Strategic Management Defined

The term strategic management is used to refer to the entire scope of strategic-decision

making activity in an organization. Strategic management as a concept has evolved over time

and will continue to evolve. As result there are a variety of meanings and interpretations

depending on the author and sources. For example, some scholars and practitioners the term

strategic planning connote the total strategic management activities. Moreover, sometimes

managers use the terms strategic management, strategic planning, and long-range planning

interchangeable. Finally, some of the phrases are used interchangeably with strategic

management are strategy and policy formulation, and business policy.

To purpose of this thesis I use the terminology strategy management, as opposed to the more

narrow term business policy.

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

management:

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

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

Higgins).

Strategic management is defined as the set of decisions and actions resulting in the

formulation and implementation of strategies designed to achieve the objectives of the

organization (John A. Pearce II and Richard B. Robinson, Jr.).

Strategic management is the process of examining both present and future environments,

formulating the organization's objectives, and making, implementing, and controlling

decisions focused on achieving these objectives in the present and future environments (Garry D. Smith, Danny R. Arnold, Bobby G. Bizzell).

Strategic management is a continuous process that involves attempts to match or fit the

organization with its changing environment in the most advantageous way possible (Lester A. Digman).

The Scope Of Strategic Management

J. Constable has defined the area addressed by strategic management as "the management

processes and decisions which determine the long-term structure and activities of the

organization". This definition incorporates five key themes:

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

changed.

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

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

* Time scales. The strategic time horizon is long. However, it for company in real trouble can

be very short.

* Structure of the organization. An organization is managed by people within a structure.

The decisions which result from the way that managers work together within the structure can

result in strategic change.

* Activities of the organization. This is a potentially limitless area of study and we normally

shall centre upon all activities which affect the organization.

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

The Nature And Value Of Strategic Management

All organizations engage in the strategic management process either formally or informally.

Strategic management is equally applicable to public, private, not-for-profit, and religious

organizations. An attempt is made in this thesis to show the applicability of strategic

management to all types of organizations, but the emphasis is on private-enterprise

organizations.

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

1. Managers want to resolve current problems. Firms often face problems resulting from falling

sales, low profit rates, or production inefficiencies. Managers try to identify the sources of

those problems and resolve them as best they can.

2. Managers want to solve current problems and prevent future problems. For example, faced

with rising production costs, managers may apply statistical techniques to create an optimal

solution.

3. Managers want to design or create a better relationship between the firm and its operating and

general environments. That involves the firm in strategic decision making.

Three factors distinguish strategic decisions from other business considerations:

1. Strategic decisions deal with concerns that are central to the livelihood and survival of the

entire organization and usually involve a large portion of the organization's resources.

2. Strategic decisions represent new activities or areas of concern and typically address issues that

are unusual for the organization rather than issues that lend themselves to routine decision

making.

3. Strategic decisions have repercussions for the way other, lower-level decisions in the

organization are made.

To summarize, there are two essential areas of management tasks: strategic management and

operating management. Operating management deals with the ongoing, day-to day

"operations" of the business. However, my concern here is with the strategic management

alone.

Hierarchical Levels of Strategy

Strategy can be formulated on three different levels:

corporate level

business unit level

functional or departmental level.

While strategy may be about competing and surviving as a firm, one can argue that products,

not corporations compete, and products are developed by business units. The role of the

corporation then is to manage its business units and products so that each is competitive and so

that each contributes to corporate purposes.

Consider Textron, Inc., a successful conglomerate corporation that pursues profits through a

range of businesses in unrelated industries. Textron has four core business segments:

Aircraft - 32% of revenues

Automotive - 25% of revenues

Industrial - 39% of revenues

Finance - 4% of revenues.

While the corporation must manage its portfolio of businesses to grow and survive, the success

of a diversified firm depends upon its ability to manage each of its product lines. While there

is no single competitor to Textron, we can talk about the competitors and strategy of each of

its business units. In the finance business segment, for example, the chief rivals are major

banks providing commercial financing. Many managers consider the business level to be the

proper focus for strategic planning.

Corporate Level Strategy

Corporate level strategy fundamentally is concerned with the selection of businesses in which

the company should compete and with the development and coordination of that portfolio of

businesses.

Corporate level strategy is concerned with:

Reach - defining the issues that are corporate responsibilities; these might include

identifying the overall goals of the corporation, the types of businesses in which the

corporation should be involved, and the way in which businesses will be integrated and

managed.

Competitive Contact - defining where in the corporation competition is to be localized.

Take the case of insurance: In the mid-1990's, Aetna as a corporation was clearly

identified with its commercial and property casualty insurance products. The

conglomerate Textron was not. For Textron, competition in the insurance markets took

place specifically at the business unit level, through its subsidiary, Paul Revere.

(Textron divested itself of The Paul Revere Corporation in 1997.)

Managing Activities and Business Interrelationships - Corporate strategy seeks to

develop synergies by sharing and coordinating staff and other resources across business

units, investing financial resources across business units, and using business units to

complement other corporate business activities. Igor Ansoff introduced the concept of

synergy to corporate strategy.

Management Practices - Corporations decide how business units are to be governed:

through direct corporate intervention (centralization) or through more or less

autonomous government (decentralization) that relies on persuasion and rewards.

Corporations are responsible for creating value through their businesses. They do so by

managing their portfolio of businesses, ensuring that the businesses are successful over the

long-term, developing business units, and sometimes ensuring that each business is compatible

with others in the portfolio.

Business Unit Level Strategy

A strategic business unit may be a division, product line, or other profit center that can be

planned independently from the other business units of the firm.

At the business unit level, the strategic issues are less about the coordination of operating units

and more about developing and sustaining a competitive advantage for the goods and services

that are produced. At the business level, the strategy formulation phase deals with:

positioning the business against rivals

anticipating changes in demand and technologies and adjusting the strategy to

accommodate them

influencing the nature of competition through strategic actions such as vertical

integration and through political actions such as lobbying.

Michael Porter identified three generic strategies (cost leadership, differentiation, and focus)

that can be implemented at the business unit level to create a competitive advantage and

defend against the adverse effects of the five forces.

Functional Level Strategy

The functional level of the organization is the level of the operating divisions and departments.

The strategic issues at the functional level are related to business processes and the value

chain. Functional level strategies in marketing, finance, operations, human resources, and

R&D involve the development and coordination of resources through which business unit

level strategies can be executed efficiently and effectively.

Functional units of an organization are involved in higher level strategies by providing input

into the business unit level and corporate level strategy, such as providing information on

resources and capabilities on which the higher level strategies can be based. Once the higher-

level strategy is developed, the functional units translate it into discrete action-plans that each

department or division must accomplish for the strategy to succeed.

Strategic Management Process - Meaning,

Steps and Components

The strategic management process means defining the organization‟s strategy. It is also

defined as the process by which managers make a choice of a set of strategies for the

organization that will enable it to achieve better performance. Strategic management is a

continuous process that appraises the business and industries in which the organization is

involved; appraises it‟s competitors; and fixes goals to meet all the present and future

competitor‟s and then reassesses each strategy.

Strategic management process has following four steps:

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

and providing information for strategic purposes. It helps in analyzing the internal and external

factors influencing an organization. After executing the environmental analysis process,

management should evaluate it on a continuous basis and strive to improve it.

2. Strategy Formulation- Strategy formulation is the process of deciding best course of action for

accomplishing organizational objectives and hence achieving organizational purpose. After

conducting environment scanning, managers formulate corporate, business and functional

strategies.

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

intended or putting the organization‟s chosen strategy into action. Strategy implementation

includes designing the organization‟s structure, distributing resources, developing decision

making process, and managing human resources.

4. Strategy Evaluation- Strategy evaluation is the final step of strategy management process. The

key strategy evaluation activities are: appraising internal and external factors that are the root of

present strategies, measuring performance, and taking remedial / corrective actions. Evaluation

makes sure that the organizational strategy as well as it‟s implementation meets the organizational

objectives.

These components are steps that are carried, in chronological order, when creating a new

strategic management plan. Present businesses that have already created a strategic

management plan will revert to these steps as per the situation‟s requirement, so as to make

essential changes.

Components of Strategic Management Process

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

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

chorus.

Resource-based view

The resource-based view (RBV) is a business management tool used to determine the

strategic resources available to a company. The fundamental principle of the RBV is that the

basis for a competitive advantage of a firm lies primarily in the application of the bundle of

valuable resources at the firm's disposal (Wernerfelt, 1984, p172; Rumelt, 1984, p557-558).

To transform a short-run competitive advantage into a sustained competitive advantage

requires that these resources are heterogeneous in nature and not perfectly mobile ([1]

:p105-

106; Peteraf, 1993, p180). Effectively, this translates into valuable resources that are neither

perfectly imitable nor substitutable without great effort (Barney, 1991;[1]

:p117). If these

conditions hold, the firm‟s bundle of resources can assist the firm sustaining above average

returns. The VRIN model also constitutes a part of RBV.

