Strategic management involves:

 Taking decisions about the scope of a business's activities

 The long-term direction of the business
 The allocation of resources
It involves an entire cycle of planning and control at a strategic level, that is strategic planning.

2.1.1 Formal strategic planning

A formal or rational approach to strategic planning involves four key stages:
 Strategic analysis
 Strategic choice
 Implementation of chosen strategies
 Review and control
We shall look at each stage in detail later.

Definitions
Planning: The establishment of objectives and the formulation, evaluation and selection of
the policies, strategies, tactics and action required to achieve them. Planning comprises long-
term/strategic planning, and short-term/operational planning.
Strategic plan: A statement of long-term goals along with a definition of the strategies and
policies which will ensure achievement of these goals.

2.2 Making strategic decisions

If we assume that strategic management follows the formal model with a logical sequence which
involves analysing the current situation, generating choices relating to competitors, products
and markets (strategic choice) and implementing the chosen strategies (strategy
implementation), then to develop a strategy a business has to answer the following questions.
 What is it good at?
 How might the market change?
 How can customer satisfaction be delivered?
CHAPTE
 What might prevent the plan from coming into being?
 What should be done to minimise risk? 4
 What actions should be followed?

3 The strategic planning process

of mission, goals and strategic objectives. Any resulting gap between where the business is currently headed and where the strategy process has indicated i

ICAEW Introduction to business strategy 101

2020
3.1 The stages of strategic planning
We can divide strategic planning into a number of different stages: strategic analysis, strategic
choice, strategic implementation and ongoing review and control (see Figure 4.2).

EXTERNAL ANALYSIS INTERNAL ANALYSIS

CORPORATE APPRAISAL

STRATEGIC ANALYSIS

MISSION, GOALS AND OBJECTIVES

REVIEW AND CONTROL

in
STRATEGIC CHOICE STRATEGIC CHOICE

STRATEGY IMPLEMENTATION
STRATEGY IMPLEMENTATION

Figure 4.2: Strategic planning process

3.2 Strategic analysis

Stage Comment Key tools, models, techniques

Step 1 External Identify opportunities and threats  PESTEL analysis

W
analysis in the business's external  Porter's five forces analysis
(analysing the environment  Competitor analysis
environment)

CA Referenc
Step 2 Internal Identify strengths and  Resource audit
analysis weaknesses. Analyse the  Distinctive competencies
(analysing the business's current resources,  Value chain
business) products, customers, systems,  Supply chain

e
structure, results, efficiency,  Product life cycle
effectiveness  BCG matrix
Step 3 Corporat Combines Steps 1 and 2  SWOT analysis
e
appraisal
Step 4 Mission, goals Mission denotes values, the  Stakeholder analysis
and business's rationale for existing;  Mission statement
objectives goals interpret the mission for
different stakeholders; objectives
are quantified embodiments of the
mission

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2020
 3.3 Strategic choice
Stage Comment Key tools, models, techniques

Strategic options Coming up with new ideas:  Porter's generic strategies

generation
 How to compete (secure  Ansoff's product/market
competitive advantage) in strategies
the market
 Where to compete
 Method of growth

Strategic options Evaluating each strategic option  Stakeholder analysis

evaluation carefully and objectively  Risk analysis (see Chapter 5)
 SFA analysis
Strategy selection Choosing between the alternative
strategies

rning
At the end of the process, the business should have three types of strategy:

Le
 Competitive strategies: the generic strategies for competitive advantage a business
will pursue. They determine how it competes
 Product-market strategies determine where it competes and the direction of growth
(which markets a business should enter or leave)
 Institutional strategies determine the method of growth (ie, relationships with other
businesses)

3.4 Strategy implementation

Strategy implementation is the conversion of the strategies chosen into detailed objectives
for operating units, and plans to achieve them.

4 Analysing the environment CHAPTE

ection overview 4
he business's external environment incorporates the physical, the general and the task environments.
he task environment may be simple or complex.
ach environment may be static or dynamic.

ICAEWReferen
ESTEL analysis is used to analyse the general environment, namely its political, economic, social/demographic, technological, ecological and legal factors.
olitical factors: capacity expansion, demand, divestment/rationalisation, emerging industries, entry barriers and competition.
conomic factors: wealth (changes in GDP), inflation, interest rates, tax, government spending, the business cycle and productivity.
ocial factors (demography): growth, age and geography of population, household and social structure, employment and wealth.
echnological factors: the nature and pace of change in technology in the industry and its cost/opportunity cost.

ce

ICAEW Introduction to business strategy 103

2020