
The variables involved are interconnected. Hence significant changes cannot be achieved without making
changes in all the variables. The framework has no starting point or implied hierarchy. It is also difficult to
pinpoint which of the seven S’s could be the driving force of change in an organization at a particular point of
time.

1. Strategy
- (As discussed in the previous chapter)
2. Super Ordinate Goals
- The Super- ordinate goal is alike to the organization’s purpose. It is a set of values and aspirations
going beyond the formal statement of corporate objectives. They can be considered as fundamental
ideas around which a business is built. Hence, they represent the main values of the organizations.
They can also provide the broad notions of future direction.
3. Structure
- Design of organization structure is a critical task for the top management. It refers to the more durable
organizational arrangements and relationships and forms the skeleton of the edifice of organizations. It
prescribes formal relationships, communication channels roles to perform and rules & procedures.

 Reduction of external uncertainty. Forecasting research and planning help in achieving this.
 Reduction in internal uncertainty due to variable, unpredictable, random human behavior. Control
mechanisms help in achieving this.

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  Coordination of the activities of the organizations to enable it to have a focus. Departmentalization,
specialization, division of labor and delegation of authority help in achieving this.
4. System
- System refers to the rules and procedures both formal and informal system complement the
organizational structure. They are similar to the term infrastructure. System include production,
planning and control systems, costing, capital budgeting, recruitment, training & development, planning
& budgeting and performance evaluation.
5. Style
- Top managers in organization use style to bring about change. The style of an organization becomes
evident through the patterns of actions taken by the top management over a period of time. These
decisions are also likely to influence the people in the lower levels of the organizations.
- Organizational reporting relationships convey the style. In some organizations, quality control may be
embedded in the manufacturing process, in some others, it may be a separate function under the Chief
Executive Officer. Some organizations may prefer R & D to be a part of the engineering. Study of the
style conveys the process of management, which is prevalent in the organization whether it is evolving
or still having traditional outlook.
6. Staff
- Proper staffing ensures human resource’s potential of a higher order, which can contribute to the
achievement of organizational goals. Staffing includes selections, placement, training and development
of appropriately qualified personnel.
- Staffing refers to the entire organization. The recruitment process may vary for different levels of
organization for different kind of jobs. It can start from appointing young recruits to the mainstream of
the organization’s activities & their career progression.
7. Skills
- Skill refers to crucial attributes or capabilities of an organization. They are used to describe that which
is found most in the organization. Eg. Hindustan lever is known for its marketing, TELCO for its
engineering skills, SONY for its new product development etc.
- Skills are developed over a period of time & are a result of the interactions of a number of factors, could
be personnel, top management, structure, system etc. Hence when a strategic decision is to be made,
it is necessary to build new skills. Skills in the 7-S framework can be considered as the distinctive
competence.

The Strategic-Management Model

The strategic management model identifies concepts of strategy and the elements necessary for
development of a strategy enabling the organization to satisfy its mission. Historically, a number of frameworks
and models have been advanced which propose different normative approaches to strategy determination.

Developing the strategic management model is important as it provides the basic framework for understanding
how strategic management can be operationalized at the firm level. Furthermore, the strategic management
model provides managers and strategists a greater comprehension of the iterative approach in conducting real
strategic management in the organizational setting.

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Benefits to a Firm That Does Strategic Planning

Financial Benefits
 Businesses using strategic-management concepts show significant improvement in sales, profitability,
and productivity compared to firms without systematic planning activities

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  High-performing firms seem to make more informed decisions with good anticipation of both short- and
long-term consequences
Nonfinancial Benefits
 It allows for identification, prioritization, and exploitation of opportunities.
 It provides an objective view of management problems.
 It represents a framework for improved coordination and control of activities.
 It minimizes the effects of adverse conditions and changes.
 It allows major decisions to better support established objectives.
 It allows more effective allocation of time and resources to identified opportunities.
 It allows fewer resources and less time to be devoted to correcting erroneous or ad hoc decisions.
 It creates a framework for internal communication among personnel.

