According to the passage, Where is the strategy to be followed by the business determined?
Directions: Read the following passage and answer the question that follows:
Early books on business strategy aimed to structure and codify the many documentary histories and memoirs of business leaders. They contained precious little theory or models drawn from economics or other social sciences. They did contain many good ideas but few frameworks in which to place them. There was limited guidance as to when and where the idea would or would not work. Just because an idea was useful in one company at one moment of time does not mean it will always work. Gradually, ideas and models emerged that provided the necessary structure to the chaos of anecdotal memories. First, we need to distinguish between corporate and business level strategy.
At the corporate level, businesses need to ask themselves fundamental questions such as ‘Which business should we be in?’ At the business level, a business needs to ask itself: How do we compete? It is at this latter level that we position our thinking. The organisation has decided that it will compete in a certain market and is seeking ways to optimise what it should do in pursuing its goals, in other words, what its strategy should be. How we think about business strategy, has evolved and changed as new and better ideas have become more widely known and accepted as the needs of business have also changed. Business strategy has had many definitions but these are two that give a sense of what is involved, irrespective of where we are in time: Strategy is about matching the competencies of the organisation to its environment. A strategy describes how an organisation aims to meet its objectives’.
If strategy is about matching your business to the opportunities and challenges of the environment, then it pays to understand what that means and how the environment is changing and likely to change in the future. A company’s ability to match itself to its environment can be assessed by using the SWOT analysis; identifying its strengths, weaknesses, opportunities and threats. PEST and SWOT analyses have become the logical starting points for any business looking to appraise itself and to define or redefine its strategy. We believe it is time to identify better ways in which any organisation can identify how to match itself to the changing needs and views of the most important part of its environment, its customers. We also believe that management needs to look more inside its organisation to find the answers to the challenges presented by their environment. A third definition of strategy explains why commercial organisations should invest time and money in creating a strategy: ‘A successful strategy is one that achieves an above average profitability in its sector’. We also believe that any approach to strategy must be capable of demonstrating that it can guide a business organisation to above average profitability or at least to an increase in profitability. For, not–for–profit organisations, the performance measures will be very different. A business school might aim to break even but measure itself by the number of students it educates. A charity might measure its total giving or a ratio of donations to income. A church might measure itself by the size of its congregation. Performance measures that are relevant to commercial business can be applied to any type or style of organisation.
While companies still use SWOT and PEST analyses, other strategic tools have become outdated as business has changed in its nature. A century ago, the multinational was the exception on the corporate landscape. In markets, where competition is fragmented and the main competitors are small, a relatively unsophisticated business plan, one that concerns itself solely with the business and its immediate market, is likely to be more than adequate. Gap analysis is still a relevant technique that can focus the management of such organisations into thinking about the main issues they face, specifically how to bridge the gap between their existing financial performances and where they would like the business to be in future. Used in conjunction with a PEST and SWOT analysis, a firm can construct a clear sense of direction. By identifying and costing various projects that will help to fill the strategic planning gap, it can create a strategic plan. The value of gap analysis lies in its simplicity, but it has one key weakness: it ignores competition. It also lacks any model that may help management decide what to do or how to appraise their ideas as to how to fill the planning gap. But first there is a question on the way strategies actually evolve. Is it via the purposive analysis implied by Gap, SWOT and PEST analysis?