Module C. Strategy

Module C. Strategy (according to SBL syllabus)

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Learning outcomes:

1. Identify and evaluate an organisations strategic capability, threshold resources, threshold competences, unique resources and core competences.

2. Discuss the capabilities required to sustain competitive advantage.

3. Discuss the contribution of organisational knowledge to the strategic capability of an organisation.

4. Apply Porter’s value chain to assist orgainsations to identify value adding activities in order to create and sustain competitive advantage.

5. Advise on the role and influence of value networks.

6. Identify and evaluate the strengths and weaknesses of an organization and formulate an appropriate SWOT analysis.

Module C. Strategy

1. Strategic capability-Chapter 5

▪ Strategic capability

▪ Using strategic capability to achieve sustainable competitive advantage

• VRIO Framework

▪ Organizational knowledge

▪ Diagnosing Strategic Capabilities

• Porter’s value chain

• Value network

• SWOT analysis

2. Class exercises

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Strategic capability

When analysing an organisation’s position we have to analyse its strategic capability.

Strategic capability is capability which gives sustained competitive advantage so that you

do better than others in the long-term. This is an internal quality of the organisation, and

capability depends on:

❑ Resources (things you have like manufacturing resources, patents, people), and

❑ Competences (how you use the things you have).

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Strategic capability

Capability is assessed in terms of competences and resources and they can be classified asbelow:

➢ Threshold capabilities, which are the minimum capabilities needed for theorganisation to exist at all so that the company just survives;

➢ Additional capabilities, which give the organisation competitive advantage. They canarise from:

▪ Unique resources, or

▪ Core competences.

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Strategic capability• Resources and competences

➢ Resources: Any asset, process, skill or item of knowledge that is controlled by the entity andutilises to implement its strategies and achieve stated outcomes.▪ Examples of resources include: land; labour/manpower; information; location; patents;

knowledge; organisational culture and reputation; equipment; brands; etc. Patents andbrands are some of the examples of intellectual capital, an intangible resource which isvery vital in a knowledge-based economy.

➢ Threshold resources: Those resources needed to meet the customer’s minimumrequirements. It can be tangible or intangible.

➢ Unique resources: Those resources that critically underpin competitive advantage and thatothers cannot easily imitate or obtain. Resources can be tangible or intangible.

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➢ Competences: Activities or processes in which an entity uses its resources

➢ Threshold competences: Those activities and processes needed to meet the customer’sminimum requirements.

➢ Core competences: The activities and processes through which resources are deployed insuch a way as to achieve competitive advantage in ways that others cannot imitate orobtain.


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Core competences:➢ Market access competences. These include: brand management, sales and marketing,

technical customer support, customer service orientation, etc.—competences that linkthe firm to customers.

➢ Integrity related competences. These include: quality and knowledge management, justin time systems, etc.—competences that enable faster delivery of high quality productsand services.

➢ Functionality related competences. These include: innovation management, more addedcustomer value, exceptional after sales services, etc.—competences that enable the firmto offer more functional products and services.


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Examples

➢ Threshold resources:An industry-standard piece of machinery used by a manufacturing company represents a

tangible threshold resource.

The right of an airline to use the landing slots at an airport, when all competitors have thesame right, represents an intangible threshold resource.

➢ Unique resources:A patent for a new medicine belonging to an international pharmaceutical company is anintangible unique resource.

A diamond mine owned by a mining firm is a tangible unique resource.

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Examples➢ Threshold competences:Operating an automated production facility to produce simple mobile phones means thatthe manufacturer can sell phones to customers at the lowest prices.

➢ Core competences:A mobile phone manufacturer renowned for producing innovative phones employs adedicated R&D team of engineers which constantly develop phones which feature the latesttechnologies . The specialist skills in the R&D team are not available elsewhere in theindustry. The R&D team represents a core competence.

