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Strategic Business Analysis Chapter 1
Accounting (Laguna State Polytechnic University)
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STRATEGIC BUSINESS ANALYSIS
UNIT 1:
STRATEGIC POSITION
This unit begins with the assessment of strategic position and is
concerned with the impact of the external environment, its
internal capabilities and expectations and how the organization
positions itself. It examines how factors such as culture,
leadership and stakeholder expectations shape organizational
purpose.
CHAPTER 1:
THE PURPOSE OF STRATEGIC AND BUSINESS
ANALYSIS
INTRODUCTION
Strategic business analysis in modern day business is hard to separate
from strategic management and planning where management have to battle with the ever
changing business environment. Strategic business analysis depicts the role of strategy in
business.
In this topic we will be discussing about the purpose of strategic and business
analysis. We will look deeper into the various terminologies used, explore on the
Johnson, Scholes and Whittington model and so with the strategy lenses.
LEARNING OUTCOMES
At the end of the topic, students will be able to:
1.
Identify the fundamental nature and terminology of strategy and strategic
decisions and strategic business analysis.
2.
Discuss how strategy may be formulated at the corporate, business and
operations level of an organization.
3.
Study and investigate the Johnson, Scholes and Whittington model for defining
the strategic position, strategic choices and strategy into action.
4.
Relate the three different strategy lenses (JS&W) for viewing and
understanding strategy and strategic management.
5.
Discover the scope of business analysis and its relationship to strategy and
strategic management in the context of the relational diagram of this syllabus.
6.
Advise on how organizations can communicate their core values and mission.
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ACTIVATING PRIOR LEARNING
• Basing from the given drawing/illustration write a brief idea about what is the
purpose of strategic and business analysis.
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PRESENTATION OF CONTENT
P u r p o s e o f St r a t e gic
and
B u s in e s s A n a ly s is
D e f in it io n o f
L e v e ls o f
E le m e n t s o f
R e la t io n a l
St r a t e gy
St r a t e gy
St r a t e gic
D ia gr a m
M a n a ge m e n t
C o rp o ra te
P ro c e ss o f
St r a t e gy
D e v e lo p m e n t
St r a t e gic
D e lib e r a t e ,
St r a t e gic
P o s it io n
E m e r ge n t ,
L e n se s
In c re m e n ta l
St r a t e gic
P la n n in g
F ra m e w o rk
St r a t e gy
B u s in e s s
St r a t e gic
C h o ic e s
A s D e s ign
R a t io n a l
A s E x p e r ie n c e
P la n n in g
A s Id e a s
F u n c t io n a l
M odel
St r a t e gic
Gap
in t o A c t io n
A n a ly s is
1. Definition of Strategy and Strategic Business Analysis
1.1
Strategy
Strategy can be defined in a number of different ways. We should be aware that every
definition is likely to be engrained within the different outlooks adopted by its authors. For
this reason a definition of strategy, which is accepted by everyone, is not as straightforward as
might first appear. As individuals we all formulate strategies to help us achieve certain goals
or objectives.
According to Peter Drucker, a strategy is a pattern of activities that seek to achieve the
objectives of the organization and adapt its scope, resources and operations to environmental
changes in the long term. Drucker recognized that any company’s strategy had to incorporate
the answers to four questions.
1. What opportunities it wants to pursue and what risks it is willing and able to accept.
2. The scope and structure of its strategy, including the right balance among such aspects
specialization, diversification, and integration.
3. Acceptable trade-offs between time and money and between in-house execution versus
using a merger, acquisition, or joint venture or some external means to reach its
objectives and attain its goals.
4. The organizational structure appropriate to its economic realities, the opportunities,
and it performance expectations.
5. A recognition that strategy had to be based on these four questions led to a
methodology which Drucker adopted which was more inferred than spelled out as a
“by the numbers” process.
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Drucker also emphasized that a strategy contains several elements:
1. A strategy consists of organized activities.
2. The purpose of these activities (the strategy) is to achieve an objective.
3. Strategy is long-term. Formal strategic planning by large companies, for example, might
cover five years or ten years into the future, and for some companies even longer.
4. The strategic choices that an enterprise makes are strongly influenced by the
environment in which the enterprise exists.
5. The environment is continually changing, which means that strategies cannot be rigid
and unchanging.
6. Strategies involve an enterprise in doing different things with different resources over
time, as it is forced to adapt to changes in its environment.
