Building a Comprehensive Strategic Audit

Overview

Throughout the British Business Manifesto: Strategies for Profitable Growth book and in all nine SME Business Strategy Events we demonstrate that theory and practice go hand-in-hand:  ‘… a way of thinking, a way of working’ represents our fundamental outlook on the foundations of success in SME business strategy.

Taking this perspective enables us to present in simple graphical form what we describe as The Environment-Strategy-Organisation Nexus. 

Figure 1: The Environment-Strategy-Organisation Nexus

Business strategy development is a process that requires a starting point. The more turbulent the market environment the more important it is that an external focus is adopted by companies, the logical conclusion being that the correct analytical sequence in the framework above is:

      1.  Environment.
      2.  Strategy.
      3.  Organisation.

This process should be embedded in a company or business unit’s ‘way of working’, i.e. it is a business environment and organisational auditing approach which should be adopted with the same rigour, discipline and frequency as the financial audits which consume so much management energy yet add very little strategic value in most cases.

Key Questions in Business Strategy Development

There are four key question categories to address when crafting a business strategy for sustainable competitive success. These are:

1.  Where are we now? – Situational Analysis

# Environment scanning & SWOT/TOWS
# The 5 forces of competition
# Core capabilities & competencies
# Strategic marketing assets
# Portfolio & risk assessment frameworks
# Benchmarking against ‘best-in-class’ companies

2. How did we get here? – Company History

# Culture audit
# Structural audit
# Formal power base audit (e.g. hierarchy, governance etc.)
# Political process audit (e.g. informal power bases, decision making influences, stakeholder analysis etc.)

3. Where do we want to be? – Strategic Direction

# ‘Tomorrow’ (1-3 years)
#  Medium term (3-5 years)
#  Long term (5 years plus)

4. How do we get there?  – Strategy Delivery

# Developing core competencies & capabilities
# Value chain reconfiguration
# Organic development
# Innovation processes
# Joint ventures & strategic alliances
# Mergers & acquisitions

Our primary focus in this event is on Question 1, situational analysis. It is essential that companies have a clear and objective understanding of their competitive position before embarking on business strategy development. The output of the logical TOWS process we describe below presents strategic priorities and action plans.

The rationale for the analysis relating to Question 2 lies in the fact that a company’s history and ‘cultural baggage’ very often prevent it from ‘doing the right things’ with regard to Questions 3 and 4.

Question 3 must recognise the fundamental reality of scarce resources and that strategic decision making boils down to making choices amongst alternatives, the goal being to increase the likelihood of successful high-performance outcomes. These typically arise where there is alignment between market opportunity and company capabilities.

Responses to Question 4 will reflect the logical outcomes of the analyses relating to questions  1-3.

Introducing TOWS Analysis

Most managers and students of business and management will be familiar with the notion of a SWOT chart as a way of taking a snapshot of a company’s ‘strategic position’ at any point in time. They will also recognise it as an acronym, its component letters standing for Strengths, Weaknesses, Opportunities and Threats, the S and W relating to internal, organisational factors, the O and T relating to external business environment factors.

As a management tool SWOT is extremely easy to learn and can be quickly and simply applied. However, in management practice it is often seriously flawed in its application. There are several reasons for this, the most important one being that a company takes an ‘inside-out‘ approach to strategy development, focusing on the capabilities it currently has rather than identifying those required for a fast-changing business environment.

In this SME Business Strategy Event we identify and address the problem of using traditional SWOT analyses with a simple reversal of SWOT to TOWS, i.e. we adopt an ‘outside-in’ perspective. This is not about measuring different things; rather, it relates to creating a different, external, mindset. Figure 2 provides a process-based approach to constructing a logical TOWS analysis that combines the responses to Questions 1 (business environment audit) and 2 (organisational implementation audit).

Figure 2: The Logical TOWS Analysis Process

The numbers in the boxes indicate the sequential nature of the process, i.e. it is a critical path of activities that should be undertaken to build a comprehensive strategic audit. A few points are required here for clarification.

    1. TOWS, not SWOT: As noted, managers with even basic-level training will be familiar with a ‘SWOT’ chart. The reason for the reversal in this process is twofold: (i) to emphasise an ‘outside-in’ analysis, especially important in turbulent business environments; (ii) to link the categories, i.e. strengths and weaknesses should be assessed relative to opportunities and threats, not in isolation of them.
    2. Market Key Success Factors (KSFs): These are often called Critical Success Factors (CSFs) or ‘Qualifiers’ but this is mere semantics. They are all measuring the same thing. Our preferred simile is ‘market dictators’: the minimum factors which market conditions indicate that any company must have covered if they want to ‘play the game’, i.e. they are not competitive differentiators.
    3. Company Distinctive Capabilities (DCs): If any company in a market space lists ‘good people’ as a strength while all other companies competing in the same space do the same then there is a problem with the framework: strength is a relative, not an absolute metric. At best the factor can be described as neutral. DCs in our analysis are those factors that give a company a sustainable differential advantage in the time frame of the planning period.

The output of this analysis is the identification of strategic priorities and action plans. Figure 3 presents a simplified overview of these.

Figure 3: Post- TOWS Action Analysis

In addition to the observations related to this analysis, we also demonstrate a creative process for strategy development. Insights here include leadership, teamwork and the role of independent facilitators in ensuring objective analysis.

Learning Outcomes

After participating in this event participants will:

    • Understand the role of situational analysis as the foundation for successful strategy development.
    • Have the competencies to contribute to the strategic auditing process.
    • Have the capability to lead and/or facilitate the strategic auditing process.
    • Understand the key components of creative thinking, teamwork and ideas generation in strategy development.
    • Apply the principles of strategic analysis and action planning using proven frameworks, methodologies, processes and tools.

 


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All content © Colin Edward Egan, 2021