The Strategic Planning Process - II

Last month we discussed the business environmental scanning process, the first of three steps necessary to successfully develop a strategic plan.

Environmental scanning encompasses the monitoring, evaluating and disseminating of information from external and internal environments to key persons within a corporation. Its purpose is to identify strategic factors-the external and internal elements that will determine the future of the corporation. The simplest method for conducting environmental scanning is through SWOT analysis. The external environment consists of variables (opportunities and threats) that are outside of the organization and not typically within the short-run control of management. These variables form the context within which the corporation exists.

Strategy formulation is referred to as strategic planning or long-range planning and focuses on developing a corporation's mission, objectives, strategies, and polices.  The "formulation process" starts with a situation analysis: the process of finding a strategic fit between external opportunities and internal strengths, at the same time avoiding external threats and working around internal weaknesses.

SWOT is an acronym used to describe particular strengths, weaknesses, opportunities and threats that are strategic factors for a specific company. SWOT analysis should identify a corporation's unique competencies-the exacting capabilities and resources that a firm possesses and the superior way in which they are used. But also  the identification of opportunities that the firm is not currently able to take advantage of due to a lack of suitable resources.

Typically, a SWOT analysis looks like the chart on the previous page. SWOT details the factors associated with a company's strengths and compares this its weaknesses, and in doing so, it cold-bloodedly recognizes the factors it possesses. The same detailed and ruthless honesty must prevail when considering both opportunities and threats.

In a SWOT analysis, it is important to record not only quantifiable factors, but those factors that defy quantification and can only be mentioned as a qualified statement of belief. An example would be under the strengths assessment (high customer loyalty factor).

A SWOT analysis can be used at various levels of a company. Certainly one can use it as an overview of the entire corporation but, the most effective use of this tool is at the product line or market segment level. At this level, product/market comparisons can be made and determinations as to strategic ranking can result.

One of the most useful outputs of a SWOT comparison is the TOWS Matrix, which was developed by H. Weihrich of Kidington, UK. It illustrates how external opportunities and threats facing a particular company can be matched with that company's internal strengths and weaknesses to result in four sets of alternative strategies. This matrix is a great way to summarize each set of product lines or market considerations.

Once SWOT and TOWS are considered for each key product line or market, a match-up can be made comparing market attractiveness to company strengths utilizing a weighting system for each of the elements that make up the market these areas. This exercise "forces" more reality into the strategic plan equation and develops an more refined look at strategic alternatives.

Next month, we will consider this latter "attractiveness" scenario in our third and final column.