Tools Chapter 15
Analysis and Strategic Choice
To know men is to be wise;
To know one’s self is to be illumined.
To conquer men is to have strength;
To conquer one’s self is to be stronger still,
And to know when you have enough is to be rich.
Tâo Teh Ching
c. 565 B.C.
The essence of analyzing external intelligence is extracting some semblance of truth from a maze
of facts and faulty observations, mysterious connections and missing links, the obvious and the obscure.
The enterprise is fraught with volume, complexity, and risk afloat in a plasma of uncontrollable energy. A
profile of reality is distilled from the mass by applying knowledge, insight, creativity, discipline, and
By contrast, internal assessment presents a much different picture. Here, data collection requires
little more than fashioning an “honest mirror.” Facts are manifestations of our own past decisions and
behaviors. Truth, the majority of the time, is a number, and, it has meaning relative to some desired state.
If we do not like what we find, and we have the wherewithal, we can change it. The trick to understanding
internal feasibility and desirability is an unbridled quest for self-knowledge and a willingness to see and
accept discoveries when they are found. The assessment of internal capacities and abilities is more a
matter of evaluation — comparing the status to a standard — than analysis. The analytic process is
invoked to determine what we might change, internally, if the current state of affairs is unsatisfactory.
Strategic analysis comes into play when we consider the relationships among reality, feasibility,
and desirability; the implications of those relationships for adaptation; and, the practical strategic
directions they suggest. The organization’s perceived reality is somewhat smaller than its absolute reality,
its “feasibility envelope,” in most cases, is smaller than its perceived reality — because of internal
constraints — and, its desirability function is even more discriminating than feasibility in its impact on
strategic choice selection. A lot of potentially realistic and feasible actions may simply be deemed
unattractive by the body politic of the organization. The relationships are depicted in Exhibit 15.1.
Exhibit 15.1. The Reality,Feasibility, And Desirability Filters At Work
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The purpose of strategic analysis is to identify those strategic directions that conform to the
organization’s “realm of practical strategic choice.” The “realm,” of what is practical is determined by the
size, shape, and relationships among the reality, feasibility, and desirability “filters” for a given
organization. Once the “realm” is defined, the process becomes one of selecting practical strategies from
the strategy menu — Blueprint Exhibit 7.3.
The strategies covered in Blueprint Chapter 6, and summarized in the menu, are not strategic
plans, per se, they are strategic directions. Humans are mammals, but they are merely one type of
mammal . . . whales and bats are also mammals, but they are a far cry from humans and each other.
Choosing one strategy over another (e.g. price differentiation versus image differentiation) does not
provide one with a strategic plan . . . it provides one with a strategic direction. It directs us to what we must
or might do but not how to do it.
Choosing a strategy is not the same as developing a strategic plan. In fact, any single strategy
might provide the nucleus for a wide variety of plans. Setting strategic goals and developing the means to
achieve them are the next step in the process and are covered in the following chapter.
The strategy menu offers us a considerable number of options at the corporate-, business-, and
functional-levels of the enterprise. Not all of these options, however, represent practical choices for any
given enterprise. An organization in a dying industry — late in the decline stage of its life cycle — with
meager financial assets and dated technologies, is clearly more limited in its options than a well-financed
firm in a growth industry. External reality, mitigated by internal feasibility, dictate the absolute limits of the
enterprise’s realm of practical strategic choices. Within these constraints, desirability is the determining
factor for selecting from among the practical strategic directions available.
In the preceding chapters, we examined how intelligence is gathered, analyzed, and reduced to a
set of planning assumptions (Exhibit 12.11) about the current and future states of markets, competitors,
regulators, organization capacities and abilities, and management preferences and tolerances. These
assumptions are the criteria by which the entire range of “known” strategies will be reduced to a set of
practical strategic directions for the organization. Once again, by “practical” we mean those that are
realistic, feasible, and desirable — those that will enable the organization to successfully adapt to the
current and predicted forces that do and will dictate the conditions for its survival and growth.
If you go back to Blueprint Exhibit 7.7, you will note that all possible conditions and combinations
of the external context, the organization, and its strategic choices are captured on the left side of the
model. It is the purpose of strategic analysis, through the process stages shown on the right side of the
model, to determine which parts of the whole apply to a specific organization at a specific point in time. In
the model, this phase of the process culminates in identifying the “alternative suitable strategies.”
A by-product of the analysis will be the identification of those strategic directions that are realistic
and desireable, but currently unfeasible. To chose such strategies for implementation would be
impractical given the extant conditions, however, developing the ability to pursue them in the future may
have merit. By isolating them, at this point we: a) eliminate impractical strategies from current
consideration, and b) provide grounds for identifying specific development goals and designing remedial
programs for enhancing future feasibility — Exhibit 15.2.
