Strategic Analysis - Essay Example

Strategic Analysis Strategic Analysis Introduction Technological intervention has broken all geographical barriers thereby shrinking the world into a small global village. This has increased the level of competition in the markets since companies have to compete with local, as well as foreign brands. In such competitive times, information bears great relevance for any organization since it provides the basis for effective decision making and strategic analysis. It is a thing of the past when managers developed long terms goals and relied on their luck to attain success. The modern competitive times require proactive strategic analysis that caters the changes in the internal as well as external environments. The domain of strategic analysis provides the guiding principles and approaches to survive in the competitive world and attain success. 2. Strategic Analysis and Its Relevance in the Modern Markets Earlier, organizations developed a source of competitive advantage and simply had to defend the respective product or service against any probable replacements. In the modern markets, there exists no such thing as finding a competitive advantage and sticking to it. Dynamism tends to benefit more than rigidity. Kathwala (n.d) stated that companies need to ensure that they perform comprehensive strategic analysis and adopt strategic flexibility so that they are able to reallocate their focus from one domain to the other to cater to the frequent changes in customers’ demands. Kathwala (n.d) defined strategic management as the actions and strategic decisions that facilitate sustained success for a company, while BNET Business Directory (2007) defined strategic analysis as performing analytical research regarding the environment in which the business operates and the internal structure to identify the factors that can be developed to form the basis of an effective strategy. 3. Relevance of Competitive Advantage in Strategic Management Competitive advantage is defined as the set of attributes that differentiates the service or products from the competitors in the market. The attainment of competitive advantage is vital since it ensures above-normal performance, greater market share and greater revenues. Wiggins (1997) and Ong and Ismail (2008) agreed that the acquisition of competitive advantage is an easier step for an organization as compared to sustaining it. Michael Porter proposed three strategic steps that facilitate the attainment of competitive advantage: Cost Differentiation is present if an organization is able to offer lower costs than the competitors. Differentiation is present if an organization is able to offer unique, valuable services and products to the customers. Focus strategy enables the company to focus on the range of products, specific market segments etc and aim to attain competitive advantage by developing strategic plans centered on those limited areas. 4. Strategic Analysis: Various Forms It is vital for any organization to understand the environment under which it is operating its functions, whether it is the internal environment or the external one. Thompson and Martin (2010) stated that the forces present in these environments should be analyzed such that threats, opportunities, strength and weaknesses can be identified. 4.1 Analyzing the External Environment The monitoring of the external environment involves the identification of the environmental trends and sequences that may become the basis of changes in the strategic planning of the organization. The analysis of the environment enables the organization to maintain a proactive strategic approach, rather than a reactive one. Scanning the environment also involves possessing competitive intelligence, which is defined as the knowledge about the projects and activities of the competitors. Competitive intelligence can be beneficial for any organization since it can reduce the element of surprise from the competitors’ side and facilitate faster development of response strategies in return of their endeavors. The process of analyzing the environment also bears the steps to forecast the changes that might be apparent in the future; forecasting is done on the basis of present and past market and consumer data. Einhorn and Crockett (2008) gave the example of Motorola which was one of the top leading cell phone brands in the world till 2008. They stated that it was counted as either the top most company or second ranked company in China for many years together. It was overshadowed by the success and innovative smart phone development by Nokia and Samsung, thus making its market share come down from 21 % (2006) to 7.9 % (2008). Motorola could not cope with the changing trends in the external environment since it stuck with their conventional designs and technologies. 4.2 Analyzing the Internal Environment The internal analysis of any organization is aimed to investigate the potential and weaknesses of the organization. The identification of the capabilities and strengths can be accumulated and worked upon to develop core competencies. Middlemist (2004) defined core competency as the sources through which an organization is able to acquire competitive advantage in the market. It is by means of core competencies that organizations gain value for themselves and provide unique benefits for the consumer. The development of core competency is coupled with the process of sustaining it; therefore Middlemist (2004) gave the following attributes of a core competency: Value: Valuable capabilities prove to help the company to combat the threats in the environment. Rarity: Rare competencies appeal to customers and compel them to return to the producing company. Non-imitable: Non-imitable competencies might be an outcome of effective cultural values or interpersonal relations within the company that are difficult to imitate. Some competencies are also non-imitable because the probable processes of their development are unique and unknown. Irreplaceable: Due to the presence of effective strategic planning and execution, the core competency cannot be replaced by competitor’s products. The presence of these attributes makes it hard for any competitor to produce the same product and service. Besides the core competencies, it is also vital to identify the tangible (physical assets, financial and technological resources) and intangible resources for the development of strategic plans to provide continued value to the customers. Day (2008) defined intangible resources as the ones that cannot be measured or physically touched, for