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Chapter 1:
THE PURPOSE OF
STRATEGIC AND
BUSINESS ANALYSIS

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DEFINITION OF STRATEGY

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Strategy
 According to Peter Drucker, a strategy is a pattern of activities that
seek to achieve the objectives of the organization and adapt its scope,
resources and operations to environmental changes in the long term.
 Drucker recognized that any company‟s strategy had to incorporate
the answers to four questions.

1. What opportunities it wants to pursue and what risks it is willing and able
to accept?
2. The scope and structure of its strategy, including the right balance
among such aspects specialization, diversification, and integration.
3. Acceptable trade-offs between time and money and between in-
house execution versus using a merger, acquisition, or joint venture
or some external means to reach its objectives and attain its goals.
4. The organizational structure appropriate to its economic realities,
the opportunities, and it performance expectations.

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 Drucker also emphasized that a strategy contains several elements:

1. A strategy consists of organized activities.

2. The purpose of these activities (the strategy) is to achieve an objective.
3. Strategy is long-term.
4. The strategic choices that an enterprise makes are strongly influenced by
the environment in which the enterprise exists.
5. The environment is continually changing, which means that strategies
cannot be rigid and unchanging.
6. Strategies involve an enterprise in doing different things with different
resources over time, as it is forced to adapt to changes in its environment.

Strategy

 Johnson, Scholes and Whittington defined

strategy as “the direction and scope of an
organization over the long term, which achieves
advantage in a changing environment through its
configuration of resources and competencies with
the aim of fulfilling stakeholder expectations.”

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They have also identified the range or

scope of strategic decisions as follows:
1. Deciding the scope of the entity’s activities. What businesses
should we be in?
2. Relating the activities of the entity to the environment in
which it operates.
3. Ensuring that the entity has the resource capacity to operate
in its selected areas of activity.
4. Allocating resources to the different business activities.
5. Providing a high-level (strategic) framework for more
detailed decision-making at an operational level.
6. Reflecting the values and expectations of the individuals in
positions of power within the entity.
7. Deciding the long-term direction that the entity should take.
8. In many cases, implementing change within the entity so
that it adapts successfully to its changing environment.

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Strategic Business Analysis

 Strategic business analysis are those actions and decisions

made by management while trying to understand the
impact of strategic events like:
 introduction or development of new product line
 setting up a factory in a new location
 employing key staff
 selecting organizational structure
 investing in new technology
 managing risks
 complying with relevant laws and regulations
 implementing changes

Characteristics of
Strategic Business Analysis

1. Long term in nature:

2. Focus on external events and activities
3. Place more emphasis on qualitative matters

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LEVELS OF STRATEGY

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 It sits at the „top of the heap‟.

 It is concerned with deciding which business or businesses an entity
should be in, and setting targets for the achievement of the entity‟s
overall objectives.
 If you are running an organization that bake and sells cookies, for
instance, you already know exactly what the corporate strategy is
going to look like – you are going to sell as many cookies as possible.
 Carrying that example forward to a larger company, imagine you run
an organization that is going to sell cookies but is also going to sell
equipment that is used while making cookies. Entering into the
kitchen equipment market is a completely different challenge from
selling the cookies themselves, so the complexity of your corporate
strategy will need to rapidly increase.

 It is a „step down‟ from the corporate strategy level.

 It also called competitive strategy, is concerned with how
each business activity within the entity contributes towards
the achievement of the corporate strategy.
 Carrying over our previous example, you would be outlining
separate strategies for selling cookies and selling cookie-
making equipment at this level. You may be going after
convenience stores and grocery stores to sell your cookies,
while you may be looking at department stores and the
internet to sell your equipment. Those are dramatically
different strategies, so they will be broken out at this level.

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 It is also called operational strategy.

 These decisions include product pricing, investment in
plant, personnel policy, and so on.
 It is at this bottom-level of strategy where you should start
to think about the various departments within your
business and how they will work together to reach goals.
 Your marketing, finance, operations, IT and other
departments will all have responsibilities to handle, and it
is your job as an owner or manager to oversee them all to
ensure satisfactory results in the end.

ACTIVITY:
 Identify a business entity along the following
business industry.
1. Food (Restaurants)
2. Banking
3. School/University
4. Grocery/Department Store
5. Boarding Houses
6. Hotel/Resort
7. Pharmacy
8. Transportation
9. Manufacturing
10. Retail
 Identify a strategy in order to maximize its profit
and minimize its cost. Elaborate your answer.

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ELEMENTS OF
STRATEGIC MANAGEMENT

Elements of Strategic Management & Business Analysis

 STRATEGIC POSITION
 It means making an analysis or assessment of the strategic
position of the entity.
 In other words, how do rival companies compare with each
other in terms of competitive advantage?

 Aspects to Strategic Position (Johnson, Scholes and Whittington)

1. Environment – involves an analysis of the threats and opportunities
that seem to exist, and an assessment of their significance.
2. Strategic capability of the entity –This means reaching an
understanding of what the entity is capable of achieving.
3. Expectations and purposes – an analysis of strategic position also
requires management to make decisions about the purpose of the entity
and what it is trying to achieve.

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Elements of Strategic Management & Business Analysis

STRATEGIC CHOICE

 Three elements
1. Generation of strategic options, e.g. growth, acquisition, diversification or
concentration.
2. Evaluation of the options to assess their relative merits and feasibility.
3. Selection of the strategy or option that the organization will pursue.

