CI

The essential mix: six tools for strategy-making in the next decade

Kurt Wurthmann

E ffective strategy-making, the process of analyzing the external and internal

environments of an organization and using the analysis to formulate a strategy, is

essential for organizations to survive and thrive. Many people, in diverse positions

throughout organizations, must be involved in a process that combines both top-down and

bottom-up movement of information and ideas to achieve effective strategy-making. For

example, Pascale (1996) observed that it is rare for one leader to produce a “bold strategy

that guides a firm unerringly” but far more common for the key input to come from below in

the organization.

Given the critical need for so many individuals to be involved in strategy-making, coupled

with its existential significance for organizations, it is not surprising that there have been

thousands of articles and books written on the subject and that virtually all business schools

include strategy in their core curricula. Years of focus by practitioners and academics have

produced a great many valuable tools for strategy-making. But the downside of this

proliferation is that it has created confusion about which tools to select and how the

selected tools should be applied for efficient strategy-making.

The purpose of the present article is to reduce this confusion by providing a

comprehensive, yet succinct, procedure for strategy-making that is based on a unique

integration of six of the most widely recognized and well-established tools in the field.

By applying this article’s procedure, strategists can systematically produce an explicit

strategy that is based on identification, prioritization, and deep understanding of the

essential strategic issues. These outcomes are, in turn, based on theory-driven

interpretations of cited, factual evidence. A key benefit of the procedure is that it allows

full traceability of the historical development of the strategy, which includes

consideration of the specific evidence and reasoning used by the developers of the

strategy, at each stage of its development. This traceability facilitates revision of the

strategy and allows knowledge transfer to new people who become involved in later

iterations of the strategy-making process.

Defining the key terminology and identifying the boundaries of the procedure

Given the expansiveness of the field of strategy, there are a variety of ways in which its

concepts have been defined. Thus, before describing the proposed procedure for strategy-

making, it is useful to briefly specify how this article defines some of the key concepts and

identify the boundaries of this article’s procedure.

The term “strategy” is defined in the present article as a comprehensive, cohesive,

externally- and internally-oriented PLAN that provides a coordinated means for achieving

the organization’s vision, mission, and objectives while upholding its core values. There are

Kurt Wurthmann is based at

Nova Southeastern

University, Fort Lauderdale,

Florida, USA.

PAGE 38 j JOURNAL OF BUSINESS STRATEGY j VOL. 41 NO. 1 2020, pp. 38-49, © Emerald Publishing Limited, ISSN 0275-6668 DOI 10.1108/JBS-09-2018-0147

several aspects of this article’s definition of the notion of strategy which are noteworthy.

First, while some articles define strategy using more abstract terms such as a “concept” or

“set of decisions”, in the present article, strategy is defined as a “plan”. This is done

because the focus of the present article is on developing strategies that can be explicitly

specified as written documents. Second, strategy is defined as being a comprehensive

plan as a good strategy should address all relevant issues (Hambrick and Fredrickson,

2001). Third, strategy is defined as being a cohesive plan as the elements of a good

strategy should be integrated and mutually reinforcing (i.e. there should be good “fit”

among the elements of the strategy) (Hambrick and Fredrickson, 2001). Fourth, strategy is

defined as being an externally- and internally-oriented plan as “for a strategy to be

successful, it must be consistent with the [organization’s] external environment, and with its

internal environment” (Grant, 2008, p. 12).

Fifth, strategy is defined as a plan that provides a coordinated means for achieving the

organization’s vision, mission, and objectives while upholding its core values to distinguish

the “strategy” from its many closely related concepts (i.e. vision, mission, objectives, and

core values). The emphasis is on applying six tools in a seamlessly integrated manner to

determine the organization’s strategy, and not any of the other related concepts. However,

many of the tools comprising the strategy-making procedure could be applied in

developing some of the other concepts related to setting a direction for the organization,

such as vision, mission, etc.

