Explain why strategic analysis is necessary in the process of developing an appropriate strategy. Identify tools that are available to examine the external environment and discuss how and why they are used. Introduction Strategy is a high level plan in which to achieve one or more goals under conditions of uncertainty. It is very important because resources available to achieve these goals are usually limited. Strategy is often the difference between mediocrity and excellence.
Strategies exist at several levels in any organisation as stated above – ranging from he overall business through to individuals working in it. Corporate Strategy- is concerned with the overall purpose of the business to meet stakeholder expectations and needs. This is a crucial level since it is heavily influenced by investors in the business and acts to guide decision-making throughout the business. Business Unit Strategy- is concerned more with how a business competes successfully in a particular market.
It concerns decisions about choice of products, meeting needs of customers, gaining advantage over competitors, exploiting or creating new pportunities etc. Operational Strategy- is concerned with how each part of the business is organised to deliver the corporate and business-unit level strategic direction. Operational strategy therefore focuses on issues of resources, processes, people etc. Strategic Management focuses solely on grand-scale corporate strategy.
While strategic management at the corporate level typically involves a major strategic planning event each year for organizational leaders, their focus is different. They member of an organization should have a strategic vision for his or her work, and nderstand how that individual contribution strengthens the organization as a whole. A person’s strategic vision has two components. The first component should address how a person can support the future strategic direction of the organization.In order to maintain an organization’s momentum and strength, everyone needs to be aligned and pulling in the same direction.
The second component hinges on the idea that everyone should have a personal strategic agenda for his or her own work. In other words, individuals must see themselves as business units, each with a opulation of one. This individual strategy is unique for each contributor and explores how he or she can add value and offer distinctive service to the organization now and in the future.
Strategic analysis is the use of tools such as SWOT analysis, PEST analysis, and value chain analysis with an aim of determining the best way in which an organization can reach up to the desired goals and objectives using the available resources. strategy In its broadest sense, is about taking “strategic decisions” – decisions that answer the questions above. In practice, a thorough trategic management process has three main components, shown in the figure below: Strategic Analysis This is all about the analysing the strength of businesses’ position and understanding the important external factors that may influence that position.
The process of Strategic Analysis can be assisted by a number of tools, including: PEST Analysis Porters Five Forces SWOT Analysts Scenario Planning Market Segmentation Directional Policy Market Competitor Analysis Critical Success Factor Analysis Strategy Choice This process involves understanding the nature of stakeholder expectations, dentifying strategic options, and then evaluating and selecting strategic options. Strategy Implementation When a strategy has been analysed and selected, the task is then to translate it into organisational action.Analysing the external environment involves breaking a complex interrelated reality to sets of issues to make the analysis manageable.
The main sets of issues are usually: Macro Environment -These are broad trends shaping the national and international environment in terms of Political, Economic, Social, Technological, Environmental, Legal trends. PESTEL Factors, Key Drivers) Micro Environment – This is the operating environment or industry sector in which the firm competes. It threat of new entry and substitute products arising. FIVE FORCES Analysis) Competitor Analysis – Seeks to understand the rival offers from other firms seeking to serve the same customers and to out manoeuvre their managers with our innovation and competitive moves. Market Analysis – Seeks to evaluate the current needs of today;s customers and the emerging needs of tomorrows customers so new product can be anticipated. These will be different in different market segments.
PESTEL is focused on society wide. Which is based on sound research of actual issues.From this it needs to provide evidence from the research to validate points made. P = Political E= Economic social T= Technological E= Environment L= Legal Like the old fashioned SWOT techniques, PESTLE helps us makes lists which can help us think but a list should be the beginning not the end of thinking. PESTLE Analysis is used to examine the current and future state of the industry an organization belongs to.
This helps in the strategic planning and gaining the competitive edge over the ther firms in that industry.This analysis can not only be used for an organization as a whole but various departments can also be inspected under this framework. For example, it makes more sense for a company with diversified product range to analyse its departments separately than the organization as a whole.
Importance of the factors varies depending on the nature of the industry and company. For example environmental factors are more important to tourism sector where as economic and political factors are more important for the Banking sector.