Strategy - Definition and


Features
The word “strategy” is derived from the Greek word “stratçgos”;
stratus (meaning army) and “ago” (meaning leading/moving).
 Military strategy is a set of ideas implemented
by military organizations to pursue desired strategic goals.
 Strategy is an action that managers take to attain one or more
of the organization’s goals.
 Strategy can also be defined as “A general direction set for the
company and its various components to achieve a desired state
in the future. Strategy results from the detailed strategic
planning process
 Features of Strategy
 Strategy is Significant because it is not possible to foresee the
future. Without a perfect foresight, the firms must be ready to
deal with the uncertain events which constitute the business
environment.
 Strategy deals with long term developments rather than routine
operations, i.e. it deals with probability of innovations or new
products, new methods of productions, or new markets to be
developed in future.
 Strategy is created to take into account the probable behavior of
customers and competitors. Strategies dealing with employees
will predict the employee behavior.
 Features of Strategy
 Strategy is Significant because it is not possible to foresee the future.
Without a perfect foresight, the firms must be ready to deal with the
uncertain events which constitute the business environment.
 Strategy deals with long term developments rather than routine
operations, i.e. it deals with probability of innovations or new
products, new methods of productions, or new markets to be
developed in future.
 Strategy is created to take into account the probable behavior of
customers and competitors. Strategies dealing with employees will
predict the employee behavior.
 Strategy, in short, bridges the gap between “where we are” and
“where we want to be”.
 Strategic Management - An Introduction
 The strategic management discipline originated in the 1950s and
1960s. ... Prior to 1960, the term "strategy" was primarily used
regarding war and politics, not business. .
 Strategic management is the process in which an organization
develops and implements plans that espouse the goals and
objectives of that organization.
 The process of strategic management is a continuous one that
changes as the organizational goals and objectives evolve.
 The manager must have a thorough knowledge and analysis of the
general and competitive organizational environment so as to take
right decisions. They should conduct a SWOT Analysis (Strengths,
Weaknesses, Opportunities, and Threats),
 Strategic Objectives
 Strategic objectives are measurable goals that are consistent
with a company's mission and vision.
 They provide concrete milestones for evaluating progress.
Strategic objectives should be based on careful research about
opportunities and possibilities, and they should be both
challenging and achievable.
 To grow substantially over the next year is not a measurable
goal, but "To grow 20 percent over the next year by opening
six new accounts" is specific and quantified.
 The latter goal will enable a company to effectively determine
whether it has achieved its strategic objective.
 Components of a Strategy Statement
 Strategic objectives are measurable goals that are consistent
with a company's mission and vision.
 They provide concrete milestones for evaluating progress.
Strategic objectives should be based on careful research about
opportunities and possibilities, and they should be both
challenging and achievable.
 To grow substantially over the next year is not a measurable
goal, but "To grow 20 percent over the next year by opening
six new accounts" is specific and quantified.
 The latter goal will enable a company to effectively determine
whether it has achieved its strategic objective.
 Components of a Strategy Statement
1. Strategic Intent
• An organization’s strategic intent is the purpose that it exists and why it
will continue to exist, providing it maintains a competitive advantage.
• Strategic intent gives a picture about what an organization must get into
immediately in order to achieve the company’s vision. It motivates the
people. It clarifies the vision of the vision of the company.
• Strategic intent helps management to emphasize and concentrate on the
priorities.
• Strategic intent includes directing organization’s attention on the need of
winning; inspiring people by telling them that the targets are valuable;
encouraging individual and team participation as well as contribution; and
utilizing intent to direct allocation of resources.
• Strategic intent emphasizes on building new resources and potentials so
 Components of a Strategy Statement
2. Mission Statement
• Mission statement is the statement of the role by which an
organization intends to serve it’s stakeholders. It describes why an
organization is operating and thus provides a framework within which
strategies are formulated. It describes what the organization does (i.e.,
present capabilities), who all it serves (i.e., stakeholders) and what
makes an organization unique (i.e., reason for existence).
• A mission statement differentiates an organization from others by
explaining its broad scope of activities, its products, and technologies