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Using Strategic Capabilities to Achieve Competitive Advantage

➢ Strategic capability includes resources and competences that a firm utilises tocompete in its business environment. It can therefore constitute a firm’s strengthsand weaknesses, and be a source of competitive advantage or disadvantage over itsrivals.

If sustainable competitive advantage is to be achieved, strategic capabilities(resources andcompetences) much has 4 qualities that can be summarized into the VRIOframework(VRIO)

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Using Strategic Capabilities to Achieve Sustainable Competitive Advantage

❑ What is VRIO Framework?

The VRIO Framework or VRIO Model is part of the Resource-Based View (RBV), which isa perspective that examines the link between a company’s internal characteristics andits performance.

RBV is therefore complementary to the Industrial Organization (I/O) perspectives thatlook more at external factors such as competitiveness in order to determineperformance and profit potential (e.g. Porter’s Five Forces). The supporters of RBVargue that organizations should look inside the company to find the sources ofcompetitive advantage instead of looking at the competitive environment. The keyconcepts within this view are therefore Firm Resources and Sustainable CompetitiveAdvantage.

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Strategic capability and sustainable competitive advantage

➢ The VRIO framework is a strategic analysis tool designed to help organizations uncover andprotect the resources and capabilities that give them a long-term competitive advantage.

➢ Not a list of strengths or advantages, which are things you do well but are not necessarilyunique to your organization. Sustainable competitive advantages are those that competitorscan’t easily duplicate in the foreseeable future; they are also a crucial element of businesssuccess.

➢ A VRIO analysis will help you identify whether you have one or many sustainablecompetitive advantages and leverage them as part of your strategic plan.

❑ What is VRIO Framework?

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Using Strategic Capabilities to Achieve Sustainable Competitive Advantage

Industrial Organization (I/O)

Resource-Based View (RBV)

Look more at external factors such as competitiveness inorder to determine performance and profit potential (e.g.Porter’s Five Forces).

Look inside the company to find the sources of competitiveadvantage. The key concepts within this view are thereforeFirm Resources and Sustainable Competitive Advantage ( e.g.VRIO model).

complementary

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VRIO (Value, Rarity, Imitability, Organization)+ dynamic capabilities

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➢ Valuable (VRIO)

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Example of Creating Value

Union Pacific’s extensive network of rail-line property and equipment in

the Gulf Coast of the United States is valuable because it allows the

company to provide a cost-effective way to transport chemicals.

Because the Gulf Coast is the gateway for the majority of chemical

production in the United States, the rail network allows the firm to

exploit a market opportunity. Delta’s control of the majority of gates at

the Cincinnati / Northern Kentucky International Airport (CVG) gives it a

significant advantage in many markets. Travelers worldwide have rated

CVG one of the best airports for service and convenience 10 years

running. The possession of this resource allows Delta to minimize the

threat of competition in this city. Delta controls air travel in this desirable

hub city, which means that this asset (resource) has significant value.

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➢ Rarity (VRIO)

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Example of Rare Resource

In the race to be first with 5G technology competitors are scrambling to

win bids in a new wireless high-band spectrum. The Federal

Communications Commission in April 2019 announced its third and

largest auction for fifth generation networks that promise a major speed

increase for downloading data over cellular networks. The White House

considers service in rural areas and security for 5G to be essential to

keep the country competitive for billions of Internet of Things (IoT)

devices like autonomous cars and industrial sensors. In recent months

the U.S. and China have imposed tariffs against each other and with no

American companies manufacturing the main switch networks, the new

network will rely on European companies Nokia and Ericsson.

.

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➢ Inimitability (VRIO)

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Strategic capability and sustainable competitive advantage Inimitability (VRIO)

According to the RBV, resources can be imperfectly imitable due to a combination of three reasons:

•Unique historical conditions: choices made in the past influence the options a company has in the present and

future (path-dependency). Similarly, a company that has located its facilities on what turns out to be a much more

valuable location than initially anticipated, has an imperfectly imitable physical resource.