Concept

The key points of the theory are:

1. Identify the firm‟s potential key resources.

2. Evaluate whether these resources fulfill the following criteria (referred to as VRIN):

o Valuable – A resource must enable a firm to employ a value-creating strategy, by

either outperforming its competitors or reduce its own weaknesses ([1]

:p99; [2]

:p36).

Relevant in this perspective is that the transaction costs associated with the investment

in the resource cannot be higher than the discounted future rents that flow out of the

value-creating strategy (Mahoney and Prahalad, 1992, p370; Conner, 1992, p131).

o Rare – To be of value, a resource must be rare by definition. In a perfectly competitive

strategic factor market for a resource, the price of the resource will be a reflection of

the expected discounted future above-average returns (Barney, 1986a, p1232-1233;

Dierickx and Cool, 1989, p1504;[1]

:p100).

o In-imitable – If a valuable resource is controlled by only one firm it could be a source

of a competitive advantage ([1]

:p107). This advantage could be sustainable if

competitors are not able to duplicate this strategic asset perfectly (Peteraf, 1993, p183;

Barney, 1986b, p658). The term isolating mechanism was introduced by Rumelt (1984,

p567) to explain why firms might not be able to imitate a resource to the degree that

they are able to compete with the firm having the valuable resource (Peteraf, 1993,

p182-183; Mahoney and Pandian, 1992, p371). An important underlying factor of

inimitability is causal ambiguity, which occurs if the source from which a firm‟s

competitive advantage stems is unknown (Peteraf, 1993, p182; Lippman and Rumelt,

1982, p420). If the resource in question is knowledge-based or socially complex,

causal ambiguity is more likely to occur as these types of resources are more likely to

be idiosyncratic to the firm in which it resides (Peteraf, 1993, p183; Mahoney and

Pandian, 1992, p365;[1]

:p110). Conner and Prahalad go so far as to say knowledge-

based resources are “…the essence of the resource-based perspective” (1996, p477).

o Non-substitutable – Even if a resource is rare, potentially value-creating and

imperfectly imitable, an equally important aspect is lack of substitutability (Dierickx

and Cool, 1989, p1509;[1]

:p111). If competitors are able to counter the firm‟s value-

creating strategy with a substitute, prices are driven down to the point that the price

equals the discounted future rents (Barney, 1986a, p1233; sheikh, 1991, p137),

resulting in zero economic profits.

3. Care for and protect resources that possess these evaluations, because doing so can improve

organizational performance (Crook, Ketchen, Combs, and Todd, 2008).

The VRIN characteristics mentioned are individually necessary, but not sufficient conditions

for a sustained competitive advantage (Dierickx and Cool, 1989, p1506; Priem and Butler,

2001a, p25). Within the framework of the resource-based view, the chain is as strong as its

weakest link and therefore requires the resource to display each of the four characteristics to be

a possible source of a sustainable competitive advantage ([1]

:105-107).

What constitutes a "resource"?

Jay Barney ([1]

:p101) referring to Daft (1983)[3]

says: "...firm resources include all assets,

capabilities, organizational processes, firm attributes, information, knowledge, etc; controlled

by a firm that enable the firm to conceive of and implement strategies that improve its

efficiency and effectiveness (Daft,1983)."

A subsequent distinction, made by Amit & Schoemaker (1993), is that the encompassing

construct previously called "resources" can be divided into resources and capabilities[2]

. In this

respect, resources are tradable and non-specific to the firm, while capabilities are firm-specific

and are used to engage the resources within the firm, such as implicit processes to transfer

knowledge within the firm (Makadok, 2001, p388-389; Hoopes, Madsen and Walker, 2003,

p890). This distinction has been widely adopted throughout the resource-based view literature

(Conner and Prahalad, 1996, p477; Makadok, 2001, p338; Barney, Wright and Ketchen, 2001,

p630-31).

What constitutes a "capability"?

Makadok (2001) emphasizes the distinction between capabilities and resources by defining

capabilities as “a special type of resource, specifically an organizationally embedded non-

transferable firm-specific resource whose purpose is to improve the productivity of the other

resources possessed by the firm” [4]

(p389). “[R]esources are stocks of available factors that are

owned or controlled by the organization, and capabilities are an organization‟s capacity to

deploy resources” [2]

:p.35. Essentially, it is the bundling of the resources that builds

capabilities. [5]

What constitutes "competitive advantage"?

A competitive advantage can be attained if the current strategy is value-creating, and not

currently being implemented by present or possible future competitors ([1]

:102). Although a

competitive advantage has the ability to become sustained, this is not necessarily the case. A

competing firm can enter the market with a resource that has the ability to invalidate the prior

firm's competitive advantage, which results in reduced (read: normal) rents (Barney, 1986b,

p658). Sustainability in the context of a sustainable competitive advantage is independent with

regards to the time frame. Rather, a competitive advantage is sustainable when the efforts by

competitors to render the competitive advantage redundant have ceased ([1]

:p102; Rumelt,

1984, p562). When the imitative actions have come to an end without disrupting the firm‟s

competitive advantage, the firm‟s strategy can be called sustainable. This is in contrast to

views of others (e.g., Porter) that a competitive advantage is sustained when it provides above-

average returns in the long run. (1985).

Criticism

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

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

value-creating strategy that is based on resources that are, among other characteristics, valuable

(1991, p106). This reasoning is circular and therefore operationally invalid (Priem and Butler,

2001a, p31). For more info on the tautology, see also Collins, 1994

Different resource configurations can generate the same value for firms and thus would not be

competitive advantage

The role of product markets is underdeveloped in the argument

The theory has limited prescriptive implications

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

Further criticisms are:

It is perhaps difficult (if not impossible) to find a resource which satisfies all of the Barney's

VRIN criteria.

There is the assumption that a firm can be profitable in a highly competitive market as long as

it can exploit advantageous resources, but this may not necessarily be the case. It ignores

external factors concerning the industry as a whole; a firm should also consider Porter‟s

Industry Structure Analysis (Porter's Five Forces).

Long-term implications that flow from its premises: A prominent source of sustainable

competitive advantages is causal ambiguity (Lippman & Rumelt, 1982, p420). While this is

undeniably true, this leaves an awkward possibility: the firm is not able to manage a resource it

does not know exists, even if a changing environment requires this (Lippman & Rumelt, 1982,

p420). Through such an external change, the initial sustainable competitive advantage could be

nullified or even transformed into a weakness (Priem and Butler, 2001a, p33; Peteraf, 1993,

p187; Rumelt, 1984, p566).

Premise of efficient markets: Much research hinges on the premise that markets in general or

factor markets are efficient, and that firms are capable of precisely pricing in the exact future

value of any value-creating strategy that could flow from the resource (Barney, 1986a, p1232).

Dierickx and Cool argue that purchasable assets cannot be sources of sustained competitive

advantage, just because they can be purchased. Either the price of the resource will increase to

the point that it equals the future above-average return, or other competitors will purchase the

resource as well and use it in a value-increasing strategy that diminishes rents to zero (Peteraf,

1993, p185; Conner, 1991, p137).

The concept of rarity is obsolete: Although prominently present in Wernerfelt‟s original

articulation of the resource-based view (1984) and Barney‟s subsequent framework (1991),[1]

the concept that resources need to be rare to be able to function as a possible source of a

sustained competitive advantage is unnecessary (Hoopes, Madsen and Walker, 2003, p890).

Because of the implications of the other concepts (e.g. valuable, inimitable and

nonsubstitutability) any resource that follows from the previous characteristics is inherently

rare.

Sustainable: The lack of an exact definition of sustainability makes its premise difficult to test

empirically. Barney‟s statement ([1]

:p102-103) that the competitive advantage is sustained if

current and future rivals have ceased their imitative efforts is versatile from the point of view

of developing a theoretical framework, but is a disadvantage from a more practical point of

view, as there is no explicit end-goal.

Strategic fit

Strategic fit express the degree to which an organization is matching its resources and

capabilities with the opportunities in the external environment. The matching takes place

through strategy and it is therefore vital that the company have the actual resources and

capabilities to execute and support the strategy. Strategic fit can be used actively to evaluate

the current strategic situation of a company as well as opportunities as M&A and divestitures

of organizational divisions. Strategic fit is related to the Resource-based view of the firm

which suggests that the key to profitability is not only through positioning and industry

selection but rather through an internal focus which seeks to utilize the unique characteristics

of the company‟s portfolio of resources and capabilities[1]

. A unique combination of resources

and capabilities can eventually be developed into a competitive advantage which the company

can profit from. However, it is important to differentiate between resources and capabilities.

Resources relate to the inputs to production owned by the company, whereas capabilities

describe the accumulation of learning the company possesses. Resources can be classified both

as tangible and intangible:

Tangible:

Financial (Cash, securities)

Physical (Location, plant, machinery)

Intangible:

Technology (Patents, copyrights)

Human resources

Reputation (Brands)

Culture

Several tools have been developed one can use in order to analyze the resources and

capabilities of a company. These include SWOT, value chain analysis, cash flow analysis and

more. Benchmarking with relevant peers is a useful tool to assess the relative strengths of the

resources and capabilities of the company compared to its competitors.

