Phase 1-Analysis of the Strategic Position

To begin to understand how to utilise Business Strategy it is necessary to gain an appreciation of

some of the processes that strategists have to undertake in order to analyse and execute
successful business strategies. It is sadly true that most business start-ups fail and many of these
failures can be attributed to a lack of understanding of the strategies that are necessary in order
to achieve organisational success.

The 'Strategy Roadmap' diagram is of prime importance to this software, and being able to
understand the picture it presents is one the key facets. The first stage should be the analysis of
the company's strategic position, providing managers with a good understanding of what is going
on outside and inside the organisation, and what the major purposes and stakeholder
expectations are. A thorough analysis of these elements should provide the basis for managers to
move on to the following stage of the process, strategic choice, and formulate competitive and
development strategies. Once the most suitable and feasible strategies are decided, it is time to
put them into action. To this end, firms must put in place an appropriate organisational structure,
co-ordination and control mechanisms. Finally, a strategic evaluation of the organisation's
performance should be done to enable it readjust to the ever changing conditions.

We advise that major strategic choices with a long term impact on the company should only be
made after a thorough assessment of the organisation's strategic position. This choice should be
well supported by a comprehensive analysis of the external opportunities and threats - from the
macro and micro environments and also of the internal strengths and weakness - the
organisation's strategic capability supported by its resources and competences.

1. External analysis
(1) PEST Analysis
In terms of external analysis, it is critical to assess whether the contextual economic, social,
technological, ecological, media, political, legal and ethical aspects are conducive to a specific
direction. For instance, is the local government receptive to the concept of private sector
participation? How are the relationships between the local government with the communities
and the private sector? These are important aspects of the macro environment which will have a
general impact on industries and companies. For this purpose, we will use a model called PEST
ANALYSIS. This helps you to analyse the Political, Economic, Socio-cultural and Technological
factors that affect the organization. (Exclude, most unfavorable, unfavourable, neutral, favourable,
most favourable)
A. Political
a) Government Stability
b) Taxation, employment and safety law
c) Social welfare policies
d) Foreign trade regulations
e) Relations between government and the organization
f) Government ownership of industry and attitude to monopolies and competition
policy
g) 'Green' issues that affect the environment
 h) Level and type of energy consumed - renewable energy?
i) Rubbish, waste and its disposal
j) Others
Critical evaluation
B. Economic
a) Total GDP and GDP per head growth rates (trends)
b) Inflation
c) Consumer expenditure and disposable income
d) Interest rates
e) Currency fluctuations and exchange rates
f) Investment, by the state, private enterprise and foreign companies
g) Business cycles
h) Unemployment
i) Energy costs, transport costs, communications costs, raw materials costs
j) Others
Critical evaluation
C. Socio-cultural
a) Shifts in values and culture
b) Change in lifestyle
c) Consumerism
d) Attitudes to work and leisure
e) 'Green' environmental issues
f) Education and health
g) Demographic changes
h) Distribution of income
i) Social mobility
j) Others
Critical evaluation
D. Technological
a) Government investment policy on research
b) Government and industry focus on technological effort
c) New patents and products
d) Speed of change and adoption of new technology
e) Rates of obsolescence
f) The impact of the Internet
g) Others
Critical evaluation
E. Conclusion
(2) Strategic group analysis
Strategic groups are clusters of organisations within an industry that compete on the basis of a
similar positioning, product quality and target very similar customers. This analysis is important
as some organisations within industry will compete more directly with others positioned in the
same group and might not even compete with others remotely positioned (e.g. Rolls Royce is a
direct competitor of Bentley but despite being in the automotive industry, cannot really be
considered a competitor of SEAT).
(3) Porters 5 forces
Equally important, is an analysis of the competitive environment to find out what the structure is
as well as the degree of rivalry within an industry. What is the level of the threat from new
entrants and substitutes? What is the organisation's bargaining power in relation to the power of
its suppliers and buyers? How do these forces affect the industry's attractiveness in terms of its
ultimate potential for profit? What are the critical success factors of an industry and its
associated markets? These and other aspects of the micro environment should be analysed using
frameworks such as Porter's Five Forces, the Life Cycle, Strategic Group Analysis, and a final
analysis of all the Opportunities and Threats posed to organisations.
