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Tuesday, September 28, 2010
Monday, September 27, 2010
SWOT analysis definition
According to Wikipedia Encyclopedia the definition of SWOT analysis:
SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective. The technique is credited to Albert Humphrey, who led a convention at Stanford University in the 1960s and 1970s using data from Fortune 500 companies.
A SWOT analysis must first start with defining a desired end state or objective. A SWOT analysis may be incorporated into the strategic planning model. Strategic Planning, including SWOT and SCAN analysis, has been the subject of much research.
* Strengths: attributes of the person or company that are helpful to achieving the objective(s).
* Weaknesses: attributes of the person or company that are harmful to achieving the objective(s).
* Opportunities: external conditions that are helpful to achieving the objective(s).
* Threats: external conditions which could do damage to the objective(s).
Identification of SWOTs are essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs.
First, the decision makers have to determine whether the objective is attainable, given the SWOTs. If the objective is NOT attainable a different objective must be selected and the process repeated.
The SWOT analysis is often used in academia to highlight and identify strengths, weaknesses, opportunities and threats. It is particularly helpful in identifying areas for development
SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective. The technique is credited to Albert Humphrey, who led a convention at Stanford University in the 1960s and 1970s using data from Fortune 500 companies.
A SWOT analysis must first start with defining a desired end state or objective. A SWOT analysis may be incorporated into the strategic planning model. Strategic Planning, including SWOT and SCAN analysis, has been the subject of much research.
* Strengths: attributes of the person or company that are helpful to achieving the objective(s).
* Weaknesses: attributes of the person or company that are harmful to achieving the objective(s).
* Opportunities: external conditions that are helpful to achieving the objective(s).
* Threats: external conditions which could do damage to the objective(s).
Identification of SWOTs are essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs.
First, the decision makers have to determine whether the objective is attainable, given the SWOTs. If the objective is NOT attainable a different objective must be selected and the process repeated.
The SWOT analysis is often used in academia to highlight and identify strengths, weaknesses, opportunities and threats. It is particularly helpful in identifying areas for development
TOWS Analysis for Decision Making Strategy
How does a firm decide to pursue one course of action over another? Along with SWOT analysis, TOWS analysis is a process that requires management to think critically of its operations. By identifying several action plans that could improve the company's position, TOWS analysis allows management to choose those strategies that most effectively capitalize on the available opportunities.
For companies to develop adequate and successful business strategies, they must sufficiently analyze their internal and external environments.
(article continues below)
One helpful strategic development tool entails SWOT analysis, which identifies the strengths, weaknesses, opportunities, and threats facing a company.
However, a major shortcoming of this method involves its focus on the company's internal environment at the expense of its external situation. Subsequent to the SWOT model, organizations should conduct a TOWS analysis, a procedure that focuses more on the external environment. Although the acronym is simply SWOT reversed, TOWS analysis takes a different approach to linking a company's internal strengths and weaknesses with its external opportunities and threats. This approach allows a business to clearly identify and evaluate the options it could pursue.
To perform a proper TOWS analysis, the company must first conduct a SWOT analysis to identify its internal strengths and weaknesses and external opportunities and threats. The rest of the procedure involves dividing and linking the appropriate classifications into four categories:
* Maxi-Maxi
* Maxi-Mini
* Mini-Maxi
* Mini-Mini
Creating a TOWS matrix is an easy and visually helpful way to aid in this process.
"Maxi-Maxi" Strategy
Under the Maxi-Maxi classification, an organization identifies the appropriate strengths it can use to take advantage of its opportunities. The firm needs to distinguish and list the strengths that could aid in the maximization of each one of its listed opportunities. For example, possible strengths that could help a company penetrate a new market could include high-brand recognition, high-brand loyalty, large levels of research and development spending, and superior customer service.
"Maxi-Mini" Strategy
The Maxi-Mini category identifies the strengths the company can exploit to minimize its external threats. For instance, a potential threat to a firm could be the loss of market share to a new competitor entering the market. One way the firm could protect its position involves developing a marketing campaign emphasizing its superior customer service or its competitor's inferior customer service.
"Mini-Maxi" Strategy
With the Mini-Maxi strategy, a company wants to use its external opportunities to minimize its internal weaknesses. To illustrate, consider a company that faces rising labor costs in its home country. Simultaneously, it has identified an attractive opportunity to outsource some of its operations to another country where the cost of labor is far cheaper. This outsourcing prospect reduces the company's threat of rising labor expenses.
"Mini-Mini" Strategy
Mini-Mini strategies attempt to minimize the company's weaknesses and prevent external threats. This section matches the firm's threats and weaknesses in order for the company to recognize the potential situations that could harm its operations. Once these possible conditions are realized, the company can conceive of ways to protect its business. For example, a firm can enter into a strategic alliance or merge with one of its competitors to protect its operations from a rival firm. Moreover, the options to withdraw from a market or suspend operations are always present.
For companies to develop adequate and successful business strategies, they must sufficiently analyze their internal and external environments.
(article continues below)
One helpful strategic development tool entails SWOT analysis, which identifies the strengths, weaknesses, opportunities, and threats facing a company.
However, a major shortcoming of this method involves its focus on the company's internal environment at the expense of its external situation. Subsequent to the SWOT model, organizations should conduct a TOWS analysis, a procedure that focuses more on the external environment. Although the acronym is simply SWOT reversed, TOWS analysis takes a different approach to linking a company's internal strengths and weaknesses with its external opportunities and threats. This approach allows a business to clearly identify and evaluate the options it could pursue.
To perform a proper TOWS analysis, the company must first conduct a SWOT analysis to identify its internal strengths and weaknesses and external opportunities and threats. The rest of the procedure involves dividing and linking the appropriate classifications into four categories:
* Maxi-Maxi
* Maxi-Mini
* Mini-Maxi
* Mini-Mini
Creating a TOWS matrix is an easy and visually helpful way to aid in this process.
"Maxi-Maxi" Strategy
Under the Maxi-Maxi classification, an organization identifies the appropriate strengths it can use to take advantage of its opportunities. The firm needs to distinguish and list the strengths that could aid in the maximization of each one of its listed opportunities. For example, possible strengths that could help a company penetrate a new market could include high-brand recognition, high-brand loyalty, large levels of research and development spending, and superior customer service.
"Maxi-Mini" Strategy
The Maxi-Mini category identifies the strengths the company can exploit to minimize its external threats. For instance, a potential threat to a firm could be the loss of market share to a new competitor entering the market. One way the firm could protect its position involves developing a marketing campaign emphasizing its superior customer service or its competitor's inferior customer service.
"Mini-Maxi" Strategy
With the Mini-Maxi strategy, a company wants to use its external opportunities to minimize its internal weaknesses. To illustrate, consider a company that faces rising labor costs in its home country. Simultaneously, it has identified an attractive opportunity to outsource some of its operations to another country where the cost of labor is far cheaper. This outsourcing prospect reduces the company's threat of rising labor expenses.
"Mini-Mini" Strategy
Mini-Mini strategies attempt to minimize the company's weaknesses and prevent external threats. This section matches the firm's threats and weaknesses in order for the company to recognize the potential situations that could harm its operations. Once these possible conditions are realized, the company can conceive of ways to protect its business. For example, a firm can enter into a strategic alliance or merge with one of its competitors to protect its operations from a rival firm. Moreover, the options to withdraw from a market or suspend operations are always present.
SWOT Analysis Model
SWOT analysis, method, or model is a way to analyze competitive position of your company. SWOT analysis uses so-called SWOT matrix to assess both internal and external aspects of doing your business. The SWOT framework is a tool for auditing an organization and its environment.
SWOT is the first stage of planning and helps decision makers to focus on key issues. SWOT method is a key tool for company top officials to formulate strategic plans. Each letter in the word SWOT represents one strong word: S = strengths, W = weaknesses, O = opportunities, T = threats.
SWOT model analyzes factors that are internal to your business and also factors that affect your company from outside. Strengths and weaknesses in the SWOT matrix are internal factors. Opportunities and threats are external factors.
SWOT can be used in conjunction with other tools for strategic planning, such as the Porter's Five-Forces analysis or the Balanced Scorecard framework. SWOT is a very popular tool in marketing because it is quick, easy, and intuitive.
What is SWOT matrix?
The concept of determining strengths, weaknesses, threats, and opportunities is the fundamental idea behind the SWOT model. To present the model in a more understandable way, scholars came up with so-called SWOT matrix. SWOT matrix is only a graphical representation of the SWOT framework.
SWOT is the first stage of planning and helps decision makers to focus on key issues. SWOT method is a key tool for company top officials to formulate strategic plans. Each letter in the word SWOT represents one strong word: S = strengths, W = weaknesses, O = opportunities, T = threats.
SWOT model analyzes factors that are internal to your business and also factors that affect your company from outside. Strengths and weaknesses in the SWOT matrix are internal factors. Opportunities and threats are external factors.
SWOT can be used in conjunction with other tools for strategic planning, such as the Porter's Five-Forces analysis or the Balanced Scorecard framework. SWOT is a very popular tool in marketing because it is quick, easy, and intuitive.
What is SWOT matrix?
The concept of determining strengths, weaknesses, threats, and opportunities is the fundamental idea behind the SWOT model. To present the model in a more understandable way, scholars came up with so-called SWOT matrix. SWOT matrix is only a graphical representation of the SWOT framework.
The above is a schema of how SWOT works. You start at the top level and go down to details. When this is filled with content, it gets the shape of a matrix, such as the example below:
SWOT matrix makes understanding the model easier.
Can you show SWOT analysis on an example?
Strengths and weaknesses are internal value creating (or destroying) factors such as assets, skills, or resources a company has at its disposal relatively to its competitors. Below you can find a few examples of what your strengths might be:
* Unique product
* Location of your business
* Patents, know-how, trade secrets
* Worker's unique skill set
* Corporate culture, company image
* Quality of your product
* Access to financing
* Operational efficiency
The following list shows a few examples of weaknesses:
* Location of your business
* Lack of quality and customer service
* Poor marketing and sales
* Access to resources
* Undifferentiated products or services
Opportunities and threats are external value creating (or destroying) factors a company cannot control but emerge from either the competitive dynamics of the industry or market or from demographic, economic, political, technical, social, legal, or cultural factors.
An opportunity in the SWOT model could be for example:
* A new emerging or developing market (niche product, place - new country, less competition)
* Merger, joint venture, or strategic alliance
* Market trends
* New technologies
* Social changes (for example demographics)
And now the final one, threats. A threat could be:
* New competition in the market, possibly with new products or services
* Price wars
* Economic conditions
* Political changes
* Competitor oligopoly or monopoly
* Taxation
* Availability of resources
Factors related to each aspect of the SWOT model depend very much of the nature of your business. SWOT for a manufacturing company will be different from a SWOT for an internet start-up.
Is SWOT analysis a hard science?
The answer is no. SWOT analysis can be very subjective. Someone can see a new firm coming into the market as a threat because it takes away your current customers. Someone else might see the same company as opportunity because that company might have innovative ideas which your business can explore, and your business might even benefit from possible takeover of that new competitor.
What is the difference between SWOT and TOWS?
TOWS analysis is very similar to the SWOT method. TOWS simply looks at the negative factors first in order to turn them into positive factors.
How should I do the SWOT analysis?
There is a number of simple rules that you can go by when creating a SWOT matrix in SWOT analysis.
Be realistic: Make sure you assess your situation objectively. It is better to be more pessimistic about weaknesses and threats and lighter about strengths and opportunities.
Today versus future: When doing the SWOT analysis, distinguish between today's state of your business and your expectation for the future. Mixing your expectation with the current state will result in skewed outcome.
Simple: Keep your SWOT matrix short and simple. Avoid complexity and over analysis. If you want to include many points to each quadrant of the SWOT matrix, it is a good idea to weight them.
What is the next step in SWOT analysis?
We mentioned that the SWOT analysis is very subjective. One way to bring numbers into the SWOT analysis and make it more useful is to weight individual items. Give a weight to every item in the SWOT matrix and then add them together. Each quadrant in the SWOT matrix will result in some number which as a whole will give you a better picture where your business is relative to other quadrants. This leads us to two models called the IFE matrix and EFE matrix that are rooted in the SWOT analysis.
There are three other models related to this called the BCG matrix model, SPACE matrix model, and QSPM model which you can find here: BCG matrix, SPACE matrix model, QSPM model.
In case you have any questions about SWOT analysis, you are welcome to ask them at our management discussion forum.
Can you show SWOT analysis on an example?
Strengths and weaknesses are internal value creating (or destroying) factors such as assets, skills, or resources a company has at its disposal relatively to its competitors. Below you can find a few examples of what your strengths might be:
* Unique product
* Location of your business
* Patents, know-how, trade secrets
* Worker's unique skill set
* Corporate culture, company image
* Quality of your product
* Access to financing
* Operational efficiency
The following list shows a few examples of weaknesses:
* Location of your business
* Lack of quality and customer service
* Poor marketing and sales
* Access to resources
* Undifferentiated products or services
Opportunities and threats are external value creating (or destroying) factors a company cannot control but emerge from either the competitive dynamics of the industry or market or from demographic, economic, political, technical, social, legal, or cultural factors.
An opportunity in the SWOT model could be for example:
* A new emerging or developing market (niche product, place - new country, less competition)
* Merger, joint venture, or strategic alliance
* Market trends
* New technologies
* Social changes (for example demographics)
And now the final one, threats. A threat could be:
* New competition in the market, possibly with new products or services
* Price wars
* Economic conditions
* Political changes
* Competitor oligopoly or monopoly
* Taxation
* Availability of resources
Factors related to each aspect of the SWOT model depend very much of the nature of your business. SWOT for a manufacturing company will be different from a SWOT for an internet start-up.
Is SWOT analysis a hard science?
The answer is no. SWOT analysis can be very subjective. Someone can see a new firm coming into the market as a threat because it takes away your current customers. Someone else might see the same company as opportunity because that company might have innovative ideas which your business can explore, and your business might even benefit from possible takeover of that new competitor.
What is the difference between SWOT and TOWS?
TOWS analysis is very similar to the SWOT method. TOWS simply looks at the negative factors first in order to turn them into positive factors.
How should I do the SWOT analysis?
There is a number of simple rules that you can go by when creating a SWOT matrix in SWOT analysis.
Be realistic: Make sure you assess your situation objectively. It is better to be more pessimistic about weaknesses and threats and lighter about strengths and opportunities.
Today versus future: When doing the SWOT analysis, distinguish between today's state of your business and your expectation for the future. Mixing your expectation with the current state will result in skewed outcome.
Simple: Keep your SWOT matrix short and simple. Avoid complexity and over analysis. If you want to include many points to each quadrant of the SWOT matrix, it is a good idea to weight them.
What is the next step in SWOT analysis?
We mentioned that the SWOT analysis is very subjective. One way to bring numbers into the SWOT analysis and make it more useful is to weight individual items. Give a weight to every item in the SWOT matrix and then add them together. Each quadrant in the SWOT matrix will result in some number which as a whole will give you a better picture where your business is relative to other quadrants. This leads us to two models called the IFE matrix and EFE matrix that are rooted in the SWOT analysis.