•Causal ambiguity: causal ambiguity exists when the link between the resources controlled by the focal company

and its sustainable competitive advantage is not fully understood. Competitors won’t be able to duplicate the focal

company, since they simply don’t know which resources they should imitate.

•Social complexity: when the most important resource of a company relies on the strength of its social network,interpersonal relations, a company’s culture and its reputation among both suppliers and customers, the resource

can be considered highly inimitable. It is very hard for competitors to build an identical social network, since it is

dependent on so many different factors that are linked together in a complex social structure.

If a company’s resources are both valuable, rare and inimitable due to the reasons mentioned above, the focal

company has a high potential to gain a competitive advantage that is sustainable over time. There is however one

more important criteria that needs to be present within the company.

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Example of Inimitable

A tablet computer has been around for years but it wasn’t until the iPad whenthe market finally took off. Apple has designed something that is hard toimitate successfully and this can be proven by the number of knockoffs andimitation products of the iPod, iPad and MacBook that have failed to gain alarge portion of market share..

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➢ Organization-wide supported (VRIO)

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Example of Organization

A critical part of Apple’s success is their organizational structure. They takeadvantage of a hierarchical organizational structure, which is a traditionalstructure seen in many organizations. The three main characteristics of thisstructure are spoke-and-wheel hierarchy, product-based divisions, and a weakfunctional matrix. While this gives them strong organizational control, it alsolimits organizational flexibility, and is something other corporations shouldconsider when choosing an organizational structure..

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➢ How do you judge Valuable in the VRIO framework?

To judge if you see a Resource as Valuable in the VRIO framework you

should ask the following questions:

• Does the resource add value for your customers?

• Does the resource result in you winning sales?

• Does it help take opportunities or remove threats from your

SWOT?.

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➢ How do you judge Rarity in the VRIO framework?

Rarity focuses on how difficult a resource is to replicate or obtain. In

judging this you should consider:

• How did you obtain the resource?

• How easy is it to replicate?

• Is there alternatives on offer to the resource?

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➢ How do you judge Imitability in the VRIO framework?

Imitability comes down to how costly it would be to replicate the resource

you’re profiling. It can help to think as a competitor, considering…

• What is your cost of the resource?

• How expensive is it to replace?

• Is it easily understood in order to replace?

Resources tend to be harder to imitate if:

• They are built up over time (eg data on particular subjects, brand equity)

• It’s hard to identify the resource externally from the environment

• It’s a person or team

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➢ How do you judge Organized in the VRIO framework?

Another way to think of Organized in VRIO is if you are getting the most from

the resource. Sometimes the O in VRIO can feel a bit out of place, as it

focuses on process and structure, but these elements are an important part of

using your resource. Consider the following:

• Is there a management system in place for the resource?

• How do you measure the output of it?

• Is there a benchmark, either internally or externally, to compare?


➢ Depending on the answer to these questions, a Company can have a:

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Value: Do you offer a resource that adds value for customers? Are you able to exploit anopportunity or neutralize competition with an internal capability?

• No: You are at a competitive disadvantage and need to reassess your resources andcapabilities to uncover value.

• Yes: If value is established, move on in your VRIO analysis to rarity.

Rarity: Do you control scarce resources or capabilities? Do you own something that’s hard tofind yet in demand?

No: You have value but lack rarity, putting your company in a position of competitiveparity. Your resources are valuable but common, which makes competing in themarketplace more challenging (but not impossible). It’s recommended to go back onestep and reassess.Yes: With value and rarity identified, your next hurdle is imitability.

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Imitability: Is it expensive to duplicate your organization’s resource or capability? Is it difficult to find anequivalent substitute to compete with your offerings?

No: If your resource has value and rarity, but is affordable or easy to copy, you have a temporary competitiveadvantage. It will require considerable effort to stay ahead of competitors and differentiate your services—goback one step and reassess.Yes: You offer something that’s valuable, rare, and hard to imitate—now the focus is on your organization.