Strategic fit can also be used to evaluate specific opportunities like M&A opportunities.

Strategic fit would in this case refer to how well the potential acquisition fits with the planned

direction (strategy) of the acquiring company. In order to justify growth through M&A

transactions the transaction should yield a better return than Organic growth. The Differential

Efficiency Theory states that the acquiring firm will be able increase its efficiency in the areas

where the acquired firm is superior. In addition the theory argues that M&A transactions give

the acquiring firm the possibility of achieving positive synergy effects meaning that the two

merged companies are worth more together than the sums of their parts individually[2]

. This is

because merging companies may enjoy from economics of scale and economics of scope.

However, in reality many M&A transactions fails due to different factors, one of them being

lack of strategic fit. A CEO survey conducted by Bain & Company showed that 94% of the

interviewed CEO‟s considered the strategic fit to be vitally influential in the success or failure

of an acquisition[3]

. A high degree of strategic fit from can potentially yield many benefits for

an organization. Best case scenario a high degree of strategic fit may be the key to a successful

merger, an efficient organization, synergy effects or cost reductions. It is a vital term and it

should be taken into consideration when evaluating a company‟s strategy and opportunities.

Defining Strategic Stretch Goals to Stimulate Innovation in Organizations

Take a random CEO and ask him what he expects from his employees and you will very often

hear that his employees should think outside-the-box, challenge the status quo and come up

with radical new ideas and execute them to achieve extraordinary business results.

Even though top-management encourages employees to try something new and give them a

“permission to fail”, many people do not go the extra mile but prefer to stay in a mode of

“comfortable apathy”. It is too risky for many employees because if their endeavor fails, they

risk their career, might lose their bonus, and in the worst case even their job. One can

understand employees when they ask themselves “Why should I go the extra mile, when I can

risk my bonus and career chances?”

Overcoming these challenges is difficult and there is definitely no silver bullet but with a

different take on performance goals, it might be possible to stimulate the willingness to

innovate and drive change while at the same time providing measure that limit the employee‟s

risks.

Strategic stretch goals to stimulate innovation

By reaching for what appears to be the impossible, we often actually do the impossible. And

even when we do not quite make it, we inevitably wind up doing much better than we would

have done.Jack Welch

The concept of stretch goals has been broadly applied at General Electric in order to limit the

annual bargaining between managers and their employees on performance goals. Stretch goals

should limit such negotiating and improve long-term view, stimulate breakthrough ideas and

justify trade-offs in one year to harvest the benefits in the following years.

A definition of stretch goals

Strategic stretch goals are goals that cannot be achieved with what is known and how is

worked today. They aim for something that is impossible today.

This definition is important because setting the wrong stretch goals will burnout your people.

Such tactical stretch goals are goals that can be achieved with the current way of work and

they usually result in employees doing more of the same – which ultimately means longer

hours.

Strategic stretch goals really push the boundaries of what is assumed to be possible to strive

for the impossible. Only when you aim for the impossible, something that cannot be achieved

with existing practices, you have the “pressure” to come up with radical new ideas instead of

increasing your workload.

An example

Let us assume that you have defined a 10% growth goal for your business segment in the

coming year. Instead of defining a tactical stretch goal of 15% growth for next year, a strategic

stretch goal would aim for a 50% growth. Confronted with such a growth target, managers

would have to come up with different solutions than simply working harder and longer. Maybe

new distribution channels, new partnerships or other strategies could be a solution but working

longer hours will not even bring you close to the 50% growth.

The “urgency” to innovate

Defining strategic stretch goals gives employees that are willing to innovate an opportunity to

realize their ideas. For those that do not see the need to innovate yet, stretch goals can create a

“sense of urgency” that stimulates and forces them to work on ideas that help to achieve these

goals. The point of “pressure” and “sense of urgency” is not to get people working harder. It is

to get people to do things differently and raise the capability of the organization.

Elements of Strategic Management

Figure: Elements of Strategic Management

(i) Strategic Analysis

Strategic analysis is concerned with understanding the strategic position of the organisation.

What changes are going on in the environment, and how will they affect the organisation and

its activities? What is the resource strength of the organisation in the context of these changes?

What is it that those people and groups associated with the organisation -- managers,

shareholders or owners, unions and so on -- aspire to, and how do these affect the present

position and what could happen in the future?

The aim of strategic analysis is, then, to form a view of the key influences on the present and

future well-being of the organisation and therefore on the choice of strategy. These influences

are discussed briefly below. Understanding these influences is an important part of the wider

aspects of strategic management.

(a) The environment

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

technological, cultural, and social world. This environment changes and is more complex for

some organisations than for others. Since strategy is concerned with the position a business

takes in relation to its environment, an understanding of the environment‟s effects on a

business is of central importance to strategic analysis. The historical and environmental effects

on the business must be considered, as well as the present effects and the expected changes in

environmental variables. This is a major task because the range of environmental variables is

so great. Many of those variables will give rise to opportunities of some sort, and many will

exert threats upon the firm. The two main problems that have to be faced are, first, to distil out

of this complexity a view of the main or overall environmental impacts for the purpose of

strategic choice; and second, the fact that the range of variables is likely to be so great that it

may not be possible or realistic to identify and analyse each one.

(b) The resources of the organisation

Just as there are outside influences on the firm and its choice of strategies, so there are internal

influences. One way of thinking about the strategic capability of an organisation is to consider

its strengths and weaknesses (what it is good or not so good at doing, or where it is at a

competitive advantage or disadvantage, for example). These strengths and weaknesses may be

identified by considering the resource areas of a business such as its physical plant, its

management, its financial structure, and its products. Again, the aim is to form a view of the

internal influences -- and constraints -- on strategic choice.

(c) The expectations of different stakeholders

The expectations are important because they will affect what will be seen as acceptable in

terms of the strategies advanced by management. However, the beliefs and assumptions that

make up the culture of an organisation, though less explicit, will also have an important

influence. The environmental and resource influences on an organisation will be interpreted

through these beliefs and assumptions; so two groups of managers, perhaps working in

different divisions of an organisation, may come to different conclusions about strategy,

although they are faced with similar environmental and resource implications. Which

influence prevails is likely to depend on which group has the greatest power, and

understanding this can be of great importance in recognising why an organisation follows or is

likely to follow, the strategy it does.

Together, a consideration of the environment, the resources, the expectations, and the

objectives within the cultural and political framework of the organisation provides the basis of

the strategic analysis of an organisation. However, to understand the strategic position an

organisation is in, it is also necessary to examine the extent to which the direction and

implications of the current strategy and objectives being followed by the organisation are in

line with and can cope with the implications of the strategic analysis. In this sense, such

analysis must take place with the future in mind. Is the current strategy capable of dealing with

the changes taking place in the organisation‟s environment or not? If so, in what respects and,

if not, why not?

It is unlikely that there will be a complete match between current strategy and the picture

which emerges from the strategic analysis. The extent to which there is a mismatch here is the

extent of the strategic problem facing the strategist. It may be that the adjustment that is

required is marginal, or it may be that there is a need for a fundamental realignment of

strategy.

(ii) Strategic Choice

Strategic analysis provides a basis for strategic choice. This aspect of strategic management

can be conceived of as having three parts.

(a) Generation of strategic options

There may be several possible courses of action. At a given time a company might face a

decision about the extent to which it has to become a multinational firm. But, at a later time,

the international scope of the company's operations might bring up other choices: which areas

of the world are now the most important to concentrate on; is it possible to maintain a common

basis of trading across all the different countries? Is it necessary to introduce variations by

market focus? All of these considerations are important and need careful consideration:

indeed, in developing strategies, a potential danger is that managers do not consider any but

the most obvious course of action -- and the most obvious is not necessarily the best. A helpful

step in strategic choice can be to generate strategic options.

(b) Evaluation of strategic options

Strategic options can be examined in the context of the strategic analysis to assess their

relative merits. In deciding any of the options a company might ask a series of questions. First,

which of these options built upon strengths, overcame weaknesses and took advantage of

opportunities, while minimising or circumventing the threats the business faced? This is called

the search for strategic fit or suitability of the strategy. However, a second set of questions is

important. To what extent could a chosen strategy be put into effect? Could the required

finance be raised, sufficient stock be made available at the right time and in the right place,

staff be recruited and trained to reflect the sort of image the company wants to project? These

are questions of feasibility. Even if these criteria could be met, would the choice be acceptable

to the stakeholders?