There are three other models related to this called the BCG matrix model, SPACE matrix model, and QSPM model which you can find here: BCG matrix, SPACE matrix model, QSPM model.
In case you have any questions about SWOT analysis, you are welcome to ask them at our management discussion forum.
McDonalds SWOT Analysis
Strengths
* It has a strong global presence and is considered as a market leader in both the domestic as well as the international markets.
* It is a global brand that owns 31,000 restaurants serving in 120 countries. Of these 31,000 restaurants at least14,000 restaurants are situated in the US.
* It uses economies of scale for reducing the cost, as its huge expansion diversifies the overall risk involved with the economic performance.
* They own an active children’s charity by the name‘The Ronald McDonald House’.
* It takes steps in adjusting the Ingredients and product offerings in order to comply with the upgraded health standards deemed necessary by the USDA.
* It earns revenue by fast food sales as well as a property investor and a franchiser of restaurants.
* It has a firm real estate portfolio.
* It has branded menu items i-e Big Mac, Chicken McNuggets, which further promote McDonalds.
* Its recognized as one of the world’s most recognized logos.
* It is recognized as a socially responsible and community oriented firm.
* It adapts to the cultural differences regarding the region where the restaurant is set up.
* It has located itself in major airports, cities, highways, tourist locations, theme parks.
* It has an efficient food preparation style that follows the process in a systematic way.
* It takes food safety extremely cautiously.
* It was the first to provide the customers about nutrition facts.
Weaknesses
* It uses advertising that mostly targets children.
* High employee turn-over.
* It has yet to accomplish going on the trend of organic food.
* Price competition with the competitors resulting in low revenue.
* Lack of innovative products.
Opportunities
* It can adapt to the needs of the societies and undergo an innovative product line.
* It can research ways to use ‘green’ energy and packaging which will work as a part of their promotional effort as well as fulfill their social responsibility.
* It can create new product offerings, use mobile text messaging to offer services that appeal to consumers.
* It can upscale some of its restaurant settings at luxurious locations to attract more customers.
* It can provide optional items that are regarded to be the basis of allergy for some.
* It can slow down the level of expansion in order to increase the profitability of the organization.
Threats
* The recession negatively impacts the holding position of the firm regarding its revenue streams, even though they are quite diversified.
* Foreign currency fluctuations are regarded to be a major problem as it uses standard pricing for its food items.
* More restaurants that are increasing their food offering and declining the price.
* Health issues regarding the fast food chain.
* Heavy investments on promotional campaigns which decrease the gaining of market share.
* Some parents criticize the firm’s ‘cradle to grave’ marketing strategy that focuses on kids, who later on take it as a trend to their adulthood.
* Sued various times for unhealthy food, usually with addictive additives.
* Emergence of major fast food competitors: Burger King, Starbucks, Wendy’s, Taco Bell, KFC.
* The expansion has made the firm vulnerable to the slow economies of the other countries.
SWOT Analysis (Strategy)
SWOT is an abbreviation for Strengths, Weaknesses, Opportunities and Threats
SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment.
Once key strategic issues have been identified, they feed into business objectives, particularly marketing objectives. SWOT analysis can be used in conjunction with other tools for audit and analysis, such as PEST analysis and Porter's Five-Forces analysis. It is also a very popular tool with business and marketing students because it is quick and easy to learn.
The Key Distinction - Internal and External Issues
Strengths and weaknesses are Internal factors. For example, a strength could be your specialist marketing expertise. A weakness could be the lack of a new product.
Opportunities and threats are external factors. For example, an opportunity could be a developing distribution channel such as the Internet, or changing consumer lifestyles that potentially increase demand for a company's products. A threat could be a new competitor in an important existing market or a technological change that makes existing products potentially obsolete.
it is worth pointing out that SWOT analysis can be very subjective - two people rarely come-up with the same version of a SWOT analysis even when given the same information about the same business and its environment. Accordingly, SWOT analysis is best used as a guide and not a prescription. Adding and weighting criteria to each factor increases the validity of the analysis.
Areas to Consider
Some of the key areas to consider when identifying and evaluating Strengths, Weaknesses, Opportunities and Threats are listed in the example SWOT analysis below:
SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment.
Once key strategic issues have been identified, they feed into business objectives, particularly marketing objectives. SWOT analysis can be used in conjunction with other tools for audit and analysis, such as PEST analysis and Porter's Five-Forces analysis. It is also a very popular tool with business and marketing students because it is quick and easy to learn.
The Key Distinction - Internal and External Issues
Strengths and weaknesses are Internal factors. For example, a strength could be your specialist marketing expertise. A weakness could be the lack of a new product.
Opportunities and threats are external factors. For example, an opportunity could be a developing distribution channel such as the Internet, or changing consumer lifestyles that potentially increase demand for a company's products. A threat could be a new competitor in an important existing market or a technological change that makes existing products potentially obsolete.
it is worth pointing out that SWOT analysis can be very subjective - two people rarely come-up with the same version of a SWOT analysis even when given the same information about the same business and its environment. Accordingly, SWOT analysis is best used as a guide and not a prescription. Adding and weighting criteria to each factor increases the validity of the analysis.
Areas to Consider
Some of the key areas to consider when identifying and evaluating Strengths, Weaknesses, Opportunities and Threats are listed in the example SWOT analysis below:
SWOT Analysis Benefit
You don't have to be running a multinational company to benefit from a SWOT analysis. No matter what size your enterprise, you will take a benefit from running a quick SWOT check.
For those who don't know, a SWOT analysis covers your STRENGTHS, WEAKNESSES, OPPORTUNITIES, and THREATS.
Take your strengths to begin with. All businesses have them; otherwise, there wouldn't be a business in the first place. The point of highlighting them, is to increase them. If you can STRENGTHEN your STRENGTHS, you are on to a winner. And if you clearly understand what your strengths are, it is so much easier to add to them.
If you have a strong line of product sellers, then try and increase them. If you have a good agent, or good employee, producing great results, then give them more work and responsibility. If you have an exclusive line that pays a great margin, then market it more aggressively. Push your strengths, and ignore those products and lines that don't produce enough, or sufficient, profit.
WEAKNESSES? All businesses have those too. Know what they are, and attack them relentlessly as if they were the devil incarnate. Business is war, and it is a war that needs winning. Perhaps your products are too dear. Then do something about it. Perhaps they are not producing sufficient margin. Then tackle that head on. Perhaps you have a shop and too much of your stock is going missing. Then install CCTV. Perhaps your products are going out of date. Then wake up, and modernise. May be you don't spend enough time on your business. Then quit watching soaps. I did, and it was the best thing I ever did. A good businessperson always knows their weaknesses inside out, and addresses them as much as they are able. Identify and destroy weaknesses as if they are an alien force about to obliterate your particular planet. If you don't, they will.
OPPORTUNITIES: If any business is to survive in the longer term, it must create and take on board new opportunities. Any business that chugs along doing the same thing month in month out, year in year out, without keeping one eye to the future, is a business that is ultimately doomed. So, what opportunities are currently out there for you? Perhaps there is a range of new ebooks that have come on the market with reproduction rights. May be there is an opportunity there for you increase your range, or venture into a completely new field, for you. May be the local pet shop in your town is closing down. Perhaps there is an opportunity there to enter that trade and mop up their previous business, and goodwill. Or may be the company you work for full time is closing down, or the boss you work for is retiring. Is there an opportunity there for you to take over, or buy that business? Perhaps you could even arrange easy payment terms to pay for it out of your ongoing profits over the next year, or better still, the next five years. There are many stories about, of employees buying the business they work for, and ultimately making a huge success of it. And why not? After all, who knows any business better, than an inside employee? They know where there is hidden value, and they know where the skeletons are buried. We have all heard people say "I could run it better myself". Well, perhaps you could. But have you got the bottle, the energy, and the financial muscle to do so, or could you find it? And if that chance really does come along, may be you should look seriously at grabbing it, before someone else does. Chances like that only appear so many times in life. Your OPPORTUNITIES analysis will highlight that, and any other potential opportunities too.
THREATS: lastly the worst one of all, and the one that is so easy to ignore, and even not notice at all, until it creeps up on you, and thumps you in the profit line. In my local town, there were two newsagents. They have been there for as long as anyone could remember, and both have a loyal and enthusiastic bunch of customers. Then along came the giant Tesco. It wasn't one of those superstore all embracing bullies, but a smaller convenience store. But it was still going to be open all hours, it was still going to be a price efficient and formidable competitor. As soon as the planning permission for that store appeared in the local press, one of the newsagents sold out. Got a good price for it too, by all accounts, while the other one showed no signs of even noticing the aggressive newcomer about to open on his doorstep. This story is only in its infancy, but if that newsagent is still open in three or four years time, I for one will be very surprised. Identify your threats, and don't be afraid of doing something about it. All businesses have threats. It does not matter whether you run a small mail order business from home, a letting agent on the high street, or a boat builder on the river. All businesses have threats of some kind, that's the way of things.
That is why a regular SWOT analysis will keep you fully aware of what they are, and where they are coming from, and if you do that, you can react against them in the most positive way. If you do nothing, and hope those threats evaporate, you run the risk of being swamped, or gobbled up. Threats rarely disappear by themselves. Always try and confront them head on.
If you are running a successful business, then instigate a yearly SWOT check. It will not take you too long to carry out, and it could save you your business and your livelihood. If you are running an unsuccessful business, then perhaps it is even more imperative that you run a SWOT analysis right now. Once you understand your weaknesses and threats, you can attack them. Once you understand why you are not making any money, you can introduce a well thought out plan to do something about it. Running a business is not just about selling, it is about managing too. A SWOT analysis is an essential tool for any good manager. Running a SWOT is a sign of a well-run business; and more often than not, a sign of a successful business too
For those who don't know, a SWOT analysis covers your STRENGTHS, WEAKNESSES, OPPORTUNITIES, and THREATS.
Take your strengths to begin with. All businesses have them; otherwise, there wouldn't be a business in the first place. The point of highlighting them, is to increase them. If you can STRENGTHEN your STRENGTHS, you are on to a winner. And if you clearly understand what your strengths are, it is so much easier to add to them.
If you have a strong line of product sellers, then try and increase them. If you have a good agent, or good employee, producing great results, then give them more work and responsibility. If you have an exclusive line that pays a great margin, then market it more aggressively. Push your strengths, and ignore those products and lines that don't produce enough, or sufficient, profit.
WEAKNESSES? All businesses have those too. Know what they are, and attack them relentlessly as if they were the devil incarnate. Business is war, and it is a war that needs winning. Perhaps your products are too dear. Then do something about it. Perhaps they are not producing sufficient margin. Then tackle that head on. Perhaps you have a shop and too much of your stock is going missing. Then install CCTV. Perhaps your products are going out of date. Then wake up, and modernise. May be you don't spend enough time on your business. Then quit watching soaps. I did, and it was the best thing I ever did. A good businessperson always knows their weaknesses inside out, and addresses them as much as they are able. Identify and destroy weaknesses as if they are an alien force about to obliterate your particular planet. If you don't, they will.
OPPORTUNITIES: If any business is to survive in the longer term, it must create and take on board new opportunities. Any business that chugs along doing the same thing month in month out, year in year out, without keeping one eye to the future, is a business that is ultimately doomed. So, what opportunities are currently out there for you? Perhaps there is a range of new ebooks that have come on the market with reproduction rights. May be there is an opportunity there for you increase your range, or venture into a completely new field, for you. May be the local pet shop in your town is closing down. Perhaps there is an opportunity there to enter that trade and mop up their previous business, and goodwill. Or may be the company you work for full time is closing down, or the boss you work for is retiring. Is there an opportunity there for you to take over, or buy that business? Perhaps you could even arrange easy payment terms to pay for it out of your ongoing profits over the next year, or better still, the next five years. There are many stories about, of employees buying the business they work for, and ultimately making a huge success of it. And why not? After all, who knows any business better, than an inside employee? They know where there is hidden value, and they know where the skeletons are buried. We have all heard people say "I could run it better myself". Well, perhaps you could. But have you got the bottle, the energy, and the financial muscle to do so, or could you find it? And if that chance really does come along, may be you should look seriously at grabbing it, before someone else does. Chances like that only appear so many times in life. Your OPPORTUNITIES analysis will highlight that, and any other potential opportunities too.
THREATS: lastly the worst one of all, and the one that is so easy to ignore, and even not notice at all, until it creeps up on you, and thumps you in the profit line. In my local town, there were two newsagents. They have been there for as long as anyone could remember, and both have a loyal and enthusiastic bunch of customers. Then along came the giant Tesco. It wasn't one of those superstore all embracing bullies, but a smaller convenience store. But it was still going to be open all hours, it was still going to be a price efficient and formidable competitor. As soon as the planning permission for that store appeared in the local press, one of the newsagents sold out. Got a good price for it too, by all accounts, while the other one showed no signs of even noticing the aggressive newcomer about to open on his doorstep. This story is only in its infancy, but if that newsagent is still open in three or four years time, I for one will be very surprised. Identify your threats, and don't be afraid of doing something about it. All businesses have threats. It does not matter whether you run a small mail order business from home, a letting agent on the high street, or a boat builder on the river. All businesses have threats of some kind, that's the way of things.
That is why a regular SWOT analysis will keep you fully aware of what they are, and where they are coming from, and if you do that, you can react against them in the most positive way. If you do nothing, and hope those threats evaporate, you run the risk of being swamped, or gobbled up. Threats rarely disappear by themselves. Always try and confront them head on.
If you are running a successful business, then instigate a yearly SWOT check. It will not take you too long to carry out, and it could save you your business and your livelihood. If you are running an unsuccessful business, then perhaps it is even more imperative that you run a SWOT analysis right now. Once you understand your weaknesses and threats, you can attack them. Once you understand why you are not making any money, you can introduce a well thought out plan to do something about it. Running a business is not just about selling, it is about managing too. A SWOT analysis is an essential tool for any good manager. Running a SWOT is a sign of a well-run business; and more often than not, a sign of a successful business too
How to do a SWOT Analysis (Strategic Planning Made Easy)
“Strategic Planning” sounds a lofty pursuit and perhaps beyond our humble capabilities. Not so with a SWOT Analysis. Learn how to do a SWOT analysis using the SWOT matrix and become an effective strategic planner today, achieving your goals.
What’s Strategic Planning Anyway?
Strategic planning is just management speak for long term future planning. Strategic planning concerns anything that will bring results in anything from 1 year to 5 years or beyond. It’s good management practice to raise your head above the daily grind every now and then, and take action now to positively affect your future.
Definition of SWOT
As with most management models, the clue is in the name.
S = Strengths
W = Weaknesses
O = Opportunities
T = Threats
The SWOT Matrix Explained
All the best management models have four quadrants, and the SWOT matrix is no exception. You use each of the four quadrants in turn to analyze where you are now, where you want to be, and then make an action plan to get there.