Based on a thorough assessment of all these factors, organisations will be more prepared to
understand its changing environmental conditions and to try to align as necessary.
A. Threat of new entry
a) Economies of scale
b) Cost disadvantages from other than scale
c) Differentiation
d) Brand loyalty
e) Start-up capital requirements
f) Switching costs
g) Access to supply and distribution channels
h) Legislation or government action
i) Retaliation (e.g. price cuts and advertising campaigns)
j) Entry deterring price
k) Others
Critical evaluation
B. Threat of substitutes
a) Relative price/performance of substitutes
b) Switching costs
c) Effectiveness in meeting specific customer needs
d) Willingness of buyers to substitute
e) Product differentiation
f) Brand loyalty
g) Product-for-product substitution (e.g. post mail and e-mail)
h) Substitution of need (more reliable transports reducing the need for cars)
i) Generic substitution (disposable income: boats/homes/furniture/holidays, etc.)
j) Others
Critical evaluation
C. Buyers power
a) Concentration (number and size of the firms)
b) Importance of buyer's purchases to the total volume sold by the organisation
c) Differentiation of the product/service and alternative sources
d) Switching costs
e) The threat of backward integration by the buyer
f) The threat of forward integration of buyers by the organisation
 g) Access to information
h) Others
Critical evaluation
D. Suppliers power
a) Concentration (number and size of the firms)
b) Importance of supplier's sales that an industry represents
c) Importance of the buyers in the industry as customers of the suppliers
d) Differentiation of the product/service and alternative sources
e) Switching costs
f) The threat of backward integration by the buyer (the organisation in analysis)
g) The threat of forward integration by the supplier
h) Others
Critical evaluation
E. Competitive rivalry
a) Market growth rates (life cycle)
b) Overcapacity
c) Fixed costs
d) Similarity of the size and power of the competitors
e) Differentiation of the products/services provided (switching costs for buyers)
f) Brand loyalty among consumers
g) Barriers to exit (fixed costs of exit, emotional attachment, government restrictions, etc.)
h) Others
Critical evaluation
F. Conclusion
Equally important, is an analysis of the competitive environment to find out what the structure is
as well as the degree of rivalry within an industry. What is the level of the threat from new
entrants and substitutes? What is the organisation's bargaining power in relation to the power of
its suppliers and buyers? How do these forces affect the industry's attractiveness in terms of its
ultimate potential for profit? What are the critical success factors of an industry and its
associated markets? These and other aspects of the micro environment should be analysed using
frameworks such as Porter's Five Forces, the Life Cycle, Strategic Group Analysis, and a final
analysis of all the Opportunities and Threats posed to organisations.
Based on a thorough assessment of all these factors, organisations will be more prepared to
understand its changing environmental conditions and to try to align as necessary.

2. Internal analysis
An analysis of the internal strategic capability of the company in terms of its resources and
competences is also necessary. A Resource Audit can help determine the organisations unique
resources and a Value Chain analysis will help to identify the organisations core competencies.
This will enable organisations to evaluate which are their core competencies and real strategic
capabilities, upon which basis they can achieve a competitive advantage in providing more value
for customers than competitors.