Why Some Firms Do No Strategic Planning

 Lack of knowledge in strategic planning

 Poor reward structures
 Firefighting
 Waste of time
 Too expensive
 Laziness
 Content with success
 Fear of failure
 Overconfidence
 Prior bad experience
 Self-interest
 Fear of the unknown
 Honest difference of opinion
 Suspicion

Pitfalls in Strategic Planning

 Using strategic planning to gain control over decisions and resources
 Doing strategic planning only to satisfy accreditation or regulatory requirements
 Too hastily moving from mission development to strategy formulation
 Failing to communicate the plan to employees, who continue working in the dark
 Top managers making many intuitive decisions that conflict with the formal plan
 Top managers not actively supporting the strategic-planning process
 Failing to use plans as a standard for measuring performance
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  Delegating planning to a “planner” rather than involving all managers
 Failing to involve key employees in all phases of planning
 Failing to create a collaborative climate supportive of change

Guidelines for Effective Strategic Management

In the business world, as in many other places, decisions aren't made lightly. Rather, management spends a
long time considering the pros and cons of every choice. This lesson will teach you about one of the key ways
they do that, the SWOT analysis.

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Business Mission Statement

The foundation of any marketing plan is the firm's business mission statement. A mission statement explains
the purpose of why a company is in business and what they're trying to accomplish. A business statement can't
be created without analyzing the company and environmental conditions. A mission statement should be
focused on the market and environment, and not just on companies' products or services.

When a company focuses too closely on their products or services rather than benefits to consumers, then the
company is exhibiting marketing myopia. If a company writes a mission statement that says they're in the soda
business rather than in the beverage business, they are limiting their opportunities.

An example of an excellent business mission statement is Apple's. The mission statement is 'Apple is
committed to bringing the best personal computing experience to students, educators, creative professionals
and consumers around the world through its innovative hardware, software and Internet offerings.' This covers
a lot of ground, and as we know, allows Apple to delve into many areas of the market. Once a mission
statement has been created, then it is important to conduct a situational analysis on the overall business
environment in order to compete effectively.

Situational Analysis

Have you ever had to decide whether to take a risk? Maybe the risk was buying a brand new car? Choosing
your college? Most people make a list of the pros and cons to a choice before they make a final decision.
Businesses also have research and analyze choices before choosing a path.

Their decision-making process is called conducting a SWOT analysis, also known as a situational analysis.
SWOT stands for internal strengths, internal weaknesses, external opportunities and external threats. The
main purpose of the situational analysis is for marketers to understand the current and potential environments.

Internal Strengths and Weaknesses

The first part of the SWOT analysis is examining a company's internal strengths and weaknesses. In this step,
a marketing manager looks internally at the company's resources, such as finances, engineering, marketing,
employees and production, to see where they excel or need improvement. Marketing managers should not just
look at the current situation of the firm, but also look at past historical sales, profit and cost data.

When looking for a company's strengths, it's important to ask what you're best at and what you're known for.
Do you have a unique selling proposition? A USP, or unique selling proposition, is something that you're very
good at, but your competition is not. Disney would be an example of a company with great internal strengths in
the area of human resources and employee development. They are known for their excellent employee training
via Disney University.

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When looking for company weaknesses, a marketing manager asks what areas need improvement. What
could our competitors view as a weakness? What issues could cost us sales? They then attack those areas
and have a plan in place to protect and improve their situation.

If a company is realistic upfront, then they're less likely to fail down the road, or to be caught by a competitor. A
marketing manager needs to consider factors like poor location of the business, inexperienced marketing, poor
quality or poor reputation as a big weakness. Comcast constantly ends up voted with poor customer service,
and this would be a massive weakness in their industry.

External Opportunities and Threats

The second part of the SWOT analysis is examining the external

opportunities and threats. Marketing managers analyze the overall
marketing environment. They can accomplish this difficult task through the
use of environmental scanning, or the collection and interpretation of
environmental conditions, such as relationships, the economy, events,
demographics, social, political and technological changes. Scanning is done
in order to see what changes are happening in the marketplace that could
result in a positive opportunity or a negative threat.

For example, the fall of the housing market and inability for people to buy
homes has led to many companies shifting their products from expensive
redecorating and home improvement, to cheaper home fixer-upper items.
Marketers can consider new markets, mergers or even taking over an area
left by an ineffective competitor as excellent opportunities. Threats come in
the form of new competitors, pricing wars, new product innovation from a competitor or government
intervention in your industry, such as new or higher taxes.

SWOT Analysis

 Is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and
Threats involved in a project or in a business venture.
 It involves specifying the objective of the business venture or project and identifying the internal and
external factors that are favorable and unfavorable to achieving that objective.
 Provides information that is helpful in matching the firm’s resources and capabilities to the competitive
environment in which it operates.

A SWOT analysis must first start with defining a desired end state or objective. A SWOT analysis may be
incorporated into the strategic planning model. An example of a strategic planning technique that incorporates
an objective-driven SWOT analysis is Strategic Creative Analysis (SCAN). Strategic Planning, including SWOT
and SCAN analysis, has been the subject of much research.

