3 Strategy analysis

DONALD YEATES

INTRODUCTION
This chapter is about four aspects of strategy analysis:
l understanding what strategy is and why it is important, the assump-
tion being that strategy is important;
l exploring some ideas about how strategy is developed;
l implementing strategy;
l working out what all of this means for business analysts.
We intend here not to try to turn you into a strategic planner but instead to
enable you to understand the process of strategy development, be
comfortable with the tools that managers use and be able to use them
yourself as you explore how new or different information systems could
push forward the activities of the organization that employs you.

THE CONTEXT FOR STRATEGY

Why do organizations bother about strategy? What advantage do they hope
to get? Let us look at what is happening in the world. Most of us would
probably support the idea that business is becoming increasingly
unpredictable and changes are more turbulent. The information revolu-
tion and the digital economy have caused much of this dramatic change,
and barriers between previously separate businesses are falling like
dominoes. For example, who will be the big financial players in the
future? It could be the global banks, or retail outlets like Tesco and
Sainsbury’s, or strong brands like Amazon and Virgin. If you are working in
the finance sector, how do you know where to move next?
There are some big changes that organizations face and that strategy
development tries to moderate. There are the changes to the ways that we
are employed. There is much more use of part-time and contract
employees, who may have little long-term loyalty to their employer and
who have their own individual career and work/life balance plans. The
growth of knowledge-based industries and the continuous change
experienced by organizations means that individual employees, consul-
tants and contractors – permanent, full-time or part-time – have become
valuable assets. This is more than ever the case, as organizations

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everywhere, in both the public and private sectors, flatten their organiza-
tion structures, decentralize decision-making and give more freedom to
individuals to make business, deal with customers and resolve problems.
There are no longer jobs for life, and attitudes to work have changed. We
all now want great job satisfaction, higher rewards, more personal
recognition and flexible working environments.
Society has changed. There is greater freedom of expression and of
thought. Freedom of information legislation means that individuals have
access to evidence and decisions taken by government that previously
were hidden. There is less respect for authority and office unless it has
been earned. Our attitudes to change, direction, reorganization and other
people knowing better than we do have shifted, and the development and
implementation of new strategies need to take this into account.
Organizations are responding to these changes by doing everything they
can to increase their flexibility and responsiveness. This means that they
seek to reduce employment costs. Without trade unions to apply a brake,
we see central government and European institutions taking this role.
The world is full of contradictions, for example:
l Global versus local: globalization creates the largest markets ever
known, and until we have intergalactic businesses this will remain the
case. But it also means that the players in a global market can be
small. Having a global reach does not mean being the biggest. The
scarcity of the product, its brand reputation and its distribution
channels make the difference. The paparazzi know this: one pap-
arazzo, a camera, the right moment and the internet sell his or her
product across the world in less than a day.
l Centralized versus decentralized organization structures: finance
may be a central process, but prices and discounts are set locally.
l Hard and soft management: developing strategy is seen as a ‘hard’
discipline like finance and technology, but the creativity and change
skills that make strategy work are the ‘soft’ skills.
Finally, there are two questions. How can anyone create, formulate or
build a strategy if the future is inherently unknowable and unpredictable?
And how can it be implemented in a coherent way in decentralized
structures with delegated authorities and an ever changing environment?
This makes it appear very difficult for a business analyst to understand the
nature and permanence – or impermanence – of the business strategies
against which information systems (IS) strategies are to be built. However,
as we shall see, through an examination of the nature of strategy and the
use of some well-tried tools, effective steps can be taken to deal with this
difficulty.