What’s Strategic Planning Anyway?
Strategic planning is just management speak for long term future planning. Strategic planning concerns anything that will bring results in anything from 1 year to 5 years or beyond. It’s good management practice to raise your head above the daily grind every now and then, and take action now to positively affect your future.
Definition of SWOT
As with most management models, the clue is in the name.
S = Strengths
W = Weaknesses
O = Opportunities
T = Threats
The SWOT Matrix Explained
All the best management models have four quadrants, and the SWOT matrix is no exception. You use each of the four quadrants in turn to analyze where you are now, where you want to be, and then make an action plan to get there.
Regardless of whether you or your team are future planning for specific products, work, personal or any other area, the SWOT analysis process is the same.
Step 1 – In the here and now…
List all strengths that exist now. Then in turn, list all weaknesses that exist now. Be realistic but avoid modesty!
Step 2 – What might be…
List all opportunities that exist in the future. Opportunities are potential future strengths. Then in turn, list all threats that exist in the future. Threats are potential future weaknesses.
Step 3 – Plan of action…
Review your SWOT matrix with a view to creating an action plan to address each of the four areas.
In summary;
· Strengths need to be maintained, built upon or leveraged.
· Weaknesses need to be remedied or stopped.
· Opportunities need to be prioritised and optimised.
· Threats need to be countered or minimised.
SWOT Analysis Example
Here’s one I prepared earlier:
Step 1 – In the here and now…
List all strengths that exist now. Then in turn, list all weaknesses that exist now. Be realistic but avoid modesty!
Step 2 – What might be…
List all opportunities that exist in the future. Opportunities are potential future strengths. Then in turn, list all threats that exist in the future. Threats are potential future weaknesses.
Step 3 – Plan of action…
Review your SWOT matrix with a view to creating an action plan to address each of the four areas.
In summary;
· Strengths need to be maintained, built upon or leveraged.
· Weaknesses need to be remedied or stopped.
· Opportunities need to be prioritised and optimised.
· Threats need to be countered or minimised.
SWOT Analysis Example
Here’s one I prepared earlier:
Sow the seeds and reap the benefits
And that’s it! Not too complicated, I’m sure you’ll agree. The SWOT matrix is a useful tool for strategic planning and achieving your goals, individually or with a team. It’s easy to learn how to do a SWOT analysis – just try one out for yourself and reap the benefits.
And that’s it! Not too complicated, I’m sure you’ll agree. The SWOT matrix is a useful tool for strategic planning and achieving your goals, individually or with a team. It’s easy to learn how to do a SWOT analysis – just try one out for yourself and reap the benefits.
How to Write a SWOT Analysis (Analyse a Company According to Its Internal And External Factors)
A Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis allows business management to formulate strategies to increase profits for a company. The SWOT analysis also helps a company and its employees to adapt to changing factors in the industry.
The SWOT can be classified into internal and external factors affecting a company. The Strengths and Weaknesses of the SWOT analysis represent the internal factors that influence the viability of the company. The Opportunities and Threats, on the other hand, are the external factors that may affect the company's performances.
What Are Examples of Internal Strengths of a Company?
A strength is essentially a factor from within the company that has resulted in the success of the organisation. For example, a management team with strong calibre denotes that the company is forward looking and is flexible to change. Both factors allow the company to presevere amongst competitors, especially when external threats, such as changes in regulation with respects to the industry, occur.
Another example of a company strength is a hefty financial cash flow. Companies that are liquid in cash are more likely to succeed in the long-run than companies that have invested in illiquid assets (such as heavy equipment / renovations in the office.) This is because working capital (cash) is required to sustain the company's ability to pay employees / suppliers / fund marketing campaigns.
What Are Examples of Weaknesses within a Company?
A weakness of an organisation can be detrimental to the survival of the company. A popular example is poor retention rate of employees. This equates to a high turnover with dissatisfied employees leaving for other job opportunities. The fact that this takes place can be due to a number of reasons. One of them may be poor compensation packages (due to lack of funds). Another example may be a weak organisational culture that inhibits employees from expressing their views and concerns.
The SWOT can be classified into internal and external factors affecting a company. The Strengths and Weaknesses of the SWOT analysis represent the internal factors that influence the viability of the company. The Opportunities and Threats, on the other hand, are the external factors that may affect the company's performances.
What Are Examples of Internal Strengths of a Company?
A strength is essentially a factor from within the company that has resulted in the success of the organisation. For example, a management team with strong calibre denotes that the company is forward looking and is flexible to change. Both factors allow the company to presevere amongst competitors, especially when external threats, such as changes in regulation with respects to the industry, occur.
Another example of a company strength is a hefty financial cash flow. Companies that are liquid in cash are more likely to succeed in the long-run than companies that have invested in illiquid assets (such as heavy equipment / renovations in the office.) This is because working capital (cash) is required to sustain the company's ability to pay employees / suppliers / fund marketing campaigns.
What Are Examples of Weaknesses within a Company?
A weakness of an organisation can be detrimental to the survival of the company. A popular example is poor retention rate of employees. This equates to a high turnover with dissatisfied employees leaving for other job opportunities. The fact that this takes place can be due to a number of reasons. One of them may be poor compensation packages (due to lack of funds). Another example may be a weak organisational culture that inhibits employees from expressing their views and concerns.
An opportunity allows a company to increase profits by offering a gap in demand, a wider consumer base, or an opportunity to reduce costs. A company's strategic goal is to move forward to achieving opportunities that arise in the market. For example, a coffee house may find an opportunity when new suppliers of coffee beans enter into the market. This increases competition amongst coffee bean suppliers and thus, reduces costs for the coffee house. Opportunities are almost always found in shifts in consumer preferences. For example, with the increase of women penetrating the workforce, more clothing designers nab the opportunity to produce fashionable career attire for working women.
What Are the Threats Inherent in the Environment?
A threat can affect the company negatively, especially if the company is unable to adapt to the threat and mitigate its harmful effects. For example, a threat for small grocery retailers would be the emergence of a hyper-market in the area - Wal-mart - for instance. A common threat in any economy would be an economic recession, which reduces consumers' consumption. This threat generally reduces revenue in companies, regardless of the sector.
At the end of a SWOT analysis, the company's plans to move forward should be centred around the opportunities quadrant. Opportunities translate into opportunities to increase revenue as well as to reduce costs; this, in turn, is transformed into higher profits. To achieve success in the opportunities quadrant, the company should look at capitalising on its strengths, such as an effective marketing strategy. By using their strengths, companies should also be able to strategise against the threats that are inherent in the market. Threats are extinguishable but steps to mitigate them can be taken to protect the operations on the company. Although companies always capitalise on their strengths, they should not ignore their weaknesses. Weaknesses represent loopholes within their organisational structure / operations. A company should resolve to fill in their weaknesses in the long-run to ward off aggressive competition.
What Are the Threats Inherent in the Environment?
A threat can affect the company negatively, especially if the company is unable to adapt to the threat and mitigate its harmful effects. For example, a threat for small grocery retailers would be the emergence of a hyper-market in the area - Wal-mart - for instance. A common threat in any economy would be an economic recession, which reduces consumers' consumption. This threat generally reduces revenue in companies, regardless of the sector.
At the end of a SWOT analysis, the company's plans to move forward should be centred around the opportunities quadrant. Opportunities translate into opportunities to increase revenue as well as to reduce costs; this, in turn, is transformed into higher profits. To achieve success in the opportunities quadrant, the company should look at capitalising on its strengths, such as an effective marketing strategy. By using their strengths, companies should also be able to strategise against the threats that are inherent in the market. Threats are extinguishable but steps to mitigate them can be taken to protect the operations on the company. Although companies always capitalise on their strengths, they should not ignore their weaknesses. Weaknesses represent loopholes within their organisational structure / operations. A company should resolve to fill in their weaknesses in the long-run to ward off aggressive competition.
When to Use (Not ) SWOT Analysis in Project Management
In 2008 Project Manager at Volvo IT (Peter C) give a question about when to use and when not to use SWOT analysis in project management? And from the discussion on the Linked In there is a few a good answer, and this is the all answers:
* SWOT is useful as a portion of the strategy development for a business. It is only a portion of the strategy and everything needs to be researched to be sure that this isn't just brainstorming from non-experts. To better answer your specific question:
1. Use SWOT when you have real experts stating real facts or you are asking questions which require research for the analysis. Even then, take this information as a portion of the strategy in alignment with other factors like real benchmarking data, customer response data and customer research including forecasting.
2. Don't use SWOT if you don't have real subject experts in the room and if there is a tendency to move from brainstorming to actions without research.
* As a principal it is vital for analysis to be done through SWOT mentality. Thinking of scenarios and solutions in terms of strengths, weaknesses, opportunities, and threats gives analyst a perception that would include all dimensions. Of course, there are cases where SWOT is not fully applied. The only place I would not use SWOT is when we are in the realm of hypothetical... especially when these are far-fetched thoughts. SWOT requires some form of comprehension that may not exist in these cases.
* SWOT's are always important to utilize both prior to, during, and after completing projects. The key is "objectivity". This can be very difficult to do in a high pressure situation where time is cirtical or in a culture that doesn't re-examine itself for the sake of improvement. If the SWOT is done objectively and supported by 3rd party non-biased market research, "last minute" risks or problems are generally uncovered before they occur. Checking in periodically on your assumptions throughout the project will enable you to further refine the outcome and avoid major mis-steps and ensure quality output. If the project duration is long term, it is good practise to continually evaluate more current market research to support or to adjust your strategy/direction. Finally, re-examining your SWOT with your final outcomes will enable you to learn what works and what doesn't. Doing so will enable you to become more effective in utilizing SWOTs.
* SWOT is almost always useful, but too many companies see it as the end of the project instead of the beginning. SWOT establishes a good framework and context, but in and of itself, it does not point to the future...it isn't strategy. There are "next steps" that some companies don't take.
* I found SWOT to be used all too often as a lazy approach to diagnosing a problem (real or perceived). It is too high level to coalesce thinking about the nature of the problem, the place where and when it appears, its frequency and its severity. If used as a sole rationale behind a change and/or project, chances of successfully addressing what ails your organisation are pretty small. It is useful to communicate with people who want to see an "analysis-on-a-page", but as previous contributors said, it is just one of many diagnostic tools that you have to use to analyse the situation(s) you are facing.
* I think SWOT is more useful when you are analyzing a particular company or business. However, if you wish to analyze an industry, you can use Porter's five forces analysis. Also, SWOT is mostly applicable for static conditions of business. For dynamic or rapidly changing businesses such as knowledge intensive industries, SWOT may not be that helpful. Alternatively, use of BCG matrix or GE/Mckinsey Matrix along with SWOT can give better results.
* I believe that SWOT, while always useful, is frequently not a sufficient exploration of the situation. For large, company strategy type issues, you might look at a Porter Five Forces model which takes in aspects of the landscape. While SWOT's OT portion looks at the landscape, I think the Five Forces looks deeper and more usefully. Similarly, I like Porter's Diamond of International Competition for a lot of things, like new product entry and predicting a team's chances for success in the playoffs. It takes some tweaking to move Land, Location, Labor, Population and Resources to a world of products and baseball, but you work your own analogues.I try to work every project through the Theory of Constraints. It's a solid theory and works very nicely to figure out what needs fixing. But, generally speaking, SWOT is always a good place to start. At the very least, it's a good exercise that can lead you to a more useful model for looking at the project.
* SWOT is useful as a portion of the strategy development for a business. It is only a portion of the strategy and everything needs to be researched to be sure that this isn't just brainstorming from non-experts. To better answer your specific question:
1. Use SWOT when you have real experts stating real facts or you are asking questions which require research for the analysis. Even then, take this information as a portion of the strategy in alignment with other factors like real benchmarking data, customer response data and customer research including forecasting.
2. Don't use SWOT if you don't have real subject experts in the room and if there is a tendency to move from brainstorming to actions without research.
* As a principal it is vital for analysis to be done through SWOT mentality. Thinking of scenarios and solutions in terms of strengths, weaknesses, opportunities, and threats gives analyst a perception that would include all dimensions. Of course, there are cases where SWOT is not fully applied. The only place I would not use SWOT is when we are in the realm of hypothetical... especially when these are far-fetched thoughts. SWOT requires some form of comprehension that may not exist in these cases.
* SWOT's are always important to utilize both prior to, during, and after completing projects. The key is "objectivity". This can be very difficult to do in a high pressure situation where time is cirtical or in a culture that doesn't re-examine itself for the sake of improvement. If the SWOT is done objectively and supported by 3rd party non-biased market research, "last minute" risks or problems are generally uncovered before they occur. Checking in periodically on your assumptions throughout the project will enable you to further refine the outcome and avoid major mis-steps and ensure quality output. If the project duration is long term, it is good practise to continually evaluate more current market research to support or to adjust your strategy/direction. Finally, re-examining your SWOT with your final outcomes will enable you to learn what works and what doesn't. Doing so will enable you to become more effective in utilizing SWOTs.
* SWOT is almost always useful, but too many companies see it as the end of the project instead of the beginning. SWOT establishes a good framework and context, but in and of itself, it does not point to the future...it isn't strategy. There are "next steps" that some companies don't take.
* I found SWOT to be used all too often as a lazy approach to diagnosing a problem (real or perceived). It is too high level to coalesce thinking about the nature of the problem, the place where and when it appears, its frequency and its severity. If used as a sole rationale behind a change and/or project, chances of successfully addressing what ails your organisation are pretty small. It is useful to communicate with people who want to see an "analysis-on-a-page", but as previous contributors said, it is just one of many diagnostic tools that you have to use to analyse the situation(s) you are facing.
* I think SWOT is more useful when you are analyzing a particular company or business. However, if you wish to analyze an industry, you can use Porter's five forces analysis. Also, SWOT is mostly applicable for static conditions of business. For dynamic or rapidly changing businesses such as knowledge intensive industries, SWOT may not be that helpful. Alternatively, use of BCG matrix or GE/Mckinsey Matrix along with SWOT can give better results.
* I believe that SWOT, while always useful, is frequently not a sufficient exploration of the situation. For large, company strategy type issues, you might look at a Porter Five Forces model which takes in aspects of the landscape. While SWOT's OT portion looks at the landscape, I think the Five Forces looks deeper and more usefully. Similarly, I like Porter's Diamond of International Competition for a lot of things, like new product entry and predicting a team's chances for success in the playoffs. It takes some tweaking to move Land, Location, Labor, Population and Resources to a world of products and baseball, but you work your own analogues.I try to work every project through the Theory of Constraints. It's a solid theory and works very nicely to figure out what needs fixing. But, generally speaking, SWOT is always a good place to start. At the very least, it's a good exercise that can lead you to a more useful model for looking at the project.
Conducting a SWOT or (TOWS)
What is it? Justify Full
The granddaddy of focus group data gathering processes is the traditional SWOT and its updated offspring, TOWS Analysis. You can SWOT (or TOWS) a concept, a program, a department, a school, or a new initiative. You can even SWOT a person, although one must be careful when doing so.
