Process and Techniques of Analysis in Strategic Thinking

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Introduction

Strategic thinking is the process by which unique opportunities capable of creating value to the firm are identified. The strategic thinking enables a provocative and creative thinking among those leaders who can really influence the direction of a company. Strategic thinking is the input to strategic planning and hence can be considered as the starting point of strategic planning. It is the objective of strategic thinking to uncover potential opportunities for value creation and to challenge the assumptions with respect to the value proposition of the company. However quite often there is the interference of some elements with the ability of the person who wishes to start with the analytical part of the strategic thinking.

Factors affecting the Ability to Start Strategic Thinking with Respect to Analysis Part

The strategic thinking process especially the analysis part of it is often affected by questions about the company’s external environment and also about the competitive strengths of the company. The following things usually affect the analysis part of the strategic thinking:

The dominant economic traits of the industry and its impact on the operations of the firm
The competitive forces acting upon the industry
The drivers which are responsible for the change in the industry
The competitive position of the rivals
The competitive movements of rivals
The identification of the key success factors that are responsible for the growth of the individual firms

Importance of Analysis

The analysis of the situation is considered very important from the angle of the external or macro environment to assess the growth potential of the industry and the competitive conditions prevailing in the industry. Similarly the internal or micro environmental analysis becomes important to make a judgment on the capabilities of the company depending on its competencies, capabilities, resources, strengths and weaknesses and competitiveness. It is crucially important that these analyses are undertaken so that the strategic planning can identify opportunities for value creation for the firm. A good situational analysis always leads to good strategic choices.

A firm’s external environment is divided in to three major areas: the general environment, the industry environment, and the competitor environment. The general environment is composed of dimensions in the broader society that influence an industry and the firms within it. The industry environment is the set of factors that directly influences a firm and its competitive actions and competitive responses (L. Fahey, 1999).

Techniques for Analysis

“Scenario generation and analysis provides a good balance of external focus when coupled with the more internal focus of other aspects of Strategic Thinking” (Executive Evolution).

For analyzing the external environment to assess the competitive forces operating on the industry Porter’s Five Force Model is the best technique that can be employed. Here the technique analyses the competitive forces operating on the industry through the barriers to new entrants to the industry, bargaining power of the buyers and suppliers, availability of substitute products and finally the competitive rivalry among the existing players are considered to arrive at the competitive forces. This technique clearly identifies the external environmental influence on the industry.

Strategic Mapping reveals the different competitive position of the industry rivals. This technique can also be used for assessing the competitive situation of the industry. A strategic group consists of those rivals with similar competitive approaches in an industry (Chapter 3).

For the purpose of making an analysis on the capabilities of the company and its internal strength

the tool of SWOT analysis is often used. SWOT represents the Strengths, Weaknesses, Opportunities and Threats available to the individual firm making the internal analysis complete.

By undertaking a SWOT analysis the key success factors can be identified. The key success factors are those competitive elements which most affect the ability of every member of the industry to grow in the market. Some of the key success factors are specific strategy elements, product attributes, internal resources, firm competencies and the competitive capabilities of the firm.

Conclusion

An integrated understanding of the external and internal environment is essential for firms to understand the present and predict the future. Hence it can reasonably be concluded that “Analysis is the critical starting point of strategic thinking” as strategic thinking is nothing but the identification of opportunities for the growth of the business on the basis of the existing as well as the predictable future external industry environment and the firm’s internal environment.

References

Chapter 3 ‘Industry and Competitive Analysis’. Web.

Executive Evolution ‘Strategic Thinking and Use of Scenarios’. Web.

L. Fahey (1999) ‘Competitors’ John Wiley & Sons New York.

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