Strategic Analysis

Former GE CEO, Jack Welch (2001, p.390) commented that “business success is less a function of grandiose predictions than it is a result of being able to respond rapidly to real changes as they occur.” In order to facilitate this, strategic innovation must be more than dynamic, it must be anticipatory. However, in order for strategy to effectively anticipate changes in the marketplace, proper analysis or positioning is required. Managers must be able to describe and assess their company’s external environment and ultimately develop or assign a strategy to mirror that situation. Beyond anticipating what may happen in the marketplace, it is also necessary to understand and evaluate the likelihood of something happening, while also preparing for it.

Although it is vital to gain a deeper understanding of the competitive environment, spending an exorbitant amount of time gathering and digesting all possible details and facets of the competitive environment is not necessary (Thompson et al, 2010, p.58). Although the task itself can be somewhat focused by employing various analytical tools and questions, there is also a danger of the process becoming too decomposed, with a manager or strategy team “more concerned with probing into parts than with combining into the wholes” (Mintzberg & Quinn, 1998, p.75). Entering the process without a single framework to these concepts may lead to questions of relevancy. Individual metrics of the marketplace or competitive environment may look impressive in a presentation, but without the ability to bring this data together, organizations may simply get lost in the muddle, ultimately failing to turn strategic innovation in action (Kim & Mauborgne, 2002, p.78). Not knowing what to do with the data once it is collected, or where to start, may have significant ramifications on our ability to begin the process in the first place. Mintzberg (1998, p.93) suggests that there is little synthesis in the world of strategic analysis. If the bigger picture is not understood, barriers toward strategic analysis may form as relevancy and intent are lost.

Theodore Levitt (2004) once posed the seminal question, “What business are you in”? He was referring to how a business truly defines itself and, more importantly, how customers’ needs are gauged. A myopic approach to strategic innovation is yet another barrier to the analytical process, as many managers fail to look beyond the short-term to fully grasp the long-term vision. Urbany and Montgomery (1998) suggest that there is a natural tendency to place more weight on concrete short-term consequences as opposed to longer-term outcomes. If that is indeed true, then perhaps it could also be argued that critical thinking is an unnatural act and even a hindrance to starting the analysis part of strategic thinking. Analysis of any sort may be fraught with biases and organizational roadblocks, such as a stifling corporate culture. When moving forward with strategic innovation, consideration of biases and problems that make rational strategic reasoning difficult, for example, biases in perspective-taking and organizational barriers (i.e. corporate culture), must be taken (Urbany & Montgomery, 1998, p.295).

Porter (2008, p.114) posits that as it becomes more difficult to sustain operational advantages, strategic positioning (or analysis) becomes increasingly important. It is clear that the strategic innovation process is important because of the profound, substantial effect it has on firm performance, as it enables firms to maintain competitive postures, align internal operations with external environments, and survive threats and challenges (Meuller, Mone, & Barker, 2007, p.853). Since a company’s environment includes the economy, competitive landscape, societal values, and technology, to name but a few factors, it is prudent for any company to continually monitor and analyze them; threats and opportunities can emerge out of any one of them. Put differently, analysis is necessary in order to describe in detail “what a firm’s threats are and how they can be neutralized, what a firm’s opportunities are and how they can be exploited, what a firm’s strengths are and how they can be exploited, and what a firm’s weaknesses are and how they can be avoided” (Barney, 2002, p.74). By utilizing in-depth analysis, an organization can develop a strategy that will generate competitive advantages and, most importantly, sustainable profit.

Perhaps a bit of a cliche, four key tools included in any strategic analysis to be: SWOT analysis (Strengths, Opportunities, Weaknesses, Threats), value chain analysis, benchmarking, and competitive strength analysis. Over the years I have employed several different techniques that have proven to be quite successful in terms of starting a strategic analysis. I have used both a SWOT and competitive strength analysis in multiple companies, operating across various industries. It has been my experience that while the SWOT analysis is highly detailed, a competitive strength analysis provides a more comprehensive overview of the company’s competitive positioning. In order to facilitate an effective competitive strength analysis, I was also involved in the construction of a strategic group or a set of companies that face similar threats and opportunities (Barney, 2002, p.139). The concept of strategic groups turned out to be quite effective in studying the competition over time and actually improved our understanding of the structure of threats and opportunities, which ultimately improved the overall quality of the analysis. While this particular analysis does overlap somewhat with the SWOT analysis, the SWOT then allowed us to gauge the strengths and weaknesses of the internal environment of the company.

Even though I have personally employed the aforementioned techniques, regardless of what analytical tools are used, it is key not to perform them until an organizational goal has been set and the corporate vision has been effectively communicated. A vision is a firm mission that is central to all that a company does, and needs to be the focal point, prior to commencing any strategic analysis.

References:

Barney, J.B. (2002) Gaining and sustaining competitive advantage. New Jersey: Prentice Hall.

Chan, K.W. & Mauborgne, R. (2002) ‘Charting Your Company’s Future’, Harvard Business Review, 80 (6), pp. 76-82.

Levitt, T. (2004) ‘Marketing Myopia’, Harvard Business Review, 82 (7/8), pp. 138-149.

Mintzberg, H. & Quinn, J.B. (1998) Readings in the strategy process. New Jersey: Prentice Hall.

Mueller, G.C., Mone, M.A. & Barker, V.L. (2007) ‘Formal strategic analyses and organizational performance: Decomposing the rational model’, Organizational Studies, 28 (6), pp. 853-883.

Porter, M. (2008) On Competition. Boston: Harvard Business School Publishing.

Thompson, A., Strickland, A., & Gamble, J. (2010) Crafting and Executing Strategy. New York: McGraw-Hill Irwin.

Urbany, J.E. & Montgomery, D.B. (1998) ‘Rational strategic reasoning: An unnatural act?’, Marketing Letters, 9 (3) pp. 285 -299.

Welch, J. (2001) Jack, Straight from the Gut. New York: Warner Books, Inc.