| Why conduct a business strategy audit? | | | | - How has the company performed in the financial |
| Nearly all the major initiatives undertaken by | | | | markets? Why? |
| corporate executives today are called | | | | - What constraints/opportunities do they have with |
| “strategic”. With everything having high | | | | respect to financial markets? Why? |
| strategic importance, it is becoming increasingly | | | | |
| difficult to distinguish between the many priorities and | | | | ORGANISATION REVIEW |
| imperatives that are initiated in organisations. When | | | | Top Management: |
| everything is clearly strategic, often nothing strategic | | | | - Has management kept the company at the |
| is clear. When everything is designated as a high | | | | forefront of the industry? Why or why not? |
| priority, there are, in reality, no priorities at all. | | | | - Are the key players seen to be moving the |
| However, when the overall strategic direction is | | | | company forward? |
| clearly understood by everyone in your organisation, | | | | |
| the following benefits occur: | | | | Organisation: |
| - organisational capabilities will be aligned to support | | | | - Is the company centralised or decentralised? |
| the achievement of your strategy | | | | - Does the corporate parent act as a holding |
| - resources will be allocated to different business | | | | company or as an active manager? |
| processes in priority order - according to the | | | | - Is the organisation perceived as being lean and able |
| importance of that process and its contribution to | | | | to get things done? |
| competitive advantage | | | | |
| - your company or organisation can excel in the | | | | People: |
| market place or in its business/commercial sector. | | | | - How many people are employed? Is the company |
| | | | | over-or under-staffed? |
| The purpose of a strategy audit is to arm managers | | | | - Are people managed to achieve mainly business |
| with the tools, information, and commitment to | | | | objectives, human objectives or some of both? How |
| evaluate the degree of advantage and focus | | | | does this affect the company? |
| provided by their current strategies. An audit | | | | - What skills are emphasised during recruitment? |
| produces the data needed to determine whether a | | | | |
| change in strategy is necessary and exactly what | | | | Culture: |
| changes should be made. | | | | - Is the culture results-oriented? |
| Defining a Strategy Audit | | | | - Bureaucratic? |
| A strategy audit involves assessing the actual | | | | - Flexible? |
| direction of a business and comparing that course to | | | | |
| the direction required to succeed in a changing | | | | Similar lists of questions should be developed for |
| environment. A company\'s actual direction is the sum | | | | customers and stakeholders (or see the full Audit for |
| of what it does and does not do, how well the | | | | ready-made questionnaires). |
| organisation is internally aligned to support the | | | | Step 3: Integrate the components into an |
| strategy, and how viable the strategy is when | | | | environmental picture |
| compared to external market, competitor and | | | | Once the findings of the stakeholder analysis, |
| financial realities. These two categories, the internal | | | | customer analysis and competitor analysis (above) |
| assessment and the external or environmental | | | | have been collected, audit team members should |
| assessment, make up the major elements of a | | | | step back and integrate the data. Integrating the |
| strategy audit. | | | | different components will help the team to |
| The outline that follows is derived from The Business | | | | understand the overall environment in which the |
| Strategy Audit (see References). It\'s intended to | | | | business operates. |
| give you a clear idea of how to set about conducting | | | | This integration should take place at two levels: |
| a self-assessment audit in your own organisation, | | | | assessing where the industry is heading and the likely |
| without the need for any additional training or | | | | impact of that direction on the company, and |
| external consultancy support. But note that this | | | | combining the organisational assessment with the |
| outline does not include the range of Questionnaires | | | | environmental assessment. |
| and Checklists and the detailed guidance to be found | | | | The Business Strategy Audit offers a detailed |
| in the full, 124-page Audit. | | | | framework for analysing this data. In brief, it should |
| | | | highlight significant changes in the environment, and |
| Part 1 ~ The External Environmental Assessment | | | | the impact of those changes on the company\'s |
| A conventional corporate mission is to provide distinct | | | | competitive position within the industry. It should |
| products and services to customers at a value | | | | address the fundamental question of how the |
| superior to that offered by competitors. Without a | | | | company can influence its environment in the future, |
| strategy, valuable resources will be diluted, the work | | | | and what the business will need to look like if it is to |
| of employees will be unfocused, and distinctiveness | | | | thrive in the future. |