When doing SWOT Analysis, remember that the S and the W are INTERNAL and the O and T are external. Traditionally, facilitators begin with the organization’s Strengths and Weaknesses and then move out to the external Opportunities and Threats. Recent thinking prompts consideration first of the opportunities and threats existing in the "outside world" against which the institution can leverage its strengths and find conviction to correct its weaknesses. We like this reversal of the traditional order because it helps an organization place itself in context.
Method
Group Process Technique: Brainstorming
Purpose: To generate a large quantity of ideas in response to a stated problem or question.
The group is asked to generate as many responses to the following questions within a limited time frame (10-20 minutes per question). All responses are recorded verbatim and ideas are not judged until evaluation time.
Group Size: Can be used with any number of participants (large groups can be broken into smaller groups of 6-10 to maximize output)
Resources: Flip chart and markers
Procedure
1. Explain basic rules of brainstorming:
Don’t evaluate the idea; defer judgment.
Quantity is the goal.
The wilder the better.
Record each idea verbatim. Tagging on or combining ideas is okay.
2. Begin brainstorming by asking the following questions:
a. What opportunities exist in our external environment?
b. What threats to the institution exist in our external environment?
Brainstorm these along the lines of:
* Political, economic, social, technology
* Market size and behavior
* Constituent behavior
* Benefits sought
* Potential new entrants
* Direct competitors’ performance, strategies, capabilities, intentions
c. What are the strengths of our institution?
d. What are the weaknesses of our institution?
Brainstorm these along the lines of:
* Ability to design/innovate
* Ability to source and produce
* Ability to market and service
* Ability to finance
* Ability to manage
4. Record all ideas verbatim.
5. After all ideas have been storyboarded and the time limit is up, categorize ideas into thematic groupings.
Facilitator Notes To Wrap Up
Prioritization is a key factor in obtaining useful SWOT (OTSW) data, as the output from brainstorming will be significant.
At the end of the small group reports, reduce the list of strengths and weaknesses to no more than five distinctive competencies and debilitating weaknesses:
1. Strengths that are distinctive competencies
Are those few things that your institution does best that constituents really care about and that set it apart from other market entries. Core competencies usually attract widespread agreement. An organization will focus on capitalizing on its distinctive competencies.
2. Weaknesses that are debilitating
Are those areas in which constituents expect and demand performance or competency and the institution is dangerously lacking. Debilitating weaknesses frequently attract widespread agreement. An organization will focus on correcting its debilitating weaknesses.
Reduce threats and opportunities to the five most critically important of each.
Questions to Consider when evaluating OTSWs or SWOTs:
1. What will the institution gain if it does nothing? What will it lose?
2. What will the institution gain if it launches a successful initiative? What will it lose if it does not?
SWOT (OTSW) MATRIX
* What are the Threats and Opportunities present in the external marketplace that effect this school, department, program, project?
* What are the Strengths and Weaknesses present inside the institution that effect this school, department, program, project?
The granddaddy of focus group data gathering processes is the traditional SWOT and its updated offspring, TOWS Analysis. You can SWOT (or TOWS) a concept, a program, a department, a school, or a new initiative. You can even SWOT a person, although one must be careful when doing so.
When doing SWOT Analysis, remember that the S and the W are INTERNAL and the O and T are external. Traditionally, facilitators begin with the organization’s Strengths and Weaknesses and then move out to the external Opportunities and Threats. Recent thinking prompts consideration first of the opportunities and threats existing in the "outside world" against which the institution can leverage its strengths and find conviction to correct its weaknesses. We like this reversal of the traditional order because it helps an organization place itself in context.
Method
Group Process Technique: Brainstorming
Purpose: To generate a large quantity of ideas in response to a stated problem or question.
The group is asked to generate as many responses to the following questions within a limited time frame (10-20 minutes per question). All responses are recorded verbatim and ideas are not judged until evaluation time.
Group Size: Can be used with any number of participants (large groups can be broken into smaller groups of 6-10 to maximize output)
Resources: Flip chart and markers
Procedure
1. Explain basic rules of brainstorming:
Don’t evaluate the idea; defer judgment.
Quantity is the goal.
The wilder the better.
Record each idea verbatim. Tagging on or combining ideas is okay.
2. Begin brainstorming by asking the following questions:
a. What opportunities exist in our external environment?
b. What threats to the institution exist in our external environment?
Brainstorm these along the lines of:
* Political, economic, social, technology
* Market size and behavior
* Constituent behavior
* Benefits sought
* Potential new entrants
* Direct competitors’ performance, strategies, capabilities, intentions
c. What are the strengths of our institution?
d. What are the weaknesses of our institution?
Brainstorm these along the lines of:
* Ability to design/innovate
* Ability to source and produce
* Ability to market and service
* Ability to finance
* Ability to manage
4. Record all ideas verbatim.
5. After all ideas have been storyboarded and the time limit is up, categorize ideas into thematic groupings.
Facilitator Notes To Wrap Up
Prioritization is a key factor in obtaining useful SWOT (OTSW) data, as the output from brainstorming will be significant.
At the end of the small group reports, reduce the list of strengths and weaknesses to no more than five distinctive competencies and debilitating weaknesses:
1. Strengths that are distinctive competencies
Are those few things that your institution does best that constituents really care about and that set it apart from other market entries. Core competencies usually attract widespread agreement. An organization will focus on capitalizing on its distinctive competencies.
2. Weaknesses that are debilitating
Are those areas in which constituents expect and demand performance or competency and the institution is dangerously lacking. Debilitating weaknesses frequently attract widespread agreement. An organization will focus on correcting its debilitating weaknesses.
Reduce threats and opportunities to the five most critically important of each.
Questions to Consider when evaluating OTSWs or SWOTs:
1. What will the institution gain if it does nothing? What will it lose?
2. What will the institution gain if it launches a successful initiative? What will it lose if it does not?
SWOT (OTSW) MATRIX
* What are the Threats and Opportunities present in the external marketplace that effect this school, department, program, project?
* What are the Strengths and Weaknesses present inside the institution that effect this school, department, program, project?
SWOT ANALYSIS
The SWOT analysis, which stands for "Strengths, Weaknesses, Opportunities and Threats," is used to outline goals for yourself or your business, as well as detail where your strengths lie, what you need to improve and how your goals might be hindered by external elements. If you've never created a SWOT analysis, or if it's been a while since you last compared your current status with a previous SWOT analysis, filling out a fresh SWOT analysis matrix could be beneficial to you or your company.
The SWOT Analysis Matrix
One of the most popular methods of SWOT analysis review is the SWOT matrix. This matrix is comprised of a two-column, two-row table with strengths and weaknesses listed in the top two boxes and opportunities and threats outlined in the bottom two boxes.
Each row and column in the SWOT matrix has a label. The row with strengths and weaknesses is named "Internal Origin," defining parts of your business or persona that you control. The row with opportunities and threats is labeled "External Origin," since you have no real control over the environment that provides these elements.
The left column, which houses the strengths and opportunities categories, is known as the "Helpful" column, as these benefit your initiative. The right column, which contains the weaknesses and threats categories, is called "Harmful," since these can work against your objective.
To obtain the most desirable results from a SWOT analysis, fill out each of your strengths, weaknesses, opportunities and threats in the most honest, objective way possible. For instance, if you're writing about your company include details about your employees as well as yourself. If this SWOT analysis regards your own personal goals, list the ways your skills can contribute to your goal in the "Strengths" section, but don't forget to cite any necessary improvements or skill deficiencies in the "Weaknesses" category.
Outlining Strengths in the SWOT Matrix
Mindtools.com recommends beginning with the strengths you or your company possess. Begin making a list of any advantages your company provides over competitors as well as positive personality characteristics you maintain. Anything considered to add to your bottom line or your unique selling proposition (USP) should be categorized under strengths.
Outlining Weaknesses in the SWOT Matrix
Defining your weaknesses can show you where you need to improve. Mindtools.com says you should use this section to face the truth about how well you're doing as a company or as an individual. Be sure to list any aspect that could be perceived as a turn-off or disadvantage to potential customers. This includes your personality or that of your employees as well as any product or service that appears sub-par when compared to your competitors.
Defining Opportunities in the SWOT Matrix
According to netmba.com, opportunities often arise with changes in your environment. For instance, if one of your competitors relocated its business several states away, this could be considered an opportunity. Write down any aspect about the current market environment, the economy, or new government policies that make your company stand out or look better than your competitors
Defining Threats in the SWOT Matrix
Threats to a business occur in much the same way opportunities do; they just affect your business in a negative direction. Let's take the above example of your competitor moving away. If a competitor moves into your location and begins providing a product or service on par or better than yours, this is a threat. According to netmba.com, similar threats occur with changes in market trends and government regulations. If your company is affected by these changes, list them in the threats category.
The SWOT Analysis Matrix
One of the most popular methods of SWOT analysis review is the SWOT matrix. This matrix is comprised of a two-column, two-row table with strengths and weaknesses listed in the top two boxes and opportunities and threats outlined in the bottom two boxes.
Each row and column in the SWOT matrix has a label. The row with strengths and weaknesses is named "Internal Origin," defining parts of your business or persona that you control. The row with opportunities and threats is labeled "External Origin," since you have no real control over the environment that provides these elements.
The left column, which houses the strengths and opportunities categories, is known as the "Helpful" column, as these benefit your initiative. The right column, which contains the weaknesses and threats categories, is called "Harmful," since these can work against your objective.
To obtain the most desirable results from a SWOT analysis, fill out each of your strengths, weaknesses, opportunities and threats in the most honest, objective way possible. For instance, if you're writing about your company include details about your employees as well as yourself. If this SWOT analysis regards your own personal goals, list the ways your skills can contribute to your goal in the "Strengths" section, but don't forget to cite any necessary improvements or skill deficiencies in the "Weaknesses" category.
Outlining Strengths in the SWOT Matrix
Mindtools.com recommends beginning with the strengths you or your company possess. Begin making a list of any advantages your company provides over competitors as well as positive personality characteristics you maintain. Anything considered to add to your bottom line or your unique selling proposition (USP) should be categorized under strengths.
Outlining Weaknesses in the SWOT Matrix
Defining your weaknesses can show you where you need to improve. Mindtools.com says you should use this section to face the truth about how well you're doing as a company or as an individual. Be sure to list any aspect that could be perceived as a turn-off or disadvantage to potential customers. This includes your personality or that of your employees as well as any product or service that appears sub-par when compared to your competitors.
Defining Opportunities in the SWOT Matrix
According to netmba.com, opportunities often arise with changes in your environment. For instance, if one of your competitors relocated its business several states away, this could be considered an opportunity. Write down any aspect about the current market environment, the economy, or new government policies that make your company stand out or look better than your competitors
Defining Threats in the SWOT Matrix
Threats to a business occur in much the same way opportunities do; they just affect your business in a negative direction. Let's take the above example of your competitor moving away. If a competitor moves into your location and begins providing a product or service on par or better than yours, this is a threat. According to netmba.com, similar threats occur with changes in market trends and government regulations. If your company is affected by these changes, list them in the threats category.
The Marketing Environment
What is the marketing environment?
The micro-environment
The internal environment.
The marketing environment surrounds and impacts upon the organization. There are three key perspectives on the marketing environment, namely the 'macro-environment,' the 'micro-environment' and the 'internal environment'.
This environment influences the organization directly. It includes suppliers that deal directly or indirectly, consumers and customers, and other local stakeholders. Micro tends to suggest small, but this can be misleading. In this context, micro describes the relationship between firms and the driving forces that control this relationship. It is a more local relationship, and the firm may exercise a degree of influence.
The macro-environmentThis includes all factors that can influence and organization, but that are out of their direct control. A company does not generally influence any laws (although it is accepted that they could lobby or be part of a trade organization). It is continuously changing, and the company needs to be flexible to adapt. There may be aggressive competition and rivalry in a market. Globalization means that there is always the threat of substitute products and new entrants. The wider environment is also ever changing, and the marketer needs to compensate for changes in culture, politics, economics and technology.
All factors that are internal to the organization are known as the 'internal environment'. They are generally audited by applying the 'Five Ms' which are Men, Money, Machinery, Materials and Markets. The internal environment is as important for managing change as the external.
The internal environment analysis
The internal environment assessment and analysis is conducted after the external environment analysis. While the external environment analysis seeks to identify opportunities and threats in the external environment, the internal environment analysis seeks to identify the strengths and weakness in your business. Note that it focuses on factors that are internal to your business, some of which can be easily changed or improved upon. The 7's model is particularly useful when identifying internal factors in your business. It looks at the following:
1. Strategy
2. Structure
3. Style
4. Staff
5. Skills
6. Systems
7. Shared values
Using the model is simple, you simply check for the degree to which your business possess the above 7's. Access which 'S' is a strength or weakness in your business. For example, if your business has the right number of people (Staff) and these people possess the right kind of skills, competence and expertise (Skills), then these are considered to be the internal strengths of your business. Where your business lacks shared values and systems, these are considered to be weaknesses. This is discussed further below:
1. Strategy
- Do your strategies take into account the short term, medium term and long term?
* - Do you have a formal organisational structure in place?
* - Are clear lines of reporting or communicating present?
3. Style of leadership
What is your style of leadership?
* - Participative leadership style
* - Democratic leadership style
* - Autocratic leadership style
* - Dictatorship leadership style
*
4. Staff
* - Do you have competent, skilled and experienced staff to work with?
* - How can you manage to keep staff in the current environment ?
* - How do you recruit your staff ?
* - How trustworthy are your employees?
* - Do your staff work long hours?
* - How do you retain quality employees?
5. Skills and competencies
What skills and competencies are present in your business?
This may encompass:
* - Leadership skills
* - Management skills
* - Technical skills
* - Interpersonal skills
* - Intra personal skills
6. Systems, processes and procedures
What systems, processes and procedures do have in place or intend to have in place?
* - Performance management system
* - Financial management system
* - Management information system
* - Accounting information system
* - Quality control system
* - Health and safety
* - Stock control system
* - Cash control system
* - Accounting system
* - Expense control system
* - Debtors control system
* - Creditors control system
* - Production related systems
7. Shared values
What qualities or attributes do you base your actions on? What attributes defines the culture of your business? What are the core values of your business? Examples of values include:
* - Timeliness
* - Reliability
* - Convenience
* - Driving internal efficiency
* - Effectiveness
* - Efficiency
* - People
* - Customer satisfaction
* - Customer intimacy
* - Transparency
* - Accountability
* - Brand and business reputation
* - Quality
* - Innovation
* - Creativity
Business Objectives
All businesses need to set objectives for themselves or for the products or services they are launching. What does your company, product or service hope to achieve?
Setting objectives are important., it focuses the company on specific aims over a period of time and can motivate staff to meet the objectives set.