Johnson, Scholes and Whittington defined strategy as “the direction and scope of an
organization over the long term, which achieves advantage in a changing environment
through its configuration of resources and competencies with the aim of fulfilling
stakeholder expectations.” They have also identified the range or scope of strategic
decisions as follows:
1. Deciding the scope of the entity’s activities. What businesses should we be in?
2. Relating the activities of the entity to the environment in which it operates.
3. Ensuring that the entity has the resource capacity to operate in its selected areas of
activity. This means making sure that the entity has enough employees with the right
skills, access to sufficient raw materials and other supplies, enough equipment, suitable
IT systems, and so on.
4. Allocating resources to the different business activities.
5. Providing a high-level (strategic) framework for more detailed decision-making at an
operational level.
6. Reflecting the values and expectations of the individuals in positions of power within
the entity.
7. Deciding the long-term direction that the entity should take.
8. In many cases, implementing change within the entity so that it adapts successfully to
its changing environment.
Example
A company that extracts and supplies oil and natural gas is considering its future
business direction over the next 10 years. It is aware that these resources are in limited
supply, and that there is growing public and political concern about the environment.
The company’s board of directors might agree on the following broad strategy.
 The company will continue to extract oil and natural gas, but it will also invest
heavily in production of energy from renewable energy sources, such as wind and
sea.
 The move into energy from renewable sources recognises the probability that
public and political pressure will grow for restrictions on the use of nonrenewable
energy sources and for protection of the global environment.
 Change is therefore essential for long-term survival.
 The strategic plan should also provide for the resources required to achieve the
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


1.2
company’s goals. Important resources for the chosen plan will include exploration
rights, access to pipelines and other methods of transporting energy to users, and
expertise in wind and wave power technology.
A decision must be made about how many resources (including money) should
be invested in each business activity.
This will depend partly on the strategic vision of the board of directors, and the
direction they think the company should be taking. What proportion if its total
energy sources in ten years time will come from wind and wave power, and to
what extent will the company still be relying on oil and natural gas?
The strategic plan also reflects the values of the board of directors. In this
example, the company has not included nuclear power in its strategic plan.
Strategic business analysis
Strategic business analysis are those actions and decisions made by management while
trying to understand the impact of strategic events like: introduction or development of
new product line, setting up a factory in a new location, employing key staff, selecting
organizational structure, investing in new technology, managing risks, complying with
relevant laws and regulations, implementing changes, etc. Strategic business analysis look
at things from both corporate perspective and longer term view. In modern day business,
strategic business analysis is hard to separate from strategic management and planning
where management have to battle with the ever changing business environment. Strategic
business analysis depicts the role of strategy in business. The strategic business analysis
have the following characteristics:
1. Long term in nature: for any business analysis to be strategic in nature, it must have a
long term view. When designing a balanced scorecard for example, management
should think of the impact that each target and objectives that is contained in the
strategic map will do to the long run survival of the company.
2. Focus on external events and activities: senior managers spend about 60% of their time
gathering and interpreting information from outside source which will significantly
improve decision making process. They interact with people and organizations outside
the entity in order to achieve this goal.
3. Place more emphasis on qualitative matters: in as much as financial indicators play
vital role in shaping the fortune a business entity, attention should also be given to
those qualitative factors that an establishment cannot afford to ignore, else, business
failure will imminent. A qualitative emphasis means that detailed calculations and
manipulation of figures are unnecessary. All that is needed is the big picture.
2. Levels of Strategy
Strategy is at the heart of business. All businesses have competition, and it is strategy
that allows one business to rise above the others to become successful. Even if you have a
great idea for a business, and you have a great product, you are unlikely to go anywhere
without strategy.
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2.1
Corporate Strategy
The first level of strategy in the business world is corporate strategy, which sits at
the ‘top of the heap’. Corporate strategy is concerned with deciding which business or
businesses an entity should be in, and setting targets for the achievement of the entity’s
overall objectives.
It is easy to overlook this planning stage when getting started with a new
business, but you will pay the price in the long run for skipping this step. It is crucially
important that you have an overall corporate strategy in place, as that strategy is going to
direct all of the smaller decisions that you make.
For some companies, outlining a corporate strategy will be a quick and easy
process. For example, smaller businesses who are only going to enter one or two specific
markets with their products or services are going to have an easy time identifying what it
is that makes up the overall corporate strategy. If you are running an organization that
bake and sells cookies, for instance, you already know exactly what the corporate
strategy is going to look like – you are going to sell as many cookies as possible.
However, for a larger business, things quickly become more complicated.
