Justify the role of Environment Scanning n Strategic management process.

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Strategic decisions are the decisions that are concerned with whole environment in which the firm operates, the entire resources and the people who form the company and the interface between the two.

Benefits of Strategic Decisions

Strategic decisions have major resource propositions for an organization. These decisions may be concerned with possessing new resources, organizing others or reallocating others.

Strategic decisions deal with harmonizing organizational resource capabilities with the threats and opportunities.
Strategic decisions deal with the range of organizational activities. It is all about what they want the organization to be like and to be about.

Strategic decisions involve a change of major kind since an organization operates in ever-changing environment.

Strategic decisions are complex in nature.

Strategic decisions are at the top most level, are uncertain as they deal with the future, and involve a lot of risk.

Strategic decisions are different from administrative and operational decisions. Administrative decisions are routine decisions which help or rather facilitate strategic decisions or operational decisions. Operational decisions are technical decisions which help execution of strategic decisions. To reduce cost is a strategic decision which is achieved through operational decision of reducing the number of employees and how we carry out these reductions will be administrative decision.

Concept of SWOT analysis in strategic management:

SWOT can be done by one person or a group of members that are directly responsible for the situation assessment in the company. Basic Swot analysis is done fairly easily and comprises of only few steps:

Step 1. Listing the firm’s key strengths and weaknesses

Step 2. Identifying opportunities and threats

Strengths and Weaknesses

Strengths and weaknesses are the factors of the firm’s internal environment. When looking for strengths, ask what do you do better or have more valuable than your competitors have? In case of the weaknesses, ask what could you improve and at least catch up with your competitors?

Where to look for them?

Some strengths or weaknesses can be recognized instantly without deeper studying of the organization. But usually the process is harder and managers have to look into the firm’s:
Resources: land, equipment, knowledge, brand equity, intellectual property, etc.

Core competencies

Capabilities

Functional areas: management, operations, marketing, finances, human resources and R&D

Organizational culture

Value chain activities

Strength or a weakness?

Often, company’s internal factors are seen as both, strengths and weaknesses, at the same time. It is also hard to tell if a characteristic is a strength (weakness) or not. For example, firm’s organizational structure can be a strength, a weakness or neither! In such cases, you should rely on:

Clear definition. Very often factors which are described too broadly may fit both strengths and weaknesses. For example, “brand image” might be a weakness if the company has poor brand image. However, it can also be a strength if the company has the most valuable brand in the market, valued at $100 billion. Therefore, it is easier to identify if a factor is a strength or a weakness when it’s defined precisely.

Benchmarking. The key emphasize in doing swot is to identify the factors that are the strengths or weaknesses in comparison to the competitors. For example, 17% profit margin would be an excellent margin for many firms in most industries and it would be considered as a strength. But what if the average profit margin of your competitors is 20%? Then company’s 17% profit margin would be considered as a weakness.

VRIO framework. A resource can be seen as a strength if it exhibits VRIO (valuable, rare and cannot be imitated) framework characteristics. Otherwise, it doesn’t provide any strategic advantage for the company.

Opportunities and threats 
Opportunities and threats are the external uncontrollable factors that usually appear or arise due to the changes in the macro environment, industry or competitors’ actions. Opportunities represent the external situations that bring a competitive advantage if seized upon. Threats may damage your company so you would better avoid or defend against them.

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