Organization: Does your company have organized management systems, processes, structures, and culture tocapitalize on resources and capabilities?

No: Without the internal organization and support, it will be difficult to fully realize the potential of yourvaluable, rare, and costly-to-imitate resources. Your company will have a unused competitive advantage andwill need to reassess how to attain the needed organization.Yes: Your company has achieved the ultimate goal of sustained competitive advantage when it hassuccessfully identified all four components of the VRIO framework.

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A Real-life VRIO Example: GoogleThere’s no doubt that Google is one of the most powerful companies in the world, and its success arguably stems from a sustained competitive advantage in human capital management. If we were to break down Google’s VRIO framework from the HR perspective, it might look something like this:

•Value: Use human capital management data to hire and retain innovative, productive employees. Theseemployees consistently create some of the most popular consumer products and services in the world.

•Rarity: No other companies are using data-based employee management so extensively.

•Imitability: Data-based human capital management is both costly and difficult to imitate, at least for the nearfuture. Companies have to build the software and invest in training their HR staff on the new technology andstrategy.

•Organization: Google is organized to capture value from this capability. The IT department has the skills tocollect and maintain the data, while HR and team leaders are trained on how to use the data to hire, promote,manage, and improve performance of employees.

(Source: Strategic Management Insight, “VRIO Framework.”)

https://offer.clearpointstrategy.com/human-resources-kpi-library

https://www.strategicmanagementinsight.com/tools/vrio.html

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➢ What are some benefits and limitations of the VRIO framework?Few organizations take the time to delve into their core competencies to determine what makes them unique. Inour view, it’s a worthwhile exercise because:

• It allows you to take advantage of previously unrecognized competitive advantages.• It can help set the course for future plans and help you better allocate business resources.• It can produce insights that may help identify and evaluate potential opportunities and threats to

determine which ones are more important.

While the VRIO framework is useful for understanding your competitive position and providing strategic insights, it also has some limitations:

• The business environment is constantly changing, making it difficult (but not impossible) to have asustainable competitive advantage for the long term; three to five years is more realistic.

• New and small businesses may find it more difficult to apply the VRIO framework simply because theyhaven’t yet fully developed their resources or capabilities to establish a sustained competitive advantage.

• VRIO is solely an internal analysis, so you will need other frameworks (like the SWOT analysis) to fill in thegaps.

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➢What’s the difference between the VRIO framework and a SWOT analysis?

If you’re familiar with strategic planning, you’ve probably also heard of a SWOT analysis. While you can use bothSWOT and VRIO in the early stages of strategic planning, they are different tools that produce different insights.

The VRIO framework focuses solely on evaluating internal resources and is intended to help identify the specificresources that make your firm more competitive.

SWOT, on the other hand (an acronym for “Strengths, Weaknesses, Opportunities, and Threats”), is a high-levelstrategic planning model that helps organizations identify areas where they’re doing well and where they canimprove, both from an internal and an external perspective. It does not thoroughly evaluate your internalresources like VRIO but rather aims to help you assess your future prospects based on your current position andexternal conditions.

https://www.clearpointstrategy.com/swot-analysis-examples/

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Strategic capability and sustainable competitive advantage ➢ What do you do with the resulting VRIO insights?(extension)

It’s important to conduct a VRIO analysis in the early stages of strategy planning, before making your strategic plan. Inparticular, this exercise will inform your vision statement, which is a forward-thinking proclamation of where your companywants to be in the future. The differentiators and advantages you identify through VRIO will help determine how to approachthe marketplace and inform strategic decisions that shape the fate of your company. So, think about how you can best exploityour VRIO resources to provide the most value to your customer, and use those ideas to formulate a precise vision statement.