Carrying that example forward to a larger company, imagine you run an organization that
is going to sell cookies but is also going to sell equipment that is used while making
cookies. Entering into the kitchen equipment market is a completely different challenge
from selling the cookies themselves, so the complexity of your corporate strategy will
need to rapidly increase. Before you get any farther into the strategic planning of your
business, be sure you have your corporate strategy clearly defined.
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2.2
Business Strategy
It is best to think of this level of strategy as a ‘step down’ from the corporate
strategy level. In other words, the strategies that you outline at this level are slightly more
specific and they usually relate to the smaller businesses within the larger organization.
Business strategy, also called competitive strategy, is concerned with how each business
activity within the entity contributes towards the achievement of the corporate strategy.
Carrying over our previous example, you would be outlining separate strategies
for selling cookies and selling cookie-making equipment at this level. You may be going
after convenience stores and grocery stores to sell your cookies, while you may be
looking at department stores and the internet to sell your equipment. Those are
dramatically different strategies, so they will be broken out at this level.
Even in smaller businesses, it is a good idea to pay attention to the business
strategy level so you can decide on how you are going to handle each various part of your
operation. The strategy that you highlighted at the corporate level should be broad in
scope, so now is the time to boil it down into smaller parts which will enable you to take
action.
2.3
Functional Strategy
This is the day-to-day strategy that is going to keep your organization moving in
the right direction. Functional strategy is also called operational strategy. These decisions
include product pricing, investment in plant, personnel policy, and so on. It is important
that these strategies link to the strategic business unit strategies and through those
strategies, in turn, to the corporate strategy, as the successful implementation of these is
necessary for the fulfillment of both corporate and business objectives.
Just as some businesses fail to plan from a top-level perspective, other businesses
fail to plan at this bottom-level. This level of strategy is perhaps the most important of all,
as without a daily plan you are going to be stuck in neutral while your competition
continues to drive forward. As you work on putting together your functional strategies,
remember to keep in mind your higher level goals so that everything is coordinated and
working toward the same end.
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3.
It is at this bottom-level of strategy where you should start to think about the
various departments within your business and how they will work together to reach goals.
Your marketing, finance, operations, IT and other departments will all have
responsibilities to handle, and it is your job as an owner or manager to oversee them all to
ensure satisfactory results in the end. Again, the success or failure of the entire
organization will likely rest on the ability of your business to hit on its functional strategy
goals regularly. As the saying goes, a journey of a million miles starts with a single step –
take small steps in strategy on a daily basis and your overall corporate strategy will
quickly become successful.
Elements of Strategic Management and Business Analysis
To study strategic management, it is useful to have a logical structure or model as a
basis for analysis. Johnson, Scholes and Whittington state that strategic management consists
of three elements:
1. Strategic position
2. Strategic choices
3. Strategic into action
3.1 Strategic position
Strategic position means making an analysis or assessment of the strategic position
of the entity. The senior management of a company, for example, need to understand the
position of the company in its markets:
1. In what ways does the company perform better than its competitors?
2. In what ways are competitors more successful
In other words, how do rival companies compare with each other in terms of
competitive advantage?
Management also need to understand the factors in the business environment that
affect their company, and how the company will be affected by changes that are likely to
happen in the environment in the future. For example, could the company be affected by
changes in technology, or changes in the state of the economy, or new laws and will there
be changes in what customers want to buy, because of changes in society or life styles? If
so, how might this affect what the company produces and sells?
Management have to make a decision about what their company should be doing,
and what the company is trying to achieve. Objectives need to be realistic, so management
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need to understand where the company stands now in its markets, and where it should be
trying to get to a few years in the future.
Three aspects to strategic position (Johnson, Scholes and Whittington)
1. Environment – an analysis of the business environment involves an analysis of the
threats and opportunities that seem to exist, and an assessment of their
significance.
2. Strategic capability of the entity – the management of an entity should also make
an assessment of the strategic capability of the entity. This means reaching an
understanding of what the entity is capable of achieving. An assessment of
strategic capability involves an analysis of the strengths and weaknesses of the
entity.
3. Expectations and purposes – an analysis of strategic position also requires
management to make decisions about the purpose of the entity and what it is trying
to achieve.
3.2 Strategic Choice
Three elements
1. Generation of strategic options, e.g. growth, acquisition, diversification or
concentration.
2. Evaluation of the options to assess their relative merits and feasibility.
3. Selection of the strategy or option that the organization will pursue.
Strategic choices need to be made of every level, though obviously choices made
at any particular level can influence choices at other levels.