A simple acronym used to set objectives is called SMART objectives. SMART stands for:
1. Specific – Objectives should specify what they want to achieve.
2. Measurable – You should be able to measure whether you are meeting the objectives or not.
3. Achievable - Are the objectives you set, achievable and attainable?
4. Realistic – Can you realistically achieve the objectives with the resources you have?
5. Time – When do you want to achieve the set objectives?
Some Business Objectives:
There are a number of business objectives, which an organisation can set:
Market share objectives: Objectives can be set to achieve a certain level of market share within a specified time. E.g. obtain 3% market share of the mobile phone industry by 2004.
To increase profit: An objective maybe to increase sales 10% from 2003 – 2004.
To survive: The hard times the business is currently in.
To grow: The business may set an objective to grow by 15% year on year for the next five years.
To increase brand awareness over a specified period of time.
Setting objectives are important., it focuses the company on specific aims over a period of time and can motivate staff to meet the objectives set.
A simple acronym used to set objectives is called SMART objectives. SMART stands for:
1. Specific – Objectives should specify what they want to achieve.
2. Measurable – You should be able to measure whether you are meeting the objectives or not.
3. Achievable - Are the objectives you set, achievable and attainable?
4. Realistic – Can you realistically achieve the objectives with the resources you have?
5. Time – When do you want to achieve the set objectives?
Some Business Objectives:
There are a number of business objectives, which an organisation can set:
Market share objectives: Objectives can be set to achieve a certain level of market share within a specified time. E.g. obtain 3% market share of the mobile phone industry by 2004.
To increase profit: An objective maybe to increase sales 10% from 2003 – 2004.
To survive: The hard times the business is currently in.
To grow: The business may set an objective to grow by 15% year on year for the next five years.
To increase brand awareness over a specified period of time.
Introduction
An organisation’s success is influenced by factors operating in it’s internal and external environment; an organisation can increase it’s success by adopting strategies which manipulate these factors to it’s advantage. A successful organisation will not only understand existing factors but also forecast change, so that it can take advantage of change within the environments in which it operates.
PEST & Micro environmental Factors
The following type of forces influence an organisation’s operating environment:
• Pest Factors – These are external forces which the organisation does not have direct control over these factors. PEST is an acronym and each letter represents a type of factor (Political, Economical Social and Technological).
• Micro environmental factors – These are internal factors, which the organisation can control.PEST & PESTLE analysis
A PEST analysis is used to identify the external forces affecting an organisation .This is a simple analysis of an organisation’s Political, Economical, Social and Technological environment. A PEST analysis incorporating legal and environmental factors is called a PESTLE analysis.
Political
The first element of a PEST analysis is a study of political factors. Political factors influence organisations in many ways. Political factors can create advantages and opportunities for organisations. Conversely they can place obligations and duties on organisations. Political factors include the following types of instrument:
- Legislation such as the minimum wage or anti discrimination laws.
- Voluntary codes and practices
- Market regulations
- Trade agreements, tariffs or restrictions
- Tax levies and tax breaks
- Type of government regime eg communist, democratic, dictatorship
Non conformance with legislative obligations can lead to sanctions such as fines, adverse publicity and imprisonment. Ineffective voluntary codes and practices will often lead to governments introducing legislation to regulate the activities covered by the codes and practices.
Economical
The second element of a PEST analysis involves a study of economic factors.
All businesses are affected by national and global economic factors. National and global interest rate and fiscal policy will be set around economic conditions. The climate of the economy dictates how consumers, suppliers and other organisational stakeholders such as suppliers and creditors behave within society.
An economy undergoing recession will have high unemployment, low spending power and low stakeholder confidence. Conversely a “booming” or growing economy will have low unemployment, high spending power and high stakeholder confidence.
A successful organisation will respond to economic conditions and stakeholder behaviour. Furthermore organisations will need to review the impact economic conditions are having on their competitors and respond accordingly.
In this global business world organisations are affected by economies throughout the world and not just the countries in which they are based or operate from. For example: a global credit crunch originating in the USA contributed towards the credit crunch in the UK in 2007/08.
Cheaper labour in developing countries affects the competitiveness of products from developed countries. An increase in interest rates in the USA will affect the share price of UK stocks or adverse weather conditions in India may affect the price of tea bought in an English café.
A truly global player has to be aware of economic conditions across all borders and needs to ensure that it employs strategies that protect and promote its business through economic conditions throughout the world.
Social
The third aspect of PEST focuses its attention on forces within society such as family, friends, colleagues, neighbours and the media. Social forces affect our attitudes, interest s and opinions. These forces shape who we are as people, the way we behave and ultimately what we purchase. For example within the UK peoples attitudes are changing towards their diet and health. As a result the UK is seeing an increase in the number of people joining fitness clubs and a massive growth for the demand of organic food. Products such as Wii Fit attempt to deal with society’s concern, about children’s lack of exercise.
Population changes also have a direct impact on organisations. Changes in the structure of a population will affect the supply and demand of goods and services within an economy. Falling birth rates will result in decreased demand and greater competition as the number of consumers fall. Conversely an increase in the global population and world food shortage predictions are currently leading to calls for greater investment in food production. Due to food shortages African countries such as Uganda are now reconsidering their rejection of genetically modified foods.
In summary organisations must be able to offer products and services that aim to complement and benefit people’s lifestyle and behaviour. If organisations do not respond to changes in society they will lose market share and demand for their product or service.
Technological
Unsurprisingly the fourth element of PEST is technology, as you are probably aware technological advances have greatly changed the manner in which businesses operate.
Organisations use technology in many ways, they have1. Technology infrastructure such as the internet and other information exchange systems including telephone
2. Technology systems incorporating a multitude of software which help them manage their business.3. Technology hardware such as mobile phones, Blackberrys, laptops, desktops, Bluetooth devices, photocopiers and fax machines which transmit and record information.
Technology has created a society which expects instant results. This technological revolution has increased the rate at which information is exchanged between stakeholders. A faster exchange of information can benefit businesses as they are able to react quickly to changes within their operating environment.
However an ability to react quickly also creates extra pressure as businesses are expected to deliver on their promises within ever decreasing timescales..
For example the Internet is having a profound impact on the marketing mix strategy of organisations. Consumers can now shop 24 hours a day from their homes, work, Internet café’s and via 3G phones and 3G cards. Some employees have instant access to e-mails through Blackberrys but this can be a double edged sword, as studies have shown that this access can cause work to encroach on their personal time outside work.
The pace of technological change is so fast that the average life of a computer chip is approximately 6 months. Technology is utilised by all age groups, children are exposed to technology from birth and a new generation of technology savvy pensioners known as “silver surfers” have emerged. Technology will continue to evolve and impact on consumer habits and expectations, organisations that ignore this fact face extinction.
SWOT Analysis – 4 Steps
SWOT Analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective. The technique is credited to Albert Humphrey, who led a convention at Stanford University in the 1960s and 1970s using data from Fortune 500 companies.
A SWOT analysis must first start with defining a desired end state or objective. A SWOT analysis may be incorporated into the strategic planning model. Strategic Planning, including SWOT and SCAN analysis, has been the subject of much research.
* Strengths: attributes of the person or company that are helpful to achieving the objective.
* Weaknesses: attributes of the person or company that are harmful to achieving the objective.
* Opportunities: external conditions that are helpful to achieving the objective.
* Threats: external conditions which could do damage to the objective.
Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs.
First, the decision makers have to determine whether the objective is attainable, given the SWOTs. If the objective is NOT attainable a different objective must be selected and the process repeated.
The SWOT analysis is often used in academia to highlight and identify strengths, weaknesses, opportunities and threats. It is particularly helpful in identifying areas for development.
A SWOT analysis must first start with defining a desired end state or objective. A SWOT analysis may be incorporated into the strategic planning model. Strategic Planning, including SWOT and SCAN analysis, has been the subject of much research.
* Strengths: attributes of the person or company that are helpful to achieving the objective.
* Weaknesses: attributes of the person or company that are harmful to achieving the objective.
* Opportunities: external conditions that are helpful to achieving the objective.
* Threats: external conditions which could do damage to the objective.
Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs.
First, the decision makers have to determine whether the objective is attainable, given the SWOTs. If the objective is NOT attainable a different objective must be selected and the process repeated.
The SWOT analysis is often used in academia to highlight and identify strengths, weaknesses, opportunities and threats. It is particularly helpful in identifying areas for development.
SWOT analysis is a tool for planning, especially strategic planning. It is used for assessing Strengths and Weaknesses as the internal elements of the business, Opportunities and Threats as external elements of the business. SWOT analysis has a wide range of usefulness especially using particular information obtained after such an analysis. However, often SWOT analysis begins and ends with the SWOT matrix (quadrant in which fields are listed the elements of SWOT). In this way, we cannot achieve the full benefits of this analysis. In the following graphic is presented a full diagram of the SWOT analysis which begins with the scanning of internal and external environment of business.
One thing that is obvious for each business is that they have external and internal Environment. SWOT analysis begins by evaluating the current situation in respect of the internal and external environment of the business. This evaluation of the current situation will lead to identification of internal and external factors that affecting business. The internal factors can be strengths, but can also be some type of weaknesses of the business, while external factors can be opportunities or threats to the business. In this section, it is necessary to identify all factors and rang them according to importance of business for which is performed the analysis.
The questions that must be answered here are:
1. What are Legal factors that influence my business?
2. What are Ecological factors that influence my business?
3. What are Political factors that influence my business?
4. What are Economic factors that influence my business?
5. What are Social factors that influence my business?
6. What are Technological factors that influence my business?
7. What are Competitive factors that influence my business?
8. What are managerial factors of my business?
9. What are strategically factors of my business?
10. What are structural factors of my business?
11. What are goals of my business?
12. What are operational factors of my business?
13. What are technological factors of my business?
14. What are cultural factors of my business?
15. What politics was implemented in my business?
16. What are leadership factors of my business?
As you can see through answering this 16 question we can identify the most crucial factors from the external and internal environment of a business. First seven questions are about the external environment using LE PEST C acronym whilst next 9 questions are about the internal environment (formal and informal subsystem of a business). Formal subsystem questions are questions from 8 to 13 whilst informal subsystem questions are questions from 14 to 16.
Step 2: Internal and External AnalysisIn this step, we analyze internal and external environmental factors that influence our business. The purpose is to determine whether an internal factor is strength or weakness of our business and whether an external factor is opportunity or threat for our business.
The questions that must be answered here are:
1. Which Legal factors are our Opportunities and, Which are our Threats?
2. Which Ecological factors are our Opportunities and, Which are our Threats?
3. Which Political factors are our Opportunities and, Which are our Threats?
4. Which Economic factors are our Opportunities and, Which are our Threats?
5. Which Social factors are our Opportunities and, Which are our Threats?
6. Which Technological factors are our Opportunities and, Which are our Threats?
7. Which Competitive factors are our Opportunities and, Which are our Threats?
8. Which Managerial factors are our Strengths and, Which are our Weakness?
9. Which Strategically factors are our Strengths and, Which are our Weakness?
10. Which Structural factors are our Strengths and, Which are our Weakness?
11. Which Goals are our Strengths and, Which are our Weakness?
12. Which Operational factors are our Strengths and, Which are our Weakness?
13. Which Technological factors are our Strengths and, Which are our Weakness?
14. Which Cultural factors are our Strengths and, Which are our Weakness?
15. Which Politics are our Strengths and, Which are our Weakness?
16. Which Leadership factors are our Strengths and, Which are our Weakness?
Step 3: Constructing SWOT Matrix
Until now we have already listed influential factors from inside and outside our business and classified them as strengths, weakness, opportunities and threats. Now we can make SWOT matrix. SWOT matrix is a simple quadrant constructed from SWOT acronyms and in each quadrant is noted each factor. This is an excellent graphic presentation of what is good and bad in business, and what we can expect as an opportunity or threat..
Step 4: Defining StrategiesWhat’s next? Whether this is sufficient to complete the SWOT analysis? Any analysis must give us future directions for treatment. If we stop here we can not say that we made a successful analysis. Therefore, for each combination of quadrants in the matrix we must determine strategies. From the SWOT matrix, we can extract 4 strategies:
* S-O Strategies (Strength-Opportunities Strategies). These strategies should take advantage of opportunities that fit the strengths of the business.
* W-O Strategies (Weaknesses-Opportunities strategies). These strategies should enable it to overcome the weaknesses of the business while we utilize the opportunities.
* S-T Strategies (Strength-Threat Strategies). These strategies should allow the use of strength sides, while eliminate or reduce the threats from the environment.
* W-T Strategies (Weaknesses-Threats Strategies). These strategies should allow the elimination of weaknesses and preventing external threats to reach exact those weaknesses of the business.
The questions that must be answered here are:
1. What are my S-O Strategies?
2. What are my W-O Strategies?
3. What are my S-T Strategies?
4. What era my W-T Strategies?
SWOT analysis that gives us results in the form of strategies for dealing with the current situation and prepare for the future and which covers both internal and external factors is a good defense mechanism for each business.
Analyzing external and internal factors
A union’s ability to achieve objectives is directly affected by the environment in which it operates. This seminar attempts to integrate a discussion of a Component’s priorities with an analysis of external and internal environmental factors that impact the way the Component operates.
Some of the key issues covered are:
* The impact of environmental factors on the union’s objectives
* The political, legislative and economic environment facing unions
* How to do an environmental analysis of your union
* The SWOT approach to environmental analysis
Some of the key issues covered are:
* The impact of environmental factors on the union’s objectives
* The political, legislative and economic environment facing unions
* How to do an environmental analysis of your union
* The SWOT approach to environmental analysis
Interdependency between strategic management and the formulation of an information and communication technology strategy
1. Introduction
Fundamental change in today's business environment has made information and communication technology (ICT) core ingredients that help to keep an enterprise on target to meet its ultimate vision. According to Pearce and Robinson (2000:13), an organization's strategy must be based on finding an appropriate 'fit' between the organization's mission, changes in the internal and external environment and the quality and quantity of the organization's profile (input factors, primary resources, value chain activities, core capabilities, core competencies, etc.). They further emphasize that strategic analysis and choice centre around the identification of effective strategies for building a sustainable, competitive advantage that is based on the core competencies and capabilities of the firm. Competitive thinking is therefore essential to assess the competitive role of ICT. Strategy should dictate how information and communication technology should be used. At the same time ICT, as a core capability, should make new strategies and new ways of competing possible.
The aim of this article is to illustrate the interdependency between strategic management and the formulation of an ICT strategy.
2. Methodology
To supply strategic thinkers with a 'bird's eye view' of the interdependency between strategic management and strategic ICT management, a qualitative research approach was followed in this research. Relevant literature was studied and analysed to identify the relationship between ICT management and planning, and business strategy formulation. Corporate strategy success factors were linked to information strategy success factors to provide a new perspective to the formulation of a business strategy.
The line of reasoning followed throughout this research was that, although no single approach or model could cover all the essential aspects involved, a holistic model can be devised to cover most of the major principles involved in the strategy formulation process. However, the proposed model is only a tool in the quest to illustrate the interdependency between strategic business management and strategic ICT management.