| will not be achieved. The external environment | | | | In addition, the analysis should highlight the |
| assessment provides any business with a critical | | | | requirements and capabilities that are needed within |
| external link between its competitors, customers, and | | | | the company to meet external demands. These |
| the products/services it offers. | | | | requirements and needs should then be matched up |
| The fundamental reason for examining an | | | | with the current capabilities outlined in the |
| organisation\'s environment in the process of | | | | organisation assessment. This will enable the team to |
| clarifying strategy can be summarised thus: | | | | determine the overall alignment of the company\'s |
| - Ensure that the company is meeting the needs | | | | strategy to its environment. |
| evident in the environment | | | | Part 2 ~ The Organisational Assessment |
| - Prevent others from meeting those needs in a | | | | Once the company\'s environment has been |
| better way | | | | examined and analyzed, managers should consider |
| - Create or identify ways to meet future or | | | | the qualities and characteristics of the organisation |
| emerging needs. | | | | itself that influence what can be accomplished in |
| | | | | terms of strategy. This section is about organisational |
| The success or failure of a company often depends | | | | assessment. The steps shown here will provide |
| on its ability to monitor changes in the environment | | | | insights into the effectiveness of the company\'s |
| and meet the needs of its customers and | | | | current strategy, and provide guidelines for increasing |
| prospective customers. | | | | strategic effectiveness. |
| An organisation\'s business environment is never | | | | - Strategy Clarification. Strategy clarification helps the |
| static. What is viewed as uniqueness or | | | | leadership team determine what business they are in, |
| distinctiveness today will be viewed as commonplace | | | | the direction of the business, and framework or |
| tomorrow as new competitors enter the industry or | | | | criteria for making strategic decisions in the future. If |
| change the environment by modifying the rules by | | | | people at any level of a business are unclear about |
| which companies compete. Consequently, an | | | | any of these three areas, it is difficult for them to |
| effective strategy will do more than help a company | | | | focus their attention, cooperate with other teams, |
| to stay in the game. It will help it to establish new | | | | and organise their efforts to gain competitive |
| rules for the game that favour that company. | | | | advantage in the marketplace. |
| Successful companies do more than simply | | | | - Viability and Robustness. Measuring viability and |
| understand their environments. They also influence | | | | robustness helps a leadership team test strategies |
| and shape the circumstances around them. | | | | and ideas against future world scenarios to determine |
| Companies that fail to influence their environments | | | | whether the strategies can be achieved and |
| automatically concede the opportunity to do so to | | | | sustained. By looking at both market and financial |
| their competitors. | | | | viability and robustness in different scenarios, a |
| Steps in conducting an environmental assessment | | | | management team can see what will create |
| | | | advantage in the future and what key measures |
| Step 1: Understand the external environment at a | | | | need to be implemented to monitor changes in |
| macro level | | | | business conditions. |
| The first step in the environmental assessment is to | | | | - Business Processes. The term business process |
| develop a basic understanding of the trends and | | | | refers to the overall work flow within a company and |
| issues that will significantly change, influence, and | | | | includes elements such as product design, |
| affect the industry. The overall industry | | | | manufacturing, and delivery. A good process analysis |
| understanding comes from looking at the elements | | | | will help a leadership team to see what must be done |
| that influence the environment. | | | | given the company\'s strategy, and how those |
| These elements include: | | | | processes can be improved. |
| - Capital markets | | | | - Capabilities. Capabilities are bundles of separate skills |
| - Industry capacity | | | | required to deliver the products or services that give |
| - Technological factors | | | | a business competitive advantage. There are two |
| - Pressure from substitutes | | | | parts of a capability assessment. First, the capabilities |
| - Threat of new entrants | | | | needed to execute the strategy must be |
| - Economic factors | | | | determined. Second, the current level of ability in |
| - Political factors | | | | terms of those capabilities must be assessed. |
| - Regulatory factors | | | | Without knowing what capabilities should be focused |
| - Geographic factors | | | | on and improved, competitive advantage will be |
| - Social factors | | | | difficult to achieve. |
| | | | | - Organisation Design and Resourcing. This part of the |
| A useful framework to understand these issues | | | | analysis looks at alignment issues between the |
