PDMA Body of Knowledge: Strategy Insights #3
Read time: 6 minutes
The kHUB Curator Team members have each been assigned a BoK section to own, including seeking, editing and sharing content related to that section. The curators are also sharing their perspective of various sub-sections of their chapter and contributing personal examples, experience, or related articles corresponding to the subject matter.
Chapter 1 – Strategy Insight
Developing Strategic Context – Part 2
This article is part 2 of the exploration of section 1.4 of the PDMA Body of Knowledge – “Preparing a Business Strategy”. As discussed in part 1, it is essential to understand the context within which strategic choices must be made. By understanding this context, strategic options may be evaluated in terms of how they may take advantage of macro-environmental shifts and match them with current or developing organizational capabilities and associated investments. If you have not read part 1, it will be useful to read it here first before reading this article.
In part 1, I explained that context boils down to two main areas: The context of the outside world and of the organization itself. Then, the first of two valuable tools was explored – namely, the PESTLE analysis, which is helpful to look at macro-environmental factors that influence strategic decision making. Here in part 2, we tackle a second useful tool covered in the BOK: the SWOT analysis.
As per 1.4.1 of the BOK, SWOT stands for Strengths, Weaknesses, Opportunities, and Threats.
The purpose of performing a SWOT analysis is to provide a platform for exploring strategic choices. Note that Strengths and Weaknesses should relate to attributes of the organization in question; they are internal and, with effort and investment, can be changed. Opportunities and Threats relate to the external environment and cannot be changed, but they can be exploited and mitigated, respectively. A common mistake I’ve seen is to project a weakness into the future as something bad that may happen down the road and label it a threat. This is not a valid threat but rather the outcome of a weakness over time. An aspect of strategy can often be to leverage strengths or compensate for weaknesses, so categorizing the factors correctly is important. Now we’ll go into each of these four dimensions of SWOT to explore them further.
Characteristics of the business or project that give it an advantage over others.
Strengths are usually linked to Resources and Capabilities. According to Johnson et al. (2014, p. 70), strategic capabilities are “the capabilities of an organization that contribute to its long-term survival or competitive advantage” and that there are two components to it:
- Resources: What we have
- Competences: What we do well
Both can be mapped on multiple dimensions, which provides a valuable structure to ensure nothing is missed. Here’s an example for a B2B telco player:
Characteristics that place the business or project at a disadvantage relative to others.
The purpose of detailing weaknesses is to identify which need to be avoided or mitigated as part of the strategic direction. For example, a common mistake is not paying attention to the resources and capabilities required to execute a strategy. In addition, it is important to revisit weaknesses after strategic choices are drafted, as it may be the case that weaknesses can only be identified relative to the chosen direction and therefore must be identified subsequently. If a strategic choice is made despite a relative weakness, then the strategy execution plan should take account of how that weakness can be mitigated. Such weaknesses may be addressed through investment, training, partnerships, acquisition or other means.
Opportunities and Threats
Opportunities: Elements that the business or project could exploit to its advantage.
Threats: Elements in the environment that could cause trouble for the business or project.
Advantage can be taken of opportunities and action taken to protect against threats, but the opportunities and threats themselves cannot usually be changed, e.g. competitors, prices of raw materials, and customer lifestyle changes. One exception may be lobbying to affect regulatory or legal change.
Given opportunities and threats often relate to the future and how things may play out, it is beneficial to consider opportunities and threats in the context of scenarios, i.e. how things may play out in the future.
Scenarios “are designed to help break the habit, ingrained in most corporate planning, of assuming that the future will look much like the present… allowing an organization to see realities that would otherwise be overlooked.” (Wilkinson and Kupers, 2013)
In evaluating threats and opportunities that may occur in the future, considering scenarios that might evolve within the strategic planning horizon makes sense. Johnson et al. (2014) advise that the key drivers to select in scenarios are those with high independence of one another, high uncertainty of occurrence and high impact. The following table contains a list of some key drivers for the B2B telco market based on the prior PESTLE analysis from the part 1 article. This reinforces the sequencing of performing macro analysis with PESTLE and what’s changing before getting into SWOT analysis
Roxburgh (2009) advises to mix and match these drivers to develop at least four scenarios that may unfold into the future. They also advise that they should have catchy names to make them memorable and engaging. By way of example, using the analysis of key drivers above, the following four scenarios for the Irish B2B telecoms market were identified, mapped against dimensions of economic growth and digital disruption. Each scenario, as advocated by Fahey and Randall (1998), contains “plots” fed by the logic of the identified drivers to inform how the industry plausibly evolves to different end states:
These imagined futures provide a framework for identifying opportunities and threats:
These scenarios, opportunities and threats can be reviewed again in the light of the strategic choices to inform and validate the no-regrets bets under consideration. I hope this example illustrates how Threats and Opportunities can be more dynamic in nature and more flexible in the face of an uncertain future.
In conclusion, Strategic Context is extremely important to set the stage for developing choices as part of strategic planning. I advocate these articles to do the PESTLE first and to ensure that the factors are prioritized and ordered accordingly. The depth of analysis for important and impactful factors should be much greater than for those less so. It is a great idea to bring in additional models and lenses through which these factors can be analyzed and elaborated in greater depth, particularly those that mark a significant shift in the relevant landscape
The next step after the PESTLE analysis is the SWOT analysis, which digs into the unique strengths and weaknesses of the organization. Again, it is useful to use a framework, looking at both resources and capabilities over multiple dimensions to ensure everything is captured. Finally, Opportunities and Threats can be initially identified from the PESTLE analysis but can go a lot further by envisaging future scenario drivers and various plots and outcomes that may transpire.
This combination of input derived from external and external factors, fixed and changing, provides an essential backdrop to the development of strategic choices. It can also highlight ones that may be most congruent with the organization’s resources and capabilities and somewhat robust in the face of opportunities and threats from alternate scenarios playing out in the future.
- Johnson, G., Whittington, R., Scholes, K., Angwin, D. and Regnér, P. (2014) Exploring Strategy. 10th ed. Harlow: Pearson Education Limited.
- Wilkinson, A. and Kupers, R. (2013) ‘Living in the Futures’, Harvard Business Review, 91(5), pp. 118-127.
- Roxburgh, C. (2009) ‘The use and abuse of scenarios’ McKinsey Quarterly. Article Nov 2009. Available at http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-use-and-abuse-of-scenarios (Accessed 28 April 2017).
- Fahey, L. and Randall, R.M. (1998) Learning from the Future: Competitive Foresight Scenarios. Chichester: Wiley.
ABOUT THE AUTHOR
Brian Martin has over thirty years of Product Management, Product Development, Strategy and Innovation experience in numerous technology domains, most notably in Industrial Electronics, Telecommunications and Cyber Security. He has led various Product Management and Development functions in the B2B sector and has also held responsibility for Business Unit Strategy and Innovation. He holds a BSc. In Computer Applications from Dublin City University, an MBA from the Open University and a post-graduate diploma in Strategy and Innovation from the Irish Management Institute. Brian is currently Head of Product, Strategy and Innovation at Integrity360, one of the UK and Ireland’s leading cyber-security specialist solutions and services providers.