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Realistic, Unfeasible Goals
Desirability Realistic, Unfeasible, Desirable Goals
Strategic Plans Development Plans
Exhibit 15.2. Separating Strategic From Developmental Alternatives
A considerable amount of analytic power comes from the analyst’s disciplinary grounding. The
strategy process is a conceptual tool for integrating and applying the knowledge gained from other fields
of study. When addressing the subject of strategic analysis, there is an implicit assumption that the
reader is familiar with the concepts and tools of finance, accounting, marketing, economics, organization
theory, and administration. Although some of these concepts and tools may be revisited, teaching the
fundamentals of each discipline is well-beyond the scope of this text. If you encounter some difficulty
following any of the technical discussions, you may want to consult the appropriate field literature for
more-detailed descriptions and explanations. For example, price-sensitivity is a function of supply and
demand and price/quantity relationships are derived from price-elasticity. If you forgot the mechanics or
how to perform the calculations, you may want to keep some of your old texts around as reference
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Planning Assumptions: The Strategic Map
Before we can begin to consider which strategies are practical or impractical we need to develop a
set of criteria for evaluating them. You already laid the groundwork for this by scanning and premising,
auditing, polling, and then statusing and forecasting your results and capturing them as discrete sets of
planning assumptions. What we need now is some structured means for “filtering” the simultaneously
realistic, feasible, and desirable out of them. That is, going back to Exhibit 15.2, we want to determine
what part of reality is also feasible for us to pursue and, of that which is feasible, what part is desirable. We
can do this by simply using our combined planning assumptions — our strategic map — as the criteria.
For each strategic consideration — filter — determine the critical conditions to which an
appropriate strategy must conform. Do not confine yourself to the spaces provided and use additional
sheets as necessary.
The Strategic Criteria Worksheet
Strategic Consideration Criteria (Derived from Analyses & Forecasts)
General & Tast Environment__________________________
Micro & Macro Organization __________________________
Management Sentiment & Tolerance ___________________
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The reality factors are structured around your external intelligence gathering and analysis, the
feasibility factors derive from your internal audit and assessment, and the desirability factors precipitate
from your internal poll and evaluation. The first category captures key market, competitive, and regulatory
conditions. The second, profiles the limits of the organization’s capacities and abilities — plans,
configuration, processes, assets — and details critical people, object, and event issues. The final
category attempts to define the types of ideas and actions that will “fly or die” when brought to the
attention of the organization’s key decision makers and constituents. Any strategy that will satisfy all three
conditions, is practical. Any strategy that falls outside the parameters set by the criteria is impractical —
Exhibit 15.4. The factors that make the excluded strategies impractical, however, may become the basis
for development actions. If insufficient capital rules out a range of strategies, for example, the
organization may undertake an initiative to increase its capital assets thus removing the restriction from
future planning cycles.
Exhibit 15.4. Defining The “Absolute” Realm of Strategic Choice
One of the major problems with establishing a solid set of criteria is that it seems so obvious and
simple. Consequently, there is a tendency to rush through this little exercise so we can get on to the “fun
stuff.” If you are harboring such ideas right now, be advised that you were not the first to feel this way. In
1965, General Electric and Time-Life, Inc. attempted to launch what would be the precursor of the
modern electronic, on-line information service. Combining the advanced technological expertise of GE
with the tremendous library resources of T-L, under the leadership of the former U.S. Commissioner of
Education, General Learning Corporation immediately established itself as the dominant force in
educational technology. Imagine, in 1965, being able to sit at a computer console and scan the
information amassed by one of the world’s largest periodical publishers. One small problem, no school
could afford to buy the system visualized by the joint-venture partners and the enterprise folded.
Need another example? Okay. During the Carter Administration, the White House appealed to
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American military contractors to quit waiting for juicy government development contracts and to show
some entrepreneurial initiative. Rising to the challenge, Northrop Aviation spent millions of its own money
to develop the F-20 “Tigershark,” an exceptionally versatile and economical defensive aircraft well-suited
to the needs of many small countries. At the same time, the military was pushing for the sale of the F-18 to
American allies. Since this was the aircraft they used, mass production and foreign sales would hold down
their procurement costs and help underwrite their development expenses. Even though the F-18 was ill-
suited to the markets targeted by the F-20, the military was able to squelch every sale. Although they
received hundreds of orders, Northrop never sold a single airplane and was forced to scrap the program.