(1) Resource audit ( exclude, weakest, weak, moderate, strong, strongest)
 A. Human
a) Number of staff
b) Age distribution
c) Education
d) Skills
e) Experience
f) Training (including linguistic skills)
g) Motivation
h) Turnover
i) Attitudes and cultural awareness
j) Flexibility
k) Productivity
l) Job specifications
m) Recruitment
n) Industrial relations
o) Remunerations
p) Others
Critical evaluation
B. Physical
a) Locations
b) Age
c) Repair
d) Flexibility
e) Configuration
f) Expansion potential
g) Capacity utilisation
h) R&D facilities
i) Computer and communication infrastructure
j) Land
k) Sources
l) Quality
m) Costs
n) Availability
o) Others
Critical evaluation
C. Financial
a) Borrowing capacity
b) Internal funds generation
c) Global accounts
d) Global assets and liabilities
e) Control systems
f) International accounting systems
g) Taxation systems
h) Others
Critical evaluation
D. Intangible
a) Technology 'know how'
b) Patents & Copyrights
c) Know how
d) IT and communication systems (internal and external)
e) Production systems
f) Customer, supplier and competitor information
g) Internal process information
h) Relationships with suppliers, distributors and customers
i) Customer loyalty
j) Brands
k) Price premium
l) Organisation reputation
m) Others
Critical evaluation
E. Conclusion
(2) Value chain
The Value Chain concept introduced by Porter in 1985 describes the set of primary and support
activities that creates products or services. Organisations can use this model to perform an
analysis of the resources that are deployed into the various primary and support value chain
activities, the linkages between them, and the competences involved in the process of value
creation. Although Porter's traditional Value Chain model considers Technology development as
a mere support activity, in today's new economy and especially within several IT sectors, this
could be argued to be not simply a support activity, but as their main primary operations. It is
within this context that several adaptations have emerged from this traditional model such as
the Virtual Value Chain and Value Networks.
There are other difficulties of using this model to analyse a service provider instead of a product
manufacturer. Perhaps the main one is related to the analysis of Inbound and Outbound
Logistics which implies a physical flow of components, raw material and other products.
However, despite its limitations the Value Chain model, with any necessary adaptations, is still a
very useful tool to analyse the internal strategic capability of one organisation.
However, although the traditional Value Chain model is still very useful, its application is
perhaps more suitable for manufacturing companies where there is a physical flow and handling
of material, components and products. Therefore, taking into account the services sector and
the current collaborative environment in which companies have to operate, new models have
been created. A recent example of this is the Value Network model proposed by Peppard and
Rilender (2006). The Value Network is composed of two or more interconnected but
autonomous companies performing complementary value adding activities through a
framework of common principles and service level agreements (SLAs).
A. Primary activities
a) Inbound logistics
b) Operations
c) Outbound logistics
 d) Marketing & Sales
e) Customer service
Critical evaluation
B. Secondary activities
a) Firm infrastructure
b) Human resource management
c) Technology development
d) Procurement/Purchasing
C. Conclusion
The Value Chain concept introduced by Porter in 1985 describes the set of primary and support
activities that creates products or services. Organisations can use this model to perform an
analysis of the resources that are deployed into the various primary and support value chain
activities, the linkages between them, and the competences involved in the process of value
creation. Although Porter's traditional Value Chain model considers Technology development as a
mere support activity, in today's new economy and especially within several IT sectors, this could
be argued to be not simply a support activity, but as their main primary operations. It is within
this context that several adaptations have emerged from this traditional model such as the
Virtual Value Chain and Value Networks.
There are other difficulties of using this model to analyse a service provider instead of a product
manufacturer. Perhaps the main one is related to the analysis of Inbound and Outbound Logistics
which implies a physical flow of components, raw material and other products. However, despite
its limitations the Value Chain model, with any necessary adaptations, is still a very useful tool to
analyse the internal strategic capability of one organisation.
However, although the traditional Value Chain model is still very useful, its application is perhaps
more suitable for manufacturing companies where there is a physical flow and handling of
material, components and products. Therefore, taking into account the services sector and the
current collaborative environment in which companies have to operate, new models have been
created. A recent example of this is the Value Network model proposed by Peppard and Rilender
(2006). The Value Network is composed of two or more interconnected but autonomous
companies performing complementary value adding activities through a framework of common
principles and service level agreements (SLAs).
(3) Critical Evaluation of Strategic Capability
Description for Critical Evaluation of Strategic Capability.

