Strategic Management: Concept and Process, External and Internal Analysis, Strategy Formulation, Portfolio Models and Implementation

External analysis works from the macro environment inward. PEST analysis (Aguilar's ETPS, 1967) scans the political (stability, policy, regulation, trade), economic (growth, inflation, interest, exchange rates, income), social (demography, culture, lifestyles, education) and technological (R&D, automation, innovation rates) forces; PESTEL adds environmental and legal, and STEEPLE adds ethics. The industry environment is Porter's five forces (1979, 1980): the threat of new entrants (barriers — scale, capital, switching costs, access to distribution, brand, government policy, experience curve), the bargaining power of suppliers (concentration, uniqueness, switching costs, forward-integration threat), the bargaining power of buyers (volume, standard product, low switching costs, backward-integration threat, price sensitivity), the threat of substitutes (price-performance of alternatives) and rivalry among existing competitors (number and balance, growth, fixed costs, differentiation, exit barriers); Brandenburger and Nalebuff's complementors are the proposed sixth. Strong forces mean low industry profitability, which is why Porter says strategy is finding a position where the forces are weakest. The industry life cycle (introduction, growth, shakeout, maturity, decline), strategic group mapping, competitor analysis (Porter's four components — future goals, assumptions, current strategy, capabilities), key success factors and the environmental threat and opportunity profile (ETOP) complete the external toolkit.

SWOT analysis (attributed to Albert Humphrey at Stanford in the 1960s, and to Learned, Christensen, Andrews and Guth's Harvard text of 1965) lays internal strengths and weaknesses against external opportunities and threats; the TOWS matrix (Weihrich, 1982) turns the four cells into strategies — SO (use strengths to seize opportunities), ST (use strengths to avert threats), WO (overcome weaknesses through opportunities), WT (minimise both — defensive). Corporate strategies are the grand-strategy menu (Glueck): stability (pause or proceed with caution, no change, profit strategy — incremental improvement in a stable environment), growth or expansion (intensification — market penetration, market development, product development; integration — horizontal, and vertical backward or forward; diversification — related or concentric, and unrelated or conglomerate; cooperation — mergers, acquisitions, joint ventures, strategic alliances; internationalisation), retrenchment (turnaround — cutting costs and assets to reverse decline; divestment — selling a business; liquidation — closing and selling assets, the last resort), and combination (different strategies for different businesses or sequentially). Business-level strategy is Porter's three generic strategies — overall cost leadership, differentiation, and focus (cost focus or differentiation focus on a narrow segment) — with 'stuck in the middle' as the failure to choose, and the strategic clock (Bowman and Faulkner), blue-ocean strategy (Kim and Mauborgne — create uncontested space) and Miles and Snow's defender, prospector, analyser and reactor as the alternatives. Functional strategies then translate the chosen business strategy into marketing, finance, operations and HR plans.

Implementation is where most strategies fail — Kaplan and Norton's estimate is that the great majority of strategies are never fully executed — because formulation is analytical and implementation is behavioural. Its tasks are developing programmes (the specific activities that put the strategy into effect), budgets (the programmes costed) and procedures (standard operating procedures), and then aligning the organisation: structure (Chandler's 'structure follows strategy' — functional for single businesses, divisional for diversified, matrix for projects, network for outsourced, and the SBU structure for portfolio management), systems (information, control, reward), leadership (strategic leadership, the CEO as chief implementer), culture (fit or change it), and resource allocation (budgeting linked to strategy). The challenges of change are resistance (individual and organisational, from habit, fear, loss of power, inertia, poor communication), the tension between the existing culture and the new strategy, misaligned incentives, lack of middle-management buy-in, poor coordination and inadequate skills; they are met through Lewin's unfreezing-moving-refreezing, Kotter's eight steps, participation, communication, quick wins, changing structures and rewards, and leadership that models the change. Strategic control then checks whether the premises still hold and whether implementation is on track; the balanced scorecard, milestone reviews and strategic audits are its instruments, and Mintzberg's warning is that in a changing environment strategy also emerges from below and implementation feeds back into formulation.