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Chandler has defined 'strategy' as the "determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals" (Chandler 1962.) This assignment will evaluate four different models of strategic analysis, including SWOT analysis (Strengths, Weaknesses, Opportunities and Threats), and the models suggested by Porter (Bowman 1994), Argyris (Kurtzman 1998), and Hamel (Kurtzman 1997). Through a brief explanation of the principles of each of these analysing techniques, the assignment will show both the benefits and the drawbacks for companies of these analysing models. The assignment will show that these tools of analysis in many ways enable a business to become successful. However it is possible that overuse of the analysing tools may mean the company can become too focused on just one aspect of strategy. Therefore the company can become oblivious to other opportunities due to the strict focus of the strategy of the company.
The first analysing tool to look at, as a basis for forming a strategic model, is SWOT analysis, described by Stevenson (1994), and also Johnson & Scholes (1993). SWOT analysis is used by companies to evaluate both the internal and the external aspects of the organisation. The analysis provides the basis of a strategic plan, as the idea of this analysis is to discover where the company needs to make improvements within its organisation - because of current weaknesses - and where it can look to expand its business, i.e. opportunities. A drawback of this approach is the subjectivity of the assessment. The SWOT analysis is produced by members of the organisation assessing its strengths and weaknesses, and Stevenson reports on a survey he conducted in 'Defining Corporate Strengths and Weaknesses,' and states,
"The results of the study brought into serious question the value of formal assessment approaches. It was found that an individual's cognitive perceptions of the strengths and weaknesses of his organisation were strongly influenced by factors associated by the individual and not only by the organisation's attributes. Few members of management agreed precisely on the strengths and weaknesses exhibited by their companies" (Stevenson 1994).
This is to say that different results of a SWOT analysis will be produced by different members of the same company. This shows that while the SWOT analysis can be a useful tool it does have distinct problems such as those illustrated by Stevenson. The benefits to the company are that the organisation can identify where improvements need to be made and where the company is successful, and this can be used to boost moral.
The SWOT analysis also enables the company to look at the threats of other companies in the market and they can analyse where to expand in the market place or by moving into a new market (responding to the opportunities.)
The second analysing tool, devised by Porter, employs 'five forces,' which are outlined below.
Threat of new Entrants
Bargaining power of suppliers
The industry jockeying for position among current competitors
Bargaining power of customers
Threat of substitute products/services
Each of the five forces which are identified by Porter has an effect on the "capability of the company to gain and retain a percentage of the market share of their industry." (Porter, quoted in Bowman 1994.) This approach looks at these aspects to identify where the company is in regard to the other companies in the industry, and hence this tool enables the corporations to assess whether they should be making changes or even looking to another market for their business. The essence of this tool is to examine the external forces that affect the wider business market in which a company is working. The strategy that the company creates should be based on the assessment of the five factors. This strategy is useful in that it looks at the whole industry and the effects of the behaviour of other companies in the sector on the company. The drawbacks of this analysing tool are that it does not focus on the internal workings of the organisation and does not allow for changes to be made within the organisation itself. Being a purely external analysing tool there is a tendency to neglect the running of the company. (Porter, quoted in Bowman 1994.)
The third tool of strategic analysis - proposed by Hamel - differs greatly from those already described. Hamel suggests that for a company to keep its market share and increase the productivity of the organisation, the company must obtain a "new sense of self" (Kurtzman 1997). The idea behind this is that the companies can "create revolutionary strategies to keep them permanently ahead of the competition." Hamel's idea is to keep the business looking to the future and not relying on past experiences to guide strategy. A company's blindness is due to "an unwillingness or inability to look outside of current experience." This prevents the company from exploring and exploiting opportunities within the market, as they are not identified in the first place. For Hamel's proposal to be put into practice, the company has to have a willingness to completely change the philosophy and basis of its organisation. This can only be done by the management of the company being prepared to ignore the orthodoxies that the company relies upon. There also needs to be a clear sense of self in the organisation so that the company is able to do things it would not have been able to do before. For Hamel's analysis to work there has to be an understanding of the company and of the market environment that it is operational in. This model suggests both an internal and an external analysis, the organisation looks to be revolutionary, to create a market share and give the customer something new. Hamel uses the Body Shop as an example of how his theories can work. Through doing everything differently to the competitors, by being revolutionary, the Body Shop was able to create a market solely for themselves. The benefits to the company are that there is a greater chance of gaining a higher market share and creating a product that is individual. The drawbacks are that the company has to revolutionise its practices and completely change its grounding and in some cases its personnel so that the company can be more open to change and new ideas. The company must be able to communicate to create a better working practice.
The fourth model is that of Argyris, who has come up with the explanation that businesses fall into one of two models. The first model consists of organisations that "have institutionalised a form of self-censorship that is defensive and limits real communication. Instead of telling the truth, people in model one express only those views that the institutional culture deems appropriate" (Kurtzman 1998). In contrast, Model Two companies deal in valid knowledge. Because the Model Two companies are able to communicate the truth they are able to deal appropriately with any problems that arise. Model One companies need to change to become like Model Two, but this requires a great deal of work because to create a fully functioning company there can be no barriers to information and people must feel at ease producing the relevant information. The benefits of such a change are that problems become clearly apparent and so can be dealt with, enabling the company to reduce costs and create a more clearly defined strategy.
To summarise the findings of this assignment, the benefits of using strategic models to analyse companies are that they can show where the problems within an organisation are, especially by using SWOT analysis and the models proposed by Argyris and Hamel. These three approaches demonstrate how weaknesses inside companies can be improved to enable problems to be picked up and effectively dealt with. The benefits of using the Porter, SWOT, and Hamel models are that they also look at the external opportunities and enable companies to try to create a more profitable business through innovation, developing their products, or creating new markets as in the case of the Body Shop.
The drawbacks are that if a company uses SWOT and Porter's theory they can become blind to other possibilities, as they concentrate more on external factors. Each of the models have their uses and advantages, but they also have flaws as some - such as the theories of Hamel and Argyris are - difficult to install within the business. Some models require the company to change their whole dynamics of the organisation, and that can be very difficult. There is a need for a total commitment of the organisation and there could be the need for retraining that is both difficult to implement and could be expensive. Models of analysis can have resounding benefits to the organisations to enable the company to progress in the market environment.