(c) Selection of strategy

This is the process of selecting those options which the organisation will pursue. There could

be just one strategy chosen or several. There is unlikely to be a clear-cut „right‟ or „wrong‟

choice because any strategy must inevitably have some dangers or disadvantages. So in the

end, choice is likely to be a matter of management judgement. It is important to understand

that the selection process cannot always be viewed or understood as a purely objective, logical

act. It is strongly influenced by the values of managers and other groups with interest in the

organisation, and ultimately may very much reflect the power structure in the organisation.

(iii) Strategy Implementation

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

Implementation can be thought of as having several parts.

(a) Planning and allocating resources

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

implementation. What are the key tasks needing to be carried out? What changes need to be

made in the resource mix of the organisation? By when? And who is to be responsible for the

change?

(b) Organisation structure and design

It is also likely that changes in organisational structure will be needed to carry through the

strategy. There is also likely to be a need to adapt the systems used to manage the organisation.

What will different departments be held responsible for? What sorts of information system are

needed to monitor the progress of the strategy? Is there a need for retraining of the workforce?

(c) Managing strategic change

The implementation of strategy also requires managing of strategic change and this requires

action on the part of managers in terms of the way they manage change processes, and the

mechanisms they use for it. These mechanisms are likely to be concerned not only with

organisational redesign, but with changing day-to-day routines and cultural aspects of the

organisation, and overcoming political blockages to change.

A Summary of the Strategic Management Process

The influences on, and elements of, strategic management discussed above are summarised in the figure above.

The figure is intended not as a prescription of what strategic management should be, but as a framework which

readers can use to think through strategic problems. It was stated earlier that there is a danger of thinking of the process of strategic management as an orderly

sequence of steps; the danger is that readers might not find the elements described here existing in practice, and

might therefore argue that strategic management in their organisation does not take place. It is important to stress

that the model summarised here is a useful device for structuring the study of strategic management and a means

by which managers and students of strategy can think through complex strategic problems. It is not, however, an

attempt to describe how the processes of strategic management necessarily take place in the political and cultural

arenas of an organisation. The traditional view of strategic management, common in books of the 1960s and

1970s, was that strategy was, or should be, managed through planning processes, in the form of a neat sequence

of steps building on objective setting and analysis, through the evaluation of different options, and ending with

the careful planning of the strategy implementation. Many organisations do have such systems, and find that they

contribute usefully to the development of the strategy of their organisations. However, not all organisations have

them, and even when they do, it would be a mistake to assume that the strategies of organisations necessarily

come about through them. The management of the strategy of an organisation can also be thought of as a process of crafting. Here strategic

management is seen not so much as a formal process, but rather as a process by which strategies develop in

organisations on the basis of managers‟ experience, their sensitivity to changes in their environments, and what

they learn from operating in their markets. This does not mean that managers are not thinking about the strategic

position of their organisation, or the choices it faces; but this may not be taking place in a highly formalised way.

Key Terms In Strategic Management

Strategic management, like many other subjects, has developed terminology to identify

important concepts. Each of the following definitions is amplified and supplemented with

additional examples in subsequent chapters.

Purpose

The organization's purpose outlines why the organization exists; it includes a description

of its current and future business (Leslie W. Rue, and Loyd L. Byars) The purpose of an

organization is its primary role in society, a broadly defined aim (such as manufacturing

electronic equipment) that it may share with many other organizations of its type.

Mission

The mission of an organization is the unique reason for its existence that sets it apart

from all others (A. James, F. Stoner, and Charles Wankel) The organization's mission

describes why the organization exists and guides what it should be doing. Often, the

organization's mission is defined in a formal, written mission statement. Decisions on mission

are the most important strategic decisions, because the mission is meant to guide the entire

organization. Although the terms "purpose" and "mission" are often used interchangeably, to

distinguish between them may help in understanding organizational goals.

Goals

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

Objectives

The term objective is often used interchangeably with goal but usually refers to specific

targets for which measurable results can be obtained. Organizational objectives are the end

points of an organization's mission. Objectives refer to the specific kinds of results the

organizations seek to achieve through its existence and operations (William F. Glueck, and

Lawrence R. Jauch) Objective define what it is the organization hopes to accomplish, both

over the long and short term.

In this paper the terms "goals" and "objectives" are used interchangeably. Specifically, where

other works are being referred to and those authors have used the term goal as opposed to

objective, their terminology is retained.

Strategy

Strategies are the means by which long-term objectives will be achieved. "A strategy is a

unified, comprehensive, and integrated plan that relates the strategic advantages of the

firm to the challenges of the environment. It is designed to ensure that the basic

objectives of the enterprise are achieved through proper execution by the organization"

(William F. Glueck, and Lawrence R. Jauch). The role of strategy is to identify the general

approaches that the organization utilize to achieve its organizational objectives. Therefore, the

choice of strategy is so central to the study and understanding of strategic management.

Tactics

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

strategy.

Policy

In years past it was common practice to title courses and books in the strategic management

areas as "Business policy," if one wished to take up broader range of organizations. In one

sense, what has happened is that word strategy has replaced policy. But there is another sense

in which the term policy is used that differentiates it from strategy, and from tactics as well. In

this view, policies are the means by which objectives will be achieved. "Policies are guide to

action. They include how resources are to be allocated and how tasks assigned to the

organization might be accomplished ... (William F. Glueck, and Lawrence R. Jauch "

Policies include guidelines, procedures, rules, programs, and budgets established to support

efforts to achieve stated objectives. Therefore, policies become important management tools

for implementing them.

Strategists

The final key term to be highlighted here is "strategists". Strategists are the individuals who

are involved in the strategic management process. Several levels of management may be

involved in strategic decision making. However, the people responsible for major strategic

decisions are the board of director, president, the chief executive officer, the chief operating

officer, and the division managers.

Four Basic Elements of Strategic Management

1.

o Effective strategic management is essential in the business world. Without

planning, goal setting and other steps in the strategic management process,

accomplishing both large and small business goals is difficult, if not impossible.

The strategic management process has four basic steps or elements. Depending

on the individual situation and goals of your organization, these steps can be

shortened or expanded.

Vision

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

your purpose and your goals. Mission statements that are too broad or too

limiting will limit the company's ability to set effective goals and grow, so

include specific objectives in your mission statement to prevent this.

Identifying Goals

o Using the objectives outlined in your mission statement, the next step is to

identify the goals of your business. Both long- and short-term goals should be

developed with the intention of meeting these objectives. As goals are met,

your objectives will change to match up with new goals.

Developing and Implementing a Plan

o Analyzing a task or set of goals will help you and your organization to

determine the best way to delegate duties and responsibilities to individuals.

This is the foundation of your strategic management plan. Identify individual

steps and mini-goals and objectives within the larger goals and objectives, and

assign these accordingly, making sure that everyone is aware of the part he

plays in the plan. Set deadlines for the mini-goals, as well as a deadline for each

goal and objective, to keep employees on track.

Evaluating and Tracking Results

o Once the process of meeting goals and objective begins, track the results

through deadlines met (or not met). Are your goals and objectives realistic? Is

your plan working? Post-project evaluation is also helpful when planning and

strategizing for future projects.

The external Environment

Introduction

The external environment is a crucial factor that determines to a great extent the success of

your company. You have to fulfil customer expectations, while on the other hand suppliers

must provide you with important resources. Technology is the driving force behind your

processes and your competitors want to expand their market shares at the cost of your

company. Porter´s Five Forces model will help you analyse all stakeholders and your company

position in terms of the competition. Strategic groups are another, more detailed way to

observe your company´s position with regards to market competition.

PEST Analysis

A scan of the external macro-environment in which the firm operates can be expressed in

terms of the following factors:

Political

Economic

Social

Technological

The acronym PEST (or sometimes rearranged as "STEP") is used to describe a framework for

the analysis of these macroenvironmental factors. A PEST analysis fits into an overall

environmental scan as shown in the following diagram:

Environmental Scan

/ \

External Analysis Internal Analysis

/ \

Macroenvironment Microenvironment

|

P.E.S.T.

Political Factors

Political factors include government regulations and legal issues and define both formal and

informal rules under which the firm must operate. Some examples include:

tax policy

employment laws

environmental regulations

trade restrictions and tariffs

political stability

Economic Factors

Economic factors affect the purchasing power of potential customers and the firm's cost of

capital. The following are examples of factors in the macroeconomy:

economic growth

interest rates

exchange rates

inflation rate

Social Factors

Social factors include the demographic and cultural aspects of the external macroenvironment.

These factors affect customer needs and the size of potential markets. Some social factors

include:

health consciousness

population growth rate

age distribution

career attitudes

emphasis on safety

Technological Factors

Technological factors can lower barriers to entry, reduce minimum efficient production levels,

and influence outsourcing decisions. Some technological factors include:

R&D activity

automation

technology incentives

rate of technological change

External Opportunities and Threats

The PEST factors combined with external microenvironmental factors can be classified as

opportunities and threats in a SWOT analysis.