it uses to achieve its goals and objectives. It talks about an
organization’s present (i.e., “about where we are”).
• Mission statement has three main components-a statement of mission
or vision of the company, a statement of the core values that shape
 Components of a Strategy Statement
3. Vision
•A vision statement identifies where the organization wants or
intends to be in future or where it should be to best meet the needs
of the stakeholders. It describes dreams and aspirations for future.
For instance, Microsoft’s vision is “to empower people through
great software, any time, any place, or any device.” Kenya Pipeline
Company’s vision is to become “Africa’s premier oil & gas
company.”
•A vision is the potential to view things ahead of themselves. It
answers the question “where we want to be”. It gives us a reminder
about what we attempt to develop.
•A vision statement is for the organization and it’s members, unlike
the mission statement which is for the customers/clients. It
 Components of a Strategy Statement
4. Goals and Objectives
• A goal is a desired future state or objective that an organization tries to
achieve.
• Goals specify in particular what must be done if an organization is to
attain mission or vision.
• Goals make mission more prominent and concrete.
Features-
[Link] are precise and measurable.
[Link] look after critical and significant issues.
[Link] are realistic and challenging.
[Link] must be achieved within a specific time frame.
 LECTURE 2:
STRATEGIC MANAGEMENT PROCESS
• The strategic management process is more than just a set of rules to
follow. It is a philosophical approach to business.
• The strategic management process is best implemented when everyone
within the business understands the strategy.
• The five stages of the process are:
Identity Building and Goal-setting,
Strategic Analysis (Environmental Scanning),
Strategy formation,
Strategy implementation,
Strategy monitoring.
 Strategic Management Process
1. Identity Building and Goal Setting
• Identity Building is about articulating the vision or mission and its
core values. It allows you to describe the identity, character and
behavior of the organization (brand).
• The purpose of goal-setting is to clarify the vision for your business.
This stage consists of identifying three key facets: First, define both
short- and long-term objectives. Second, identify the process of how
to accomplish your objective. Finally, customize the process for your
staff, give each person a task with which he can succeed.
• Strategic goal(s) setting for an organisation can be influenced by
many factors, they include, but are not limited to: Shareholders;
Legislation; New competition; Survival
 Strategic Management Process
2. Gather and Analyze Information
• Analysis is a key stage because the information gained in this stage
will shape the next two stages.
• The focus of the analysis should be on understanding the needs of
the business as a sustainable entity, its strategic direction and
identifying initiatives that will help your business grow.
• Examine any external or internal issues that can affect your goals
and objectives. Strategic Analysis is the classic process of
identifying the macro and micro environments related to your
organisation. It allows you to identify what forces are affecting (or
may affect) it. The tools you could use include: PESTLE Analysis
(Macro); Porter’s Five Forces (Micro); SWOT.
 Strategic Management Process
3. Strategy Formulation
• The first step in forming a strategy is to review the information
gleaned from completing the analysis.
• Determine what resources the business currently has that can help
reach the defined goals and objectives.
• Identify any areas of which the business must seek external
resources.
• The issues facing the company should be prioritized by their
importance to your success. Once prioritized, begin formulating the
strategy.
 Strategic Management Process
4. Strategy Implementation
• This is the action stage of the strategic management process.
• Everyone within the organization must be made clear of their
responsibilities and duties, and how that fits in with the overall goal.
• Additionally, any resources or funding for the venture must be
secured at this point.
• There should be an explicit focus on:
 Finances (Budgets).
 Time.
 People.
 Equipment or other resources.
 Strategic Management Process
5. Strategy Evaluation and Control
• Strategy evaluation and control actions include performance
measurements, consistent review of internal and external issues
and making corrective actions when necessary.
• Any successful evaluation of the strategy begins with defining the
parameters to be measured. These parameters should mirror the
goals set in Stage 1.
• Monitoring internal and external issues will also enable you to react
to any substantial change in your business environment.
• If you determine that the strategy is not moving the company
toward its goal, take corrective actions. If those actions are not
successful, then repeat the strategic management process.
• Because internal and external issues are constantly evolving, any
data gained in this stage should be retained to help with any future
strategies..
PILLARS OF STRATEGIC MANAGEMENT
Strategy Formulation
& Planning