The VRIO framework can also inform your SWOT analysis. Whatever competitive advantages you uncover should be included inthe “Strengths” section of your SWOT analysis. Even some resources that don’t pass the full VRIO test may still be consideredstrengths (for instance, if something is VRO—valuable and rare, and your organization can capitalize on it); however, don’tidentify a resource or capability as a sustainable competitive advantage unless it meets all the criteria—that’s where youruniqueness lies. On the flip side, if an existing resource isn’t yet a sustainable competitive advantage and you would like tochange that, you could identify it as a “weakness” or an area that needs improvement.

The VRIO framework and SWOT analysis are important parts of the strategy development phase. Once you’ve developed yourstrategic plan, you’ll then need to take specific actions to make it come to fruition. Many organizations use a strategicframework (like the Balanced Scorecard) to help transform their strategy ideas into an actionable plan and strategy software(like ClearPoint) to break those ideas into manageable goals they can then organize and track.

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Dynamic capabilities

Dynamic capability is “the firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments” (David J. Teece, Gary Pisano, and Amy Shuen).

Dynamic capabilities are an organization’s abilities to develop and change competences to meetthe needs of rapidly changing environments. Such capabilities demand the ability to change, toinnovate and to learn. They can take many forms and may include such things as systems fornew product development or the acquisition of market intelligence and the absorption of newskills and products acquired by merger or acquisition.

http://en.wikipedia.org/wiki/David_Teece

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Organizational knowledge

Knowledge management is connected with the theory of the learningorganization and founded on the idea that knowledge can be a major factor increating a sustainable competitive advantage and should form part of anorganization’s strategic capability. Knowledge is thus seen as an importantresource and may in itself constitute a competence: it can certainly underpinmany competences

Having knowledge other firms do not have and cannot easily acquire is a corecompetence and thus a source of sustainable competitive advantage and superiorperformance.

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❖ Knowledge as a Key Strategic Capability

Knowledge can be in two forms: tacit and explicit knowledge. It can be described as:

• an information-based intangible resource which includes insights, understanding,and skills (know-how) acquired through reasoning/thinking, learning, experience,and social interaction that increases ability to make wise decisions and takeappropriate action (Atukwase, 2018, p.10).

• Knowledge is part of the DIKW pyramid: Data, Information, Knowledge, and Wisdomhierarchy.

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Data is a collection of facts in a raw or unorganized form such as numbers or characters.

DIKW pyramid

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This is data that has been “cleaned” of errors and further processed in a way that makes it easier to measure, visualize and analyze for a specific purpose.

Depending on this purpose, data processing can involve different operations such as combining different sets of data (aggregation), ensuring that the collected data is relevant and accurate (validation), etc.

DIKW pyramid

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When we don’t just view information as a description of collected facts, but also understand how toapply it to achieve our goals, we turn it into knowledge. This knowledge is often the edge that

enterprises have over their competitors. As we uncover relationships that are not explicitly stated asinformation, we get deeper insights that take us higher up the DIKW pyramid.

“How” is the information, derived from thecollected data, relevant to our goals?“How” are the pieces of this informationconnected to other pieces to add moremeaning and value? And, maybe mostimportantly, “how” can we apply theinformation to achieve our goal?

DIKW pyramid

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Wisdom is the top of the DIKW hierarchy and to get there, we must answer questions such as ‘why do

something’ and ‘what is best’. In other words, wisdom is knowledge applied in action.

We can also say that, if data and information are like a look back to the past, knowledge and wisdomare associated with what we do now and what we want to achieve in the future.

DIKW pyramid

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For example:Data can be ‘who customers are and what itemsbought are’ and this can processed intoinformation such as ‘what the most and leastbought items are’ and this can enable synthesisof knowledge such as ‘how to predictcustomers’ purchase behaviour’ from which‘ability to make effective judgement/decision onhow to meet such behaviour with satisfactoryproducts/services’ and ‘why certain steps areinappropriate’ becomes the derived wisdom.