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 Strategy analysis

WHAT IS STRATEGY?
The concept of strategy begins in a military context. The word ‘strategy’ is
derived from the Greek word strategia, meaning ‘generalship’. The term
has a getting-ready-for-battle sense to it, and the deployment of troops,
weapons, aircraft and ships before engagement with the enemy begins.
Once the enemy is engaged, then battlefield tactics determine the success
of the strategy. The transfer of these ideas into business is easy to make,
therefore, and we expect to deal with the following:
l The goal or mission of the business: in strategy terms, this is often
referred to as the ‘direction’.
l The timeframe: strategy is about the long term. The problem here is
that it differs widely across industries, with petrochemicals and
pharmaceuticals at the really long end and domestic financial services
products at the short end.
l The organization of resources such as finance, skills, assets and
technical competence so that the organization can compete.
l The environment within which the organization will operate, and its
markets.
A popular definition appears in Johnson and Scholes (2001):

Strategy is the direction and scope of an organisation over the long term,
which achieves advantage for the organisation through its configuration of
resources within a changing environment and to fulfil stakeholder
expectations.

However, writers and gurus have offered their own definitions for at least
the past 30 years, including Steiner (1979), who did not so much define it
as paint a picture of it by saying that strategy:
l is what top management does;
l is about direction;
l sets in motion the important actions necessary to achieve these
directions;
l is what the organization should be doing.
Finally, another definition from Johnson and Scholes (2001) is more
helpful to us when considering strategy analysis. They wrote that strategic
decisions are concerned with:
l the direction of an organization’s activities;
l matching these activities to the environment;
l the capability of the organization to support the chosen direction;
l the values and expectations of stakeholders;

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l the implementation and management of change.

Strategies exist at different levels in an organization, ranging from
corporate strategies at the top level affecting the complete organization,
down to the operational strategies for product/services offerings. Typical
levels of strategy could be as follows:
l Corporate strategy concerned with the overall purpose and scope of
the business: strategies at this level are influenced by investors,
governments, global competition and the context set out earlier in this
chapter. It is the basis of all other strategies and strategic decisions.
l Business unit strategy: below the corporate level are the strategic
business units (SBUs), organizational units for which there are distinct
external markets that are different from those of other SBUs. SBU
strategies address choice of products, pricing, customer satisfaction
and competitive advantage.
l Operational strategy focusing on the delivery of the corporate and
SBU strategies through the effective organization and development of
resources, processes and people.

STRATEGY DEVELOPMENT
This section begins with some fundamental questions: How do we start to
develop a strategy? Where does strategy development come from? How do
we know what kinds of strategy to develop? We can identify several starting
points:
l Strategy associated with an individual, often the founder of a business:
UK examples include Stelios Haji-Ioannou of easyJet, Sir Ken
Morrison of Morrisons supermarkets, Sir Richard Branson and Sir
Alan Sugar. In already established businesses, we might suggest Allan
Leighton of Asda and the Royal Mail and Stuart Rose of Marks &
Spencer, both introduced into these businesses to turn them around
and to change their strategy. So strategy sometimes starts and is
associated strongly with an individual leader. This can work all the
way down an organization, where new leaders bring new ideas –
strategies – to operating units, divisions and departments.
l Decentralized and empowered organizations, where all managers are
encouraged to use the techniques of strategy analysis and be
‘intrapreneurial’ – internally entrepreneurial – and actively create
and champion new initiatives.
l However, it does not always need strong individual strategy
champions to create new strategies. Groups of managers may meet
regularly and review trends in the market and their own business
progress. They plan new actions and try them out. Strategy thus
evolves in an incremental way.

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l Strategies resulting from a formal planning process: some organiza-

tions find this to be essential, especially those for which strategy is
truly long term.
We could, therefore, see the origins of strategy development as in
Figure 3.1.
The sizes of the triangles shown in Figure 3.1 are not necessarily the
same and, indeed, change over time. Formal planning or intrapreneurial
strategies may follow entrepreneurially driven strategy as an organization
grows, a crisis may call for new entrepreneurial strategies – perhaps
associated with a new chief executive – and the cycle begins again.
The three different ways in which strategies come about are described by
Johnson and Scholes (2001) by seeing strategy development through three
different lenses. These lenses are the design lens, the experience lens and
the ideas lens.
The design lens sees strategy resulting from ‘the deliberate positioning
of the organisation’ through a detailed and comprehensive analysis and a
subsequent directive strategy that is formulated by top management and
pushed down through the organization. A key factor here is that the
structure of the organization and all of the central systems can be aligned
to report on the performance of the strategy. It is unlikely that any
organization could withstand frequent major revisions of strategy of this
kind. Also, it is unlikely that strategy by design always gets it right and
certainly not in every detail. It is likely that adaptations and incremental
changes will be made to the strategy.