Execution & Options &

Control Choices
 Theories of Strategic Management
Theories are analytical tools for understanding, explaining, and
making predictions about a given subject matter.
1. Resource-Based View Theory
2. Survival Theory
3. Human Resource-Based View Theory
4. Agency Theory
5. Contingency Theory
 Resourced-Based View Theory
• The resource-based view (RBV) is a model that sees resources as
key to superior firm performance. If a resource exhibits Value,
Rarity, Imitability, and Organization (VRIO) attributes, the
resource enables the firm to gain and sustain competitive
advantage.
• RBV is an approach to achieving competitive advantage that
emerged in 1980s and 1990s, after the major works published by
Wernerfelt, B. (“The Resource-Based View of the Firm”), Prahalad
and Hamel (“The Core Competence of The Corporation”), Barney,
J. (“Firm resources and sustained competitive advantage”) and
others. The supporters of this view argue that organizations
should look inside the company to find the sources of competitive
advantage instead of looking at competitive environment for it.
 Resourced-Based View Theory
The following model explains RBV and emphasizes the key points of it.
 Resourced-Based View Theory
• VRIO is an initialism for the four question framework asked about a resource
or capability to determine its competitive potential: the question of Value, the
question of Rarity, the question of Imitability (Ease/Difficulty to Imitate), and
the question of Organization (ability to exploit the resource or capability).
 The Question of Value: "Is the firm able to exploit an opportunity or
neutralize an external threat with the resource/capability?"
 The Question of Rarity: "Is control of the resource/capability in the hands
of a relative few?"
 The Question of Imitability: "Is it difficult to imitate, and will there be
significant cost disadvantage to a firm trying to obtain, develop, or duplicate
the resource/capability?"
 The Question of Organization: "Is the firm organized, ready, and able to
exploit the resource/capability?" "Is the firm organized to capture value?"
 Resourced-Based View Theory
According to RBV proponents, it is much more feasible to exploit external
opportunities using existing resources in a new way rather than trying to acquire
new skills for each different opportunity. In RBV model, resources are given the
major role in helping companies to achieve higher organizational performance.
There are two types of resources: tangible and intangible.
• Tangible assets are physical things. Land, buildings, machinery, equipment and
capital – all these assets are tangible. Physical resources can easily be bought in
the market so they confer little advantage to the companies in the long run
because rivals can soon acquire the identical assets.
• Intangible assets are everything else that has no physical presence but can
still be owned by the company. Brand reputation, trademarks, intellectual
property are all intangible assets. Unlike physical resources, brand reputation is
built over a long time and is something that other companies cannot buy from
the market. Intangible resources usually stay within a company and are the main
source of sustainable competitive advantage.
 Assumptions of RBV
The two critical assumptions of RBV are that resources must also be heterogeneous and immobile.

• Heterogeneous. The first assumption is that skills, capabilities and other resources that organizations possess
differ from one company to another. If organizations would have the same amount and mix of resources, they could
not employ different strategies to outcompete each other. What one company would do, the other could simply
follow and no competitive advantage could be achieved. This is the scenario of perfect competition, yet real world
markets are far from perfectly competitive and some companies, which are exposed to the same external and
competitive forces (same external conditions), are able to implement different strategies and outperform each
other. Therefore, RBV assumes that companies achieve competitive advantage by using their different bundles of
resources.

• The competition between Apple Inc. and Samsung Electronics is a good example of how two companies that
operate in the same industry and thus, are exposed to the same external forces, can achieve different
organizational performance due to the difference in resources. Apple competes with Samsung in tablets and
smartphones markets, where Apple sells its products at much higher prices and, as a result, reaps higher profit
margins. Why Samsung does not follow the same strategy? Simply because Samsung does not have the same
brand reputation or is capable to design user-friendly products like Apple does. (heterogeneous resources)

• Immobile. The second assumption of RBV is that resources are not mobile and do not move from company to
company, at least in short-run. Due to this immobility, companies cannot replicate rivals’ resources and implement
the same strategies. Intangible resources, such as brand equity, processes, knowledge or intellectual property are
usually immobile.

• A strategic resource is an asset that is valuable, rare, difficult to imitate, and no substitutable. Apple has many
 Survival Theory
• The concept of survival-based theory or some might call it as “survival of the fittest’ theory was originally
developed by Herbert Spencer (Miesing & Preble, 1985).