 Strengths: attributes of the person or company that is helpful to achieving the objective. A firm’s
strengths are its resources and capabilities than can be used as a basis for developing a competitive
advantage. What do you do well? What are your advantages?
 Weaknesses: attributes of the person or company that is harmful to achieving the objective. What is
done badly? What could be improved? What should be avoided? Are your competitors doing better?
 Opportunities: external conditions that is helpful to achieving the objective. What are the interesting
trends? Where are the opportunities available to you?
 Threats: external conditions which could do damage to the objective. What obstacles to you face? How
are your competitors fairing? Could changes in technology threaten your position? Do you have bad
debt or cash-flow problem?

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Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of
the selected objective may be derived from the SWOTs. To develop strategies that take into account a SWOT
matrix can be constructed.

SWOT MATRIX
Strengths
Opportunities S-O Strategies (pursue opportunities that
are good fit to the company’s strengths)
Threats S-T Strategies (identify ways that the firm
can use its strengths to reduce its
vulnerability to external threats)
Weaknesses
W-O Strategies (Overcome weaknesses to
pursue opportunities)
W-T Strategies (Establish a defensive plan
to prevent the firm’s weaknesses from
making it highly susceptible to external
threat)

Matching and converting

Matching - is used to find competitive advantages by matching the strengths to opportunities.

Converting - is to apply conversion strategies to convert threats or weaknesses into strengths or opportunities.

An example of conversion strategy is to find new markets.

If the threats or weaknesses cannot be converted a company should try to minimize or avoid them.

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to
achieving the objective. These come from within the company's unique value chain. SWOT analysis groups
key pieces of information into two main categories:

 Internal factors – The strengths and weaknesses internal to the organization. The factors may
include all of the 4P's; as well as personnel, finance, manufacturing capabilities, and so on.
 External factors – The opportunities and threats presented by the external environment to the
organization. The external factors may include macroeconomic matters, technological change,
legislation, and socio-cultural changes, as well as changes in the marketplace or competitive
position. The results are often presented in the form of a matrix.

Use a PEST or PESTLE analysis to help identify factors. PEST analysis stands for "Political, Economic,
Social, and Technological analysis" and describes a framework of macro-environmental factors used in
the environmental scanning component of strategic management. PESTLE analysis stands for "Political,
Economic, Social, and Technological, Legal and Environmental analysis". STEEPLED analysis stands
for "Social, Technological, Economic, Environmental, Political, Legal and Ethics and Demographic
analysis. It is a part of the external analysis when conducting a strategic analysis or doing market
research, and gives an overview of the different macro environmental factors that the company has to
take into consideration. It is a useful strategic tool for understanding market growth or decline, business
position, potential and direction for operations.

Use of SWOT Analysis

The usefulness of SWOT analysis is not limited to profit-seeking organizations.

1. SWOT analysis is used in any decision-making situation when a desired end-state (objective) has been
defined
2. SWOT analysis is used in pre-crisis planning and preventive crisis management.
3. SWOT analysis is used in creating a recommendation during a viability study.
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Business SWOT Analysis

1. It can help you uncover opportunities that you are well placed to exploit.
2. And by understanding the weaknesses of your business, you can manage and eliminate threats that
would otherwise catch you unawares.
3. By looking at yourself and your competitors using the SWOT framework, you can start to craft a
strategy that helps you distinguish yourself from your competitors, so that you can compete
successfully in your market.

How to Use the Tool

Strengths: Figure out your strengths. Think about the questions from your point of view and from
others.

 What advantages does your company have?

 What do you do better than anyone else?
 What unique or lowest-cost resources do you have access to?
 What do people in your market see as your strengths?
 What factors mean that you "get the sale"?

In looking at your strengths, think about them in relation to your competitors - for example, if all your
competitors provide high quality products, then a high quality production process is not strength in the market,
it is a necessity.

Weaknesses: Determine your weaknesses. Deal with any negative answers as soon as you can. You
should think about these questions from your point of view and from others.

 What could you improve?

 What should you avoid?
 What are people in your market likely to see as weaknesses?
 What factors lose you sales?

Again, consider this from an internal and external basis: Do other people seem to perceive weaknesses that
you do not see? Are your competitors doing any better than you? It is best to be realistic now, and face any
unpleasant truths as soon as possible.

Opportunities: Recognize your opportunities. Helpful opportunities can come from things like lifestyle events
and variations in societal patterns. A good method for looking at opportunities is to evaluate your strengths and
weaknesses.

 What are the interesting trends you are aware of?

 What good openings do you have?

Useful opportunities can come from such things as:

 Changes in technology and markets on both a broad and narrow scale.