1. Corporate level – Decisions have to be made about what the entity should be
doing. For companies, this means making decisions about which products or
services it should be selling, and what markets it should be selling them in.
2. Business level – For companies, a major strategic choice is between a strategy of
cost leadership and a strategy of differentiation.
3. Operational level – For example, whether an organization should outsource
components or make them itself.
3.3
Strategy into action/implementation
These means implementing the chosen strategies. There are three aspects to strategy
implementation:
1. Organizing – An organization structure must be established that will help the
entity to implement its strategies effectively in order to achieve its strategic
targets. Organizing means putting into place a management structure and
delegating authority. Individuals should be made responsible and accountable for
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different aspects of the chosen strategies. Decision-making processes must be
established.
For example, should the organization be split into European, US and Asian
divisions? How autonomous should divisions be?
2. Enabling – It means enabling the entity to achieve success through the effective
use of its resources.
For example, appropriate human resources and fixed assets need to be acquired.
3. Managing change – Most strategic planning and implementation will involve
change, so managing change, in particular employees’ fears and resistance, is
crucial.
Example 3
A full-price airline is considering setting up a no-frills, low-fare subsidiary. The strategic
planning process would include the following elements.
Strategic position – competitor action, oil price forecasts, passenger volume forecasts,
availability of cheap landing rights, public concern for environmental damage, effect on the
main brand.
Strategic choices – which routes to launch? Set up a service from scratch or buy an existing
cheap airline? Which planes to use, what on-board services to offer?
Strategic implementation – how autonomous should the new airline be? How to recruit and
train staff? Implementation of the internet booking system. Acquisition of aircraft. Obtaining
landing slots.
4.
The Process of Strategy Development
4.1 Deliberate strategy, emergent strategy and incremental strategy
4.1.1
Deliberate strategy
Deliberate strategy is a top down approach to strategic planning that emphasize
intention. This is built based on the vision and mission of the organization and is
focused on achieving the purpose of doing business. Michael Porter introduced the
concept of deliberate strategy and said that “Strategy is about making choice, tradeoffs; it’s about deliberately choosing to be different.” He emphasized that
businesses should strive to achieve one of the following positions in order to
achieve a competitive advantage. These strategies are named as ‘generic
competitive strategies’.
•
Cost leadership strategy – achieving the lowest cost of operation in an industry
•
Differentiation strategy – offering a unique product that does not have a close
substitute
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•
Focus strategy – achieving a cost leadership of differentiation status in a niche
market
Deliberate strategy attempts to minimize outside influence acting on
business operations. However, the external environments can change drastically
while such changes are difficult to predict in advance. Thus, the company must
undertake a proper assessment of the political, economic, social and
technological environment in order to understand the possible challenges they
may face in realizing the business objectives. On the other hand, favorable
market conditions alone will not help the company achieve a competitive
advantage, internal capacity and capability are equally important.
The commitment of the top management is essential to implement a
deliberate strategy and the initiative should be taken by them. Goal congruence
should be achieved where all the employees should work towards realizing the
strategy. This can be done by properly communicating the business goals to them
and motivating them. Employees must think through and discuss all actions in
the interest of matching company goals.
4.1.2
Emergent strategy
Emergent strategy is the process of identifying unforeseen outcomes from
the execution of strategy and then learning to incorporate those unexpected
outcomes into future corporate plans by taking a bottom up approach to
management. Emergent strategy is also referred to as ‘realized strategy’. Henry
Mintzberg introduced the concept of emergent strategy since he did not agree with
the concept of deliberate strategy put forward by Michael Porter. His argument was
that the business environment is constantly changing and businesses need to be
flexible in order to benefit from various opportunities.
Rigidness in plans emphasize that companies must continue to proceed with
the planned (deliberate) strategy irrespective of the changes in the environment.
However, political changes, technological advancements and many other factors
affect businesses in various degrees. These changes sometimes will make the
deliberate strategy implementation impossible. Therefore, most business theorists
and practitioners prefer emergent strategy over deliberate strategy for its flexibility.
In general, they view emergent strategy as a method of learning while in operation.
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Figure 2: Relationship between deliberate and emergent strategy
What is the difference between Deliberate and Emergent Strategy?
Deliberate vs Emergent Strategy
Deliberate
strategy is an
approach to
strategic planning
that emphasizes
on achieving an
intended business
objective.
Emergent strategy is the process of identifying unforeseen
outcomes from the execution of strategy and then learning to
incorporate those unexpected outcomes into future corporate plans.
Inception of the Concept
The concept
deliberate strategy
was introduced by
Michael Porter.