In both instances above, a good reality check would have saved the companies involved a lot of
time, money, and headaches. The GE/T-L venturists would never have started General Learning
Corporation had they first made a quick scan of school system budgets. Northrop would have “scrubbed”
the Tigershark project before it began had they first done a little cursory premising. There was never any
love lost between the Administration and the Pentagon, or the rest of the Washington establishment for
that matter, during the Carter years. The President came up out of state politics and never quite meshed
with the local scene. The presidency was subject to a limited term of office, the establishment went on
forever. Furthermore, the military had always maintained a strong position to ensure that U.S. allies flew
the same planes they selected for their own use. The outcome was actually quite predictable. In both
examples, the companies pursued courses of action that were feasible and desirable, but that were also
Stories of firms venturing beyond the limits of their financial feasibility abound, but what about
other feasibility limitations such as expertise and technology. Greyhound Bus Lines’ near catastrophic
experience in the rent-a-car business and Holiday Inn’s brief and unhappy flirtation with the intercity bus
business quickly revealed the importance of planning within one’s limitations. When Coca-Cola bought
into the wine business, they soon learned that “all beverage sales are not created equal.” Beatrice Foods
had a similar experience when they bought out Stiffel Lighting. Technological feasibility limits came into
play when Westinghouse bought into a joint-venture called United Disposal. UD developed a process by
which garbage could be reduced to fertilizer and feed pellets. One problem with the process, however,
was the noxious odors emitted from the plant. Not waiting to work out the technical problems, UD
contracted with Fort Lauderdale, Florida to handle the city’s waste disposal. It was assumed that the odors
could be eliminated from the process before the contract expired. With a successfully operating facility
and a contract renewal, UD could harvest the garbage and a lot of profits from every municipality in the
country. By the time the initial contract was due to expire, the city had been besieged with citizen
complaints about the smell and UD had made little progress toward eliminating it. When the city refused to
extend or renew the contract, UD and several millions of investment dollars slipped into oblivion.
We have already noted how extreme desire can eclipse reality and feasibility, but what about a
case where a firm ignored its own desirability function? When Roy Ash became CEO of Address-O-
Graph/Multi-Graph, a manufacturer of mailing equipment, he found an R&D program that, for years, was
working toward making the company’s equipment more compatible with the supplies of other vendors. At
the same time, the new CEO also learned that about 80% of the firm’s business came from supply sales
(e.g. inks, labels, printing plates, etc.). In short, the company was spending a lot of scarce assets on
eliminating its major source of income.
One of the nice things about retrospectives is they allow us to feel so insightful, clever, and . . .
smug. Really, how could such large organizations with such “big bucks” management teams have been
so foolish? The answer? Pretty much the same way we all do foolish things . . . they seem like pretty good
ideas at the time. How do we defend ourselves from chasing the unrealistic, unfeasible, and undesirable?
Do a particularly thorough job of filling out the strategic criteria worksheet . . . no matter how simple and
obvious it may seem.
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The Strategic Analysis
Once we develop a clear picture of the conditions that bound our decisions and choices, we
need to do a little sifting and sorting. Our purpose here is to find those patterns among our criteria that
match with specific sets of strategy menu items. Actually, we want to identify promising matches at two
levels: 1) the corporate-level, and 2) the business-level. We are going to work from the outside- in
because we are looking for practical strategies that will facilitate effective and efficient adaptation.
The best place to start is to get a fix on some temporal positions. Specifically, we need to know
where our products/services and our industry segment are situated in their respective life-cycles. Next,
we will consider some institutional forces — sociopolitical, economic, and technological — to get a feel
for the social “mood.” We will take a look at the regulatory atmosphere and wrap it up by extracting some
implications from market and competitive activity. Taken together, these analyses will provide a pretty
good picture of our reality in operational terms. If we then create a similar profile of our organization, we
can compare how the two mesh and derive some broad strategic directions that hold promise for
Glimpsing ahead, we are going to determine how “permissive” or “restrictive” the conditions are in
our life-space. Following that, we are going to assess our asset position — “asset rich” or “asset poor.”
Since these analyses will be conducted in absolute terms — based on our criteria — we can determine
direction by evaluating them in relative terms — as they relate to each other. We will harness the generic
strategy perspective — discussed in Blueprint Chapter 6 — to facilitate our initial evaluation and then add
some of the other perspectives to refine it. The process may come across as a bit “fuzzy” right now, but it
will sort itself out as we move along.
Getting A Grip On Your Life-Cycle Position
Life-cycle positions are defined by characteristic market patterns. A product or industry segment
occupies an introduction, growth, maturity, or decline position because of the events happening around
it. It is important to hold this idea in mind because life-cycles are functions of “relative time” not “virtual
time” — recall the relativity discussion in Blueprint Chapter 10. The various life-cycle positions and their
associated market conditions are shown in Exhibit 15.5.
Stage Sales Number of Product
Trait Volume Competitors Differentiation
Introduction Negative Few None or little
Growth Rapid growth Attracted by Increasing
Flat — Slowly
Maturity Stable Departure of High
Few - Relatively
Decline Decreasing Diminishing homogeneous Very Low
Exhibit 15.5. Life-cycle Positions and Their Characteristics
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Capturing the Social “Mood”
Recall that conditions in the institutional environment are principally used for forecasting. The
institutional forces, save political/legal forces, “trickle down” and become strategically significant at the
task environment level of analysis. Our concern here is the general atmosphere of the institutional
environment and not so much its future implications. If we are in a period of rapid technological change,
for example, consumers may be less-reticent to try new products or services. “Technophobia” is a
resistance to incorporating new technologies. When change is slow or intermittent, people tend to be
more technophobic or to wait until new technologies have become perfected and well-established before
adopting them. When technological change is rapid and on-going it may not only be impractical to be
technologically conservative, it may be unfashionable. Furthermore, periods of rapid change also tend to
produce “leap-frog technologies” that permit producers to accelerate process and method improvements
rather than developing such improvements in cyclical stages. Healthy economic conditions breed a
sense of hopefulness, weak conditions foster pessimism. Sociopolitical realities dictate whether
“anything goes” or if everything will be subject to careful scrutiny and parochial criticism.
