Blog 1: Analyzing the External Strategic Environment and Evaluating Industry Dynamics

A company's success in developing and implementing an effective strategy depends on two fundamental analyses: evaluating the external factors affecting them, and understanding current & future industry dynamics. Failure to do so can lead to the development of half baked strategies, based on intuition and gut (Kaplan & Beinhocker), which are bound to fail.

Evaluating external factors or 'External Strategic Analysis' involves identifying risk triggers that can lead to change in the existing status-quo of the organization. These include, but are not limited to, factors such as Demographics, Geopolitical events, Financial Markets, Technology, etc. Each of these factors has the potential to be disruptive to the organization's existing market place unless they preemptively identify the upcoming risks and take appropriate actions. However, the beauty of it is that all such risk triggers leave a trail behind (or in front for this case?), which can be identified well in advance with proper and meaningful analysis. Taking the effects of these on the organization into account, a strategist can devise an appropriate plan of action that can positively impact the organization's financial health, productivity, assets, and performance.

At the same time, evaluating industry trends is critical to an effective strategy as well. There is a fundamental difference between this and Externa Strategic Analysis we discussed earlier. While in the latter, we look at how external attributes directly affect the organization, here, we try to understand how the change in market trends and the industry as a whole will affect the growth of an organization. From innovations in marketing to products to those in technologies, all have the potential to act as a disruptor in the industry and give companies a new first movers advantage. Complacency when it comes to adapting to changing industry trends can be very harmful for the organization - especially if one is not a market leader. As seen in Bradley Dawson and Smit's article, those companies in the first quartile are not susceptible to change trends in the industry - mainly because of their size, which helps them maintain their industry position. But all firms in the last quartile are the most frequent disruptors because of their ability to change their strategies to reflect the new and upcoming changes in the industry. Its the firms in the middle three quadrants that fail to keep up. Keeping a keen eye on the competitors and rivals is essential and healthy for the long term success of the strategy.

As Mike Tyson famously said, "Everyone has a plan until they get punched in the face". While this can be an outcome in any strategy, an effective one would make sure that the person gets up and back into the game with minimal downtime.

Citations:
Article: The Real Value of Strategic Planning (Kaplan and Beinhocker, MIT Sloan
Management Review, Winter 2003)
Article: Your Strategy Needs a Strategy (Reeves, Love, and Tillmanns, Harvard Business Review, September 2012)
Article: Building Your Company’s Vision (Collins and Porras, Harvard Business Review, September-October 1996)
Article: The Strategic Yardstick You Can’t Afford to Ignore (McKinsey Quarterly, October 2013); https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our- insights/the-strategic-yardstick-you-cant-afford-to-ignore