3. ICT as a strategic corporate resource
Three economic goals guide the strategic direction of almost every business organization, namely survival through growth and profitability (Porter 1980:4). To be able to survive, grow and be profitable, any profit-seeking enterprise must seek a competitive advantage. This should be done at the same time that an efficient and effective 'fit' between the company's mission, profile and external environment is found. The creation of a competitive advantage through the use of information and communication technology therefore involves all of the many challenges associated with strategy formulation.
Businesses strive to achieve a competitive advantage by competing in one of two ways, namely by being a low-cost producer of goods and services or by differentiation of a product or service (Porter 1980).
In addition to the two generic strategies (low cost and differentiation), there are three other strategies that can support them. These are innovation, growth and alliance. Companies can choose to pursue none of these, all of them or combinations of them (Callon 1996:46).
ICT not only influences the generic strategies, but also the supportive strategies. Since the 1960s, ICT has played a significant role in enabling firms to compete on low cost. Mainframe computers were primarily used to optimize business processes. During the 1980s, ICT started to support management decision making and played an important role in enabling product and service differentiation. Software applications, for example, provided marketing departments with specific information on customers, helping them to serve these customers better.
At the turn of the century (primarily owing to the widespread use of databases, data warehousing and decision support systems), organizations started to compete on both low cost and product differentiation simultaneously. By impacting on competitive industry forces [as identified by Porter in his work Competitive strategy (1980)], organizations started to target small niche markets for their products or services. Although Porter's initial work did not include ICT as a component of the framework, Applegate, McFarlen and McKenney (1999) listed a number of examples of how ICT can be used to change the power balance. In essence, shifting the focus from an entire industry to a portion of that industry can cause competitive forces to differ significantly in favour of the elected organization, thus giving organizations a competitive advantage.
ICT also enables firms to electronically link value-adding processes [activities identified by Porter (1985:33) in his value chain model] and dispersed business units to share information, expertise and knowledge across the total organization. In different settings, ICT can profoundly affect one or more of the value activities, sometimes simply by improving effectiveness, sometimes by fundamentally changing the activity and sometimes by altering the relationship between activities (Applegate et al. 1999:71). Furthermore, ICT enables a change towards a new type of business organization, known as virtual organizations. These organizations no longer rely on bricks and mortar for containing and shaping them, but rather on ICT to enable them to compete in new and innovative ways. Many Internet-based companies are examples of virtual organizations. However, ICT is not only changing the structure of organizations and thereby opening new ways of competitiveness, but is also instrumental in establishing a 'knowledge asset' – leveraging the knowledge of individual employees to the benefit of other employees and the organization as a whole.
It is clear that ICT has an important role to play as a strategic resource. However, the true power of ICT lies in its ability to positively influence other resources (human resources, infrastructure and capital), thus achieving synergy. This synergy can only be achieved if ICT is managed according to proven economic and managerial principles. To quote Applegate et al. (1999:85): 'To make full use of the opportunities that IT presents, technical specialists must work in close partnership with managers. They (general managers and business managers) have detailed knowledge of the industry dynamics and the value chains for different areas of the business and can help identify the most appropriate path (strategy) to follow for implementation. Synthesis of the two worlds is thus essential.'
Are there any business models available to help us achieve this synthesis?
4. Strategy formulation models
According to Byrne (1996), Pearce and Robinson (2000), Ward and Griffiths (1998) and other renowned authors, strategic management is an evolutionary process and will be the single most important management issue for many years to come. As early as the fourth century, general Sun Tzu, a Chinese military theorist, emphasized the need for strategy formulation (Sun Tzu 1971): 'What is of supreme importance in war is to attack the enemy's strategy.' During the 1950s and 1960s, strategy formulation was primarily based on master budget and long-term planning methodologies. The 1970s saw a shift in the way strategists perceived strategy formulation – the focus shifted to strategy crafting, analysing and predicting the future through predictive models, for example. The gist of these models was to find an optimal fit between the core capabilities (profile) of the organization and the environment in which it operated.
The turmoil of the 1980s caught organizations by surprise. Organizations were unable to adapt to an ever-changing business environment and started placing more emphasis on learning methodologies. Learning models emphasized the need for knowledge of previous experiences and mistakes. Fierce and ruthless competition of the 1990s forced organizations to rethink the strategy formulation process. It became clear that strategy formulation should be an ongoing process of reinventing the organization to create the future. Transformational models became the talk of the day.
Each of the above-mentioned models has a different focus on strategy formulation, especially with regard to their interaction with the organization's profile and the competitive environment in which the organization functions. One can therefore assume that each of the mentioned models or perspectives will have a different node of interaction with ICT as a) a strategic resource; b) an integral part of the organizational profile; and c) a strategy within the business strategy. However, it seems that all the models agree that one must know the organization's key resources and core competencies or capabilities to sustain future competitiveness. As Mintzberg and Waters (1985:258) state: 'One of the great challenges that corporate strategists face is to know the organization's capabilities well enough to think deeply enough about its strategic direction.' Any proposed strategic management model intent on depicting the synthesis between strategic management and strategic ICT management would therefore not only include an analysis of the external environment, but also a thorough analysis of the areas of excellence in the company's profile. Given these models as a point of departure, what then is the best practice or model to employ when strategizing? Roberts (1998) states that: 'The companies that will prosper and outpace their competition during the next two decades will be those that will be able to out-think their competitors strategically, not out-muscle them operationally.'
The authors believe that the key to developing a model capable of synthesizing strategic management and strategic ICT management lies in the foundation of knowledge, especially knowledge of the area of excellence. Are all the above-mentioned perspectives or models not based on knowledge? In the predictive model, three ingredients are critical to the success of a strategy.
Firstly, the strategy must be consistent with the conditions in the competitive environment. Specifically, it must take advantage of existing or projected opportunities and minimize the impact of major threats. This is only possible with a sound knowledge of one's competitive environment (opportunities and threats).
Secondly, the strategy must place realistic requirements on the firm's internal capabilities (strong points and weak points). Knowledge of one's capabilities, core competencies and areas of excellence is therefore of paramount importance.
Thirdly, one's strategies should be based on the nurturing and deployment of core capabilities. To execute strategies successfully, knowledge and understanding of one's strategy should also be communicated throughout the organization. In collaboration with this perspective, the learning model emphasizes that organizations should become learning, knowledgeable institutions that build strategies around core competencies (areas of excellence).
Finally, the transformational model emphasizes that primary resources, areas of excellence and core competencies of different business units and organizations should be pooled as far as possible to form an extended value chain. Knowledge sharing and knowledge of core capabilities in the extended and/or virtual value chain are also paramount in the formulation and execution of a successful transformational strategy.
The livelihood of strategy therefore depends largely on the successful execution of functions performed in the chosen areas of excellence. Strategy must therefore be elaborate enough to consider an aspect such as organizational structure changes. In the words of Prahalad and Hamel (1990:84): 'We believe that senior management should spend a significant amount of its time developing a corporate-wide strategic architecture that establishes objectives for competence building.' In essence, strategy should dictate how ICT should be used. At the same time, ICT should make new strategies and new ways of competing possible.
Unfortunately, none of the above-mentioned perspectives to strategy formulation really addresses the placing of an ICT strategy within a corporate or business strategy. However, these models or perspectives did provide a number of guidelines with regard to the possible placing of an ICT strategy within the business strategy. This enabled the authors to formulate a generic model that incorporates ICT not only in an adaptive and learning perspective, but also in a transformational mode.
5. Different opinions about strategic ICT management
The different opinions about the formulation of ICT strategies are mainly determined by the changing role of ICT, its past and expected future evolution. In the seventies, ICT models were strongly based on a centralized, integrated concept derived from the mainframe origins. In his book Strategy and Computers, Wiseman (1985) suggests that the influential combination of the Anthony three-tier structure approach to defining organizational systems and the Nolan and Gibson six-stage model inhibited the strategic use of ICT until relatively recently. He states that 'up to 1993 at least, Nolan's general purpose approach to information systems (based in part on the Anthony model) is clearly incomplete, for it offers no guidelines for identifying or explaining strategic information system opportunities'. Friedman (1994) also criticizes the Nolan and Gibson model and suggests that the arrival of 'strategic systems' in the eighties introduced a new stage that fundamentally changed the concepts of how ICT evolves to 'maturity' in organizations and industries.
It is clear that the Anthony three-tier structure approach to defining organizational systems and the Nolan and Gibson six-stage model are useful starting points in understanding the institutionalization of ICT. However, the inability of these models to offer guidelines for identifying or explaining the strategic importance of ICT makes them virtually unusable in the quest to determine the interdependency between strategic management and strategic ICT management.
The arrival of 'strategic systems' in the mid eighties forced strategists to adapt a more top-down approach to the ICT strategy formulation process. As early as 1987, a letter by King (1987) to Datamation magazine stated that 'the potential of information as a strategic resource should be incorporated as a routine element of the business planning process'. Earl (1989:52) supports King's argument and suggests that businesses should 'concentrate on rethinking business by analysing current business problems and environmental change – and consider information technology as one ingredient of the solution.'
Ward and Griffiths (1998:31) believe that both King and Earl proposed a more interactive approach to strategy formulation – an approach where business strategy provides clear direction and guidance to the formulation of ICT strategies and, on the other hand, where the primary objective of ICT strategies is to determine what information and systems are needed to enable the delivery of the business strategy.
Given the changing environment, the main purpose of an ICT strategy should be to determine how best to deliver information systems that support business strategy through available technology. Naturally the question arises if there are any ICT strategy formulation models derived from the King and Earl perspective that can guide us in our quest to achieve synthesis between strategic management and strategic ICT management.
As early as 1990, Henderson and Venkatraman (1990) developed a theoretical model exploring the interrelationship between business and information technology (IT). The model, known as the theoretical construct of strategic alignment, was based on two distinct linkages, namely strategic fit and functional integration. According to Henderson and Venkatraman, strategic fit is the vertical linkage concerned with the integration of the external environment in which the firm competes (e.g. partnerships, alliances and core competencies) and the internal environment that focuses on administrative structure (e.g. human resources, product development and business process redesign). In essence, the achievement of strategic fit, as proposed in the Henderson and Venkatraman model, is similar to the achievement of a strategic fit as proposed in the predictive strategy formulation models described in the previous section.
Although Henderson and Venkatraman (1990) propose that business and IT strategy should be interrelated and linked, they do not specifically illustrate the interdependency and holistic relationship between the formulation of a business strategy and the formulation of an ICT strategy. Luftman, Lewis and Oldach (1993), Papp (1995) and Luftman (1996) build on the work of Henderson and Venkatraman and come to the conclusion that careful assessment of a firm's alignment is important to ensure that ICT is used to appropriately enable or drive the business strategy. Business strategy should therefore be chosen and implemented using the business infrastructure and processes to affect the ICT infrastructure. Haag, Cummings and Dawkins (1998:304) build on the work of King and Earl and state that 'the whole point of the ICT planning process is to find systems that enable the business to go where it needs to go'. To align organizational goals with ICT goals, they proposed five distinctive steps, appropriately named the Information Technology System Planning Process, as a foundation for identifying and selecting ICT systems. In the first step, the organizational and ICT goals are aligned to ensure that the business succeeds because of, not in spite of, ICT. The second and third steps identify specific processes and information that require ICT systems support. Once specific processes have been formalized, the fourth step is to evaluate the ICT systems for organizational 'fit', using methods such as cost-benefit analysis, risk analysis and capital analysis. The fifth and final step is to decide which ICT system the organization cannot do without. Haag et al. (1998:304) come to the conclusion that all the information applicable to the above-mentioned steps should be documented in a formal ICT systems plan. The plan is thus the road map for the use of ICT in the organization.
Wainright Martin et al. (1999:535) follow the same rationale as Haag et al. (1998), and also argue that ICT decisions must be tightly related to the direction of the business. However, Wainright Martin et al. (1999:536) go a step further and formulate a model or process that depicts the relationship between setting the overall direction for the business and setting the direction for information use and management within the business. They also state that this process may be applied to the entire company, a division or an individual user-manager department. The following section is a brief summary of the model proposed by them.
According to Wainright Martin et al. (1999:536), any strategy formulation process should start with an assessment of both the business, and information use and management. The second basic step is to visualize an ideal state for the future. Strategic planning is the third step and should be conducted for both the business and its information resources. In parallel with the business plan, a strategic ICT plan should be built considering the vision for the use of information and the overall management of ICT in the company. Wainright Martin et al. (1999:536) also believe that operational planning should lay out the major actions the organization must perform to activate its strategic initiatives. It typically includes a portfolio of projects that will be implemented according to priority or urgency.
It is interesting to note that the above steps follow a predictive approach to the formulation of strategy that is similar to the predictive strategy formulation model described earlier in this article.
Frenzel (1999:67) follows a more transformational approach to the process of formulating an ICT strategy. He believes that business attitudes about strategy have changed and proposes that instead of trying to predict the future [like the predictive models of Pearce and Robinson (2000), and Wainright Martin et al. (1999)], businesses should try to create the future. Interesting enough, Frenzel is in agreement with King and Earl and states that the aggregation of all functional and business strategies should comprise a firm's complete strategy. Frenzel also proposes that strategic managers should reorganize and redeploy resources to attain competitive advantage. The purpose of an ICT strategy should therefore be to describe how ICT should support the firm's business goals and objectives.
Frenzel (1999:69) goes further and states that ICT strategies are most effective when the ICT goals and the firm's goals are internally consistent. Business strategies of the firm should therefore direct its functions towards business objectives. ICT strategies, on the other hand, should coordinate activities within or between ICT units. Frenzel also states that a functional unit may be required to develop a specific strategy to deal with a unique opportunity or threat. Once these stand-alone strategies (ad hoc actions) are accepted, they should be incorporated in the strategic plans of all organizational units that are affected.
Although all the abovementioned perspectives or models provide us with different viewpoints regarding the institutionalization of ICT (planning and/or strategy formulation), none provides us with a holistic model, illustrating the interdependency and relationship between the formulation of a business strategy and the formulation of an ICT strategy. The reason for this could be that strategic ICT management is still being seen and managed as an entity separate from strategic management. Fortunately, these models do offer some guidance in the quest to achieve synthesis between strategic management and strategic ICT management. Viewed holistically, they provide a list of factors that might be of strategic importance when formulating or incorporating an ICT strategy in a business strategy.
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6. Formulating a generic model that incorporates ICT strategy formulation with business strategy formulation
By analysing all the different perspectives with regard to strategy formulation from a business and ICT point of view, it becomes clear that strategy formulation should be an integrated process, based on the excellence of execution of core capabilities. As illustrated in this article, ICT is not only becoming a resource of strategic importance, but it also has a profound effect on the achievement of a strategic fit between the organization and the environment in which it operates. ICT plays a major role in supporting primary strategies and strategies formulated from a predictive, learning and transformational perspective. ICT strategy should therefore not be managed parallel to the business strategy, but should be an integral part of the business strategy.
