Today’s competitive business environment necessitates budget-oriented planning or forecast-based planning methods for a large organization to survive and prosper. The firm must engage in strategic planning that plainly defines objectives and evaluates both the internal and external state of affairs to devise strategy, execute the strategy, assess the advancement, and fine-tune as necessary to stay on track.
Based on the information from the environmental scan, the organization should match its strengths to the opportunities identified, while dealing with its weaknesses and external threats.
To realize exceptional profitability, the company seeks to foster a competitive advantage over its competitors. A competitive advantage can be based on cost or differentiation. Michael Porter identified three industry-independent generic strategies from which the firm can choose—cost leadership, differentiation, and focus.
The chosen strategy is executed by way of programs, budgets, and procedures. Execution involves organization of the company’s resources and motivation of the staff to attain the objectives.
The means by which the strategy is executed can have a major impact on whether it will be successful. In a large organization, those who put the strategy into practice likely will be different people from those who created it. Care must be taken to convey the strategy and the logic behind it. Otherwise, the execution might not succeed if the strategy is misinterpreted or if managers decline to accept its implementation because they do not comprehend why the particular strategy was chosen.
Scanning the internal and external conditions is an important part of the strategic planning process. Environmental factors internal to the organization typically can be documented as strengths (S) or weaknesses (W), and those external to the firm can be classified as opportunities (O) or threats (T). Such a study of the strategic environment is referred to as a SWOT analysis.
The SWOT analysis provides information that assist matching the company’s resources and capabilities to the competitive environment in which it operates. It is therefore vital in strategy formulation and selection.
Strengths: A company’s strengths are its resources and means for developing a competitive advantage. Strengths might include:
- Strong brand names.
- Good reputation among customers.
- Cost advantages from proprietary know-how.
- Exclusive access to high-grade natural resources.
- Favorable access to distribution networks.
Weaknesses: A company might also have certain weaknesses. Each of the following might be considered a weakness:
- Not having patent protection.
- An unimpressive brand name.
- Mediocre reputation among clients.
- High cost structure.
- Lack of access to the best natural resources.
- Lack of access to key distribution channels.
A strength could also be a weakness in certain situations. For example, a firm’s large amount of manufacturing capacity might be considered a strength because it is not shared by its competitors, but that strength also may be considered a weakness if the large outlay in manufacturing capacity prevents the company from reacting quickly to strategic environmental changes.
Opportunities: The external environmental analysis may reveal certain new opportunities for profit and growth. Some examples of such opportunities include:
- An unfulfilled customer need.
- Arrival of new technologies.
- Loosening of regulations.
- Removal of international trade barriers.
Threats: External environmental changes also may present threats to an organization. Some examples of such threats include:
- Fluctuations in consumer tastes away from the company’s products.
- Surfacing of replacement products.
- New regulations.
- Increased trade barriers.
Pursuing the most lucrative opportunities may not be the best strategy for a company. A firm may have a better opportunity at devising a competitive advantage by identifying a fit between the firm’s strengths and upcoming opportunities. The firm can, in some cases, overcome a weakness to ready itself to pursue a compelling opportunity.
Be smart and be encouraged,