• This theory, which was quite popular during late 19th and early 20th century, emphasized on the notion that by
following the principle of nature, only the best and the fittest of competitors will win, which in the end would lead to
the improvement of the social community as a whole.

• The survival-based view in strategic management emphasized on the assumptions that in order to survive,
organizations has to deploy strategies that should be focused on running very efficient operations and can respond
rapidly to the changing of competitive environment

• An ailing company usually faces lots of problems simultaneously, such as financial difficulties, failing products,
losing key personnel and many others.

• Turning around company usually characterized with underperforming sales and under-capacity in terms of factory
output and overwhelming size in human resource department. These characteristics of inefficient organization
could explain why such turning around companies usually layoff its workers, repositioning their products and selling
off its under-capacity assets in order to strengthening their condition.

• It is actually the primary objective of such turning around company to make the organization run efficiently in order
to better adapt to the environment, improving its profitability and to achieve the ultimate goal of surviving the
competitive market in which it operates. As survival-based theory argued, if it is not adapting to the ever-changing
environment and become efficient in it, it simply will not survive. Thus the one that really successfully turned-
around is the one that operates efficiently and adapting successfully to its environment.
 Human Resource-Based Theory
• Within the resource-based theory of the firm, human capital is one of the major resources.

• On the one hand it recognises the importance of the various stake-holders and the relations between them.
These stakeholders form the dominant coalition.

• The values and attitudes of the members of this coalition are some of the factors that influence the
management of the human resources. On the other hand it acknowledges that the available resources and
the mechanisms of path dependence and routines limit the room to manoeuvre for this coalition. These
effects are grouped around three different dimensions.

• Dimensions affecting the room to manoeuvre Product/market and technology dimensions. Each firm serves
one or more product/market combinations, using an appropriate production technology.

• The technology that is used also has a direct impact on personnel management. For example, the
appropriate technologies will to a large extent determine the educational type and level required of
employees. And the extent to which the technologies used are generally accepted influences the relative
importance of general versus firm-specific human capital.

• Social, cultural and legal dimensions. Values and norms of parties involved in the actual decision-making
process (the dominant coalition) are embedded in a social, cultural and legal context. This context affects
the levels of fairness and legitimacy the dominant coalition strives after.

• The organisational configuration can be influenced by other firms and organisations. For example, a firm
 Agency Theory
• Agency Theory. Agency theory is about goal incongruence between
owners/principals/managers/shareholders and those they employ (agents). It describes the firm as a nexus
of contracts.

• The agency theory is a supposition that explains the relationship between principals and agents in business.
Agency theory is concerned with resolving problems that can exist in agency relationships due to unaligned
goals or different aversion levels to risk.

• Agency theory addresses problems that arise due to differences between the goals or desires between the
principal and agent. This situation may occur because the principal isn’t aware of the actions of the agent or
is prohibited by resources from acquiring the information.

Contrasting Risk Appetites

• Another central issue dealt with by agency theory handles the various levels of risk between a principal and
an agent. In some situations, an agent is utilizing resources of a principal. Therefore, although the agent is
the decision-maker, they are incurring little to no risk because all losses will be the burden of the principal.

Third Party Relationships

• An agency, in general terms, is the relationship between two parties, where one is a principal and the other
is an agent who represents the principal in transactions with a third party. Agency relationships occur when
the principals hire the agent to perform a service on the principals' behalf. Principals commonly delegate
• Agency
Agency Theory
Theory. Agency theory is about goal incongruence between
owners/principals/managers/shareholders and those they employ (agents). It describes the firm as a nexus
of contracts.
• The agency theory is a supposition that explains the relationship between principals and agents in business.
Agency theory is concerned with resolving problems that can exist in agency relationships due to unaligned
goals or different aversion levels to risk.
• Agency theory addresses problems that arise due to differences between the goals or desires between the
principal and agent. This situation may occur because the principal isn’t aware of the actions of the agent or
is prohibited by resources from acquiring the information.
Contrasting Risk Appetites
• Another central issue dealt with by agency theory handles the various levels of risk between a principal and
an agent. In some situations, an agent is utilizing resources of a principal. Therefore, although the agent is
the decision-maker, they are incurring little to no risk because all losses will be the burden of the principal.
Third Party Relationships
• An agency, in general terms, is the relationship between two parties, where one is a principal and the other
is an agent who represents the principal in transactions with a third party. Agency relationships occur when
the principals hire the agent to perform a service on the principals' behalf. Principals commonly delegate
decision-making authority to the agents. Because contracts and decisions are made with third parties by
the agent that affect the principal, agency problems can arise.
• Agency theory is used to understand the relationships between agents and principals. The agent
represents the principal in a particular business transaction and is expected to represent the best
 Contingency Theory
• A contingency approach to management is based on the theory that management
effectiveness is contingent, or dependent, upon the interplay between the application of
management behaviors and specific situations.