Techniques for environmental Scanning

Environmental scanning is usually used at the start of a futures project. It aims at broad exploration of all major

trends, issues, advancements, events and ideas across a wide range of activities. Information is collected from

many different sources, such as newspapers, magazines, Internet, television, conferences, reports, and also

science- fiction books. Various tools and methodologies are used by large corporations to systematically scope

their external environment.

Delphi method

The Delphi method is a very popular technique used in Futures Studies. It was developed by Gordon andH

elmer in 1953 atRA ND. It can be defined as a method for structuring a group communication process, so that

the process is effective in allowing a group of individuals, as a whole, to deal with a complex problem. It uses the

iterative, independent questioning of a panel of experts to assess the timing, probability, significance and

implications of factors, trends and events in the relation to the problem being considered. Panelists are not

brought together but individually questioned in rounds. After the initial round, the panelists are given lists of

anonymous answers from other panelists which they can use to refine their own views.

Scenario planning

Scenarios are one of the most popular and persuasive methods used in the Futures Studies. Government

planners, corporate strategists and military analysts use them in order to aid decision-making. The term

scenario was introduced into planning and decision-making by Herman Kahn in connection with military and

strategic studies done by RAND in the 1950s.

It can be defined as a rich and detailed portrait of a plausible future world, one sufficiently vivid that a planner

can clearly see and comprehend the problems, challenges and opportunities that such an environment would

present.

A scenario is not a specific forecast of the future, but a plausible description of what might happen. Scenarios

are like stories built around carefully constructed plots based on trends and events. They assist in selection of

strategies, identification of possible futures, making people aware of uncertainties and opening up their

imagination and initiating learning processes.

One of the key strengths of the scenario process is its influence on the way of thinking of its participants. A

mindset, in which the focus is placed on one possible future, is altered towards the balanced thinking about a

number of possible alternative futures.

Cross-impact analysis

The method was developed by Theodore Gordon and Olaf Helmer in 1966 in an attempt to answer a question

whether perceptions of how future events may interact with each other can be used in forecasting. As it is well

known, most events and trends are interdependent in some ways.

Cross-impact analysis provides an analytical approach to the probabilities of an element in a forecast set, and it

helps to assess probabilities in view of judgments about potential interactions between those elements.

Simulation and modeling

Simulation and modeling are computer-based tools developed to represent reality. They are widely used to

analyse behaviours and to understand processes. Models allow demonstration of past changes as well as the

examination of various transformations and their impact on each other and other considered factors. They can

help to understand the connections between factors and events and to examine their dynamics. Simulation is a

process that represents a structure and change of a system. In simulation some aspects of reality are duplicated

or reproduced, usually within the model. The main purpose of simulation is to discern what would really happen

in the real world if certain conditions, imitated by the model, developed.

Trend analysis

Trend analysis is one of the most often used methods in forecasting. It aims to observe and register the past

performance of a certain factor and project it into the future. It involves analysis of two groups of trends:

quantitative, mainly based on statistical data, and qualitative, these are at large concerned with social,

institutional, organizational and political patterns. In the quantitative trend analysis data is plotted along a time

axis, so that a simple curve can be established. Short term forecasting seems quite simple; it becomes more

complex when the trend is extrapolated further into the future, as the number of dynamic forces that can

change direction of the trend increases. This form of simple trend extrapolation helps to direct attention

towards the forces, which can change the projected pattern.

Environmental Scanning Techniques

ENVIRONMENTAL SCANNING :

ENVIRONMENTAL SCANNING External: Societal, Technological, economic, regulatory,competitive

environment- PEST analysis ETOP analysis Industry Analysis- Porter’s Model, Strategic groups

Internal SCANNING: Organisational Capabalitiy analysis- SWOT, TOWS matrix, Value Chain analysis

Organisation Structure Culture (Belief, expectation, Values) Resources (Assets, skills, competencies,

knowledge) BACK

STRATEGY FORMULATION :

STRATEGY FORMULATION Mission Reason for existence Objectives What results to accomplish when

Strategies Plan to achieve the mission & objective Policies Broad guidelines for decision making BACK

STRATEGY IMPLEMENTATION BACK

EVALUATION AND CONTROL :

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

BACK

STRATEGY FORMULATION :

STRATEGY FORMULATION Development of long range plans for effective management of

environmental opportunities and threats in the light of corporate strengths and weaknesses.

DIVERSIFIED COMPANY 3 LEVELS OF STRATEGY :

DIVERSIFIED COMPANY 3 LEVELS OF STRATEGY Corporate-Level Strategy Growth of business as a

whole Business-Level Strategy Division/business unit/product level Functional-Level Strategy support

corporate & business level strategy

STRATEGIC CHOICES :

STRATEGIC CHOICES Understanding the bases for future strategy at both corporate and business unit

levels and the options open for developing strategy in terms of both Corporate level – Highest level

and is concerned with the scope of an organisation’s strategies and the adding of value through its

relationship with the separate parts of the business and the synergies created between these parts

Business level – The competitive advantage that is created from the understanding of both markets

and customers based on specific competences Directions and methods – How an organisation

develops in terms of feasibility and acceptability

STRATEGY INTO ACTION :

STRATEGY INTO ACTION This is where strategies are working in practice Structuring – structure in

terms of processes, boundaries and relations and their interactions Enabling – Creation of support

mechanisms in the organisation in order to support strategy implementation and development

Change – Creating an environment that facilitates change throughout the organisation

nternal Organizational Analysis

In formulating a strategy, the strategic decision makers must also analyze conditions internal

to the organization. An internal analysis leads to a realistic company profile, which is the

determination of a firm's strategic competencies and weaknesses.

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

* In step 1, managers audit and examine key aspects of the business's operation, seeking to

target key areas for further assessment.

* Step 2 has managers evaluating the firm's status on these factors by comparing their current

condition with past abilities of the firm.

* In step 3, managers seek some comparative basis - linked to key industry or product/market

conditions - against which to more accurately determine whether the company's condition on a

particular factor represents a potential strength or weakness.

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

the strategic management process.

This explains internal analysis as a process, but in practice, efforts to distinguish each step are

seldom emphasized because the process is very interactive.

The Areas That Most Businesses Should Analyze

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

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

include the following:

1. Financial position. The financial position of a business plays a crucial role in determining what it can or cannot do in the future.

2. Product position. For a business to be successful, it must be acutely aware of its product position in the marketplace.

3. Marketing capability. Closely allied with an organization's product position is its marketing capabilities (i.e., its ability to deliver the right product at the right time at the right price).

4. Research and development capability. Every organization must be concerned about its ability to develop new products.

5. Organizational structure. Organizational structure can either help or hinder an organization in achieving its objectives.

6. Human resources. All the activities of an organization are significantly influenced by the quality and quantity of its human resources.

7. Condition of facilities and equipment. The condition of an organization's facilities and equipment can either enhance or hinder its competitiveness.

8. Past objectives and strategies. In assessing its internal environment, every business should attempt to explicitly describe its past objectives and strategies.

Internal analysis is difficult and challenging. The checklists provided above can be helpful in

determining specific strengths and weaknesses in the functional areas of business.

What Is an Internal Company Analysis?

By Isobel Washington, eHow Contributor

An internal company analysis is a business term strongly associated with a "SWOT"

(strengths, weaknesses, opportunities, threats) analysis. An internal company analysis is an

evaluation of a company's current position from the combined perspectives of marketing,

operations, and finance for strategic use.

1. Purpose o The ultimate purpose of an internal analysis is to use the information for

strategic planning, meaning the company's plan for furthering growth, success,

and leadership in the marketplace. Determining the business's strengths and

weaknesses translates into the steps necessary for achieving goals.

Source and Content

o This analysis is for internal management use only (not for shareholders), and is

comprised of assessments made by heads of finance, operations, and marketing,

based on data provided by these departments.

Core Competencies

o Core competencies are a company's strengths within their market. The strengths

could be of any or all of the following: products and services offered, customer

relationship management, product development and technological innovation,

or financial position and pricing, among others. These strengths are the business

muscles that keep the company in the game with competition.

Customer Relationship Management

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

since the infancy of the Information Age, since the multiplication and

accessibility of communication channels has allowed businesses to better

understand and serve their customers. CRM weighs heavily as an aspect of

internal analysis.

Competitive Advantage

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

which is what sets the company's products or services apart from the

competition, and is important to the internal analysis. Competitive advantage

could be in price, benefits offered, or some brand attribute that distinguishes the

company from its competitors.

Weaknesses

o Effective strategic management requires the identification of weaknesses,

which could range from product pricing to human resource issues. For the

internal analysis, it is important to approach the business's weaknesses from

both the internal perspective (those that come from within the organization) and

from the perspective of the marketplace as a whole, as in how the company is

positioned relative to competing companies and alternative products.

Business Environment Analysis

Background

Environmental analysis is a systematic process that starts from identification of

environmental factors, assessing their nature and impact, auditing them to find their

impact to the business, and making various profiles for positioning. A common

process of environmental analysis or scanning is discussed in the following

section.

