What is Strategic Position STATES an Analysis or Assessment of the Strategic Position of the entity i.e the first element of Strategic Management by Johnson, Scholes and Whittington.
Table of Contents
Elements of Strategic Management
Johnson, Scholes and Whittington STATE that Strategic Management consists of three elements:
What is Strategic Position?
‘Strategic Position’ i.e ANALYSIS or assessment of the strategic position of the entity. The senior management of a company, for example, need to understand the position of the company in its markets; in what ways does the company perform better than its competitors and in what ways are competitors more successful? In other words, how do rival companies compare with each other in terms of ‘Competitive Advantage’?
Management needs to UNDERSTAND the factors in the ‘Business Environment’ that affect their company and how the company will be affected by changes that are likely to happen in the environment in the future. Could the company be affected by changes in technology, changes in the state of the economy or new laws? Even more important, perhaps, will there be changes in what customers want to buy, because of changes in society or life styles? If so, how might this affect what the company produces and sells?
Management has to make a DECISION about what their company should be doing and what the company is trying to achieve. Objectives need to be realistic, so it needs to understand where the company stands now in its markets and where it should be trying to get to a few years in the future.
All these factors must be CONSIDERED in the Analysis of ‘Strategic Position’.
Johnson, Scholes and Whittington SUGGEST that there are three aspects to the concept ‘What is Strategic Position?’:
- The Environment;
- Strategic Capability of the Entity; AND
- Expectations and Purposes.
1. Environment (Threats and Opportunities)
It involves an ANALYSIS of the ‘Threats and Opportunities’ that seem to exist and an assessment of their significance.
- Threats are developments in the environment that could threaten the ability of the entity to achieve its objectives.
- Opportunities are developments that might be exploited to improve the ability of the entity to achieve its objectives.
2. Strategic Capability of the Entity (Strengths and Weaknesses)
Management of an entity should also make an ASSESSMENT of the ‘Strategic Capability’ of the entity. i.e reaching an understanding of what the entity is capable of achieving.
An assessment of ‘Strategic Capability’ involves an analysis of the strengths and weaknesses of the entity.
- What is the entity good at doing? Why? What can be done to improve these ‘Strengths‘?
- What is the entity bad at doing that its rivals can do better? Why? What can be done to reduce or eliminate these ‘Weaknesses‘?
3. Expectations and Purposes
An analysis of the concept ‘What is Strategic Position’? also REQUIRES management to make decisions about the ‘Purpose’ of the entity and what it is trying to achieve.
- Some ‘Entities’ make a FORMAL Statement of their purpose and reason for existence in the form of a mission statement. For example, a university might have a mission statement that its purpose is to provide a centre for academic and scientific research and first-class tuition for undergraduate and postgraduate students.
- A Co. might consider that its PURPOSE is to provide returns to its owners, the shareholders. It might therefore state its purpose in terms of maximizing shareholder wealth, or increasing shareholder wealth.
- A Co. might consider that its purpose is to increase shareholder wealth but that it also has a SIGNIFICANT responsibility to other stakeholder groups, such as Employees and Customers. A Co. might recognize its ethical duty as a ‘Corporate Citizen’ in society and see a part of its purpose as the requirement to protect the environment and achieve a ‘Sustainable Business’.
Expectations about what an entity should do are also LINKED to cultural and ethical influences.
Chartered Accountant (Institute of Chartered Accountants of Pakistan)
Bachelor of Accounting Honours (Asia e University, Malaysia)