• The contingency view approaches management from a totally different perspective than do
the formal schools of management. The classical, behavioral, and management science
schools assumed a universal approach. They proposed the discovery of "one-best-way"
management principles that applied the same techniques to every organization.

• The contingency perspective tells us that the effectiveness of various managerial practices,
styles, techniques, and functions will vary according to the particular circumstances of the
situation. Management's task is to search for important contingencies

• The main determinants of the contingency view relate to the external and internal
environments of the organization. However, the contingency approach is not without its
critics. Its major problem is that it often is used as an excuse for not acquiring formal
knowledge about management.

• This formal study of management helps managers decide which factors are relevant in
what situations and its certain elements should serve as a foundation for continued growth
 STRATEGIC MANAGEMENT PROCESS
• The strategic management process is more than just a set of rules to
follow. It is a philosophical approach to business.
• The strategic management process is best implemented when everyone
within the business understands the strategy.
• The five stages of the process are:
Identity Building and Goal-setting,
Strategic Analysis (Environmental Scanning),
Strategy formation,
Strategy implementation,
Strategy monitoring.
 THE THREE 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 there is a great idea for a business, and you have a
great product, you are unlikely to go anywhere without
strategy.
Levels of a Strategy
 1. Corporate Strategy
•The first level of strategy in the business world is corporate strategy, which sits
at the ‘top of the heap’.
•Before an organization dives into deeper, more specific strategy, it need to
outline a general strategy that is going to oversee everything else that you do.
•At a most basic level, corporate strategy will outline exactly what businesses
you are going to engage in, and how you plan to enter and win in those markets.
•Corporate level strategy occupies the highest level of strategic decision making
and covers actions dealing with the objective of the firm, acquisition and
allocation of resources and coordination of strategies of various SBUs for optimal
performance.
•Top management of the organization makes such decisions. The nature of
strategic decisions tends to be value-oriented, conceptual and less concrete than
decisions at the business or functional level.
 1. Corporate Strategy
• Corporate level strategy is concerned with;
• Defining the issues that are corporate responsibilities. It
includes identifying the overall calls of the corporation, the
types of business in which the corporation should be
involved, and the way business will be integrated and
managed.
• It seeks to develop synergies by sharing and coordinating
staff and other resources across business units, investing
financial resources across business units, and using business
units to complement other corporate business activities
Corporate Level Strategy
 Business Level Strategy
• The strategies that are outlined at this level are slightly more
specific and they usually relate to the smaller businesses within
the larger organization.
 Business level strategy is – applicable in those organizations,
which have different businesses-and each business is treated
as strategic business unit (SBU). The fundamental concept in
SBU is to identify the discrete independent product / market
segments served by an organization.
 Positioning the business against rivals.
 Influencing the nature of competition through strategic actions
such as vertical intergration.
 Business Level Strategies
 Therefore, it requires different strategies for its different
product groups.
 Thus, where SBU concept is applied, each SBU sets its
own strategies to make the best use of its resources (its
strategic advantages) given the environment it faces.
 At such a level, strategy is a comprehensive plan
providing objectives for SBUs, allocation of resources
among functional areas and coordination between them
for making optimal contribution to the achievement of
corporate-level objectives..
Business Level Strategies
 Functional Level Strategy
• This is the day-to-day strategy that is going to keep your organization
moving in the right direction. 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.
• 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
 Functional Level Strategy
• 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.
• Decisions at this level within the organization are often
described as tactical. Such decisions are guided and
constrained by some overall strategic considerations.
 Functional Level Strategy
• 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.
• Decisions at this level within the organization are often described as tactical. Such