F IGURE 3.1 Strategy creation

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This brings us to the experience lens view of strategy development,

where the collective experience of the organization and its organizational
culture operate on the existing strategy to give it a new form. In other
words, the strategy is modified to a continually evolving environment, and
each modification may form the basis for the next, and so on. Although
this seems a sensible approach, these small slow steps taken as they are
rooted in a collective experience and a past strategy are unlikely to be
innovative and may produce responses that are just ‘more of the same’ and
inadequate in responding to bigger than normal external changes.
Entrepreneurial strategies come through the ideas lens and are the result
of an innovative climate or the introduction of new thinkers, very often
new chief executive officers (CEOs). These ideas can also come from
environmental scanning – looking at what is happening outside the
organization and identifying new opportunities or stronger competitor
pressure, new customer demands or imminent technological change.
We also have to recognize another force in the making of strategy: its
politics. So far the development of strategy has been considered as a
rational, logical and organized process. It often is developed like this, and
in this chapter we will consider many of the tools that are used to inform
the strategy process. However strategy is developed, it cannot always be
done by flashes of inspiration and no hard work. There are views now
that show organizations as political systems that manipulate the
formation of strategy through the exercise of power. Different interest
groups form around different strategic ideas or issues and compete for
resources and the support of stakeholders to achieve the dominance of
their ideas. On this basis, strategic direction is achieved not through a
universally accepted rational analysis but through the promotion of
specific ideas of the most powerful groups. This power comes from five
main sources:
l Dependency: departments are dependent on those departments that
have control over the organization’s resources. The power of the HR
department increases if all new staff requisitions have to be
authorized by HR.
l Financial resources: where are the funds to invest in the development
of new ideas, products or services? Who has these funds? What
financial frameworks constrain or give freedom to different groups?
l Position: where do the actors live in the organization structure, and
how does their work affect the organization’s performance?
l Uniqueness: no other part of the organization can do what the
powerful group does.
l Uncertainty: power resides with people, and groups can cope with the
unpredictable effects of the environment and protect others from its
impact.

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It is interesting, therefore, when considering strategic direction and the

implementation of strategy to assess the extent to which politics influences
the outcome.
Finally, there is the garbage-can model for strategy formulation. This is
the process that is furthest away from cool, calm and scientific
deliberation. It is said to be most appropriate when there is collective
and great uncertainty about what to do, where the technology or
technological change is unclear or unknown, and where strategy-makers’
preferences and ideas are unclear and their choices about what to do
inconsistent. The garbage can stores many different processes and
solutions that are thrown into it independently of each other. Indeed,
the problems, solutions and decision-makers are not necessarily con-
nected, and it seems to be a chance alignment of components that
generates the required action when the garbage can is inspected. So when
there is a need to do something – a choice opportunity, as it is called – we
look in the garbage can and find a collection of solutions and ideas that we
can use but that were not intended for us or to be used in this way when
they were thrown into the bin.
So we know that there are many different drivers for strategy
development. Even though strategy appears to be formulated in different
ways, they will all incorporate some external analysis – ‘What’s happening
out there?’ – some internal analysis – ‘Where do we fit in to what’s
happening out there?’ – and some consideration of how new strategies
could be implemented.
We do all of this to provide a written statement of our strategy. This
written statement is needed for many reasons:
l It provides a focus for the organization and enables all parts of it to
understand the reasons behind top-level decisions and how each part
can contribute to its achievement.
l It provides a framework for a practical allocation of investment and
other resources.
l It provides a guide to innovation, where new products, services,
systems etc are needed.
l It enables appropriate performance measures to be put in place that
measure the key indicators of our success in achieving the strategy.
l It tells the outside world, and especially our outside stakeholders,
about us and enforces the expectations that they develop about us.