3. SWOT analysis
After performing a comprehensive external and internal analysis, we would recommend the use
of a well known model, the SWOT analysis. This is the case because this model basically
summarises and integrates the major internal 'Strengths and Weaknesses' with the main external
'Opportunities and Threats'. This popular model was developed in the 1960s and 1970s by Albert
Humphrey.
This very popular model has been the victim of much criticism due to some of its limitations,
which need to be recognised by its proponents. However, we believe that if used appropriately, it
is still a very practical and useful tool. To overcome some of the pitfalls, we strongly recommend
managers to avoid using it in isolation as the 'panacea' for all problems and strategy formulation.
Therefore, the SWOT analysis should only be performed after a more thorough and
comprehensive analysis of external and internal aspects has been undertaken with the use of
several other models mentioned above. As a result, the SWOT analysis should provide no more
than a combination of different possibilities of how to use the firm's strengths to be able to take
advantage of external opportunities or to offset threats, and of how to overcome internal
weakness through a series of capability building actions. Therefore, all the potential
recommendations emerging from this analysis should only be considered as mere potential
strategic actions to be looked at during a later strategy formulation stage.

Phase 2
1. Corporate Level Strategy
Corporate level strategy is applicable for a multi-business organisation and is concerned with
strategic choices made at a higher level in relation to the whole group. This is the level where the
corporate purpose and aspirations in terms of the groups overall mission and vision are defined.
It is at this level that the groups strategic scope is delineated in terms of related or diversified
operations. Decisions have to be made in terms of geographical scope; whether the company will
be operating on a local, national or international basis.
2. Competitive Strategy
According to Porter (1980) the relative competitive position of each strategic business unit will
ultimately determine which are the most suitable generic strategies for them. By looking at their
strategic capability in terms of resources and competences, companies should be able to
understand whether they could achieve a competitive advantage more on the basis of lower
costs or by offering higher quality, unique and differentiated products or services. This decision
should be supported by a good understanding of the company's Value Chain as discussed before
in the internal analysis section. This becomes critical because it is commonly accepted that to
become more competitive, companies should be able to offer more value to customers. Knowing
that value for customers is the degree of satisfaction derived relative to the total price paid for a
product or service, managers should look at each of the company's activities and processes to be
able to understand whether the firm would be capable to add more value for customers by
offering lower prices for relatively similar quality products or services, or by offering better or
unique products and therefore, although not necessarily, being able to charge a higher price than
competitors. Being aware of their responsibilities to shareholders, managers must not forget to
add value for the company in the form of profits. Therefore, on one hand, unless the business is a
charity or a not-for-profit organisation, lower and more attractive prices are only possible if the
company has lower costs. On the other hand, customers will not be willing to pay higher prices
for products or services that they do not perceive as being of higher quality or unique.
Because of the increasing difficulty of attaining product differentiation, companies try to achieve
this by offering complementary support services in order to enhance the purchase and
post-purchase experience. This is the case when companies offer free of charge installation for
complex technological equipment. Similarly, when a customer buys a computer that customer is
almost always offered the possibility of upgrading to a three years guarantee by paying an extra
fee. Similarly to the computer industry, mobile phone manufacturers are involved in a frenetic
continuous new product development race. Because of the difficulty of sustaining product
differentiation over a long period, they are forced into collaborative arrangements with mobile
service providers in which the phone becomes only part of an entire package and it is in many
cases offered to the customer as 'free'.
It is interesting that in the case of service companies, the opposite take places. As an attempt to
differentiate their services these companies try to enhance the customer experience by adding
tangible aspects to the services they provide, for instance, better facilities, well presented staff,
ambience, modern and sumptuous equipment, etc.
Once a company understands the basis of its competitive advantage either through low costs or
differentiation it will have to define its competitive scope. A good understanding of its internal
capability, external macro and micro environmental factors and the existing market segments,
should help managers decide to target a broad or a narrow market. Given the increasingly
competitive environment of most industries, dominated by ever growing multinational 'giant'
companies, the only way forward open to smaller firms might be by focusing on a very small
niche that has been disregarded by the 'big boys'. This is illustrated by the popular statement
sometimes it is better to be a big fish in a small pool than a small fish in a big pool. Although this
is a valid option for smaller companies, the problem is that more and more, larger firms tend to
expand into other areas of the market by targeting many segments, including small niches. In
many cases this is done through strategic alliances, mergers or acquisitions. As a result,
competition becomes stronger and stronger.