example, brand name, organization’s culture, human resource management practices etc. 4.3 Recognition of Intellectual Assets The prevailing era is considered to be a technological one in which the value of tangible assets do not guarantee success for any organization if they are not coupled with the realization of the worth of intellectual assets, such as experience, skills and knowledge of employees. Dess, Lumpkin and Eisner (2010) termed the modern times as the knowledge economy; where businesses gain revenues and market shares by effective management of skilled and knowledgeable workers, rather than stressing on the efficient use of tangible assets. This asset is called the human capital. They provided Microsoft as an example of a company gaining worldwide recognition and sales due to their continued innovative contributions in the field of computing. The real assets of Microsoft are the great minds and the knowledge of its employees that provide their customers with user friendly and accessible software products and services. According to SAP Solution Brief (2011), in the prevailing knowledge intensive economy, it is vital to identify the (knowledge-centric) needs that are required to facilitate the achievement of business goals. A common approach to hire suitable resources is based on the following statement, “Hire for Attitude, Train for Skill”. This approach advocates that resources can be trained for any skill but minimal productivity is achieved from resources that do not have the attitude to learn and grow in their work. Brocaglia (2006) stated that human capital should be considered as an asset, rather than an expense; therefore, effective measures should be taken to develop this asset into a value creating source for the company. The human resource assets should be trained and developed according to the changing trends of the market, instead of out-dated strategic plans. Retention of talented and valuable employees should also be focused upon since the company invests great resources in their development and training. 5. Use of Strategic Analysis in Corporate Aviation Contracting Corporate aviation meets the business requirements of organizations in terms of their air transportation, instead of making them opt for scheduled flights by commercial airlines. Therefore, the products and services in this field include the aircrafts being used for the service, crew members, customer support executives etc. Strategic analysis can facilitate the evaluation of the business with respect to the available services in the market and an analysis of their internal factors. Number of travelling hours bears great relevance in corporate aviation since the clients are usually following strict schedules and commitments. Flying performance and route information regarding the competitors can help the business owners evaluate their own service and increase the aircrafts’ efficiency quotient if the need arises. Aircrafts should be comfortable and equipped with the services that are provided by the aircrafts in the market; there exists an increasing trend of having luxury services in aircrafts like reclining chairs that turn into beds, greater space between the aisles, meeting rooms etc. Incapability to offer prevailing latest features in aircrafts may cause a loss of significant market share. Internally, the customer support executives should be trained by the management to offer effective and timely service to their clients that would not be coupled with confusing processes and details. The application and acquisition of any service should be quick and convenient for the client since time consuming tasks may become the cause of brand shifts. Another human capital of pilots needs to be trained to fly aircrafts with newer technologies and control the flight in atypical conditions to reduce the chances of crashes. Pilots and cabin crew are one of the most relevant forms of human capital for the respective field of industry therefore this internal strength should be developed and retained to ensure long term success. 6. Conclusion The process of conducting strategic analysis initiates with the evaluation of the performance of the business which points out the strengths and weaknesses of the organization, whereas the external environment analysis highlights the threats and opportunities in the market. The strengths of the organization can be developed into core competency that can facilitate the attainment of competitive advantage. The services and products should be developed such that they cater the requirements of the customers and the changing market trends. The strategic analysis of comprehensive and complete information of the external environment ensures survival and growth in the competitive times since otherwise competitors surpass with the aid of their innovative technologies, products and services. Alongside the physical assets, human capital and intellectual assets bear great relevance in the running of any business in the modern times; these assets should be developed to enable the company to combat in the presence of changing technologies and business practices. References BNET Business Directory (2007). Strategic analysis, Retrieved from http://dictionary.bnet.com/definition/Strategic+Analysis.html Brocaglia, J. (2006), The Importance of Human Capital, Alta Associates, Retrieved from http://www.altaassociates.com/pdf/06-AUG-CC.pdf Day, J., (2008), Identifying Intangible Assets, Retrieved from http://www.reallifeaccounting.com/pubs/Article_Theme_Intangible_Assets.pdf Dess, G. G., Lumpkin, G. T., & Eisner, A. B. (2010). Strategic management creating competitive advantages, (5th Ed.). New York, NY: McGraw-Hill/Irwin. Einhorn, B. & Crockett, R. O. (2008, September 8), Motorola: Fading in China. Business Week, Issue 56. Kathwala, A. (n.d.) Essentials of Strategic Management- Book Review, HR Folks International. Middlemist, R. D. (2004), The Internal Environment: Resources, Capabilities, and Core Competencies, Colorado State University. Ong, J. W. & Ismail, H. B. (2008), Sustainable Competitive Advantage through Information Technology Competence: Resource-Based View on Small and Medium Enterprises, Communications of the IBIMA, Volume 1. SAP Solution Brief, (2011), Identify, Develop, Reward, and Retain Talent with Integrated Talent Management. Thompson, J. & Martin, F. (2010) Strategic Management 6th Edition, Cengage Learning EMEA, 2010. Wiggins, R., (1997), Sustaining Competitive Advantage: Temporal Dynamics and the Rarity of Persistent Superior Economic Performance, Academy of Management 1997 Annual Meeting. Read More