EXTERNAL ENVIRONMENT ANALYSIS

Most organizations face a complex and changing external environment of
increasing unpredictability. Let us take as an example a retail electrical and
electronics store that faces some or all of the following external changes:

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l The state of the national and local economies: product demand is

influenced by local employment and incomes and the cost of credit.
l Product cost: price competition is high, and there is a continuing shift
to move manufacturing to lower-cost economies, with the possible
impact on supply and after-sales support.
l Changes in consumer lifestyles and tastes: the high cost of housing
leads to a greater incidence of smaller houses and a growth in the
supply of flats calling for small televisions and kitchen equipment.
DVDs (digital versatile disks) replace videocassette technology.
l Changes in technology: there is a greater demand for smaller devices,
flatter screens and multipurpose devices.
l New marketing approaches, with consumers buying over the internet
or from catalogue retailers.
With a little thought it would have been possible to identify these kinds of
environmental trend, but many of the more dramatic changes have come
from surprising places. When the deregulation of the UK financial services
sector stimulated supermarket banks and insurance companies, existing
banks sought to obtain critical mass by takeover, while mutual societies
such as building societies became public companies, rewarded their
members and were themselves predators or victims in takeovers. More
dramatic and unexpected are the activities of environmental or animal
rights campaigners or a sudden change in technology that changes
generally accepted business models.
There is a framework to help organizations assess its broad environment
– the PESTLE (sometimes called the PESTEL or PEST) analysis. This is an
examination of the political, economic, sociocultural, technological, legal
and environmental issues in the external business environment.
Political influences include:
l trade regulations and tariffs;
l social welfare policies.
Economic influences include:
l business cycles;
l interest rates;
l money supply;
l inflation;
l unemployment;
l disposable income;
l availability and cost of energy;
l internationalization of business.

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 Strategy analysis

Taken together, these economic factors determine how easy – or not – it is

to be profitable, because they affect demand.
Sociocultural influences include demand and taste issues and how tastes
and preferences change over time. Specific influences include the
following:
l Demographics: for example, an ageing population in Europe.
l Social mobility: will people move in order to work, or stay where they
are, but unemployed, and rely on state support? To some extent this is
now a political issue, with an enlarged Europe enabling a freer
movement of labour across the community.
l Lifestyle changes: for example, the desire to retire earlier and general
changes in people’s views about work/life balance.
l Concern for the environment, including waste disposal, recycling and
energy consumption.
Technological issues include:
l government spending on research, the quality of academic research
and the ‘brain drain’;
l the focus on technology, and support for invention and innovation;
l the pace of technological change and the creation of technology-
enabled industries.
Legal issues include:
l legislation about trade practices and competition;
l environmental-protection legislation, such as new laws on recycling
and waste-disposal industries;
l employment law, such as employment protection and discrimination.
Environmental issues include:
l global warming and climate change;
l animal welfare;
l waste, such as unnecessary packaging.
It is important that we do not view PESTLE analysis as a set of checklists,
as these are not of themselves useful in making a strategic assessment. The
key tasks are to identify those few factors that will really affect the
organization and to develop a real understanding of how they might evolve
in the future. How can this be done? In some cases a few issues may be so
important that they provide a natural focus. It may also be helpful to get
some outside expert opinions.
Having examined the external environment, we should now consider the
competition that our organization faces. Few businesses have no
competition, and most seek to develop and keep a competitive advantage
over their rivals. They aim to be different or better in ways that appeal to