What we are after is a sense of the social “mood” or “attitude.” Surrogate measures like
investment rates, contract purchases, inventory sizes, housing starts, stock market activity, discretionary
spending patterns, vacation travel volume, box office receipts, public rallies, voter turnout, fashion colors
and styles, prevailing forms of humor, and a host of other data points provide little “snap shots” into how
people are thinking and feeling. The data may be a bit “soft” but they provide some “tint and texture” to
the harder data.
Whether an industry is regulated, unregulated, or somewhere in between is, of course, important.
Additionally, we want to know if regulatory activity, in general, is increasing or declining or if some
industries or products are being targeted for greater or lesser regulation. Understanding the regulatory
constraints under which we must operate is a must, but, also, we need to know the constraints under
which our suppliers and customers are operating.
Reality Life-cycle Sociopolitical Economic Technological Regulatory
Favorable Rapidly General or
Permissive Early Healthy
Upbeat Changing Unregulated
Restrictive Late Weak Stable
Pessimistic or Targeted
Exhibit 15.6. Summary of Non-Market Conditions
This would be a good place to apply Michael Porter’s “Competitive Rivalry” model that was
introduced in Tools Chapter 12 and expanded in Chapter 13. Our choices of customers and suppliers
and their strength, the presence or absence of entry barriers to our industry or industry segment, the
availability and acceptability of substitute products, and the general nature of competition in our industry
constrain a lot of our strategic choices.
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Reality Suppliers Customers Barriers Substitutes Competition
Permissive Weak High Few Benign
Restrictive Strong Low Many Heated
Exhibit 15.7. Summary of Market Conditions
Exhibits 15.6 and 15.7 summarize the conditions that may be gleaned from our criteria. It would
be nice if everything fell neatly into one or another category, but, most likely, you will find that your
analysis will yield a mix of conditions. That is, some of the findings will suggest a permissive reality and
others will suggest it to be more restrictive. What we want to conclude is a composite of the various
dimensions — is the overall picture generally permissive or restrictive? This is a judgment call. Do not
worry about coming up with a perfect assessment right now, because we can tailor specific strategies to
deal with the “outlier” conditions later on in the process. For example, we may find generally permissive
conditions, but the economy is weak and we are dependent on a few, very strong suppliers for our inputs.
After we establish a general strategic direction, we can develop specific strategies for accommodating
these factors within our larger strategic framework.
Our Asset Position
Here we want to consider what we have to work with within our own organization. Recall from
Blueprint Chapter 7, we can “rearrange the furniture,” but from a practical perspective, we have to use the
“furniture” we currently possess. What we need is an inventory of our products and services, core
technology, work force capabilities, finances, physical location, and organization commitments — Exhibit
15.8. These factors determine the outer limits of what is feasible for us. Once again, we are looking for an
overall assessment. We will deal with the specifics at a later point.
Asset Products/ Core Physical
Position Services Technology Work force Finances Location Commitments
Rich Contemporary Stable Good Flexible
Established Good Credit
Poor Dated Unstable Poor Rigid
New Poor Credit
Exhibit 15.8. Summary of Feasibility Factors
Putting It Together
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Putting It Together
Now we can start to have some fun. Given the boundary conditions, that we so carefully elicited
from our strategic criteria, what strategic avenues are available to us? If we cross-map what we have
concluded from our initial analyses, we find that we can isolate four broad strategic categories delimited by
the realities and feasibilities we just defined. From our discussion in Blueprint Chapter 6 we know we can
only attack, defend, flank, or retreat. Our conclusions, this is why we had to make the “judgment call,” will
lead us to one of the four. The options are provided in Exhibit 15.9.
Exhibit 15.9. Finding the Generic Strategy
Each of the generic strategies, by definition, embodies a set of corporate- and business-level
strategies from the strategic choice menu. This “first cut” directs us to strategic “families” that correspond
to our unique reality and feasibility conditions. Within each “family” are sets of growth pattern and firm-,
product-, customer-, and market-oriented strategies — Exhibits 15.10 and 15.11.
Defend Concentrated Growth
Flank Concentrated Growth
Exhibit 15.10. Generic and Corporate-level Strategies
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Strategy Firm Product Customer Market
Cost-leader Differentiation Focus
Redefinition Development Market Development
Cost-leader Differentiation Focus
Redefinition Development Market Development
Flank Redefinition Differentiation Focus Location
Exhibit 15.11. Generic and Business-level Strategies
It bears reminding that any organization that is asset rich is not limited to the asset-dependent
defend and attack strategies, however, those who are asset-poor must, of necessity, stick to the asset
independent flank and retreat approaches. The strategic directions indicated in Exhibits 15.10 and
15.11, are those that best conform to the four reality-feasibility combinations. There remains
considerable latitude within those frame works for fine-tuning. For example, at the corporate-level,
Ansoff’s Product/Market Status — Exhibit 15.12 — could be applied to move father out on the strategic
branches shown in Blueprint Exhibit 6.9.