Environmental Analysis Process

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

opportunities or face the threats. Organizations need to build strength and repair

their weakness available in the business environment. Therefore, this process

consists not only a single steps but a process of various steps.

Environmental analysis comprises scanning, monitoring, analyzing, and

forecasting the business situation. Scanning is to get the relevant information from the information overload. It is to focus on the most relevant information.

Monitoring is to check the nature of the environmental factors. Analyzing requires data collection and use of different required tools and techniques.

Forecasting is to find the future possibilities based on the past results and present scenario.

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

differ depending on the situation. However, a general process with few common

steps can be identified as the process of environmental analysis these are a)

Monitoring or identifying environmental factors, b) Scanning and selecting the

relevant factors and grouping them, c) Defining variables for analysis, d) Using

different methods, tools, and techniques for analysis, e) Analyzing environmental

factors and forecasting, f) Designing profiles, and g) Strategic positioning and

writing a report. Brief discussion is made on each of the step of this environmental

analysis process.

Identifying environmental factors

First of all a strategist should identify all the relevant factors that might affect

his or her business. In this process, one should first know what the internal areas

of the business are. This includes all the systems, internal structure, strategies

followed, and culture of the organization. All these areas can be covered into the

five functional areas in classical approach. Similarly, a business daily interacts

with the close environmental components outside the business such as customer,

competitor, and supplier. It might cover all other stakeholders such as trade union,

media, and pressure group. Furthermore, general such business environment

factors as political-legal, economic, socio-

cultural, and technological factors are to be identified

Scanning and selecting relevant and key factors

Out of all the business environmental factors, a strategist should focus only on

the relevant factors for further analysis. All the factors are not equally important

and affecting to the business. In this context, a strategist has to scan the

environmental trend to select only the most affecting environmental factors from the

information overload. This step paves the way of environment analysis and

forecasting.

Defining Variables for Analysis

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

concept can be interpreted into different variables. For example, political situation

can be measured using few variables such as instability, reliability, and long-term

effect. Economic environment might cover many variables such as Per Capita,

GDP, and Economic policies that can be further classified into many other

variables. Variables are the basis of measurement in environmental analysis

process. Variables can be compared, grouped, correlated, and predicted to find

the clearer picture of the broader concept. It is, therefore, necessary to define the

variables first in any kind of analysis including the environmental analysis.

Using Different Methods, Techniques, and Tools

Different types of methods, tools, and techniques are used for analysis. Some

of the major methods of analysis can be Scenario Building, Benchmarking,

and Network methods. Scenario presents overall picture of its total system with

affecting factors. Benchmarking is to find the best standard in an industry and to

compare the one's strengths and weakness with the standard. Network method is to

assess organizational systems and its outside environment to find the strength and

weakness, opportunity and threats of an organization. ...

Some of the techniques of primary information collection can be Delphi,

Brainstorming, Survey, and Historical enquiry. Delphi technique collects independent information from the experts without mixing them. Brainstorming is

information collection technique being open minded without criticizing others.

Survey is to design questions and to ask them to the participants

whereas the historical enquiry is a kind of case analysis of past period.

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

median, mode, frequency. Tools can be inferential as ANOVA, correlation,

regression, factor, cluster, and multiple regression analysis. There are many tools

of analyzing functional areas. Finance and accounting use mostly profitability,

leverage, fund flow and other similar accounting and financial tools for analysis.

Human resources use employee turnover, training, satisfaction and many others

as the basis of evaluating strength and weakness. Production area is assessed

using quality control, productivity, breakdown, and many others. Similarly,

marketing effectiveness is judged from the sales

volume and market coverage. Research and development is perceived

successful if it can really develop the strength in an organization.

Forecasting Environmental Factors

Collecting relevant information from the selected areas and to identify the

variables in such areas are the basics of analysis. Analyzing the past

information to predict the future is the main objective of this step. As discussed

earlier, use of different methods, techniques, and tools comes under the analysis

process. It is, therefore, a comprehensive process that analyzes collected

information using different tools and techniques.

Designing Profiles

After analyzing the environmental factors they are recorded into the profiles.

Such profiles record each component or variables into left side and their positive,

negative, or neutral indicators including their statement in the right side. Internal

areas are recorded in Strategic Advantages Profile (SAP) and external areas are

recorded in Environmental Threat and Opportunity Profile (ETOP). Strength,

Weakness, Opportunity, and Threat (SWOT) profile can be designed combining

both of these two profiles into one.

There are varieties of reporting formats or profiles used for external and

internal business environment analysis. Environmental Threat and Opportunity

Profile (ETOP) is commonly used to report the external environmental situation

whereas Strategic Advantages Profile (SAP) to report the internal

environmental situation1. Both of these profiles2can be merged into Strength- Weakness-Opportunity-Threat (SWOT) profile. (See: annex...). David used External Factor Evaluation (EFE) Matrix to present weighted score of external

environmental factors. Similarly, he used Internal Factor Evaluation (IFE) Matrix

to make the reporting of internal environmental audit. (See: annex-...). Whellen &

Hunger used External Factors Analysis Summary (EFAS) and

Internal Factors Analysis Summary (IFAS) that are presented in annex- ....

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

profile related to external business environment. Strategic advantages profile

(SAP) is related to internal business environment. Nowadays, strength &

weakness and opportunities & threats (SWOT) profile has become very popular.

Present writing pursued the approach of reporting external and internal business

environment using the same approach. ...

Preparing ETOP

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

identifies the relevant environmental factors. Such factors might be general

environmental factors and task environment factors. Thereafter, it is necessary to

identify their nature. Some factors are positive to the organization whereas

1 2

see Jauch, Gupta, and Glueck, 2003 see Jauch, Gupta, and Glueck, 2003; Johnson & Scholas, 2003

others are negative. Therefore, it is necessary to find out their impact to the

organization. Positive, neutral, and negative sign in ETOP denotes the relevant

impact of environmental factors.

Preparing SAP

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

of an organization. Preparation of SAP is very similar process to the ETOP. There

are generally five functional areas in most of the organizations. These areas are

Production or Operation, Finance or Accounting, Marketing or Distribution, Human

Resource & Corporate Planning, and Research & Development. These functional

areas are listed to identify their relative strength and weakness in SAP. Very similar

to the ETOP, positive, neutral, and negative signs are denoted and brief description

is written in SAP profile. Each functional area is very broad having many components

inside.

All these above described profiles provide a clear picture to understand the

strategic position of an organization.

Strategic Position and Report Writing

After analysis of business environment a strategist knows the actual situation

and can make some future forecasting based on the environmental analysis. After

preparing the profiles strategists prepare formal report that describes the business

environment. The report might present issues and best strengths of business

environment in a systematic process. One can draw future strategies based on the

strategic analysis followed.

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

environmental factors then analyzes using different tools and techniques to find out

the actual situation. This overall process is sometimes known as SWOT analysis,

environmental scanning, environmental analysis, or monitoring-forecasting. This

process is very important for a manager to make his or her organization success by

choosing the best available alternative strategy.

Some Approaches of Specific Environmental Scanning

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

and techniques that are commonly used to analyze the sector wise business

environment. The sectors of business environment are external business

environment, industry level business environment, and internal business

environment.

Gap analysis

In business and economics, gap analysis is a tool that helps a company to compare its actual

performance with its potential performance. At its core are two questions: "Where are we?" and

"Where do we want to be?" If a company or organization is not making the best use of its current

resources or is forgoing investment in capital or technology, then it may be producing or

performing at a level below its potential. This concept is similar to the base case of being below

one's production possibilities frontier.

The goal of gap analysis is to identify the gap between the optimized allocation and integration

of the inputs (resources) and the current level of allocation. This helps provide the company with

insight into areas which could be improved. The gap analysis process involves determining,

documenting and approving the variance between business requirements and current capabilities.

Gap analysis naturally flows from benchmarking and other assessments. Once the general

expectation of performance in the industry is understood, it is possible to compare that

expectation with the company's current level of performance. This comparison becomes the gap

analysis. Such analysis can be performed at the strategic or operational level of an organization.

Gap analysis is a formal study of what a business is doing currently and where it wants to go in

the future. It can be conducted, in different perspectives, as follows:

1. Organization (e.g., human resources) 2. Business direction 3. Business processes 4. Information technology

Gap analysis provides a foundation for measuring investment of time, money and human

resources required to achieve a particular outcome (e.g. to turn the salary payment process from

paper-based to paperless with the use of a system). Note that 'GAP analysis' has also been used

as a means for classification of how well a product or solution meets a targeted need or set of

requirements. In this case, 'GAP' can be used as a ranking of 'Good', 'Average' or 'Poor'.

The need for new products or additions to existing lines may have emerged from portfolio

analyses, in particular from the use of the Boston Consulting Group Growth-share matrix, or the

need will have emerged from the regular process of following trends in the requirements of

consumers. At some point a gap will have emerged between what the existing products offer the

consumer and what the consumer demands. That gap has to be filled if the organization is to

survive and grow.