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their customers. An analysis tool that helps to evaluate an industry’s

profitability and hence its attractiveness is Michael Porter’s five forces
model (Porter 1979) (Figure 3.2). In the centre is the competitive
battleground, where rivals compete and competitive strategies are
developed. Organizations seek to understand the nature of their
competitive environment. Additionally, organizations will be in a stronger
position if they understand the interplay of the five forces and can develop
defences against the threats they pose.
New entrants may want to move into the market if it looks attractive and
if the barriers to entry are low. Globalization and deregulation both give
new entrants this opportunity, but there are barriers to entry that
organizations build, including the following:
l Economies of scale: if substantial investment is necessary before a
new entrant can compete, then this may be a deterrent.
l Product differentiation: if existing products and services are seen to
have strong identities that are supported by high expenditure or
branding, then new entrants may be deterred from entry.
l Substantial capital investment by a new entrant.
l Access to distribution channels: existing distribution channels may be
committed to existing suppliers, thus requiring new entrants to find
new and different distribution channels.
l Technologies and the use of patented processes.

F IGURE 3.2 Porter’s five forces model

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 Strategy analysis

Supplier power limits the opportunity for cost reductions when:

l there is a concentration of suppliers and when supplying businesses
are bigger than the many customers they supply;
l the costs of switching from one supplier to another are high because
of supply contracts, interlinking systems with suppliers, supply
logistics or the inability of other suppliers to deliver;
l the supplier brand is powerful, e.g. the power of Intel Inside;
l customers are fragmented.
Customer power – or the ‘bargaining power of buyers’, as Porter called it –
is high when:
l there is a small concentration of buyers and many small organizations
in the supplying industry, for example in the supply of food to
supermarkets;
l alternative sources of supply are available and easy to find;
l the cost of the product or service is high, thus encouraging the buyer
to search out alternatives;
l switching costs are low.
The threat from substitute products – for example, budget air travel for
cross-channel ferries – is high when:
l product substitution from new technologies is more convenient, for
example DVDs for videos;
l the need for the product is replaced by a different need;
l we decide to ‘do without it’.
Other examples that affect us all are the impact of high-speed trains on
airlines, particularly between London, Paris and Brussels, and the impact
of low-cost airlines on ferry operators.
All of these forces impact on the competitive battleground in some way.
On the battleground itself, there is competitive rivalry. This is high when:
l there are many competing firms;
l buyers can switch easily from one firm to another;
l the market is growing only slowly or not at all;
l the industry has high fixed costs, and responding to price pressure is
difficult;
l products are not well differentiated, and so there is little brand loyalty;
l the costs of leaving the industry are high.
Porter’s framework is simple to use and understand, and it helps to
identify the key competitive forces affecting a business. The framework is
used widely in the development of strategies. There are, however, some
weaknesses, of which the most often mentioned is that government is not

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treated as the sixth force. Porter’s response is that the role of government is
played through each of the five forces – legislation affects entry and rivalry,
for example – and so it has not been ignored. There are also views that it is
difficult to apply the model to not-for-profit organizations and that since
the 1980s the increasing development of international businesses has led
to a more complex set of competitive and collaborative relationships.
Nonetheless, Porter’s framework is accepted widely as a useful analytical
tool.
Having worked hard on our PESTLE and Porter analyses, we will have
much useful data about the attractiveness of the business we have and the
external conditions it may face. How can this data be used? Generally, even
with this data, the world springs surprises on organizations from time to
time. There is a high level of uncertainty, and some different approaches
are needed in order to understand potential future impacts. Scenarios may
be used to do this. They look at the medium- and long-term future and by
evaluating possible different futures prepare the organization to deal with
them and prepare managers to deal with future shocks. Scenarios begin by
identifying the potential high-impact and high-uncertainty factors in the
environment. It is tempting to choose just two scenarios – good and bad –
when doing this, but really four or more are needed, and they should be
plausible and detailed. Next, what futures could these factors construct,
and what combination of these factors could build a plausible scenario? In
doing this, we are concerned with predetermined events such as
demographic changes, key uncertainties – often political and economic,
including regulation and world trade – and driving forces such as
technology and education. This information comes from the PESTLE
analysis.