The authors propose a holistic strategy formulation model (see Figure 1), not only capable of incorporating the major principles involved in strategy formulation, but also capable of illustrating the interdependency between strategic management and strategic ICT management.
Figure 1 Generic model incorporating ICT strategy formulation with the business strategy formulation process
Fundamental change in today's business environment has made information and communication technology (ICT) core ingredients that help to keep an enterprise on target to meet its ultimate vision. According to Pearce and Robinson (2000:13), an organization's strategy must be based on finding an appropriate 'fit' between the organization's mission, changes in the internal and external environment and the quality and quantity of the organization's profile (input factors, primary resources, value chain activities, core capabilities, core competencies, etc.). They further emphasize that strategic analysis and choice centre around the identification of effective strategies for building a sustainable, competitive advantage that is based on the core competencies and capabilities of the firm. Competitive thinking is therefore essential to assess the competitive role of ICT. Strategy should dictate how information and communication technology should be used. At the same time ICT, as a core capability, should make new strategies and new ways of competing possible.
The aim of this article is to illustrate the interdependency between strategic management and the formulation of an ICT strategy.
2. Methodology
To supply strategic thinkers with a 'bird's eye view' of the interdependency between strategic management and strategic ICT management, a qualitative research approach was followed in this research. Relevant literature was studied and analysed to identify the relationship between ICT management and planning, and business strategy formulation. Corporate strategy success factors were linked to information strategy success factors to provide a new perspective to the formulation of a business strategy.
The line of reasoning followed throughout this research was that, although no single approach or model could cover all the essential aspects involved, a holistic model can be devised to cover most of the major principles involved in the strategy formulation process. However, the proposed model is only a tool in the quest to illustrate the interdependency between strategic business management and strategic ICT management.
3. ICT as a strategic corporate resource
Three economic goals guide the strategic direction of almost every business organization, namely survival through growth and profitability (Porter 1980:4). To be able to survive, grow and be profitable, any profit-seeking enterprise must seek a competitive advantage. This should be done at the same time that an efficient and effective 'fit' between the company's mission, profile and external environment is found. The creation of a competitive advantage through the use of information and communication technology therefore involves all of the many challenges associated with strategy formulation.
Businesses strive to achieve a competitive advantage by competing in one of two ways, namely by being a low-cost producer of goods and services or by differentiation of a product or service (Porter 1980).
In addition to the two generic strategies (low cost and differentiation), there are three other strategies that can support them. These are innovation, growth and alliance. Companies can choose to pursue none of these, all of them or combinations of them (Callon 1996:46).
ICT not only influences the generic strategies, but also the supportive strategies. Since the 1960s, ICT has played a significant role in enabling firms to compete on low cost. Mainframe computers were primarily used to optimize business processes. During the 1980s, ICT started to support management decision making and played an important role in enabling product and service differentiation. Software applications, for example, provided marketing departments with specific information on customers, helping them to serve these customers better.
At the turn of the century (primarily owing to the widespread use of databases, data warehousing and decision support systems), organizations started to compete on both low cost and product differentiation simultaneously. By impacting on competitive industry forces [as identified by Porter in his work Competitive strategy (1980)], organizations started to target small niche markets for their products or services. Although Porter's initial work did not include ICT as a component of the framework, Applegate, McFarlen and McKenney (1999) listed a number of examples of how ICT can be used to change the power balance. In essence, shifting the focus from an entire industry to a portion of that industry can cause competitive forces to differ significantly in favour of the elected organization, thus giving organizations a competitive advantage.
ICT also enables firms to electronically link value-adding processes [activities identified by Porter (1985:33) in his value chain model] and dispersed business units to share information, expertise and knowledge across the total organization. In different settings, ICT can profoundly affect one or more of the value activities, sometimes simply by improving effectiveness, sometimes by fundamentally changing the activity and sometimes by altering the relationship between activities (Applegate et al. 1999:71). Furthermore, ICT enables a change towards a new type of business organization, known as virtual organizations. These organizations no longer rely on bricks and mortar for containing and shaping them, but rather on ICT to enable them to compete in new and innovative ways. Many Internet-based companies are examples of virtual organizations. However, ICT is not only changing the structure of organizations and thereby opening new ways of competitiveness, but is also instrumental in establishing a 'knowledge asset' – leveraging the knowledge of individual employees to the benefit of other employees and the organization as a whole.
It is clear that ICT has an important role to play as a strategic resource. However, the true power of ICT lies in its ability to positively influence other resources (human resources, infrastructure and capital), thus achieving synergy. This synergy can only be achieved if ICT is managed according to proven economic and managerial principles. To quote Applegate et al. (1999:85): 'To make full use of the opportunities that IT presents, technical specialists must work in close partnership with managers. They (general managers and business managers) have detailed knowledge of the industry dynamics and the value chains for different areas of the business and can help identify the most appropriate path (strategy) to follow for implementation. Synthesis of the two worlds is thus essential.'
Are there any business models available to help us achieve this synthesis?
4. Strategy formulation models
According to Byrne (1996), Pearce and Robinson (2000), Ward and Griffiths (1998) and other renowned authors, strategic management is an evolutionary process and will be the single most important management issue for many years to come. As early as the fourth century, general Sun Tzu, a Chinese military theorist, emphasized the need for strategy formulation (Sun Tzu 1971): 'What is of supreme importance in war is to attack the enemy's strategy.' During the 1950s and 1960s, strategy formulation was primarily based on master budget and long-term planning methodologies. The 1970s saw a shift in the way strategists perceived strategy formulation – the focus shifted to strategy crafting, analysing and predicting the future through predictive models, for example. The gist of these models was to find an optimal fit between the core capabilities (profile) of the organization and the environment in which it operated.
The turmoil of the 1980s caught organizations by surprise. Organizations were unable to adapt to an ever-changing business environment and started placing more emphasis on learning methodologies. Learning models emphasized the need for knowledge of previous experiences and mistakes. Fierce and ruthless competition of the 1990s forced organizations to rethink the strategy formulation process. It became clear that strategy formulation should be an ongoing process of reinventing the organization to create the future. Transformational models became the talk of the day.
Each of the above-mentioned models has a different focus on strategy formulation, especially with regard to their interaction with the organization's profile and the competitive environment in which the organization functions. One can therefore assume that each of the mentioned models or perspectives will have a different node of interaction with ICT as a) a strategic resource; b) an integral part of the organizational profile; and c) a strategy within the business strategy. However, it seems that all the models agree that one must know the organization's key resources and core competencies or capabilities to sustain future competitiveness. As Mintzberg and Waters (1985:258) state: 'One of the great challenges that corporate strategists face is to know the organization's capabilities well enough to think deeply enough about its strategic direction.' Any proposed strategic management model intent on depicting the synthesis between strategic management and strategic ICT management would therefore not only include an analysis of the external environment, but also a thorough analysis of the areas of excellence in the company's profile. Given these models as a point of departure, what then is the best practice or model to employ when strategizing? Roberts (1998) states that: 'The companies that will prosper and outpace their competition during the next two decades will be those that will be able to out-think their competitors strategically, not out-muscle them operationally.'
The authors believe that the key to developing a model capable of synthesizing strategic management and strategic ICT management lies in the foundation of knowledge, especially knowledge of the area of excellence. Are all the above-mentioned perspectives or models not based on knowledge? In the predictive model, three ingredients are critical to the success of a strategy.
Firstly, the strategy must be consistent with the conditions in the competitive environment. Specifically, it must take advantage of existing or projected opportunities and minimize the impact of major threats. This is only possible with a sound knowledge of one's competitive environment (opportunities and threats).
Secondly, the strategy must place realistic requirements on the firm's internal capabilities (strong points and weak points). Knowledge of one's capabilities, core competencies and areas of excellence is therefore of paramount importance.
Thirdly, one's strategies should be based on the nurturing and deployment of core capabilities. To execute strategies successfully, knowledge and understanding of one's strategy should also be communicated throughout the organization. In collaboration with this perspective, the learning model emphasizes that organizations should become learning, knowledgeable institutions that build strategies around core competencies (areas of excellence).
Finally, the transformational model emphasizes that primary resources, areas of excellence and core competencies of different business units and organizations should be pooled as far as possible to form an extended value chain. Knowledge sharing and knowledge of core capabilities in the extended and/or virtual value chain are also paramount in the formulation and execution of a successful transformational strategy.
The livelihood of strategy therefore depends largely on the successful execution of functions performed in the chosen areas of excellence. Strategy must therefore be elaborate enough to consider an aspect such as organizational structure changes. In the words of Prahalad and Hamel (1990:84): 'We believe that senior management should spend a significant amount of its time developing a corporate-wide strategic architecture that establishes objectives for competence building.' In essence, strategy should dictate how ICT should be used. At the same time, ICT should make new strategies and new ways of competing possible.
Unfortunately, none of the above-mentioned perspectives to strategy formulation really addresses the placing of an ICT strategy within a corporate or business strategy. However, these models or perspectives did provide a number of guidelines with regard to the possible placing of an ICT strategy within the business strategy. This enabled the authors to formulate a generic model that incorporates ICT not only in an adaptive and learning perspective, but also in a transformational mode.
5. Different opinions about strategic ICT management
The different opinions about the formulation of ICT strategies are mainly determined by the changing role of ICT, its past and expected future evolution. In the seventies, ICT models were strongly based on a centralized, integrated concept derived from the mainframe origins. In his book Strategy and Computers, Wiseman (1985) suggests that the influential combination of the Anthony three-tier structure approach to defining organizational systems and the Nolan and Gibson six-stage model inhibited the strategic use of ICT until relatively recently. He states that 'up to 1993 at least, Nolan's general purpose approach to information systems (based in part on the Anthony model) is clearly incomplete, for it offers no guidelines for identifying or explaining strategic information system opportunities'. Friedman (1994) also criticizes the Nolan and Gibson model and suggests that the arrival of 'strategic systems' in the eighties introduced a new stage that fundamentally changed the concepts of how ICT evolves to 'maturity' in organizations and industries.
It is clear that the Anthony three-tier structure approach to defining organizational systems and the Nolan and Gibson six-stage model are useful starting points in understanding the institutionalization of ICT. However, the inability of these models to offer guidelines for identifying or explaining the strategic importance of ICT makes them virtually unusable in the quest to determine the interdependency between strategic management and strategic ICT management.
The arrival of 'strategic systems' in the mid eighties forced strategists to adapt a more top-down approach to the ICT strategy formulation process. As early as 1987, a letter by King (1987) to Datamation magazine stated that 'the potential of information as a strategic resource should be incorporated as a routine element of the business planning process'. Earl (1989:52) supports King's argument and suggests that businesses should 'concentrate on rethinking business by analysing current business problems and environmental change – and consider information technology as one ingredient of the solution.'
Ward and Griffiths (1998:31) believe that both King and Earl proposed a more interactive approach to strategy formulation – an approach where business strategy provides clear direction and guidance to the formulation of ICT strategies and, on the other hand, where the primary objective of ICT strategies is to determine what information and systems are needed to enable the delivery of the business strategy.
Given the changing environment, the main purpose of an ICT strategy should be to determine how best to deliver information systems that support business strategy through available technology. Naturally the question arises if there are any ICT strategy formulation models derived from the King and Earl perspective that can guide us in our quest to achieve synthesis between strategic management and strategic ICT management.
As early as 1990, Henderson and Venkatraman (1990) developed a theoretical model exploring the interrelationship between business and information technology (IT). The model, known as the theoretical construct of strategic alignment, was based on two distinct linkages, namely strategic fit and functional integration. According to Henderson and Venkatraman, strategic fit is the vertical linkage concerned with the integration of the external environment in which the firm competes (e.g. partnerships, alliances and core competencies) and the internal environment that focuses on administrative structure (e.g. human resources, product development and business process redesign). In essence, the achievement of strategic fit, as proposed in the Henderson and Venkatraman model, is similar to the achievement of a strategic fit as proposed in the predictive strategy formulation models described in the previous section.
Although Henderson and Venkatraman (1990) propose that business and IT strategy should be interrelated and linked, they do not specifically illustrate the interdependency and holistic relationship between the formulation of a business strategy and the formulation of an ICT strategy. Luftman, Lewis and Oldach (1993), Papp (1995) and Luftman (1996) build on the work of Henderson and Venkatraman and come to the conclusion that careful assessment of a firm's alignment is important to ensure that ICT is used to appropriately enable or drive the business strategy. Business strategy should therefore be chosen and implemented using the business infrastructure and processes to affect the ICT infrastructure. Haag, Cummings and Dawkins (1998:304) build on the work of King and Earl and state that 'the whole point of the ICT planning process is to find systems that enable the business to go where it needs to go'. To align organizational goals with ICT goals, they proposed five distinctive steps, appropriately named the Information Technology System Planning Process, as a foundation for identifying and selecting ICT systems. In the first step, the organizational and ICT goals are aligned to ensure that the business succeeds because of, not in spite of, ICT. The second and third steps identify specific processes and information that require ICT systems support. Once specific processes have been formalized, the fourth step is to evaluate the ICT systems for organizational 'fit', using methods such as cost-benefit analysis, risk analysis and capital analysis. The fifth and final step is to decide which ICT system the organization cannot do without. Haag et al. (1998:304) come to the conclusion that all the information applicable to the above-mentioned steps should be documented in a formal ICT systems plan. The plan is thus the road map for the use of ICT in the organization.
Wainright Martin et al. (1999:535) follow the same rationale as Haag et al. (1998), and also argue that ICT decisions must be tightly related to the direction of the business. However, Wainright Martin et al. (1999:536) go a step further and formulate a model or process that depicts the relationship between setting the overall direction for the business and setting the direction for information use and management within the business. They also state that this process may be applied to the entire company, a division or an individual user-manager department. The following section is a brief summary of the model proposed by them.
According to Wainright Martin et al. (1999:536), any strategy formulation process should start with an assessment of both the business, and information use and management. The second basic step is to visualize an ideal state for the future. Strategic planning is the third step and should be conducted for both the business and its information resources. In parallel with the business plan, a strategic ICT plan should be built considering the vision for the use of information and the overall management of ICT in the company. Wainright Martin et al. (1999:536) also believe that operational planning should lay out the major actions the organization must perform to activate its strategic initiatives. It typically includes a portfolio of projects that will be implemented according to priority or urgency.
It is interesting to note that the above steps follow a predictive approach to the formulation of strategy that is similar to the predictive strategy formulation model described earlier in this article.
Frenzel (1999:67) follows a more transformational approach to the process of formulating an ICT strategy. He believes that business attitudes about strategy have changed and proposes that instead of trying to predict the future [like the predictive models of Pearce and Robinson (2000), and Wainright Martin et al. (1999)], businesses should try to create the future. Interesting enough, Frenzel is in agreement with King and Earl and states that the aggregation of all functional and business strategies should comprise a firm's complete strategy. Frenzel also proposes that strategic managers should reorganize and redeploy resources to attain competitive advantage. The purpose of an ICT strategy should therefore be to describe how ICT should support the firm's business goals and objectives.