decisions are guided and constrained by some overall strategic considerations.
• Functional strategy deals with relatively restricted plan providing objectives for
specific function, allocation of resources among different operations within that
functional area and coordination between them for optimal contribution to the
achievement of the SBU and corporate-level objectives.
• The strategic issues at this level are related to business processes and the value
chain.
• In relation to departments, it involves the development and coordination of
Functional Level Strategy
 Key Points
• All organizations have competition, and it is strategy that allows one business to
rise above the others to become successful.
• There are three levels of strategy that are typically used by organizations.
• Corporate level strategy covers actions dealing with the objective of the
organization, including acquisitions and the coordination of strategies of individual
business units for optimal performance.
• Strategic decisions tend to be value-oriented, conceptual and less concrete than
decisions at the business or functional level. It is concerned mainly with growth and
renewal rather than in market execution.
• Business level strategies detail actions taken to provide value to customers and
gain a competitive advantage by exploiting core competencies in specific,
individual product or service markets.
• Functional strategy involves providing objectives for specific functions, allocation of
resources among different operations within that functional area and coordination
 LECTURER 4
The Concept of Environmental
Appraisal.
• Environmental Appraisal is the process of identifying opportunities and
threats facing an organization. ... to all the factors within an organization
which impart strengths or cause weaknesses of a strategic nature.
• Environmental Appraisal is the process of identifying opportunities and
threats facing an organization.
• Environment literally means the surroundings, external objects,
influences or circumstances under which someone or something exists.
• The environment of any organization is the aggregate of all conditions,
events and influences that surround and affect it
 LECTURER 4
The Concept of Environmental
Appraisal.
• Careful monitoring of an organization's internal and external
environments for detecting early signs of opportunities and
threats that may influence its current and future plans. In
comparison, surveillance is confined to a specific objective or a
narrow sector.
 Components of Environment.
External Environment
• Includes all the factors outside the organization which provide opportunities or pose threats to
the organization. They include; Economic environment, demographic, technological, legal and
political, socio-cultural and global/ international environments
• Organizations have also to update the core competencies and internal environment as per
external environment.
Internal Environment
• Refers to all the factors within an organization which impart strengths or cause weaknesses of a
strategic nature. They include customers, suppliers, organization, competition, market (cost
structure, price sensitivity, distribution system, technology, market stability), and
intermediaries.
• Employee interaction with other employees, employee interaction with management, manager
interaction with other managers, and management interaction with shareholders, access to
natural resources, brand awareness, organizational structure, main staff, operational potential
 Techniques of Environmental
Scanning.
1. SWOT ANALYSIS
• Includes all the factors outside the organization which provide opportunities or pose threats
to the organization. They include; Economic environment, demographic, technological, legal
and political, socio-cultural and global/ international environments
• Organizations have also to update the core competencies and internal environment as per
external environment.
Internal Environment
• Refers to all the factors within an organization which impart strengths or cause weaknesses
of a strategic nature. They include customers, suppliers, organization, competition, market
(cost structure, price sensitivity, distribution system, technology, market stability), and
intermediaries.
• Employee interaction with other employees, employee interaction with management,
manager interaction with other managers, and management interaction with shareholders,
access to natural resources, brand awareness, organizational structure, main staff,
operational potential
FACTORS TO BE CONSIDERED FOR
ENVIRONMENTAL SCANNING

External
environment
of business
 STRUCTURING THE ENVIRONMENTAL APPRAISAL

TWO most important techniques of environmental appraisal are:

SWOT(strengths, weaknesses, opportunities and threats) analysis

PESTLE(P for Political, E for Economic, S for Social, T for Technological, L for
Legal and E for Environmental)
 2. SWOT Analysis
• SWOT stands for Strengths, Weaknesses,
Opportunities and Threats