INTERNAL ENVIRONMENT ANALYSIS

The external environment creates opportunities and threats and can give
an ‘outside-in’ stimulus to the development of strategy. Successful
strategies depend on something else as well – the capability of the
organization to perform. Can an organization continue to change its
capability so that it constantly fits the environment in which it operates?
Can an organization always be innovative in the way it exploits this
capability? We will look at two techniques in this section to address these
issues – the resource audit and portfolio analysis using the Boston Matrix.
All of this begins, however, with an understanding of the current business
positioning. For this, we will use the MOST analysis technique, which
examines the current mission, objectives, strategy and tactics and
considers whether these are clearly defined and supported within the
organization. We can define the MOST terms as follows:

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l Mission: a statement declaring what business the organization is in

and what it is intending to achieve.
l Objectives: the goals against which the organization’s achievements
can be measured.
l Strategy: the approach that is going to be taken by the organization in
order to achieve the objectives and mission.
l Tactics: the detailed means by which the strategy will be implemen-
ted.
A clear mission driving the organization forward, a set of measurable
objectives and a coherent strategy will enhance the capability of the
organization and be a source of strength. On the other hand, if there are a
lack of direction, unclear objectives and an ill-defined strategy, then the
internal capability is less effective and we have a source of weakness.
Reflecting on core competences starts the strategy process from inside
the organization and so this is an ‘inside-out’ approach based on the belief
that competitiveness comes from an ability to create new and unexpected
products and services from a set of core competences. The resource audit
can help us to identify core competences or may highlight where there is a
lack of competence that could undermine any competitive moves. There
are five key areas to examine. First, there are three sets of tangible
resource:
l the physical resources that the organization owns or has access to,
including features such as buildings, plant, equipment and land;
l the financial resources that determine the organization’s financial
stability, capacity to invest in new resources and ability to weather
fluctuations in the market;
l the human resources and their expertise, adaptability, commitment
etc.
Second, there are the intangible resources such as the know-how of the
organization, which may include patents and trademarks but may also be
derived from the use of technology that is specific to the business, for
example manufacturing technology. Another intangible resource is the
reputation of the organization, for example the brand recognition and the
belief that is held about the quality of the brand, and the goodwill – or
antipathy – that this produces. An analysis of the organization’s resources
will identify where these provide a source of competence – strengths – or
where there is a lack of capability – weaknesses.
Some organizations have a single or limited range of products and can
focus their efforts on delivering these products in such a way that they
delight their customers. However, many businesses have a diversified
range of products and services; they might all be computer software but
different products are produced for different markets and for different
users. Each will have developed its own strategic direction, perhaps using

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the tools described in this chapter, and decisions have to be taken now
about the resources to be put into each product or service. Portfolio
analysis was developed to address this problem. The underlying idea is
that the portfolio of businesses is managed to achieve balance with a
mixture of high-growth, profit-maximizing, investment-needing and
declining businesses making up a balanced overall organization.
The original portfolio matrix – the Boston Box – was developed by the
Boston Consulting Group. This analysis concentrates on immediate
financial gain and does not connect with any long-term strategic direction
or core competences. A company’s SBUs – parts of an organization for
which there is a distinct and separate external market – are identified, and
the relationship between each SBU’s current or future revenue potential is
modelled against the appropriate management of it. Put simply, as in
Figure 3.3, the cows are milked, the dogs are buried, the stars get the gold
and the wild cats are examined carefully until they behave themselves or
join the dogs and die.
A successful product or SBU starts as a wild cat and goes clockwise
round the model until it dies or is revitalized as a new product or service or
SBU. The wild cats or problem children are unprofitable but are
investments for the future; the stars strengthen their position in a growth
industry until they become the big profit earners. They are mature
products or services and often market leaders. They provide the funding
for the other segments of the matrix. The dogs are businesses that have low
market share in markets with low growth. The cash cows are mature
products in well-established markets where they are the market leaders;
they are the most profitable products in the portfolio.