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Main elements of knowledge management

1. Allowing staff to record their knowledge to accumulate experience and knowledge Members of staff may beable to access explicit (in recorded form) knowledge which has been stored in a KM system. However, tacit(in people’s heads) knowledge cannot be recorded in this way, and it has to be shared through softer way –such as coaching or mentoring.

2. Social aspects of knowledge sharing Employees need opportunities to develop, discuss and shareinformation which they feel would be mutually beneficial. Not only might this require physical facilities(coffee areas, restrooms, social and sports clubs), it also requires a culture of trust in the organisationsupported by a leadership approach which values learning and an organisational structure which supportscommunication and information sharing.

3. Modern IT systems Modern IT systems have made sharing and distributing knowledge easier. Corporateintranets will make available information on customers and products. Groupware, such as Lotus Notes,allows collaboration on documents and projects, customer relationship management systems provide quickaccess to important customer information and can provide customers with a much better service.

4. Communication and facilitate organizational learning KM should facilitate organizational learning, however,KM should not be seen as a means of improving communication; it should have a deeper impact on theculture of the organization and the way it operates.

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Benefits of knowledge management

1. Reducing knowledge loss: If knowledge can be shared and captured with theorganization, even when staffs leave the organization, their knowledge can be kept.Therefore, a KM system will mean that knowledge becomes an asset for theorganization as a whole, rather than being retained by individual employee.

2. Improved service delivery: If a company can build up a stock of knowledge, anddevelops a culture of knowledge sharing among its employees, then the employees whoare relatively less experienced than their colleagues in certain areas will be able to usethe knowledge resources to improve the level of service they offer the company’sclients.

3. Improved staff retention: KM allows staff to learn continuously from their colleagues. Ifthe employees were given greater opportunities for sharing and development, they maybe more satisfied in their jobs and will therefore not want to leave the company.

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Diagnosing Strategic Capabilities

➢ Benchmarking

➢ The value chain and value network

➢ SWOT

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Porter’s value chain

Porter grouped the activities of a business entity into a value chain. A value chain is a series ofactivities, each of which adds value. The total value added by the entity is the sum of thevalue created by each stage along the chain. This total value added is referred to as marginand represents the excess that the customer is prepared to pay above the underlying cost tothe company of obtaining resources and providing value activities.

❑Primary activities are involved in the production of goods and services.

❑Support activities provide necessary assistance.

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Value Chain Analysis: Advantages and Disadvantages

1. Companies use value chain analysis to deliver the most value for the leastpossible total cost.

2. If a company can create efficiencies by analyzing one or more of the five primaryvalue chain activities, it can gain a competitive edge and boost profits.

3. A chief disadvantage of this type of analysis is that a company's overall visionand strategy may get lost or muddied when operations are broken down intofine segments.

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An real world example of Starbucks

1. Background

2. Starbucks’ Primary Activities

3. Starbucks' Support Activities

4. The Bottom Line

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Porter’s value chain❖ Value Chain vs. Supply Chain: What's the Difference?

The term value chain refers to the process in which businesses receive raw materials, add value to them

through production, manufacturing, and other processes to create a finished product, and then sell the

finished product to consumers. A supply chain represents the steps it takes to get the product or service to the

customer, often dealing with OEM and aftermarket parts.

While a supply chain involves all parties in fulfilling a customer request and leading to customer satisfaction, a

value chain is a set of interrelated activities a company uses to create a competitive advantage.

The value chain is a process in which a company adds value to its raw materials to produce products

eventually sold to consumers.

The supply chain represents all the steps required to get the product to the customer.

The value chain gives companies a competitive advantage in the industry, while the supply chain leads to

overall customer satisfaction.

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Value Network

Note:

Value network: is the set of inter-organizational links and relationships that are necessary to create aproduct or service. It focuses on the value creating capability within the supply chain processes.