 Changes in government policy related to your field.
 Changes in social patterns, population profiles, lifestyle changes.
 Local events.

A useful approach for looking at opportunities is to look at your strengths and ask yourself whether these open
up any opportunities. Alternatively, look at your weaknesses and ask yourself whether you could create
opportunities by eliminating them.
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Threats: Discover your threats. Ask: Doing this will let you know what should be done to put things in
perspective.

 What obstacles do you face?

 What is your competition doing that you should be worried about?
 Are the required specifications for your job, products or services changing?
 Is changing technology threatening your position?
 Do you have bad debt or cash-flow problems?
 Could any of your weaknesses seriously threaten your business?

Examples:

Strengths:

 We can respond very quickly as we have no red tape, no need for higher management approval.
 We can give really good customer care, as the current small amount of work means we have plenty of
time to devote to customers.
 Our lead consultant has strong reputation within the market.
 We can change direction quickly if our approach isn't working.
 We have little overhead, so can offer good value to customers.
 Patents, strong brand names, good reputation among customers, cost advantages from proprietary
know-how, exclusive access to high grade natural resources, and favorable access to distribution
networks

Weaknesses:

 Our company has no market presence or reputation.

 We have a small staff with a shallow skills base in many areas.
 We are vulnerable to vital staff being sick, leaving.
 Our cash flow will be unreliable in the early stages.
 Lack of patent protection, a weak brand name, poor reputation among customers, high cost structure,
lack of access to the best natural resources, lack of access to key distribution channels.

Opportunities:

 Our business sector is expanding, with many future opportunities for success.
 Our local council wants to encourage local businesses with work where possible.
 Our competitors may be slow to adopt new technologies.
 An unfulfilled customer needs, arrival of new technologies, loosening of regulations, removal of
international trade barriers

Threats:

 Will developments in technology change this market beyond our ability to adapt?
 A small change in focus of a large competitor might wipe out any market position we achieve.
 Shifts in consumer tastes away from the firm’s products, emergence of substitute products, new
regulations, and increased trade barriers

Using SWOT to analyze the market position of a small management consultancy with specialism in HRM.

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 Strengths Weaknesses Opportunities Threats

Reputation in Shortage of consultants Well established position Large consultancies

marketplace at operating level rather with a well-defined operating at a minor level
than partner level market niche.

Expertise at partner Unable to deal with multi- Identified market for Other small consultancies
level in HRM disciplinary assignments consultancy in areas looking to invade the
consultancy because of size or lack of other than HRM marketplace
ability

Track record –
successful
assignments

SWOT analysis example

This SWOT analysis example is based on an imaginary situation. The scenario is based on a business-to-
business manufacturing company, who historically rely on distributors to take their products to the end user
market. The opportunity, and therefore the subject for the SWOT analysis, is for the manufacturer to create a
new company of its own to distribute its products direct to certain end-user sectors, which are not being
covered or developed by its normal distributors.

Subject of SWOT analysis example: the creation of own distributor company to access new end-user
sectors not currently being developed.
STRENGTHS
End-user sales control and direction.
Right products, quality and reliability.
Superior product performance vs competitors.
Better product life and durability.
Spare manufacturing capacity.
Some staff have experience of end-user sector.
Have customer lists.
Direct delivery capability.
Product innovations ongoing.
Can serve from existing sites.
Products have required accreditations.
Processes and IT should cope.
Management is committed and confident.
OPPORTUNITIES
Could develop new products.
Local competitors have poor products.
Profit margins will be good.
End-users respond to new ideas.
Could extend to overseas.
New specialist applications.
Can surprise competitors.
WEAKNESSES
Customer lists not tested.
Some gaps in range for certain sectors.
We would be a small player.
No direct marketing experience.
We cannot supply end-users abroad.
Need more sales people.
Limited budget.
No pilot or trial done yet.
Don't have a detailed plan yet.
Delivery-staff need training.
Customer service staff need training.
Processes and systems, etc
Management cover insufficient.
THREATS
Legislation could impact.
Environmental effects would favor larger competitors.
Existing core business distribution risk.
Market demand very seasonal.
Retention of key staff critical.
Could distract from core business.
Possible negative publicity.
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Support core business economies. Vulnerable to reactive attack by major
Could seek better supplier deals.

Key Points

SWOT Analysis is a simple but powerful framework for analyzing your company's Strengths and Weaknesses,
and the Opportunities and Threats you face. This helps you to focus on your strengths, minimize threats, and
take the greatest possible advantage of opportunities available to you.

*** END of LESSON 2***

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