Adapted from: Ansoff, H.I., Corporate Strategy: An Analytic Approach To Business
Policy For Growth And Expansion (New York: McGraw-Hill, 1965).
Exhibit 15.12. Product/Market Matching
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Within the isolated business-level strategy set we could apply Porter’s Competitive Strategy
argument and reduce the number of strategies considered. His perspective is discussed in Blueprint
Chapter 6 and presented in Exhibit 15.13. The model can be used to analyze the consistency among
strategies currently in place and to focus on the development of finite strategies within the generic sets.
Lower Cost Differentiation
Narrow Target Cost Leadership Differentiation
Porter, M.E., Competitive Advantage: Creating and
Sustaining Superior Performance (New York: Free Press, 1985).
Exhibit 15.13. Competitive Scope and Competitive Advantage
We could move forward from Porter’s model by more closely examining the “Competitive Scope”
parameters with the Natural Selection Model presented in Blueprint Exhibit 6.5. The model is provided
again in Exhibit 15.14 so you can see how the two perspectives relate.
Favors Favors Favors
innovative/ efficient/ innovative/
opportunists problem-solvers opportunists
Prospector/ Analyzer/ Identify and develop
Generalist Generalist narrower niches
Entrepreneur/ Defender/ Develop new strategy
Specialist Specialist or exit niche
Low High Saturated
Exhibit 15.14. Niche Breadth and Scope
Again, it should be noted that the various perspectives on strategy, presented in Blueprint
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Again, it should be noted that the various perspectives on strategy, presented in Blueprint
Chapter 6, are not mutually exclusive. The developmental, adaptation, natural selection, generic, and
competitive perspectives have all been incorporated in the previous examples. What about the
evolutionary perspective? It picks up after we reach the narrow and saturated position — lower right cell —
in Exhibit 15.14. This issue was covered in Blueprint Chapter 7 when we looked at the life-cycles of
strategic plans. Essentially, when we reach this cell, we have hit the “erase it and replace it” point.
Because they are “perspectives,” each contribution sees the process from a different angle and thus
provides us with a different point of view. Taken together, the multiple perspectives give us a very
comprehensive picture of how to proceed.
Strategic Choice Characteristics
We have already determined the criteria by which the identified strategies will be evaluated. Now
we determine the characteristics of each strategic direction under consideration in each of the criteria
categories. Once again, you are going to have to overcome your natural reluctance to “write things
down.” Experience tells us that it is difficult to keep a lot of complex and interactive ideas in our minds at
one time. What we end up with is a lot of ill-defined, in operational terms, “fuzzy thoughts.” Until we
capture our ideas in writing — this includes graphics — we really cannot critique the logic of our reasoning
or the comprehensiveness of our conclusions. Equally important, so long as our ideas reside only in our
minds, no one else can critique them or participate in their development in any concrete fashion. In time,
the process may become second-nature as you internalize the model and make it part of your natural
thought processes. It is also likely that you will personalize it by adding your own unique refinements and
“shorthand” notations. Until that time arrives, however, it behooves you to “slog” through the process as
suggested. Develop a profile of characteristics for each identified strategy using the expanded
worksheet. Elaborate in as much detail as possible and add more space as necessary.
The Strategic Choice Worksheet
Strategic Consideration Strategy Characteristics
General & Tast Environment__________________________
Micro & Macro Organization __________________________
Management Sentiment & Tolerance ___________________
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Eco, Social, Techno, Economic & Political ________________
Implied Risk _______________________________________________
Plans, Configuration, Processes & Assets________________
Changes Required _______________________________________________
Suppliers, Customers, Competitors, Regulators & Profits_____
Anticipated Outcomes _______________________________________________
Start, Sequence, Duration & End ______________________
Capital, Labor, Space & Opportunity Costs _______________
Asset Requirements _______________________________________________
Uniqueness, Specialization & Commitments ______________
As you develop your descriptions of how the identified strategic directions satisfy your selection
criteria, you will also be preparing a foundation for a few other process actions. First, the strategic
characteristics will become the criteria for developing strategic plans in the next stage of the process.
Second, you will have a basis for determining how well each strategy accommodates the “outlier”
issues you discovered when you developed your reality/feasibility profile in the first stage of analysis.
Recall, we got here by making a “judgment call” that reality is “generally” permissive or restrictive and the
organization is “ostensibly” asset-rich or asset-poor. Now we have to tailor the general strategies to
conform to the conditions that did not fit the profile. Usually this is done by digging deeper in the the
strategy menu: for example, moving from the broader to the narrower strategies covered in Blueprint
Exhibits 6.9 and 6.10 and/or formulating appropriate functional-level strategies that fit the general
strategic direction and simultaneously deal with the “outlier” concern.
Third, if the process has not led you to a set of strategies that will satisfy all the criteria, you are
alerted to the fact that you may have “goofed” somewhere along the way — e.g. misjudged reality or
feasibility, misclassified the organization’s strategic position, misunderstood a strategic implication, etc..