Frenzel (1999:69) goes further and states that ICT strategies are most effective when the ICT goals and the firm's goals are internally consistent. Business strategies of the firm should therefore direct its functions towards business objectives. ICT strategies, on the other hand, should coordinate activities within or between ICT units. Frenzel also states that a functional unit may be required to develop a specific strategy to deal with a unique opportunity or threat. Once these stand-alone strategies (ad hoc actions) are accepted, they should be incorporated in the strategic plans of all organizational units that are affected.
Although all the abovementioned perspectives or models provide us with different viewpoints regarding the institutionalization of ICT (planning and/or strategy formulation), none provides us with a holistic model, illustrating the interdependency and relationship between the formulation of a business strategy and the formulation of an ICT strategy. The reason for this could be that strategic ICT management is still being seen and managed as an entity separate from strategic management. Fortunately, these models do offer some guidance in the quest to achieve synthesis between strategic management and strategic ICT management. Viewed holistically, they provide a list of factors that might be of strategic importance when formulating or incorporating an ICT strategy in a business strategy.
top
6. Formulating a generic model that incorporates ICT strategy formulation with business strategy formulation
By analysing all the different perspectives with regard to strategy formulation from a business and ICT point of view, it becomes clear that strategy formulation should be an integrated process, based on the excellence of execution of core capabilities. As illustrated in this article, ICT is not only becoming a resource of strategic importance, but it also has a profound effect on the achievement of a strategic fit between the organization and the environment in which it operates. ICT plays a major role in supporting primary strategies and strategies formulated from a predictive, learning and transformational perspective. ICT strategy should therefore not be managed parallel to the business strategy, but should be an integral part of the business strategy.
The authors propose a holistic strategy formulation model (see Figure 1), not only capable of incorporating the major principles involved in strategy formulation, but also capable of illustrating the interdependency between strategic management and strategic ICT management.
Figure 1 Generic model incorporating ICT strategy formulation with the business strategy formulation process
As already mentioned, the key to developing a model capable of synthesizing strategic management and strategic ICT management lies in the foundation of knowledge. To build such a knowledge base, organizations should, as a point of departure, determine what their primary resources, core competencies, areas of excellence, value chain activities, opportunities, threats, and strong and weak points are. Any strategic planning process should therefore start with an analysis of the external and internal environment.
Organizations must conduct a competitive analysis to determine and analyse all conditions and forces in the organization's environment that might have a profound effect on the business as well as the effective and efficient use of resources, systems and services. It is important to remember that the core capabilities of the extended value chain should also be analysed. This means that an organization must define and understand its industry, identify its competitors and identify competitors' strengths and weaknesses to anticipate their moves. All these processes illustrate that ICT and ICT systems play a strategic role.
Apart from analysing the external environment, organizations should also assess the interrelation between business functions and how primary resources are structured to support these functions (e.g. human resource architecture, information architecture and technology architecture). This does not only constitute an evaluation of the alignment of organizational mission and goals, and the mission and goals of primary functions, but also an assessment of the design and working of the enterprise architecture, which comprises the main organizational architecture domains and their respective inter and intrarelationships. In short, a business audit should be conducted.
If the business audit is conducted in an effective and efficient manner, it should provide strategists with a clear picture – a realistic knowledge of the 'as is' profile of the organization. After assessment of the enterprise's 'as is' profile, strategists must determine if this profile will ensure achievement of the organization's primary goals, current mandate and/or mission. This means that the organization must compare the 'as is' profile to the:
* core business of the organization;
* necessary processes to direct the business;
* necessary processes to conduct the core business of the organization; and
* necessary processes to support the business.
While determining the interrelationship between business processes, the flow of information must be determined. In essence, business processes are nothing more than an extension of the flow of information through an organization. Determining the flow of information will enable strategists to assess the flow of knowledge, which is crucial in determining interrelationships and interdependencies between business functions and processes. If the assessment indicates that ICT, ICT systems and ICT management are strategically significant in sustaining these processes and functions, an information audit should be conducted. As with any resource, the information strategy formulation and planning process should therefore be an integral part of the business assessment. Emphasis should be placed on the assessment of the use of information, information technology and information systems in support of core business functions and processes. This assessment should:
* examine the information needs in relation to the business driver's functions and processes;
* review the information flow and assets of the organization;
* measure how information resources are used within the organization and compare it to a set of standards these standards can be derived from past performance in the organization, technical benchmarks, industry norms, etc;
* examine the quantity and the quality of information resources, both technological and human; and
* examine the strengths and weaknesses of the organization's information management and organizational structure.
This assessment is a comparison between the logical or 'should be' profile of the organization and the current or 'as is' profile of the organization. Comparing the 'as is' profile with the 'should be' profile will lead strategists to identify a strategic gap. This strategic gap should be rectified through excellence of execution of core capabilities. The process of rectifying this undesirable gap is known as the organization's first-order strategy. All first-order strategies should therefore be based on identifying mistakes and realistically using primary resources to develop, nurture and deploy core capabilities to rectify previous mistakes and deficiencies.
It is clear that information, ICT and ICT systems are crucial to the effective and efficient assessment of the organization's profile and external environment. Not only do they enable the formulation of a business strategy, but they also serve as a corner stone in the foundation of a firm's strategy formulation process.
Does the logic followed so far hold true for the ingredients that are critical to ensure success in both the predictive, transformational and learning perspective to strategy formulation, as formulated earlier in this document? Competitive analysis and assessment of the external environment will ensure that the first-order strategy is consistent with the conditions in the competitive environment. It will take advantage of existing or projected opportunities and minimize the impact of major threats. Secondly, assessment of the organization's strengths and weaknesses, and the way primary resources are structured to support business processes will ensure that realistic requirements are placed on the firm's internal capabilities. This will ensure that first-order strategies are based on the nurturing and deployment of core capabilities – capabilities not only based on the organization's areas of excellence, but also on the core capabilities of the different partners in the extended value chain. It is therefore clear that the proposed model holds true for the requirements critical to the success of a predictive, transformational and learning strategy.
Assessment of the external environment and company profile is of paramount importance in determining where the organization is and where it should be. However, the primary function of the assessment step is to enable strategic decision makers to determine how the competitive environment of the organization could change in the future and how the organization should take advantage of these changes. This constitutes a concerned effort to bridge the gap between where the organization is and where it should be. The first step in specifying the most effective and efficient use of any core capability (those capabilities on which your strategy should be based) is to set a strategic direction for the business – a mind's eye-picture of the future where the organization realistically wants to be. All external factors of paramount importance to the strategy formulation process should therefore be thoroughly analysed during the assessment step.
6.2 Setting objectives
In essence, when formulating winning strategies, businesses should try to anticipate and create the future. According to Pearce and Robinson (2000:64), the first step in setting a strategic direction for the business should be to formulate organizational goals for the future. This should be an organizational-wide (interactive) process. All stakeholders involved should reach agreement that these goals are obtainable. If primary goals should be linked to the core business of the organization, supportive goals must be derived from core business goals. A vision or mission statement must be linked to the future goals. During these formulation stages, social responsibility should be a critical consideration for strategic decision makers. Therefore, the vision or mission statements and future goals must express how the company plans to contribute to the societies that sustain it. Once the organization's future vision or mission is specified and written, the business implications of how the organization wants to operate in the future should be clear. The vision or mission statements governing the use of primary resources may then be written.
For a moment, let us once again focus on ICT as one of the primary resources. According to Wainright Martin et al. (1999:539), the ICT vision or mission statement should set forth the fundamental rationale for the future activities of the ICT department. This means that the ICT department should be mandated to act as an enabler in ensuring the availability of appropriate information to support the strategic decisions in the organization. This mandate should therefore include the responsibility to improve the 'as is' information architecture to the 'should be' information architecture, thus developing a future information architecture that supports the core business processes of the future. All these statements and architectural artefacts should form the basis for developing an organizational information policy and an information strategy, which are based on the following principles: accessibility, quality, user accountability, openness or free flow of information, security and confidentiality, privacy, cost and value, ownership or intellectual property, misuse of information, etc.
The information policy and information strategy should be seen as interdependent entities that are in constant revision of each other. Information strategy should not be confused with ICT strategy. The information strategy is in essence a higher-order strategy, derived from future ICT goals, and provides the framework for information management. To achieve objectives, targets and actions within a defined period, the information strategy should typically include a detailed expression of a non-negotiable information policy regarding these aspects. The information policy and information strategy thus provide governance to not only the formulation of ICT strategies, but also to business strategy. Note that to manage change, the ICT strategy must have the ability to amend, change and/or rectify the information policy and information strategy.
6.3 Establishing strategic initiatives
Simultaneous assessment of the external environment (now and in the future) and the organization's profile ('as is', 'should be' and 'future') will enable strategists to identify a range of possible attractive and interactive opportunities (see Figure 2). These opportunities are possible avenues for future investment (Pearce and Robinson 2000:13). However, they must comply with the following criteria:
* The organization's current and future mission or vision
* Non-negotiable policies (including policies contained in the information policy and information strategy)
* Organizational ethic
* orms and values.
These criteria must be met to generate a set of possible and desirable opportunities (Pearce and Robinson 2000:13). The screening process should result in options from which future strategic choices should be made. According to Pierce and Robinson, this process combines long-term objectives with generic and grand strategies to optimally position the firm in its external environment to achieve the company's future vision or mission and goals.
Figure 2 Establishing strategic initiatives
Guidelines contained in these generic and supporting strategies should provide strategists with a basis to determine and allocate the necessary activities and resources to ensure that the organization grows and remains profitable. The formulation of directive, core business and supportive strategies should therefore be done in a holistic manner and should be an integral part of the overall business strategy formulation process. The purpose of the business strategy should be to direct the business towards the achievement of the envisaged future. Similar to goals, ICT strategies should support the achievement of the core business strategies. All organizational strategies should be based on the nurturing and deployment of core capabilities and strategies should therefore be built around core capabilities. This is a process of reorganizing and redeploying resources to attain competitive advantage.
The focus should once more be only on ICT as a strategic corporate resource. During the assessment of possible avenues for strategic ICT and ICT system formulation, strategists must ensure that attractive and interactive opportunities are screened through the guidelines provided by:
* the organization's current and future vision or mission statement;
* the ICT department's vision or mission statement (as derived from the organization's vision/mission statement);
* the core business strategy; and * non-negotiable policy as contained in the information architecture (e.g. security, privacy and confidentiality).
This screening process should result in options from which strategic choice with regard to ICT should be made. The process is meant to provide a combination of long-term objectives and generic and grand strategies that optimally position the ICT department in its external environment. This will ensure that the vision and mission of the ICT department and corporate future vision and mission are achieved.
To implement strategies, hierarchies of plans must be formulated. Supportive plans should be formulated parallel with core business plans, with due consideration of the vision for the use of strategic resources and the overall management of resources in the organization. These plans should include executive plans, divisional plans and operational plans to institutionalize the core business strategy. These plans should also optimize the use of strategic resources (e.g. human resources, finances, infrastructure and ICT).
The information resource planning process should therefore generate a strategic information system plan (SISP) to govern the efficient and effective management and future institutionalization of ICT systems (see Figure 3). This plan should typically contain a 'set of longer-range goals that document movement towards the information vision and technology architecture and the associated major initiatives that must be undertaken to achieve these goals' (Wainright Martin et al. 1999).
The SISP should in a sense be a statement of the major initiatives that are not yet defined enough to be projects, but which the ICT department and user-managers must accomplish to move the organization towards the information vision and strategic plan, as derived from the core business plans. The SISP should outline the results desired for a specific time, as well as the major initiatives necessary. To determine how best to institutionalize the ICT systems via available technology, strategists must formulate a technology master plan (TMP). In contrast to the SISP, the TMP should specify the technology to be used. The SISP and TMP should also lead to a set of policies and guidelines for the effective use of 'in use' information systems and technology (e.g. e-mail policy, intranet policy and Internet policy). After the SISP has been developed, it must be translated into a set of more defined ICT projects with precise expected results, due dates, priorities and responsibilities.
Figure 3 Interaction between business operational plans, functional ICT plans and the strategic information system plan
It is clear that an assessment of the external and internal environment, setting objectives and goals, and establishing strategic initiatives are crucial steps to efficient and effective strategy formulation. These steps must also be taken before an SISP can be formulated. An efficient and effective strategy formulation process is therefore a prerequisite to the formulation of an efficient and effective SISP. However, the operational plans of other support functions and functional owners are also of paramount importance in the formulation of the SISP.
Situations or changes may occur in the external environment as well as in the profile of the organization after the strategic assessment of these environments took place. These 'situations' are normally picked up by operational personnel and forwarded to functional owners. Remedial steps are therefore normally included in operational plans. Some of these situations or changes may, however, have a profound effect on the execution of core business activities. These situations or changes should therefore be forwarded to strategic decision makers for inclusion into strategy formulation. Unfortunately, strategy formulation is normally an annual event and therefore too slow a process for these unexpected situations. Earlier in this article, it was determined that this phenomenon gave rise to the birth of the learning as well as transformational approach to strategy formulation. For the proposed model to be predictive, learning and transformational at the same time, it is suggested that functional plans, for example the SISP, should play a major role. As soon as the SISP, for example, is approved, it should be rewritten into a policy document. This policy document should form the backbone for determining the 'should be' organizational profile and is therefore a crucial component in determining the organization's first-order strategy (synthesis between 'as is' organizational profile and 'should be' organizational profile). Assessment of the 'as is' and 'should be' organizational structure should therefore be an ongoing and an interactive process. Functional owners should therefore either take part in this process or at least have direct input to the formulation of the first-order strategy, which is based on learning from mistakes and is capable of transforming, dismantling and improving organizational structures on a continuous basis. This process should also prove sufficient for the stratification of emergent strategies.
7. Conclusion
In the next century, the successful management of an organization's information resources will be determined by its ability to combine ICT knowledge with a thorough understanding of business strategy, thus guiding the development of information resources for the firm. Only with a combination of direction setting (setting a vision, architecture and a technology plan) and excellent management of the technology assets can an organization perform most effectively. The shift in the strategic role that ICT plays in business management is forcing business managers to actively participate in, if not lead, strategic ICT decision making. A sound understanding of the formulation of business strategy is crucial for the formulation of an efficient and effective ICT strategy, and vice versa. Unfortunately, there is no generic model that incorporates ICT strategy formulation with business strategy formulation. This leads business managers to still consider strategic ICT management as being separate from business strategy formulation, creating an inability to align ICT goals with corporate goals.
By analysing all the different perspectives with regard to strategy formulation from a business and ICT point of view, a holistic model was formulated. This model is capable of predicting the future, learning from mistakes and transforming strategic resources into core capabilities. Although the management of all organizational resources was included in this model, special emphasis was only placed on the management of ICT as a strategic resource. However, this model should only be used as a guideline or a tool to illustrate the interdependency between the management of a strategic resource (in this case ICT) and the formulation of a business strategy.
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