SWOT and Strategy

EXPRESS_17600 | Strategy

The following presentation will be a review of the essential elements of creating a strategy. This is your first

challenge as you take over the management and leadership of the HISCO Corporation. Creating a strategy is the

initial condition to successfully growing your business.

Strategy is one of the buzzwords we have all heard. There are a wide variety of definitions that we believe can be

distilled down to the following: It is a plan to create sustainable competitive advantage and value creation from

differentiation. There are many key interrelated concepts in this definition that we expect you will put into practice

during your management and leadership with HISCO. While definitions can vary, the critical operating aspect of

strategy is that it is your compass when making business decisions.

In all types of business and operating reviews, we hear time and time again in both real-world and educational

applications that the majority of variances to plan can be attributed to lack of alignment between the decisions and

the strategy. For example, in an oligopoly of three competitors one of your goals is market share leadership, and

your result is for 20% share. Somewhere there was a disconnect between the goal and the operating decisions.

Of course, recognizing competitive interaction does take place.

You will have many paths to choose. There is no 100% correct path, and all involve return risk tradeoffs. Which

path will you choose for HISCO while being flexible and having options to change if market conditions warrant?

The hierarchy of business strategy is a balance of short and long term, micro and macro, and soft and hard skills

with your values or belief system as the boundary conditions that surround everything. The hierarchy starts with

an understanding of PEST and SWOT analysis, which will be detailed on our next page. This will drive the market

dynamics from industrial organization economics known as Porter's Five Forces: the power of suppliers and

buyers, competition, threaten of substitutes, and new entrants.

There is an oft mentioned sixth force known as complementors. That's the value that can be created from joint

activities or a simple 1 plus 1 equal 3. For example, having a hot dog with a bun, having tourism and airlines

connected industries.

The firm's specific resources are related to the aforementioned soft and hard skills. Examples are people in key

technology, and they can truly give you competitive advantage. Within this area is the competitive advantage that

comes from a continuous education for all employees.

Mission and vision are words that are often used interchangeably with strategy. And very simple. Mission is why

we exist. And vision is what we want to be.

When we combine all of the areas above, this is when we can create our strategy or our competitive game plan.

We will need a system to measure our successes and failures. And these measures can be both financial and

non-financial. Naturally, the non-financial will have financial implications.

And one of the ways to do this is through what is commonly known as a balanced scorecard. It will be critical to

ensure that decisions are aligned with strategy and be prepared to change when necessary. So feedback loops

will be an active part of the entire process. This is what will be known as variance analysis in your management of

the HISCO Corporation.

All of this leads to what we like to call meeting commitments through execution to create shareholder value, the

ultimate combination of the aforementioned short and long term. Winston Churchill said it best in terms of this

combination when he is often quoted as saying, "However beautiful the strategy, you should occasionally look at

the results.".

Nothing beats seeing practical examples. The following are real-world corporate strategies across global

industries and geographies. All are relatively easy to understand, explain, and communicate, and should allow for

employees regardless of level define themselves and how they can contribute to the growth of the business. We

will not be going into extreme detail on each, but will highlight some of the important characteristics.

Our first is a company called Agilent Technologies. And their desire is to be the measurement solutions partner to

every engineer, service provider, and scientist in the electronics and bioanalytical marketplaces. And they strive

for a balance, a balance of the needs of employees, customers, and shareholders.

Our second is Air Liquide, the French industrial gas business. And like many companies, they talk about strategic

pillars, the pillars of competitiveness, targeted investments, and continuous innovation. Our third is Stanley Black

and Decker where they discuss continued organic growth, being selective and operating in markets where certain

conditions are met, and pursuing acquisitive growth.

Our fourth is a company called an Exelis, an aerospace contractor. And while looking detailed, if you were to look

at the strategic summary you can see that they have four pillars. Growth, profitability, performance, and people.

And they're striving to create and find a balance between the needs of customers, employees, and shareholders.

Very similar to the Agilent Technologies story.

Our fifth is Heinz. Heinz is a very unique company. And one of the interesting things about this particular strategy

is that while they talk about many of the things they want to do, please note they also mention what they will not

do or are not worried about achieving in terms of not being the biggest. And our sixth is GE. GE has been

undergoing a repositioning of its business in the past few years as it changes from being both financial services

and industrial to being an industrial corporation.

And down in the lower right-hand corner they talk about their enterprise advantages. Well, these are their

competitive advantages. These are their strategic pillars, very similar to what we saw in the other companies.

Now in all cases, obviously, the fact that there are strategies does not guarantee their success. The strategy is,

however, a great compass in leading their day-to-day decision making.

PEST and SWOT are tools often used to formulate a business strategy as seen on the prior page. PEST--

political, economic, social, and technological analysis-- is a framework of external factors in what is commonly

known as the environmental scanning piece of strategy derivation. All of these factors can influence your

business.

Numerous authors over the years have added to the acronym. We believe that all the additions like demographic

and legal can logically be subsumed in the original PEST. Regardless of how many additions were made, the

critical question is an understanding of where is change taking place in the environment. This is what may truly

allow an organization to grow, assuming they are competitively advantaged to own the risk associated with the

change.

SWOT is a self appraisal of your perceived strengths, weaknesses, opportunities, and threats. And as part of this

analysis, logically, we want to build on our strengths, resolve our weaknesses, exploit our opportunities, and avoid

threats. This chart depicts a logical and non-exhaustive sample of questions that need to be answered.

Notice how PEST appears in opportunities and threats as the first question. These are questions you may want to

consider as you do HISCO's SWOT analysis. As before, nothing beats seeing real-world examples. The next two

are SWOT as applied to Coca-Cola and Procter and Gamble. While these examples tend to be consumer

oriented, the concept is applicable across all industrial segments of the global economy.

To us, the beauty is in the simplicity, for ease of explanation and understanding. Note SWOT analysis tends to be

very qualitative in nature. Recognize that SWOT and PEST are very interrelated and are critical tools to

developing a solid strategy. PEST drives directly to the opportunities and threats because of their external focus.

We have now reviewed the basic elements of strategy, PEST, and SWOT analysis, recognizing they are all

interlinked and essential to successfully growing a business in the short and long term. As we approach the final

countdown to your managing and leading HISCO, there are a variety of issues for you to consider.

Your next challenge is to create your winning strategy in supporting SWOT analysis. A PEST analysis had been

undertaken when your owner originally invested in the medical industry. Naturally, you will need to be continually

aware of changes within that macro environment.

Subsequent to your strategy and SWOT, you will be formulating your annual operating budget / plan. The key is

ensuring your operating decisions are aligned with your strategy to maximize the probability of achieving your

short- and long-term goals via a balanced return-risk tradeoff. And finally, we had referenced Porter's Five Forces.

These will be part of your quarterly and annual operating reviews.

Copies of this presentation are available in the Help section under supplementary reading materials. To reiterate,

the entire strategy pitch can be found in the supplementary review materials of the Help section.