Henry Mintzberg introduced the framework for emergent strategy
as an alternative approach to deliberate strategy.
Approach to Management
Deliberate
strategy
implements a top
down approach to
management
Emergent strategy implements a bottom up approach to
management.
Flexibility
Deliberate
strategy takes a
rigid approach to
management, thus
is largely
considered to be
less flexible.
Emergent strategy is favored by many business practitioners due to
its high flexibility.
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Examples
Deliberate/ Intended
Strategy
Emergent Strategy
Realized Strategy
David McConnell
aspired to be a writer.
When his books
weren’t selling he
decided to give out
perfume as a gimmick.
The perfumes McConnell
gave out with his books were
popular, inspiring the
foundation of the California
Perfume Company.
The company changed its
name to Avon in 1939, and
its direct marketing system
remained popular for
decades. Avon is now
available online and in retail
outlets worldwide.
When father and son
team Scott and Don
Rasmussen were fired
from the New England
Whalers, they
envisioned a cable
television network that
focused on sports
events in the state of
Connecticut.
As the network became
successful, ESPN has
branched out beyond the local
softball games and demolition
derbies that were first
broadcasted.
ESPN is now billed as the
worldwide leader in sports,
owning several ESPN
affiliates as well as
production of ESPN
magazine, ESPN radio, and
broadcasting for ABC.
In 1977, a cashstrapped advertiser
gave a radio station
managed by Lowell
Paxson 112 electric
can openers to pay off
an overdue bill. The
can openers were
offered over the air for
$9.95 and quickly sold
out.
An idea emerged. Soon the
radio station featured a
regular show called “Suncoast
Bargaineers.” In 1982, Paxson
and a partner launched the
Home Shopping Club on local
cable television in Florida.
Today the Home Shopping
Network has evolved into a
retail power hours. The
company sells tens of
thousands of products on
television channels in
several countries and over
the internet.
4.1.3
Incremental strategy
This strategy is developed slowly over time, by making small changes to
existing strategy. Changes to strategy are not large or far-reaching, because the
management of the entity cannot see the need for any substantial changes.
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When the entity’s business environment is changing, small changes to
existing strategies are unlikely to be sufficient to ensure the survival of the entity,
and incremental change might be associated with aimlessness and a lack of strategic
direction
Incremental strategy is only safe when an entity operates in a very stable
environment, where changes over time are small and gradual.
4.2
Strategy lenses
Johnson and Scholes have suggested a slightly different approach to understanding
strategy development. They have suggested that there are three different ways of looking
at strategy development and, depending on circumstances, each approach might be
appropriate.
They use the term strategy lenses to describe these three ways of looking at strategy
development. Strategy development can be seen:
1. as design
2. as experience
3. as ideas
4.2.1
Strategy as design: the design lens
Strategy can be seen as the result of a design process. Strategy development
is logical, analytical and planned.
The characteristics of seeing strategy development as a design process are
as follows:
1. Strategy development is a formal and deliberate process.
2. Thinking about strategy, and making strategic choices as an outcome from
this thinking process, precedes the implementation of strategy.
3. Strategies are logical and clear.
4. Strategic choices are made by senior management. Senior managers are
the strategic decision makers.
This type of strategic development is well-suited to an entity with a
hierarchical management structure, where employees are accustomed to receiving
directions from their senior managers. It is similar to deliberate strategy.
4.2.2
Strategy as experience
This is the view that future strategies are based on experience gained from
past strategies. There is strong influence from the received wisdom and culture
within an organization about how things should be done.
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It is similar to incremental strategy. The weakness with this form of strategic
development is strategic drift.
4.2.3
Strategy as ideas
Strategy as design and strategy as experience do not explain innovation.
Formal strategic planning can help an entity to deal with the problems of change in
the business environment, but it is not particularly well-suited to innovation and
radical new ideas.
The characteristics of seeing strategy as ideas as a design process are as follows:
1. Strategic development should rely on radical new ideas. These do not
necessarily come from senior management. Other individuals within the entity
might create the new ideas.
2. Innovation happens as a result of variety and diversity. A changing and diverse
environment encourages major innovation.
3. Within an entity that encourages new ideas and innovative thinking, many
different ideas compete for the support of management.
4. Innovative thinking is unlikely to happen within an organization with a
traditional hierarchical management structure and formal lines of authority and
responsibility.
Strategy as ideas is similar to emergent strategy.
