This section very briefly describes several key tools that can be used during the course of strategy development and strategic planning. The list is not intended to be comprehensive but to illustrate the types of tools that are available. As mentioned above, the variety of tools that can be used is wide, so is the complexity. Depending on the size of the company and its variety of products, managers might give preference to one tool over another. However, this paper is not intended to examine that topic.
Environmental scanning provides the insight of a company’s current position as well as desired position in the industry. Scanning findings provide the company with awareness to warning signs of external conditions, facing competitors and the economy. PESTEL, for example is a very good tool for initial scanning, which is a good starting point into the country analysis for multinationals striving to expand their business to different counties or simply a glimpse into the influencing factors on the organization and the business environment we operate in (G.
Johnson, K. Scholes, 2002). However, it ignores commenting or weighting on how strong the impact of those influencing factors may be on the organization. The influencing factors may be well listed, but what do we do with them afterwards? How should they be rated, are some of higher importance or more probable to hit an organization? It also does not connect those factors to the organizations internal capabilities to examine if the organization can turn those factors into their favor or influence them.
Nonetheless, PESTEL analysis is a must-do step to understand the environment a company operates in, and what those influencers are so that a company can be cope with the threats or opportunities those can bring. As learned in the Simulation, environmental scanning, obtained in a form of a marketing research report and competition report, encourages a company to evaluate and promote an appropriate vision.
The information gathered in an environmental scan, also provides the company with future trends data, where those findings can serve as a warning signal of the rising or declining of trends on the horizon. As to the competition report or CPM, it provides a good knowledge on what the past or present state of the competition, but it does not, nor can it provide any information on what the competitors are going to do in the future or what are their plans. Therefore it leaves us to learn on their past mistakes or success, and guess what is they are after in the future if lacking an insider information.
Another issue with the detailed analyzing of competitors actions is that companies might get too preoccupied with it, thus paying more attention to what the competition is doing, rather than on what the firm should do. As a consequence, the company might find itself blindly copying the steps of competitors, which might not necessarily be the best steps, hence creating a higher level of competition and not exploiting other possible opportunities. Could a ‘copy-paste’ strategy be called strategy at all? According to M. Porter (1996), ‘the essence of strategy is choosing to perform activities differently than rivals do”.
PEST analyzes the market, GSM – competition and Porters five forces provides a simple perspective for assessing and analyzing the competitive strength and position of a corporation or business organization, which evaluates: The competitors, bargaining power of buyers, threats of substitutes, threat of new entrants and bargaining power of buyers (M. Porter, 1987). Similarly to PESTEL, it is a good tool to analyze the environment we operate in and evaluate the power level of the buyers or suppliers, but it does not raise the question about our own capabilities and ability to cope with those five forces.
It also does not take into consideration the market tendencies, not does it look at the macro environment and how can it impact our business, our buyers, suppliers or competition. This model also limits the analysis to be driven within the same industry, whereas competition sometimes arises from similar industries. Some of the examples demonstrating that are: a car manufacturer also competes against public transportation; a telecommunication operator competes against the internet calling, a water purification system manufacturer competes against the bottled water suppliers.
An additional model quite frequently used to analyze the internal (strengths and weaknesses of an organization) and external (threats and opportunities in/from the market) is SWOT analysis. It allows managers to understand which are the strong points the organization can exploit, and which are the weak points that should be addressed to. It also allows seeing how those strengths can be used to exploit opportunities or eliminate threats. A serious limitation to the model is oversimplifying the situation by classifying factors into categories that they do not always fit.
It is important to realize that SWOT matrix is subjective assessment of the company and so are the strategies generated from the analysis (SW, SO, ST, WO, WT, OT). SWOT analysis, like other analytical tools serves more as a complementary tool to the all the other tools and does not provide an answer if used solely. What it lacks is stating which of those strategies driven from SWOT is the best for the company. How do we rate those strategies? How should we understand why is one better than the other?
As next steps, Space, BCG and GS matrices are trying to use all the initial information by reversing it into numbers that are obtained from assigning the weighed points which are multiplied by level of importance/probability, thus putting the obtained numbers into the quadrants. As a consequence, depending on what quadrant the company/SBU/product is, certain recommendations are offered (Personal notes, 2009). The question here is, if the prior information and the weights assigned to it are subjective, to what extent such data can be accurate?
Does a complex business situation really fit into the pre-set quadrants? The final step in strategy formulation is putting all the recommendations from the models together and evaluating which approach has more ‘votes’. The one with the most cons is the winner. Since the final step is again performed by assigning weights and ratings to the key factors, it is again highly subjective, but numerical, therefore often treated as the ‘hard data’. To what extent is it to be trusted? Is the one with the higher score more sound than the other one?
How does the selected strategy influence the financial performance of the company? Most researchers view strategic management as a process consisting of various components. The researchers differ with regard to the components that are included in the strategic management process and the order in which the components should be implemented. There appears to be general agreement, however, that strategy formulation and implementation constitute the core of the strategic management process. Few researchers specifically include organizational culture as a major component of the strategic management process.
This reflects the lack of understanding about the concept of organizational culture within the context of strategic management (Astley, Fombrun,1983). While most authors agree that a well-formulated strategy provides direction, helps focus efforts, and provides consistency to employees, hence gives the organization advantages, another school of thought contends that a deliberate absence of strategy may promote creativity and flexibility in an organization. Tightly controlled organizations with high reliance on formalized procedures and a passion for consistency may lose the ability to innovate and may hence become less successful.