At this point you would want to review how you got to this point and make the necessary adjustments.
Another posibility is that one of your “outliers” is so critical that it outweighs the other factors used to
construct your profile. For example, all the reality factors are favorable, but we are so highly regulated we
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have little legal maneuvering room or all the feasibility factors are positive, but we are so “strapped” for
capital there is little we can financially afford to change. In such cases, we would have to plan “around” the
critical factor . We would, correspondingly, reclassify our stragic location in Exhibit 15.9. How we might
get out of “the restrictive loop” would become the focus of our development efforts.
Finally, by capturing the range of practical strategic choices in detailed terms, you create an entry
point for applying your desirability criteria. Of all the realistic and feasible strategies under consideration,
some, based on their specific characteristics, will be deemed desirable and others, undesirable. Suffice it
to say, developing a comprehensive description of each isolated strategy and how it “works” is a critical
step toward formulating a “winning” strategy to guide the organization.
Exhibit 15.16 shows how we got to and through the strategic analysis process in graphic form.
First, we developed discrete planning assumptions from our scanning and premising, auditing, and
polling. Second, we consolidated them on the strategic criteria worksheet as a set of combined
assumptions. Third, we analyzed the reality and feasibility relationships and identified a strategic position
and its associated strategies from the strategy menu. Finally, we described each identified strategy on
the strategic choice worksheets, evaluated how well they satisfied the selection criteria, identified
indicated refinements, used them to assess the validity of the process to this point, isolated “critical
factors” that demanded special attention, and provided a basis for assessing desirability.
Scan/Premise, Poll, & Audit
Analysis & Forecast
Expert Knowledge Develop Assumptions
Strategic Analysis Desirability
Select practical strategies
Refine Strategies to deal
with “outlier“ conditions
Validate the analytic
process and make
Identify “critical factors” and
facilitate revising strategic
Provide a basis for applying
Exhibit 15.16. Strategic Analysis and Outcomes
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Notice that after the practical strategies are identified and described, they are are subjected to
another “decision loop” in which they are refined, validated, and revised. This step calls for a little
patience as it might be reiterated several times until all the “bugs” are worked out and the voids are filled.
In the end, we should have a set of strategic directions that are realistic and feasible . . . and that cover all
the critical success factors.
To determine desirability, we haul-out our strategic criteria one more time. At this point, our
concern is those planning assumptions that describe our desirability function. Since the reality and
feasibility parameters have been met in the previous process stage, we can skip those elements and
direct our focus to the implied risks, change requirements, anticipated outcomes, timing, asset
requirements, and flexibility associated with each strategy.
Our goal is to “weed-out” any courses of action that may run afoul of our organization’s
preferences and tolerances as opposed to “selecting-in” what might be the most desirable actions. This
logic is predicated on the fact that we want to keep our range of options as broad as possible for as long as
possible in terms of our overall strategic thrust. That is, we want to find all the strategies that exhibit
reality, feasibility, and desirability. Choosing from among them will come at a later stage when they are
reduced to sets of competing strategic plans. Why? Well, if all of the identified strategies will work and be
able to garner sufficient organizational energy and enthusiasm to make them work, selecting the best
course of action might best be deferred until we can see how each one translates into potential actions.
Put another way, the entire process is aimed at eliminating the unrealistic, unfeasible, undesirable
strategic directions from consideration. We can do this because we know what all the possible strategies
are before we even begin — by virtue of the strategy menu. What we do not know is which of the
surviving strategies will provide us the greatest net benefit. Since all the identified strategies meet the
choice criteria, we have no rational basis for choosing one over the other. Therefore, selection is best
determined by the strength of the individual plans flowing from those strategies as opposed to simple
conformity with our preferences. We do not want to limit our options too early in the process because this
may lead to the arbitrary exclusion of some very promising and creative ideas for execution. At the point
where desirability comes into play, we are most concerned with identifying those strategies that will not
receive sufficient organizational support to reach fruition because they embody undesirable
characteristics — e.g. liquidation is realistic and feasible under any set of conditions, but it may only be
desirable in very few instances.
By allowing our planners to exercise the greatest latitude in their efforts, without compromising
our choice criteria, we provide ourselves the broadest selection of plan options from which to ultimately
choose. The final plans can be evaluated on their relative merits and then be selected or excluded and
prioritized for implementation.
Another place our preference function applies is to the targeting and selection of feasibility
limitations for development. Again, critical factors may come into play. Some critical factors can be
altered and eliminated and others cannot. Generally, the former relate to internal conditions and the latter
to external conditions. We can plan to remedy the former but we must plan around the latter.
Chester I. Barnard, the father of administrative theory, defined something he called “limiting
factors” as “those which if absent or changed would accomplish the desired purpose.” Development is
concerned with removing or changing those limiting factors that can be affected and that are seen as
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concerned with removing or changing those limiting factors that can be affected and that are seen as
desirable areas for improvement. The organization’s feasibility limitations do not automatically translate
into development initiatives. First, the organization possess no immune system that initiates
spontaneous self-healing. Since it is a “contrived system,” remedial action must also be contrived.