F IGURE 3.3 The Boston Box

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 Strategy analysis

SWOT ANALYSIS
SWOT (strengths, weaknesses, opportunities, threats) analysis is often used
to pull together the results of an analysis of the external and internal
environments. Too often one sees it used as the first analytical tool before
enough preparatory analysis has been done. When this approach is
adopted, the results are usually weak, inconclusive and insufficiently
robust to be of much use. If we use the techniques described earlier, they
help identify the major factors both internal and external to the
organization that the business strategy needs to take account of. Hence,
the SWOT analysis is where we summarize the key strengths, weaknesses,
opportunities and threats in order to carry out an overall audit of the
strategic position of a business and its environment. A SWOT analysis is
often represented as a two-by-two matrix, as shown in the Figure 3.4.
The language of a SWOT analysis is important. It needs to be brief, with
strengths and weaknesses related to critical success factors. Strengths and
weaknesses should also be measured against the competition. All
statements should be specific, realistic and supported by evidence. Some
examples – not for the same organization – could be as follows:
l Strengths: strong product branding – market research shows a high
awareness of our brands compared with the competition. We secure
‘best space’ in all branches of the top five supermarkets.
l Weaknesses: we have poor cash flow. Against industry benchmarks we
are in the bottom quartile. We exceed our overdraft limits on 19 days
every quarter.
l Opportunities: demographic change in Europe will provide a greater
market for our products.

F IGURE 3.4 Format of a SWOT matrix

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Business Analysis

l Threats: low market growth will see increased concentration of

business through acquisition. The poorest-performing businesses will
fail.
It is important to get right the balance between the external and the
internal analysis. Completely changing the nature of the organization
because of what the external analysis says leads to radical change; basing
everything on an internal analysis may lead to little or no change. Either
case could be right of course, but both analyses are likely to contribute
towards the creation of a new strategic direction.

IMPLEMENTING STRATEGY
Implementing new strategies implies risk because it involves change. In
Chapter 13 we discuss how business change should be managed to
maximize the benefits and minimize the risks of implementing change. In
this section we consider three particular aspects of implementing strategy:
the context for the strategy, the role of the leader and two tools – the
balanced business scorecard and the McKinsey 7-S model. We will deal
first with the five contextual issues:
l Time: how quickly does the new strategy need to be implemented?
What pace of change is needed?
l Scope: how big is the change? Is the new strategic direction
transformational or incremental?
l Capability: is the organization used to change? Are the experiences of
change positive or negative? Are the change implementers skilled?
l Readiness: is the whole organization, or the part of it to be affected,
ready to make the change?
l Strategic leadership: is there a strategic leader?
In this context, the strategic leader will have the key role. The strategic
leaders we read about are usually the top managers, but strategic
leadership does not have to be delivered from the top – there are many
successful strategic changes that have been driven from other parts of the
organization. The key characteristics seem to be that the leader does the
following:
l Challenges the status quo all the time and sets new and demanding
targets, never being prepared to tolerate unsatisfactory behaviour or
performance.
l Establishes and communicates a clear vision of the direction to be
taken, why it has to be taken and how the journey will be achieved.
This means establishing the new mission, setting out objectives,
identifying the strategies for achieving those objectives and defining

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the specific tactics to deliver them. The leader will also communicate
clearly the values that underpin the new ways of doing business.
l ‘Models the way’, demonstrating through their behaviour how
everyone else should behave and act in order to deliver the strategy.
l Empowers people to deliver their part of the strategic change within
the vision, values and mission that have been set out, because the
leader cannot be everywhere at once.
l Celebrates success with those who achieve it.
Two tools that help in the implementation of strategy are the McKinsey
7-S model (Figure 3.5) and the balanced business scorecard (BBS)
(Figure 3.6).
The McKinsey 7-S model supposes that all organizations are made up of
seven components. Three are often described as ‘hard’ components –
strategy, structure, systems – and four as ‘soft’ – shared values, style, staff,
skills.
These are the seven levers that can be used in the implementation of
strategic change. All seven components need attention if the implementa-
tion is to be successful, because if there is a change in one, then others will
be affected. Changing the strategy means that all of the other components
have to change as well:
l The structure, which is the basis for building the organization, will
change to reflect new needs for specialization and coordination
resulting from the new strategic direction.
l Formal and informal systems that supported the old system must
change.