3. Development Strategy
Based on Ansoff's (1957) product/market development model, strategic management literature
proposes four types of growth strategies. First of all, firms must decide in which direction they
choose to grow:
Through the development of their business in their current market and with their current
products in order to protect and build their market position.
Through market development, moving into new market segments, territories (national or
international) or by attracting new users.
Through the development of new or modified products in their current market.
Or finally, through a process of diversification (related or unrelated) by developing new products
for new markets.
Having decided which of the development strategies to follow, and usually they can be followed
simultaneously, firms must choose the method of development. As already mentioned, there are
two methods for companies to achieve growth: i) through internal development, based on their
own resources and competences, or ii) through external development, based on the combination
of two or more organisations resources and competencies, which can be achieved through the
establishment of various possible types of collaborative arrangements.
Mergers, acquisitions and alliances are methods widely used by organisations to follow one or
more directions in terms of product and market development. An example of a collaborative
arrangement where two partners had different but complementary objectives was the strategic
alliance between Rover and Honda. Rover's objective was product development. Due to its
limitations in new product development it needed a new international partner to help it fill the
gap in its product range through the development of a new medium to small car. Honda's
strategy was basically market development. They entered the partnership with the objective to
get a foothold in the UK and European markets
As previously discussed, partnerships can be considered to be valuable methods through which
organisations can achieve growth, and are therefore associated with corporate development
strategy. However, they also play a critical role in terms of competitive strategy at business unit
level. Therefore, partnerships can be used as a means for organisations to achieve a better
strategic position within the industries in which they operate. This assumption is supported by
the market-power theory which argues that organisations can improve their competitive success
by increasing their market power, which can also be achieved through collaboration with other
organisations.
Important aspects related to the formation of collaborative arrangements are the transaction
costs that are incurred in some activities. When considering outsourcing from an external partner,
a cost/benefit analysis would be suitable to assess to what extent the internalisation of an
activity would be preferable to its external outsourcing. When transactions are one-off, of
short-term duration and the assets involved are non-specific, organisations should favour simple
market transactions supported by legal contracts (Williamson, 1975). On the contrary, when they
are recurrent, complex and time consuming, have highly uncertain outcomes and involve
transaction-specific investments, then relational contracting favouring collaboration should be
preferred.
However, whenever assessing which are the activities of the value-chain that an organisation
should externalise, managers should not only take into consideration cost-transaction aspects but
other strategic issues as well. It should be considered which activities should be performed solely
by the organisation, and which are those that can safely be shared with others. Organisations
should carefully consider which activities can be done through the partnership, while still
protecting core-competencies and unique resources that provide a competitive advantage for
them.
a) Market Penetration and Consolidation
Users should consider the organisation's growth strategy in terms of its products and markets.
The first quadrant, Market Penetration/Consolidation corresponds to the growth strategy by
which the organisation continues to focus on its existing products to the existing markets. The
aim is to increase market share (Market Penetration) or sometimes to even reduce the existing
scope of operations (Consolidation) by withdrawing from some markets or downsizing the
product portfolio. Sometimes it is appropriate to do so even if it might result in a loss of market
share. Other times, the right strategy is not to grow or downsize but simply to protect the current
market position by defending and maintaining the existing market share.
The first option, Market Penetration and Consolidation, is the decision to continue offering the
existing services/products to the existing core market in an attempt to gain more market share by
increasing sales through customer base expansion. However, there will be situations were
companies, forced by internal or external reasons such as legislation, competitions, scarcity of
resources etc. will have to downsize their scale of operations or even withdrawn from certain
markets. This option is usually less demanding in terms of new resources and competences.