Strategic choices need to be made of every level, though obviously choices made
at any particular level can influence choices at other levels.

1. Corporate Level – For companies, this means making decisions about which products
or services it should be selling, & what markets it should be selling them in.
2. Business Level – For companies, a major strategic choice is between a strategy of cost
leadership and a strategy of differentiation.
3. Operational Level – For example, whether an organization should outsource
components or make them itself.

Elements of Strategic Management & Business Analysis

STRATEGY INTO ACTION/IMPLEMENTATION

 Aspects to Strategy Implementation

1. Organizing –means putting into place a management structure &
delegating authority.
 For example, should the organization be split into European, US and
Asian divisions? How autonomous should divisions be?

2. Enabling – It means enabling the entity to achieve success through the

effective use of its resources.
 For example, appropriate human resources and fixed assets need to
be acquired.

3. Managing Change – Most strategic planning and implementation will

involve change, so managing change, in particular employees‟ fears and
resistance, is crucial.

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PROCESS OF STRATEGY
DEVELOPMENT

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Deliberate Strategy
 It is a top down approach to strategic planning that
emphasize intention.
 It is built based on the vision and mission of the
organization and is focused on achieving the purpose of
doing business.
 These strategies are named as ‘generic competitive
strategies’.
 Cost leadership strategy – achieving the lowest cost of
operation in an industry
 Differentiation strategy – offering a unique product that does
not have a close substitute
 Focus strategy – achieving a cost leadership of differentiation
status in a niche market

Emergent Strategy

 It is the process of identifying unforeseen

outcomes from the execution of strategy and
then learning to incorporate those unexpected
outcomes into future corporate plans by taking
a bottom up approach to management.
 It is also referred to as ‘realized strategy’.

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Incremental Strategy
 This strategy is developed slowly over time, by making small
changes to existing strategy.

 When the entity’s business environment is changing, small

changes to existing strategies are unlikely to be sufficient to
ensure the survival of the entity, and incremental change
might be associated with aimlessness and a lack of strategic
direction

 Incremental strategy is only safe when an entity operates in a

very stable environment, where changes over time are small
and gradual.

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Strategy Lenses

 Johnson and Scholes have suggested a slightly different

approach to understanding strategy development. They have
suggested that there are three different ways of looking at
strategy development and, depending on circumstances,
each approach might be appropriate.

 They use the term strategy lenses to describe these three

ways of looking at strategy development.

 Strategy development can be seen:

1. as design
2. as experience
3. as ideas

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Strategic Planning Framework

 Although strategic development in practice might be the
outcome from deliberate strategies and emergent strategies
(and possibly also some incremental strategies), it is useful
to study the subject of business analysis and business
strategy as if it were an organized process of planning and
implementation.
 This helps to provide a framework for understanding the
issues in strategic management and business analysis.

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Rational Planning Model

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Gap Analysis as an Approach

to Strategic Development
GAP ANALYSIS
 It provides an alternative model for planning and
developing strategy in a formal way.
 This approach consists of the following stages.
1. Identifying objectives and setting targets: Where do we
want to be?
2. Establishing the current position. Where are we now?
3. Measuring the difference between where we are and
where we want to be as a strategic gap.

 For example, at a corporate strategy level, a gap might be

expressed including total annual sales revenue and total
profitability, or product-market areas that the company
should be operating in.

 The purpose of strategy development should be to choose

and implement strategies that will fill this strategic gap (or
planning gap) so that the objectives can be achieved.

 Filling the gap requires:

1. an analysis of environmental threats and opportunities, and
the internal strengths and weaknesses of the entity
2. identifying the competitive advantage that the entity enjoys
3. if necessary, re-stating the business objectives as a result of this
strategic appraisal, so that objectives remain realistic and
achievable: this will change the size of the strategic gap
4. identifying alternative strategies, evaluating them and
selecting strategies to fill the strategic gap
5. implementing the selected strategy

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REFERENCES:
 Printed Sources:
 Mintzberg, H., & Waters, J. A. 1985. Of strategies, deliberate and emergent. Strategic Management Journal, 6, 257–272.
 Wells, K. 2002. Floating off the page: The best stories from the Wall Street Journal‟s middle column. New York: Simon &
Shuster.

 Online Sources:
 http://www.accaglobal.com/content/dam/acca/global/PDF- students/acca/p3/studyguides/p3-sg-sept16-17.pdf
 http://cn.accaglobal.com/content/dam/acca/news/files/P3%20Notes.pdf
 https://stuffofheroes.com/home/category/journal-articles/
 https://hkiaatevening.yolasite.com/p3-ba.php
 http://www.free-management-ebooks.com/news
 http://free-management-ebooks.tradepub.com/?pt=main&page=home.ebookspg
 http://www.free-management-ebooks.com/news/ -onstrategyhq.com>resources>the-three-levels-of-strategy
 https://open.lib.umn.edu/strategicmanagement
 http://sloanreview.mit.edu (Sloan Management) http://harvardbusinessonline.hbsp.harvard.edu
 www.mckinseyquarterly.com
 www.strategy-business.com
 www.marketingprofs.com
 www.1000ventures.com
 www.12manage.com
 www.businessballs.com
 www.marketingpower.com
 www.mediapost.com
 www.fastcompany.com
 http://w3.cantos.com
 www.finfacts.com
 www.ft.com
 www.briefing.com
 www.bizsum.com
 www.rightnow.com
 www.mindtools.com

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