Second, not all limitations are of equal importance. Development is only indicated if the remedy is realistic
and desired. Finally, few if any organizations have the resources to make all realistic options
organizationally feasible. Development, like strategic adaptation, has a cost and, therefore, represents a
An important part of strategic analysis, is to target areas for development: to first identify realistic,
desirable, but unfeasible directions and then to select the more critical limitations for development. The
preference function plays a significant role in prioritizing which limitations will be attended. As was the
case with strategic choices, development choices become the basis for subsequent planning,
implementation and control. Furthermore, since development “filters out” at the strategic analysis stage
and seeks to expand the organization’s “feasibility envelope,” it requires working from the inside-out.
Adaptation, as noted earlier, follows a process that operates from the outside-in.
Strategic Analysis Outputs
If properly executed, strategic analysis will produce two outputs. One output will be a set of
documents that profile the characteristics of our practical strategic choices. The other output will be a set
of documents that profile the characteristics of indicated feasibility improvements — enhancements to
current capacities and abilities. Together, these profiles will become the criteria against which our
strategic and development plans will be formulated and evaluated.
Although there is a logical flow to the strategic analysis process, we have made a conscious effort
to avoid prescribing it as a series of “check lists” and “fill in the blanks” exercises. Analysis is not a recipe
where a cup of this and a pinch of that will produce world-class results. Within each process stage,
successful execution still depends on the insight, knowledge, wisdom, and creativity brought to it by the
analyst. The process provides a framework for harnessing diverse bodies of knowledge and personal
skills and keeping them on track, but no process can compensate for a lack of knowledge and skill,
patience and determination, and common sense. We can provide you with general directions, but any
attempt to define precise execution denies the human spark that ignites the artistic dimension of the
strategy process. Like any decision process, strategy must be approached rationally and rigorously,
however, its power is diminished when it is undertaken mechanically.
The process is paralleled by the game of chess. Reality is defined by the squares on the board,
the game rules, and the positions of the pieces. Feasibility is determined by the number, location, and
types of pieces each player has at his or her command. At any point in the game, every possible move is
known — the strategy menu. Players will consider only those moves that are realistic and feasible. As the
game progresses, each move dictates the range of choices each player will face in subsequent moves.
Every individual move is dictated by reality, feasibility, and desirability. The conditions and process are the
same for novices and masters alike. What sets them apart is how they incorporate their unique personal
qualities into execution.
We must be careful not to over-generalize the chess example, however. Chess rules and chess
boards never change, the pieces are inanimate and each has finite and stable properties, an entire game
can be played in a matter of hours, and each game is independent of every other. Chess is played in two
dimensions and it requires the players to think in three —remember temporal considerations. The
broader strategy process is far more complex and dynamic. The playing field and game rules are ill-
defined and keep changing. The pieces are infinite in their numbers and properties. Results take longer
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to achieve and they create more profound consequences. Temporal issues transcend the mere
selection of proper sequences. It is played in three dimensions and successful play demands that we
think in four. Like chess, however, the game should be approached with humility and flexibility if victory is
to be achieved.
To this point we have “filtered” everything down from some absolute reality to a set of
concentrated directions that we will pursue. As we move into the planning stage, we will begin to diffuse
these directions into discrete goals, diffuse them further into sets of plans for each identified goal, and
then diffuse them some more into implementation stages and control systems.
Strategies Versus Strategic Plans: An Example
It may be helpful at this point to explore an example. Our purpose here is to “get a feel” for how
strategic analysis shapes the follow-on strategic planning process. Ideally, “knowing where we are going”
will provide a helpful context for understanding the subtleties and importance of the analytic process.
Since we introduced price differentiation already, let us follow it through and see if we can come
up with some potential plans that conform to its definition. Basically, the strategy dictates that we
distinguish a given product or service from others of its kind by the price we attach to it. One does not
have to be an expert to realize that this gives us only two options — we can only charge a higher price or a
lower price than the competition. At first blush this seems to be a pretty straightforward decision. We can
sell our product for less and try to appeal to the bargain-conscious consumer, or we can sell it for more and
try to imply that it must be of higher quality or is tailored for the discriminating consumer — that is, it has
“snob appeal.” Here is where the obvious trips us up. What is price? About now you should be kicking
yourself for not having paid more attention in Economics.