For large organizations can exercise their power over suppliers and customers in the network byusing their bargaining power to achieve preferential purchase and selling prices. Carefulmanagement of the relationships in the value network can promote innovation and the creation ofknowledge between organizations

❑ A value network, also called a value system, is the sum of the value

chains in all the firms in a supply chain.

Supply chain

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Value Network

For many business entities, the value network is more complex than a chain of suppliers, from raw materials to end product. Other entities are also included in the value network. These can be categorised as:

➢ Intermediaries - These are entities that provide outsourced services (such as outsourced bookkeeping or outsourced logistics management) and support services (such as public relations advisers).

➢ Complementors- These are entities that provide additional and complementary products or services.

An entity should try to improve the efficiency and effectiveness of its own activities in creating value within itsown value chain. However, it should also consider the entire value network, and think about how value mightbe added across the network, not just within its own internal value chain. A value network must operate withthe efficiency and effectiveness of a self contained individual entity. To do this, it is necessary to managerelationships with other entities in the network. Competence to manage the value network could form acompetitive advantage.

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SWOT analysis

Strength, Weakness, Opportunity, Threats

The SWOT analysis combines the results of the environmental analysis and the internal appraisal into oneframework for assessing the firm’s current and future strategic fit, or lack of it, with the environment. It isan analysis of the organization’s strengths and weaknesses, and the opportunities and threats offered bythe environment. Weirich’s TOWS matrix emphasizes the importance of threats and opportunities.

SWOT analysis summarizes the key issues from the business environment and the strategic capability of anorganization that are most likely impact on strategy development.

SWOT analysis is a technique for analysing strategic position and identifying key factors that might affectbusiness strategy. It combines the results of the environmental analysis and the internal appraisal into oneframework for assessing the firms’ current and future strategic fit, or lack of it, with the environment.

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SWOT analysis

➢ Strengths are resources and competences that an organisation has, and thecapabilities it has developed that can be exploited and developed to createsustainable competitive advantage.

➢Weaknesses are resources, competences and capabilities that are deficient or lackingwhich prevent the entity from developing or sustaining competitive advantage.

➢Opportunities are developments that might be exploited, to improve the ability of theentity to achieve its objectives

➢Threats are developments in the environment that could threaten the ability of theentity to achieve its objectives.

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SWOT analysis

The SWOT can now be used guiding strategyformulation:(a) Match strengths with market opportunitiesStrengths that do not match any availableopportunity are of limited use whileopportunities which do not have any matchingstrengths are of little immediate value.

(b) ConversionThis requires the development of strategiesthat will convert weaknesses into strengths inorder to take advantage of some particularopportunity, or converting threats intoopportunities which can then be matched byexisting strengths.

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SWOT analysisWeirich’s TOWS matrixWeirich, one of the earliest writers on corporate appraisal,originally spoke interms of a TOWS matrix in order to emphasize the importance ofthreats and opportunities. This is therefore an inherentlypositioning approach to strategy. A further important element ofWeirich’s discussion was his categorization of strategic options:

a. SO strategies employ strengths to seize opportunities.b. ST strategies employ strengths to counter or avoid threats.c. WO strategies address weaknesses so as to be able to exploitopportunities.d. WT strategies are defensive, aiming to avoid threats and theimpact of weaknesses.

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SWOT analysisThe implications of Weirich’s TOWS matrix

The four groups of strategies tend to relate well to different time horizons.

❑ SO strategies may be expected to produce good short-term results, while WO strategies are likely to ❑ take much longer to show results.

❑ ST and WT strategies are more probably relevant to the medium term.

This consideration of time horizon may be linked to the overall resource picture: ➢ SO strategies can be profitable in the short term, generating the cash needed for investment in WO

strategies, improving current areas of weaknesses so that further opportunities may be seized.

➢ ST and WT strategies are likely to be more or less resource-neutral, but care must be taken to achieve an overall balance.

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Documents

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