Friday, 31 October 2008

Strategic Business Analysis

Organisations operates in an uncertain environment for their future direction.   The recent financial crisis tells how the future can be unpredictable even with the sophisticated  available tools to management. A strategy is often needed to overcome this uncertainty. Strategic Business Analysis (SBA) is a a planning tool for the future direction and scope of an organisation. As a planning tool it looks at the long-term and considers the whole organisation including stakeholders, resources and competencies. It is basically about 'strategic management' that seeks to achieve the objectives of the organisation and adapt its scope, resources and operations to environmental changes in the long term. There are various approaches to SBA, the most common and popular is the 'top down' rational process. This strategic planning approach, also known as the Johnson, Scholes and Whittington (JSW) model, is broken down into three interdependent phases of strategic analysis, strategic choice and strategic implementation. Apart from this, there is the emergent strategies by Mintzberg (1987) that sees strategy as evolving over time and the incremenatalism approach  sees strategy as extensions of small scale practices. There is also the freewheeling opportunism to strategy, describing the process as  grabbing opportunity as they happen.

Strategic Planning

The strategic planning process  starts by setting the mission- that is identifying the purpose of the organisation - and then establishing objectives to achieve the mission. These objectives are targets usually quantified with time-limits. The next stage is analysing the internal and external environment for strength, weaknesses, opportunities and threats, including stakeholder analysis for their power and influences on the organisation. This process leads to identifying strategic options, making a choice and implementing the strategic plan as outlined below. This process includes a control loop that compares the objectives set to results. Deviations from the plan/objectives is adjusted in continuous periodic process.  See Below:Strategic Planning Process
Strategic planning is also carried out at different levels of an organisation. At the corporate level, decisions like, what business is the firm undertaking? What business should it be undertaking? is compared with the firm's environment, resource capabilities and the values and expectations of stakeholders.This is known as the corporate strategy. At the business level, the strategy considers how each strategic business unit (SBU) try to accomplish its mission within its selected area of activity.This is the business strategy. At the functional level, the strategy considers how distinct functions of the business support the corporate and business strategies. This the functional strategy.

The Strategic Analysis/Position

This assessment process involves analysing the environment in which an organisation operates  for example competitors, markets, regulations, opportunities and threats etc. The environmental variables - political, economic, social, technological environmental and legal are scan for their effect on the organisation and it activities. Assessing the strategic capabilities of the organisation is part of this process for example resources, competences, for its relative strengths and weaknesses. This is done taking into consideration the culture, beliefs and assumptions of the organisation; and of the power and expectations of stakeholders. Major stakeholders include shareholders, managers, employees, trade unions, customers, suppliers government and the general public.

The Strategic Choice

This is based on producing strategic options-establishing possible choice for future strategies-for example producing at the lowest cost, differentiating products and/or determining a method of growth (acquisition vs organic). The next step is assessing the options as to their comparative merits and feasibility to the organisations existing position. This is done by building on strengths, overcoming weaknesses, taking advantage of opportunities and minimising threats; The last step is the selection of an option/strategy for the organisation to pursue. the strategy chosen could be single or mixed and not be the right or wrong one but on merits and demerits. The selection is influence by values of managers and interest groups within the organisation reflecting the power structure.  These choices are made at every level of the organisation. That is at the corporate, business and operational levels.

The Strategic Implementation/Action

This process involves detailed plans or objectives for operating units, targets for managers to achieve,  including detailed specifications on how the activities are to be carried out.  Several parts form this process into a coherent plan which includes resource planning and the logistics implementation. Others include the organisation structure needed to carry out the strategy and the systems  (information, procedures and controls) employed to manage the organisation. Sub-strategies for products, markets, human resources etc. is part of this process.

Alternative Strategies

Mintzberg (1987) suggests that strategies evolve over time (emerge) and do not arise out of conscious strategic planning process. This emergent strategies result from a number of ad hoc choices in a down top approach to the final unclear objective of the strategy whiles continuously adapting to human needs. Separate part still develop as strategy proceeds in an incremental faction. The incremenatalism approach believes strategy is built on the process of consultation, compromise and accommodation by making small scale extensions of former practices. Freewheeling opportunism is another alternative strategy that grabs opportunity as they occur. Basically it is used by entrepreneurs who dislikes planning and enjoy taking risks and new ventures only to lose interest once its up and running. Johnson and Scholes describe strategy as design, experience and ideas. This they called the three lenses of strategy. Essentially, strategy as design is the same as the rational planning model and strategy as experience reflects the emergent approach, whiles strategy as ideas mirror freewheeling opportunism.

Further Reading:

Johnson G, Scholes K, and Whittington R, Exploring Corporate Strategy, FT Prentice Hall, seventh edition, 2005
Mintzberg H, Ahlstrand B, Lampel J, Strategy Safari : The Complete Guide Through the Wilds of Strategic Management, FT Prentice Hall, 1998

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33 comments:

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