Identification of the threats and opportunities in the

external environment and strengths and weaknesses in
the internal environment of the firms are the cornerstone
of business policy formulation.
It is the SWOT analysis which determines the course of
action to ensure the growth / survival of the firm.
 Strengths
• Strengths—internal to the unit; are a unit’s resources and capabilities that can be used
as a basis for developing a competitive advantage; strength should be realistic and not
modest.
The list of strengths should be able to answer:
 What are the unit’s advantages?
 What does the unit do well?
 What relevant resources do you have access to?
 What do other people see as your strengths?
 What would you want to boast about to someone who knows nothing about this
organization and its work?
• Examples: good reputation among customers, resources, assets, people, : experience,
knowledge, data, capabilities
• Think in terms of: capabilities; competitive advantages; resources, assets, people
• (experience, knowledge); marketing; quality; location; accreditations
• qualifications, certifications; processes/systems
Weaknesses
• Weaknesses—internal force that could serve as a barrier to maintain or
achieve a competitive advantage; a limitation, fault or defect of the unit;
• It should be truthful so that they may be overcome as quickly as possible

The list of weaknesses should be able to answer:

What can be improved?
What is done poorly?
What should be avoided?
What are you doing as an organization that you feel could be done
more effectively/efficiently?
What is this organization NOT doing that you feel it should be doing?
If you could change one thing that would help this department function
more effectively, what would you change?

• Examples: gaps in capabilities, financial, deadlines, morale

• lack of competitive
 Opportunities

Opportunities—any favorable situation present now or in

the future in the external environment.

• Examples: unfulfilled customer need, arrival of new

technologies, loosening of regulations, global influences,
economic boom, demographic shift
Where are the good opportunities facing you?
What are the interesting trends you are aware of?
Think of: market developments; competitor; vulnerabilities;
industry/ lifestyle trends;; geographical; partnerships
 Threats
External force that could inhibit the maintenance or attainment
of a competitive advantage; any unfavorable situation in the
external environment that is potentially damaging now or in the
future.
• Examples: shifts in consumer tastes, new regulations, political or
legislative effects, environmental effects, new technology, loss of key
staff, economic downturn, demographic shifts, competitor intent; market
demands; sustaining internal capability; insurmountable weaknesses;
financial backing
• The list of threats should be able to answer:
 What obstacles do you face?
 What is your competition doing?
 Are the required specifications for your job/services changing?
 Is changing technology threatening your position?
 Do you have financial problems?
 Could any of your weaknesses seriously threaten your unit?
 3. PESTLE
• What is Analysis? PESTLE analysis, which is sometimes referred as PEST
analysis, is a concept in marketing principles. Moreover, this concept is used as
a tool by companies to track the environment they’re operating in or are
planning to launch a new project/product/service etc.
• PESTLE is a mnemonic which in its expanded form denotes P for Political, E for
Economic, S for Social, T for Technological, L for Legal and E for Environmental.
It gives a bird’s eye view of the whole environment from many different angles
that one wants to check and keep a track of while contemplating on a certain
idea/plan.
 PESTLE
• There are certain questions that one needs to ask while conducting this
analysis, which give them an idea of what things to keep in mind. They are:
What is the political situation of the country and how can it affect the
industry?
What are the prevalent economic factors?
How much importance does culture has in the market and what are its
determinants?
What technological innovations are likely to pop up and affect the
market structure?
Are there any current legislations that regulate the industry or can there
be any change in the legislations for the industry?
What are the environmental concerns for the industry?
POLITICAL FACTORS
The political arena has a huge influence upon the regulation of businesses, and the spending
power of consumers and other businesses.
These factors determine the extent to which a government may influence the economy or a
certain industry. [For example] a government may impose a new tax or duty due to which entire
revenue generating structures of organizations might change. Political factors include tax
policies, Fiscal policy, trade tariffs etc. that a government may levy around the fiscal year and it
may affect the business environment (economic environment) to a great extent.
One must consider issues such as:
• [Link] stable is the political environment?
• [Link] government policy influence laws that regulate or tax your business?
• [Link] is the government's position on marketing ethics?
• 4. What is the government's policy on the economy?
• 5. Does the government have a view on culture and religion?
 ECONOMIC FACTORS
• Marketers need to consider the state of a trading economy in the short and long-terms. This is
especially true when planning for international marketing.
• These factors are determinants of an economy’s performance that directly impacts a company
and have resonating long term effects. [For example] a rise in the inflation rate of any economy
would affect the way companies’ price their products and services. Adding to that, it would affect
the purchasing power of a consumer and change demand/supply models for that economy.
Economic factors include inflation rate, interest rates, foreign exchange rates, economic growth
patterns etc. It also accounts for the FDI (foreign direct investment) depending on certain specific
industries who’re undergoing this analysis.