Strategy as design
Strategy as experience
Strategy as ideas
Logical and rational
process
Based on adaptation of past
strategies, influenced by managers’
experience
Based on new ideas and
innovation
Uses analytical and
evaluation techniques
Adaptive approach, incremental
Most common approach
Driven by the taken-for-granted
assumptions
Top-down approach
Adopted by risk averse managers
Found in conservative
organizations
For stable and static environments
If environment dynamic, strategic
drift occurs
Emphasizes importance of
variety and diversity
Ideas likely to come from
anywhere
Top managers - creators of the
context
Adopted by risk takers in
dynamic environments
Commonly used by innovative
organizations e.g. 3M and
Google
The strategy lenses
Lenses
Advantages
Disadvantages
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Strategy as design
Structured process
Does not encourage lower level
participation
Logical, makes sense
Rigidity
Many academic models
Paralysis by analysis
Managers learn from experience Low on innovation
Strategy as
Low on logic
experience
Strategic drift
High on creation and innovation Lack of structure
Not all great ideas translate into great
Includes everyone
commercial products
Strategy as ideas
Can lead to massive competitive
High risk
advantage
High cost (failure cost)
Using the three strategy lenses
Johnson and Scholes suggested that there is no single correct approach to strategy
development. All three strategy lenses provide a different insight into strategy, and any one
lens might be appropriate in a particular situation. Management should therefore be
prepared to use all three lenses.
4.3
Strategic planning framework
Although strategic development in practice might be the outcome from deliberate
strategies and emergent strategies (and possibly also some incremental strategies), it is
useful to study the subject of business analysis and business strategy as if it were an
organised process of planning and implementation. This helps to provide a framework for
understanding the issues in strategic management and business analysis.
Two strategic planning frameworks that are useful to bear in mind are the rational
planning model and strategic gap analysis.
4.3.1
The rational planning model
The ‘rational planning model’ is a strategic planning framework that:
1. sees the purpose of strategy as the achievement of clearly-established objectives
2. considers strategic planning to be a formal process, led by senior management
3. sees strategic planning as a multi-layered process, with corporate strategy,
business strategy and functional strategies.
The rational planning model consists of several elements, and the planning
process goes through each of these elements in the following sequence.
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Comment
Vision and Mission
Vision represents the overall aspiration for the future.
Mission is concerned with the overriding purpose and core
values of a company based on the values and expectations of
its stakeholders.
Objectives
The entity should also have clear objectives, such as the
examination of shareholder wealth. Within the planning
processes, targets can be established for the achievement of
objectives within the planning period.
Environmental
analysis
There are opportunities and threats within the business
environment of the entity. These must be identified, and suitable
strategic responses should be developed to deal with anticipated
change and also unexpected change.
Position audit
The planning process should include an assessment of the
resources, systems, management, procedures and organisation
of the entity. Strengths and weaknesses should be identified.
Strategies should seek to make full use of any strengths within
the entity and to reduce or remove significant weaknesses.
Corporate appraisal
The mission statement and objectives of the entity, together with
the results from the environmental analysis and position audit,
should lead on to a formal appraisal of strategy and what the
entity might be capable of achieving.
Strategic choice
Different strategic alternatives should be identified and
evaluated, and preferred strategies should be selected that will
enable the entity to achieve its stated objectives.
Strategic
implementation
Strategic control
4.3.2
The selected strategies should then be implemented.
The implementation of strategies should be monitored. Changes
and adjustments should be made where these become necessary.
This rational planning process is repeated at regular intervals
(typically annually).
Gap analysis as an approach to strategic development
Gap analysis provides an alternative model for planning and developing
strategy in a formal way. This approach consists of the following stages.
1. Identifying objectives and setting targets: Where do we want to be?
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2. Establishing the current position. Where are we now?
3. Measuring the difference between where we are and where we want to be as
a strategic gap.
The gap might be expressed in a variety of ways. For example, at a corporate
strategy level, a gap might be expressed including total annual sales revenue and
total profitability, or product-market areas that the company should be operating in.
The purpose of strategy development should be to choose and implement
strategies that will fill this strategic gap (or planning gap) so that the objectives can
be achieved.
Filling the gap requires:
1. an analysis of environmental threats and opportunities, and the internal
strengths and weaknesses of the entity
2. identifying the competitive advantage that the entity enjoys.
3. if necessary, re-stating the business objectives as a result of this strategic
appraisal, so that objectives remain realistic and achievable: this will change
the size of the strategic gap
4. identifying alternative strategies, evaluating them and selecting strategies to
fill the strategic gap
5. implementing the selected strategy
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