Please critically evaluate each of the following factors and make sure you add facts as supportive
evidence to your analysis.
To synthesize insert into the 'Key point / fact' section very short sentences or keywords
summarizing each of main points.
b) Product Development
The second option, Services/Product development, takes place when a company decides to
expand its service/product portfolio to offer a wider range of options to its existing customer
base. This can be done by developing entirely new services/products or simply by offering
modified versions of existing products/services. Ideally, companies should try as much as possible
to develop services or products which are complementary to each other. This could be done in
two main ways: first, by offering several complementary services/products as a bundle, e.g.
media companies offering internet, telephone, and television services all in one package for a
lower overall price; or secondly, by following a cross subsidising approach where the company
sells a basic entry service/product at a very attractive price knowing that sooner or later
customers will end up buying several additional other services/products at a higher price. This is
commonly practiced by restaurants offering meals at very attractive prices, with the expectations
of making a higher profit from the subsequent sale of more expensive drinks. Budget airline
companies are also following this subtle tactic by charging a very low price for the basic airfare,
but trying to sell at an extra price several complementary products/services such as food and
drinks on board, duty-free products, previous booking of specific seats, and even an extra fee for
every passenger's suitcase. This cross subsidising tactic is widely practiced by printer
manufacturing companies, which sell their printers at low prices knowing that later costumers
will have to buy their very expensive ink cartridges, in some cases representing approximately 60
percent of the price of a new printer.
Please critically evaluate each of the following factors and make sure you add facts as supportive
evidence to your analysis.
To synthesize insert into the 'Key point / fact' section very short sentences or keywords
summarizing each of main points.
c) Market Development
The third growth strategy open to companies is Market Development. In this case, companies try
to capitalise on their existing products by selling them to new market segments, new
geographical markets or new market uses. This usually requires some product modifications to
better address the specific needs and preferences of the new markets which in some cases
requires some form strategic alliance or even mergers and acquisitions as companies start
moving beyond their core areas of competence and resource base. As mentioned above, more
and more companies are attempting to pursue growth by extending their product lines to
become full-line producers in order to serve more market segments. In terms of geographical
expansion not much needs to be said when we observe the current race for international
expansion and globalisation. Market growth through the development of new uses for existing
services or products is usually the best option when trying to capitalise on existing
services/products. This usually enables significant gains in terms of economies of scope as
companies maximise the use of existing portfolio to fulfil a new services/products mission. An
example of this would be a train company deciding to add to its passenger transportation the sale
of its cargo services.
Please critically evaluate each of the following factors and make sure you add facts as supportive
evidence to your analysis.
To synthesize insert into the 'Key point / fact' section very short sentences or keywords
summarizing each of main points.
d) Diversification
The fourth and generally most demanding growth option is Diversification. This is the case
because developing new services/products for new markets often requires the development of
new resources, competences and organisational structures. This option is usually chosen by
companies who have reached the maturity of their life cycle and whose markets are saturated
due to high levels of competition. It might also become a useful strategy for companies willing to
reduce the risk of being over dependent on the environmental and competitive conditions of one
single market. This is well illustrated by the popular statement that we should avoid putting all
our eggs into one basket because if it falls they will all be broken. However, although one of the
major benefits companies achieve through portfolio diversification is the spreading of risk,
research seems to indicate that this spreading of risk is itself a risky strategy, and for this reason
this type of strategy has decreased in popularity during the last three decades, whilst a more
recent trend has been for companies to grow in more related areas where resources and
competences are easier to transfer .
Please critically evaluate each of the following factors and make sure you add facts as supportive
evidence to your analysis.
To synthesize insert into the 'Key point / fact' section very short sentences or keywords
summarizing each of main points.
e) Conclusion

Conclusions & Recommendation

Draw major conclusions and provide key recommendations based on the analysis you have
undertaken of the organisation's situation in terms of the external and internal factors,
organisational purposes and expectations as well as its strategic choice in terms of its portfolio,
competitive and development strategies.
Make sure your conclusions are based on your key findings from the analysis.