Price is simply what the buyer is willing to give up to posses a thing and what the seller is willing to
exchange it for. Nowhere in this operational definition is there any mention of “pay for,” “price tag,” or
“money.” Viewed from this perspective, price differentiation is rooted in our ability to create a distinctive
and desired “give up” difference. We now have some new options. We can charge more for more, less
for less, or less for more. “Charge” refers to the monetary part of the price. If we try to charge more for
less, and are relying on price differentiation for our success, we will distinguish ourselves, but not for long
. . . most likely, we will soon be out of business. “More for less” might be more consistent with other
Part of the sales transaction will generally require the buyer to “give up” some money. But does
the money represent everything the buyer has “to give up to posses the thing?” What about opportunity
cost, convenience, energy, shopping and decision making time, and other resources consumed to
consummate the purchase such as transportation, telephone calls, and media subscriptions? Media
subscriptions? Sure. How does one find out what products are available and where they can be
From the standpoint of both the buyer and seller, the price and the “thing” purchased represents
money and “bundles of utilities.” More specifically, time, form, use, and place utilities. If the buyer can
get the same product for the same amount of money at two different stores, and one store is located
closer to the buyer, he or she will “give up” less by making the purchase at the nearest store — an
example of place utility. If the seller does not have to advertise the product, he or she can sell it for less
money without “giving up” anything. See it? 1) We can charge more money for the same product with a
larger bundle of utility, 2) Less money for the same product with a smaller bundle of utility, 3) Less money
for the same product with the same or larger bundle of utility if we can produce it for less money, or, 4)
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less money for the same product with a larger bundle of utility so long as the increased buyer utility does
not diminish the seller’s bundle of utility.
Premiums conform to options one and four. Premiums are additional utilities added to, but not
an integral part of, the product or service. For some products, the monetary price itself is a premium.
There as those who will purchase simply because “ it is the most expensive __ money can buy.” Cellular
telephone services use a variation on the #4 approach. Connection, monthly, and air-time charges are
the same if you take the “free” telephone or not. If you take the phone, you are obliged to use the service
for a certain period of time, usually two years, or be charged for the instrument. By getting the telephone
and the service for the same price as the service alone, the customer pays less money for total cellular
connectivity. The premium comes from staying on the system. The customer does not get a larger
bundle of utility from buying the package, only a lower price. The “package” is cheaper than buying the
telephone and the service separately. Utility is reduced, however, if he or she switches providers before
the end of the contract period — this is called “switching cost.” The additional utility comes from avoiding
the penalty. By having a large number of term-contract subscribers, the provider smooths service
demand and can operate more efficiently. The cost savings offset the price of the telephone, thus the
provider loses nothing.
If the premium is the basis for differentiation, the seller is following a support strategy, if price is
the distinctive feature and the premium adds utility, it constitutes a price differentiation strategy. The two
are not mutually exclusive. Both could be used at the same time to differentiate a product or service. The
distinction depends upon whether the seller plays-up the monetary price of the product or the inclusion
of the premium to differentiate it.
Discount warehouses, no-frills hotels and airlines, off-peak pricing, and self-service gas stations
and restaurants fit into the second category. By eliminating convenience, ambiance, and/or services for
customers who are willing to absorb the utility part of the price, the seller can set monetary prices based
more closely to the monetary cost of the product alone. This is not quite the same as being a low-cost
producer or cost-leader because the buyer is actually getting less for less money. A hard-core discount
warehouse would locate in a low rent area far from major shopping areas. To shop there, a customer has
to sacrifice a lot of time and place utility. No-frills and self-service compel the customer to give up use
utilities. Off-peak pricing is only attractive to those customers willing to forego time utility.
The third option mentioned above allows a cost-leader to follow a price differentiation strategy.
Since the cost-leader can produce for less expense, the savings can be passed along to the customer as
lower prices. Volume discounting is a good example of the fourth option. The buyer gets each unit of
product for less money and simultaneously reduces his or her research, shopping, decision making, and
transportation expenses. The seller accepts less money for each unit of product and simultaneously
reduces his or her storage, advertising, inventory financing, and transaction expenses. Bonus
packaging that puts more product in the same container for the same monetary price works much the
same way as volume discounting as do frequent-flier programs where the bonus points, earned from
travel volume, are redeemed to buy “free” travel. Frequent-flier programs also have a switching-cost
element. Passengers are penalized when flying off-line because they do not earn the bonus points
necessary to reduce their total travel expenses — off-line ticketing does not help one earn a volume
discount — when the opportunity cost is factored in, the off-line ticket costs more than an equivalent on-
line ticket selling for the same monetary price.
A price-differentiation strategy, therefore, can be executed by: 1) Selling at a high price to a
“snobbish” target market through exclusive outlets, 2) selling at low price to a price-conscious target
market through no-frills outlets, 3) selling at a low price to a general market if the product is produced
inexpensively, 4) selling at a low price to a general market through volume discounting if a) the product is
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price elastic, and/or b) volume sales reduce unit production or selling expenses — as might be the case if
production is subject to economies of scale, 5) selling at a low price in a general market if a) the product is
price elastic, and/or b) the customer faces high switching costs, or 6) combining high and low price
strategies simultaneously — this is called price-lining.
Price-differentiation is the strategy in all six cases mentioned above, but each of the six
represents the nucleus of a different strategic plan. Note also that the practical selection of price
differentiation as a suitable strategy and how it is interpreted into action depend on the marketplace
realities, the organization’s production and selling feasibilities, and the desirability of using price as a
distinguishing characteristic. Other factors permitting, desirability might be the single determining factor
for selecting a high-price, low-price, or price-line means for differentiation.