To identify a gap in the market, the technique of gap analysis can be used. Thus an examination

of what profits are forecasted for the organization as a whole compared with where the

organization (in particular its shareholders) 'wants' those profits to be represents what is called

the 'planning gap': this shows what is needed of new activities in general and of new products in

particular.

The planning gap may be divided into three main elements:

Usage gap

This is the gap between the total potential for the market and the actual current usage by all the

consumers in the market. Clearly two figures are needed for this calculation:

market potential existing usage Current industrial potential

Market potential

The maximum number of consumers available will usually be determined by market research, but

it may sometimes be calculated from demographic data or government statistics. Ultimately there

will, of course, be limitations on the number of consumers. For guidance one can look to the

numbers using similar products. Alternatively, one can look to what has happened in other

countries.[citation needed]

The increased affluence of all the major Western economies means that

such a lag can now be much shorter.

at least the maximum attainable average usage (there will always be a spread of usage across a

range of customers), will usually be determined from market research figures. It is important,

however, to consider what lies behind such usage

Existing usage

The existing usage by consumers makes up the total current market, from which market shares,

for example, are calculated. It is usually derived from marketing research, most accurately from

panel research such as that undertaken by the Nielsen Company but also from ad hoc work.

Sometimes it may be available from figures collected by government departments or industry

bodies; however, these are often based on categories which may make sense in bureaucratic

terms but are less helpful in marketing terms.

The 'usage gap' is thus:

usage gap = market potential – existing usage

This is an important calculation to make. Many, if not most marketers, accept the existing market

size, suitably projected over the timescales of their forecasts, as the boundary for their expansion

plans. Although this is often the most realistic assumption, it may sometimes impose an

unnecessary limitation on their horizons. The original market for video-recorders was limited to

the professional users who could afford the high prices involved. It was only after some time that

the technology was extended to the mass market.

In the public sector, where the service providers usually enjoy a monopoly, the usage gap will

probably be the most important factor in the development of the activities. But persuading more

consumers to take up family benefits, for example, will probably be more important to the

relevant government department than opening more local offices.

The usage gap is most important for the brand leaders. If any of these has a significant share of

the whole market, say in excess of 30 per cent, it may become worthwhile for the firm to invest

in expanding the total market. The same option is not generally open to the minor players,

although they may still be able to target profitably specific offerings as market extensions.

All other gaps relate to the difference between the organization's existing sales (its market share)

and the total sales of the market as a whole. This difference is the share held by competitors.

These gaps will, therefore, relate to competitive activity.

Product gap

The product gap, which could also be described as the segment or positioning gap, represents

that part of the market from which the individual organization is excluded because of product or

service characteristics. This may have come about because the market has been segmented and

the organization does not have offerings in some segments, or it may be because the positioning

of its offering effectively excludes it from certain groups of potential consumers, because there

are competitive offerings much better placed in relation to these groups.

This segmentation may well be the result of deliberate policy. Segmentation and positioning are

very powerful marketing techniques; but the trade-off, to be set against the improved focus, is

that some parts of the market may effectively be put beyond reach. On the other hand, it may

frequently be by default; the organization has not thought about its positioning, and has simply

let its offerings drift to where they now are.

The product gap is probably the main element of the planning gap in which the organization can

have a productive input; hence the emphasis on the importance of correct positioning.

Market gap analysis

In the type of analysis described above, gaps in the product range are looked for. Other

perspective (essentially taking the "product gap" to its logical conclusion) is to look for gaps in

the "market" (in a variation on "product positioning", and using the multidimensional

"mapping"), which the company could profitably address, regardless of where the current

products stand.

Many marketers would question the worth of the theoretical gap analysis described earlier.

Instead, they would immediately start proactively to pursue a search for a competitive advantage.

SWOT Analysis

A scan of the internal and external environment is an important part of the strategic planning process. Environmental factors internal to the firm usually can be classified as strengths (S) or weaknesses (W), and those external to the firm can be classified as

opportunities (O) or threats (T). Such an analysis of the strategic environment is referred to as a SWOT analysis.

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

SWOT Analysis Framework

Environmental Scan

/ \

Internal Analysis External Analysis

/ \ / \

Strengths Weaknesses Opportunities Threats

|

SWOT Matrix

Strengths

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

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

Weaknesses

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

lack of patent protection a weak brand name

poor reputation among customers high cost structure lack of access to the best natural resources lack of access to key distribution channels

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

Opportunities

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

an unfulfilled customer need arrival of new technologies loosening of regulations removal of international trade barriers

Threats

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

shifts in consumer tastes away from the firm's products emergence of substitute products new regulations increased trade barriers

The SWOT Matrix

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

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

SWOT / TOWS Matrix

Strengths Weaknesses

Opportunities S-O strategies W-O strategies

Threats S-T strategies W-T strategies

S-O strategies pursue opportunities that are a good fit to the company's strengths.

W-O strategies overcome weaknesses to pursue opportunities. S-T strategies identify ways that the firm can use its strengths to reduce its

vulnerability to external threats. W-T strategies establish a defensive plan to prevent the firm's weaknesses from

making it highly susceptible to external threats.

SPACE ANALYSIS

SPACE Matrix Strategic Management Method

The SPACE matrix is a management tool used to analyze a company. It is used to determine

what type of a strategy a company should undertake.

The Strategic Position & ACtion Evaluation matrix or short a SPACE matrix is a strategic

management tool that focuses on strategy formulation especially as related to the competitive

position of an organization.

The SPACE matrix can be used as a basis for other analyses, such as the SWOT analysis, BCG

matrix model, industry analysis, or assessing strategic alternatives (IE matrix).

What is the SPACE matrix strategic management method?

To explain how the SPACE matrix works, it is best to reverse-engineer it. First, let's take a look

at what the outcome of a SPACE matrix analysis can be, take a look at the picture below. The

SPACE matrix is broken down to four quadrants where each quadrant suggests a different type

or a nature of a strategy:

Aggressive Conservative Defensive

Competitive

This is what a completed SPACE matrix looks like:

This particular SPACE matrix tells us that our company should pursue an aggressive strategy.

Our company has a strong competitive position it the market with rapid growth. It needs to use

its internal strengths to develop a market penetration and market development strategy. This can

include product development, integration with other companies, acquisition of competitors, and

so on.

Now, how do we get to the possible outcomes shown in the SPACE matrix? The SPACE Matrix

analysis functions upon two internal and two external strategic dimensions in order to determine

the organization's strategic posture in the industry. The SPACE matrix is based on four areas of

analysis.

Internal strategic dimensions:

Financial strength (FS)

Competitive advantage (CA)

External strategic dimensions:

Environmental stability (ES)

Industry strength (IS)

There are many SPACE matrix factors under the internal strategic dimension. These factors

analyze a business internal strategic position. The financial strength factors often come from

company accounting. These SPACE matrix factors can include for example return on

investment, leverage, turnover, liquidity, working capital, cash flow, and others. Competitive

advantage factors include for example the speed of innovation by the company, market niche

position, customer loyalty, product quality, market share, product life cycle, and others.

Every business is also affected by the environment in which it operates. SPACE matrix factors

related to business external strategic dimension are for example overall economic condition,

GDP growth, inflation, price elasticity, technology, barriers to entry, competitive pressures,

industry growth potential, and others. These factors can be well analyzed using the Michael

Porter's Five Forces model.

The SPACE matrix calculates the importance of each of these dimensions and places them on a

Cartesian graph with X and Y coordinates.

The following are a few model technical assumptions:

- By definition, the CA and IS values in the SPACE matrix are plotted on the X axis.

- CA values can range from -1 to -6.

- IS values can take +1 to +6.

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

- ES values can be between -1 and -6.

- FS values range from +1 to +6.

How do I construct a SPACE matrix?

The SPACE matrix is constructed by plotting calculated values for the competitive advantage

(CA) and industry strength (IS) dimensions on the X axis. The Y axis is based on the

environmental stability (ES) and financial strength (FS) dimensions. The SPACE matrix can be

created using the following seven steps:

Step 1: Choose a set of variables to be used to gauge the competitive advantage (CA),

industry strength (IS), environmental stability (ES), and financial strength (FS).

Step 2: Rate individual factors using rating system specific to each dimension. Rate

competitive advantage (CA) and environmental stability (ES) using rating scale from -6 (worst)

to -1 (best). Rate industry strength (IS) and financial strength (FS) using rating scale from +1

(worst) to +6 (best).

Step 3: Find the average scores for competitive advantage (CA), industry strength (IS),

environmental stability (ES), and financial strength (FS).

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

axis.

Step 5: Add the average score for the competitive advantage (CA) and industry strength (IS)

dimensions. This will be your final point on axis X on the SPACE matrix.

Step 6: Add the average score for the SPACE matrix environmental stability (ES) and financial

strength (FS) dimensions to find your final point on the axis Y.

