How to Analyze Business Strategy to Improve Your Projects
Delivering successful projects enables organizations to reach their strategic objectives quickly with enhanced long-term commercial results. Connecting projects to organizational strategy can improve projects in several areas including preparation of business cases, request management, planning and resource allocation, risk management, budget control, and collaboration.
This post introduces some tools and frameworks – PESTEL and SWOT/TOWS – to help you perform an evaluation of your organization’s current strategic position.
What is a Business Strategy?
Before starting the analysis, I want to define what exactly Strategy is. Johnson & Scholes (2005) define strategy as:
“the direction and scope of an organization over the long term”.
Porter (1995) describes strategy as:
“a process of analysis which is designed to achieve the competitive advantage of an organization over another in the long term”.
This definition again stresses the “long-term” approach which could set the direction and success of your company over the next five to ten years.
Robbins and DeCenzo (2013) emphasize the importance of organizational strategy and detail a nine-step framework that involves strategic planning, implementation, and evaluation. The first seven steps involve strategic planning while the last two focus on the execution and evaluation of the strategy. A merging of the external environment (steps 2 & 3) with the internal environment (steps 4 & 5) will result in an assessment of the organization’s opportunities and is often referred to as a SWOT analysis.
Figure 1 below illustrates the Strategic Management Process.
In order to fully evaluate your company’s strategy, it’s important to analyze its “external environment”, i.e. the conditions, entities, events and factors surrounding the organization that influences its activities and choices. There are several frameworks and models available to examine a company’s external environment; however, Galavan (2004) warns that “strategy is a living process, not just a set of well-defined tools”.
This blog recommends two of the more commonly used models for examining the external environment of your company, namely PESTEL and SWOT/TOWS.
A PESTEL analysis is a framework used by organizations to analyze and monitor the macro-environmental factors – the external marketing environment – which have an impact on the company. The results of the ensuing analysis are used to identify threats and weaknesses which can be employed further in a SWOT analysis.
The PESTEL Framework categorizes the environmental factors into six key environmental types as illustrated in Figure 2.
The key to the successful application of PESTEL is to use it selectively by identifying specific current valid factors that would impact the organization whilst also considering future factors that will be important in the near term.
SWOT, (Strengths, Weaknesses, Opportunities, and Threats), is a structured planning method that evaluates those four elements.
This process involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective.
SWOT is intended to help an organization answer key questions on how to make the most of its Strengths, circumvent Weaknesses, capitalize on Opportunities and manage Threats. The successful implementation of SWOT depends not on whether an organization should use it or not, but rather on how you should use it.
Watkins (2007) argues that many organizations focus on their Strengths and Weaknesses, i.e. their internal environment and not enough on the Opportunities and Threats (external environment), resulting in a flawed analysis and therefore recommends starting with OT before performing SW.
Complementing the SWOT model, the TOWS Matrix was introduced by Heinz Weihrich (1982) due to the difficulty in translating the results of the SWOT analysis into meaningful actions that could be adopted within the wider corporate strategy.
The next step of analysis after SWOT is associated with the externally-focused TOWS Matrix and helps organizations contemplate the options that could be pursued. To do this you match external opportunities and threats with your internal strengths and weaknesses, as illustrated in the matrix in figure 4.
Galavan (2004) refers to this as “strategy from the inside-out”, where strengths build on competencies to exploit opportunities.
- Galavan, Robert, (2004), IMI Handbook of Management, Oak Tree Press, revised edition p 372 & p 383.
- Johnson, Gerry, Scholes, Kevan, Whittington, Richard (2005), Exploring Corporate Strategy, Harlow, UK: Pearson Education.
- Robbins, Stephan P. & DeCenzo, David A. (2013), Fundamentals of Management, Essential Concepts and Applications, Prentice Hall, p. 80.
- Watkins, Michael (2007) From SWOT to TOWS: Answering a Reader’s Strategy Question, Harvard Business Review.
- Weihrich, Heinz (1982), The TOWS Matrix – A Tool for Situational Analysis, Long Range Planning, Volume 15, Issue 2, pp. 54-66.
Editor’s Note: This post was originally published in June 2017 and has been updated for freshness, accuracy, and comprehensiveness.