F IGURE 3.5 The McKinsey 7-S model

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Business Analysis

l The style or culture of the organization will be affected by a new

strategic direction. Values, beliefs and norms, which developed over
time, may be swept away.
l The way in which staff are recruited, developed and rewarded may
change. New strategies may mean relocating people or making them
redundant.
l Skills and competences acquired in the past may be of less use now.
The new strategy may call for new skills.
l Shared values are the guiding concepts of the organization, the
fundamental ideas that are the basis of the organization. Moving from
an ‘engineering first’ company to a ‘customer service first’ company
would change the shared values.
The BBS can be thought of as the strategic balance sheet for an
organization as it captures both the financial and the non-financial
components of a strategy. The BBS shows, therefore, how the implemen-
tation process is working and the effectiveness with which the levers for
change are being used. The BBS supplements financial measures with
three other perspectives of organizational performance – customers,
learning and growth, and internal business processes. Vision and strategy
connect with each of these, as shown in Figure 3.6.
Although the emphasis of the BBS is to measure all aspects of
performance, many people pay more attention to the non-financial
measures, since these have not been measured previously, but financial
measures retain their importance. The customer perspective measures
those critical success factors that provide a customer focus. It forces a
detailed examination to be made of statements like ‘superior customer
service’ so that everyone can agree what it means and measures can be
established in order to show the progress being made. But perhaps little

F IGURE 3.6 The balanced business scorecard

46
 Strategy analysis

progress is possible without new skills and different attitudes – a link to the
learning and growth perspective, which in turn could generate a need for
new internal processes to give the newly skilled people the tools to use.
Each perspective then answers questions like the following:
l Financial: to succeed financially and have the resources to deliver our
strategy, how must we be seen by our stakeholders?
l Customer: to achieve our vision, what do we want customers to say
about us?
l Learning and growth: how will we sustain our ability to change and
improve so that we constantly keep ahead of the competition?
l Internal business processes: what are the business processes that we
must excel at in order to deliver customer value?
Having a strategy is not enough by itself, but the task of implementing it is
difficult. Apart from the issues associated with change, the environment
gives a shifting context within which to work. But without effective
implementation, the work in developing the strategy will be of doubtful
value.

SUMMARY
In this chapter we have looked at the reasons why organizations develop
strategies and how they might do this. We have explored the complexity of
this process and offered ideas about how strategies are developed, taking
account of entrepreneurial approaches and formal planning. The chapter
also described the external factors influencing strategy – the outside-in
approach – and an internal analysis approach – the inside-out approach.
Finally we looked at the implementation of strategy and IS strategy
considerations.

REFERENCES
Johnson, G. and Scholes, K. (2001) Exploring Corporate Strategy, 6th edn.
FT Prentice Hall, Harlow.
Porter, M. (1979) How competitive forces shape strategy. Harvard Business
Review, March/April.
Steiner, G. (1979) Strategic Planning. Free Press, New York.

FURTHER READING
Bannock, G., Davis, E., Trott, P. and Uncles, M. (2003) Dictionary of
Business. Economist Books, London.
Grant, R.M. (2001) Contemporary Strategy Analysis, 4th edn. Blackwell,
Malden, MA.

47
Business Analysis

Kaplan, R.S. and Norton, D.P. (1996) Using the balance scorecard as a
strategic management system. Harvard Business Review, January/
February.
Owen, A.A. (1982) How to implement strategy. Management Today, July.
Quinn, J. and Mintzberg, H. (2002) The Strategy Process. Prentice Hall,
Englewood Cliffs, NJ.
Thompson, J.L. (2002) Strategic Management, 4th edn. Thomson Learning,
London.
Whipp, R. (2002) The politics of strategy making. In Warner, M. (ed), The
International Encyclopaedia of Business and Management. Thomson
Learning, London.

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