Step 7: Find intersection of your X and Y points. Draw a line from the center of the SPACE

matrix to your point. This line reveals the type of strategy the company should pursue.

SPACE matrix example

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

Each factor within each strategic dimension is rated using appropriate rating scale. Then

averages are calculated. Adding individual strategic dimension averages provides values that are

plotted on the axis X and Y.

The BCG Growth-Share Matrix

The BCG Growth-Share Matrix is a portfolio planning model developed by Bruce Henderson of

the Boston Consulting Group in the early 1970's. It is based on the observation that a company's

business units can be classified into four categories based on combinations of market growth and

market share relative to the largest competitor, hence the name "growth-share". Market growth

serves as a proxy for industry attractiveness, and relative market share serves as a proxy for

competitive advantage. The growth-share matrix thus maps the business unit positions within

these two important determinants of profitability.

BCG Growth-Share Matrix

This framework assumes that an increase in relative market share will result in an increase in the

generation of cash. This assumption often is true because of the experience curve; increased

relative market share implies that the firm is moving forward on the experience curve relative to

its competitors, thus developing a cost advantage. A second assumption is that a growing market

requires investment in assets to increase capacity and therefore results in the consumption of

cash. Thus the position of a business on the growth-share matrix provides an indication of its

cash generation and its cash consumption.

Henderson reasoned that the cash required by rapidly growing business units could be obtained

from the firm's other business units that were at a more mature stage and generating significant

cash. By investing to become the market share leader in a rapidly growing market, the business

unit could move along the experience curve and develop a cost advantage. From this reasoning,

the BCG Growth-Share Matrix was born.

The four categories are:

Dogs - Dogs have low market share and a low growth rate and thus neither generate nor

consume a large amount of cash. However, dogs are cash traps because of the money tied

up in a business that has little potential. Such businesses are candidates for divestiture.

Question marks - Question marks are growing rapidly and thus consume large amounts

of cash, but because they have low market shares they do not generate much cash. The

result is a large net cash comsumption. A question mark (also known as a "problem

child") has the potential to gain market share and become a star, and eventually a cash

cow when the market growth slows. If the question mark does not succeed in becoming

the market leader, then after perhaps years of cash consumption it will degenerate into a

dog when the market growth declines. Question marks must be analyzed carefully in

order to determine whether they are worth the investment required to grow market share.

Stars - Stars generate large amounts of cash because of their strong relative market share,

but also consume large amounts of cash because of their high growth rate; therefore the

cash in each direction approximately nets out. If a star can maintain its large market

share, it will become a cash cow when the market growth rate declines. The portfolio of a

diversified company always should have stars that will become the next cash cows and

ensure future cash generation.

Cash cows - As leaders in a mature market, cash cows exhibit a return on assets that is

greater than the market growth rate, and thus generate more cash than they consume.

Such business units should be "milked", extracting the profits and investing as little cash

as possible. Cash cows provide the cash required to turn question marks into market

leaders, to cover the administrative costs of the company, to fund research and

development, to service the corporate debt, and to pay dividends to shareholders. Because

the cash cow generates a relatively stable cash flow, its value can be determined with

reasonable accuracy by calculating the present value of its cash stream using a discounted

cash flow analysis.

Under the growth-share matrix model, as an industry matures and its growth rate declines, a

business unit will become either a cash cow or a dog, determined soley by whether it had become

the market leader during the period of high growth.

While originally developed as a model for resource allocation among the various business units

in a corporation, the growth-share matrix also can be used for resource allocation among

products within a single business unit. Its simplicity is its strength - the relative positions of the

firm's entire business portfolio can be displayed in a single diagram.

Limitations

The growth-share matrix once was used widely, but has since faded from popularity as more

comprehensive models have been developed. Some of its weaknesses are:

Market growth rate is only one factor in industry attractiveness, and relative market share

is only one factor in competitive advantage. The growth-share matrix overlooks many

other factors in these two important determinants of profitability.

The framework assumes that each business unit is independent of the others. In some

cases, a business unit that is a "dog" may be helping other business units gain a

competitive advantage.

The matrix depends heavily upon the breadth of the definition of the market. A business

unit may dominate its small niche, but have very low market share in the overall industry.

In such a case, the definition of the market can make the difference between a dog and a

cash cow.

While its importance has diminished, the BCG matrix still can serve as a simple tool for viewing

a corporation's business portfolio at a glance, and may serve as a starting point for discussing

resource allocation among strategic business units.

GE / McKinsey Matrix

In consulting engagements with General Electric in the 1970's, McKinsey & Company developed a nine-cell portfolio matrix as a tool for screening GE's large portfolio of

strategic business units (SBU). This business screen became known as the GE/McKinsey Matrix and is shown below:

GE / McKinsey Matrix

Business Unit Strength

High Medium Low

High

Medium

Low

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

The GE matrix generalizes the axes as "Industry Attractiveness" and "Business Unit Strength" whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit.

The GE matrix has nine cells vs. four cells in the BCG matrix.

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

Industry Attractiveness

The vertical axis of the GE / McKinsey matrix is industry attractiveness, which is determined by factors such as the following:

Market growth rate Market size Demand variability Industry profitability Industry rivalry Global opportunities Macroenvironmental factors (PEST)

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

Industry attractiveness = factor value1 x factor weighting1

+ factor value2 x factor weighting2

.

.

.

+ factor valueN x factor weightingN

Business Unit Strength

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

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

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

Plotting the Information

Each business unit can be portrayed as a circle plotted on the matrix, with the information conveyed as follows:

Market size is represented by the size of the circle. Market share is shown by using the circle as a pie chart. The expected future position of the circle is portrayed by means of an arrow.

The following is an example of such a representation:

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

Strategic Implications

Resource allocation recommendations can be made to grow, hold, or harvest a strategic business unit based on its position on the matrix as follows:

Grow strong business units in attractive industries, average business units in attractive industries, and strong business units in average industries.

Hold average businesses in average industries, strong businesses in weak industries, and weak business in attractive industies.

Harvest weak business units in unattractive industries, average business units in unattractive industries, and weak business units in average industries.

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

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

Strategic Analysis and Choice

Strategic analysis and choice are two important components of the implementation stage of the

strategic management plan. These two components are crucial links in the strategic management

implementation procedure. Strategic analysis involves a number of steps.

About Strategic Analysis and Choice Strategic implementation is the penultimate stage of strategic management and strategic analysis

and choice are two significant constituents of that process.

The strategy of a company refers to its all-inclusive plan or program for the purpose of

accomplishing its aims and targets in the long run. Different types of strategies include business

unit strategy, corporate strategy, operational strategy and others.

Strategic analysis implies the examination of the present condition of a business and

consequently developing an appropriate business strategy.

Strategic analysis carries higher importance with regards to conglomerates that offer a wide

range of diversified products. Strategic choice refers to the selection of the appropriate business

strategy.

At the time of performing strategic analysis and arriving at strategic choices, long term goals are

fixed and different types of strategies are chosen that are most appropriate for the mission of the

company and the variable conditions.

Strategic analysis and choice of strategies are done with the help of a number of techniques. If

the appropriate strategy is chosen, a company would become more efficient to establish

sustainability in competitive advantage and maximize firm valuation.

Factors Taken into Consideration for Strategic Analysis and Choice

Key Internal Factors

Marketing

Management

Operations/Production

Accounting/Finance

Computer Information Systems

Research and Development

Key External Factors

Political/Governmental/Legal

Economy

Technological

Social/Demographic/Cultural/Environmental

Competitive

Techniques Used in Strategic Analysis The following devices or techniques are used in the procedure of strategic analysis:

Five Forces Analysis

PEST Analysis (Political, Economic, Social and Technological Analysis)

Market segmentation

Scenario planning

Competitor analysis

Directional policy matrix

SWOT Analysis (Strength, Weaknesses, Opportunities, and Threats Analysis)

Critical Success Factor Analysis

Characteristics of Strategic Analysis and Choice Following are the features of strategic analysis and choice:

Establishment of long term goals

Producing strategy options

Choosing strategies to act on

Selecting the best option and accomplishing mission and goals

Strategic intent

IT is about clarity, focus and inspiration

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

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

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

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

To illustrate the point let us take an example of hypothetical company having a vision of becoming a “world class” company. This is the most common vision statement of companies that we come across so very frequently. Now what do people do to make the company truly “world class”. How a strategic intent can be developed to bring about more clarity to the vision statement, so that people can direct their efforts and energies for the cause.

Strategic intent provides clarity Continuing with the example of vision of being a “world class” company, how can we define the strategic intent of the company that not only will take the company towards its vision but also clarify the meaning of the vision in such terms that it can influence the day-to-day work of the people? Considering that “world class” in general means competitive performance. So initially, being “world class” may be interpreted as surpassing competitors on all competitive parameters that are important for the customers and the company. So the strategic intent during initial period can be to “beat the competitors”. So “beat the competitors” represents a particular point of view of the long term vision of being a “world class” company.

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

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

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