| comes from answering the following questions. They | | | | environment, the strategy, the skills required to |
| should be posed directly when used in an interview, | | | | achieve that strategy, and the organisation structure. |
| and indirectly when analysing data: | | | | During this step, a management team can design an |
| - What is the long-term viability of the industry as a | | | | organisation that aligns systems in a way that will |
| whole, and how do capital markets react to new | | | | allow them to execute a strategy. Unless the |
| developments? | | | | systems within a business are aligned to improve |
| - What trends could change the rules of the game? | | | | effectiveness or efficiency, strategy statements are |
| - Who are the industry leaders? What are they | | | | merely plaques on the wall that are seldom realised. |
| doing? Why? | | | | - Culture. Culture refers to the set of shared values |
| - What are the key success factors in the industry? | | | | that influence behaviour and direction over time. The |
| - What developments could allow a company to | | | | style of management and the beliefs and |
| change the rules of the game? | | | | assumptions commonly held by people in the |
| - Five years from now, how will winners in the | | | | organisation must be determined in order to ensure |
| industry look and act? | | | | alignment and execution of the strategy. |
| - What is the reward (and/or cost) of being a winner | | | | |
| loser within the industry? | | | | Having completed each of these assessments, they |
| - Where has the industry come from? | | | | must be integrated by the audit team. In this |
| | | | | process, audit team members should attempt to |
| Step 2: Understand the industry/sector components | | | | answer one fundamental question: Is our strategy in |
| in detail | | | | alignment with the external environment? |
| Industry/sector components are normally broken | | | | To answer this broad question, the following issues |
| down as follows: competitors, customers and | | | | should be addressed: |
| stakeholders. Questions that should normally be | | | | - Do our capabilities match our customer |
| asked of each key competitor include: | | | | requirements? |
| BUSINESS REVIEW | | | | - Do we offer something required by our customers |
| Strategy Issues: | | | | that is better than the offerings of our competitors? |
| - What is the strategy of each competitor? Where | | | | - How are customer demands changing? |
| do they appear to be heading? | | | | - How are competitors changing? |
| - What is their business emphasis? | | | | - How are our internal capabilities evolving to keep |
| - Do they compete on quality, cost, speed or | | | | pace with those changes? |
| service? | | | | |
| - Are they niche or global players? | | | | Depending on the answers to these questions, the |
| | | | | team can implement the changes dictated by the |
| Capabilities: | | | | audit. In making these changes, three issues should |
| - What do they do better than anyone else? | | | | be considered: |
| - Where are they weaker than others? | | | | Structure follows strategy - This means that current |
| - Where are they the same as others? | | | | organisational boundaries and structures should not be |
| | | | | allowed to determine the selection of a competitive |
| Business Objectives: | | | | strategy. Rather, the environmental and organisational |
| - Who are their primary customers? | | | | assessments that you have just conducted should |
| - What types of business do they not do or say no | | | | determine and drive strategy selection. |
| to? | | | | Plans for change must be widely owned - Those |
| - Who are their major partners? Why are they | | | | people ultimately responsible for implementing |
| partnering? What do they gain from it? | | | | strategy (typically front-line employees) should be |
| - What are they doing that is new or interesting? | | | | consulted for their ideas about what changes should |
| | | | | be made and how they should be made. Otherwise, |
| FINANCIAL REVIEW | | | | very little change is likely to happen. |
| Financial Strength - Internal: | | | | Implementation should start with what is core to |
| - How much cash does each competitor generate | | | | gaining advantage - In other words, start with core |
| annually? | | | | business processes, \'pick the low hanging fruit\' first, |
| - What are the drivers behind their financial success | | | | make those changes that will make the most visible |
| (from a cash perspective)? | | | | difference. |
| - How do they allocate resources (funds)? | | | | In addition, it may be useful to know that the |
| - How fast are they growing and in what areas? | | | | following are the most common mistakes made by |
| | | | | teams conducting business strategy audits: |
| Strength as Perceived by Capital Markets: | | | | - Expecting all data to be equally useful |
| - Are competitors resource constrained or do they | | | | - Do nothing with the audit findings |
| have strong financial backing? | | | | - Failing to link other support systems (rewards, |
| - Is this perception consistent with the internal | | | | administration, etc. |
| analysis? Why or why not? | | | | |