One need to look at:

• 1. Interest rates.
• 2. The level of inflation Employment level per capita.
• 3. Long-term prospects for the economy Gross Domestic Product (GDP) per capita, and so on.
 SOCIO-CULTURAL FACTORS
• The social and cultural influences on business vary from country to country. It is very
important that such factors are considered.
• These factors scrutinize the social environment of the market, and gauge determinants
like cultural trends, demographics, population analytics etc.
Factors include:
• [Link] is the dominant religion?
• [Link] are attitudes to foreign products and services?
• [Link] language impact upon the diffusion of products onto markets?
• [Link] much time do consumers have for leisure?
• [Link] are the roles of men and women within society?
• [Link] long are the population living? Are the older generations wealthy?
• [Link] the population have a strong/weak opinion on green issues?
 TECHNOLOGICAL FACTORS
 Technology is vital for competitive advantage, and is a major driver of globalization.
 These factors pertain to innovations in technology that may affect the operations of the industry and
the market favorably or unfavorably. This refers to automation, research and development and the
amount of technological awareness that a market possesses.

Consider the following points:

• 1. Does technology allow for products and services to be made more cheaply and to a better
standard of quality?
• [Link] the technologies offer consumers and businesses more innovative products and services such as
Internet banking, new generation mobile telephones, etc?
• [Link] is distribution changed by new technologies e.g. books via the Internet, flight tickets, auctions,
etc?
• [Link] technology offer companies a new way to communicate with consumers e.g. banners,
Customer Relationship Management (CRM), etc?
 LEGAL FACTORS
 These factors have both external and internal sides. There are certain laws
that affect the business environment in a certain country while there are
certain policies that companies maintain for themselves.
 Legal analysis takes into account both of these angles and then charts out the
strategies in light of these legislations. For example, consumer laws, safety
standards, labor laws etc.
McKinsey model (McKinsey 7-S
Framework)
7s Factors
Hard S Soft S
Strategy Style
Structure Staff
Systems Skills
Shared
 McKinsey model (McKinsey 7-S
Framework)
• Strategy is a plan developed by a firm to achieve sustained competitive
advantage and successfully compete in the market

• Structure represents the way business divisions and units are organized
and includes the information of who is accountable to whom. In other words,
structure is the organizational chart of the firm. It is also one of the most
visible and easy to change elements of the framework.

• Systems are the processes and procedures of the company, which reveal
business’ daily activities and how decisions are made. Systems are the area
of the firm that determines how business is done and it should be the main
 McKinsey model (McKinsey 7-S
Framework)
• Skills are the abilities that firm’s employees perform very well. They also
include capabilities and competences. During organizational change, the
question often arises of what skills the company will really need to reinforce
its new strategy or new structure.

• Staff element is concerned with what type and how many employees an
organization will need and how they will be recruited, trained, motivated
and rewarded.

• Style represents the way the company is managed by top-level managers,

how they interact, what actions do they take and their symbolic value. In
other words, it is the management style of company’s leaders.
 7. Entrepreneurial Skills that are essential
during strategy formulation process
 searching actively for innovative ways the organization can
improve on what it is already doing;
 Looking out new opportunities for the organization to pursue;

 developing ways to increase the firm’s competitive strength and

put it in a stronger position to cope with competitive forces;
 devising ways to built and maintain a competitive advantage;

 deciding how to meet threatening external developments;

 7. Entrepreneurial Skills that are essential
during strategy formulation process
 encouraging individuals throughout the organization to put forth
innovative proposals and championing those that have promise;
 directing resources away from areas of low or diminishing results
toward areas of high or increasing results;
 deciding when and how to diversify;

 Choosing which businesses (or products) to abandon, which of

the continuing ones to emphasizes, and which new ones to enter
or add.