It is also noteworthy that the process of strategy-making, which includes analyzing the

organization’s external and internal environments and using the analysis to formulate a

strategy, can be viewed as the complement to the process of strategy-executing, which

includes implementation and monitoring and measuring outcomes and performance results

(Thompson, 2018/2019). Strategy-making and strategy-executing are inextricably

intertwined, iterative, and interdependent, so neither can succeed without the other (Mason

and Sanders, 2009). Although the present article does not explicitly focus on strategy-

executing or on unplanned strategies that emerge during strategy-executing, these issues

are implicitly considered. In particular, the strategy-making procedure includes analysis

and revision of the strategy that was most recently executed by the organization, which

includes the earlier iteration of the deliberately planned strategy and any unplanned

strategies that emerged during its execution.

A seamless, systematic procedure for strategy-making

Consistent with prior research (Christensen et al., 1982; Grant, 2008), the strategy-making

procedure developed in this article views strategy as a link between factors in the

organization’s internal and external environments. Accordingly, the procedure includes

analysis of factors in the same broad realms as those considered when designing

strategies based on what is likely the most enduring, influential, and widely-used tool in

strategy, the SWOT analysis that focuses on assessing the Strengths and Weaknesses

within the organization and the Opportunities and Threats in its external environment

(Ansoff, 1968; Christensen et al., 1982; Jarzabkowski et al., 2009). However, because there

are significant criticisms related to the use of SWOT as a stand-alone tool for strategy

development (Agarwal et al., 2012; Fehringer, 2007; Hill and Westbrook, 1997), I take an

approach to strategy-making that overcomes many of these shortcomings. A typical

process generates long lists of Strengths, Weaknesses, Opportunities, and Threats, using

an unsystematic process, with no prioritization or supporting data and objective, theory-

based analysis and no links to strategy formulation. Instead, this article seamlessly

integrates techniques for applying a parsimonious set of four widely-used tools for

analyzing the organization’s internal and external environments, drawing on the

fundamental theories which underlie the tools, with techniques for applying two additional

tools to synthesize the output of the analysis and formulate a strategy. While the procedure

VOL. 41 NO. 1 2020 j JOURNAL OF BUSINESS STRATEGY j PAGE 39

(with minor adjustments) is applicable to organizations of diverse types, the remainder of

the article discusses how the procedure can be used for strategy-making for existing

business enterprises. Southwest Airlines Company is used as the focal firm in illustrating

some of the techniques.

Systematic analysis of the organization’s external environment

Identification, understanding, and prioritization of opportunities and threats in the firm’s

macro-environment are accomplished by recognizing and evaluating forces or secular

trends that exist outside of the firm and its industry. To structure this analysis, the macro-

environment is categorized into six broad areas: political, economic, sociocultural,

technological, ecological and legal. The acronym spelled by the first letters of these six

broad areas, PESTEL, is often used to describe this approach to analyzing opportunities

and threats in a firm’s macro-environment. (Aguilar, 1967; Mason and Sanders, 2009).

Trends in the PESTEL areas generally differ across countries and regions. Thus, the number

of possible trends to consider is enormous. To avoid information overload and make

PESTEL analysis cost effective, it is generally (and herein) recommended that the emphasis

be placed on identifying trends that are most relevant to the firm and its industry (Grant,

2008).

I recommend that the macro-environment be analyzed using a systematic approach, which

includes completing each cell in the rows in Table I in accordance with the specifications in

the corresponding column headings. Table I shows the required information for each cell,

specified in the column headings, and one completed example row for a sociocultural trend

in the macro-environment, which is relevant to Southwest Airlines Company and the US

Airline Industry. By providing the information and cited evidence specified in Table I,

strategists create a living document that can be revised over time and allows for full

traceability of the reasoning and data used to identify and prioritize the trends in each of the

PESTEL areas. This fine-grained analysis also provides for greater depth of understanding

about the macro-environment, which facilitates strategy formulation.

Table I specifies the use of high, medium or low ratings for prioritizing the PESTEL trends in

columns 2 and 3, according to the two dimensions:

1. probability that the PESTEL trend will occur; and

2. probable impact on the focal firm, if the PESTEL trend does occur.

However, if greater precision for this prioritization of macro-environmental opportunities and

threats is needed, an ordinal series consisting of more than three levels could be used for

assigning the ratings in Columns 2 and 3, along with an appropriately modified prioritization

scheme to be used in Column 4.

Identification, understanding, and prioritization of opportunities and threats in the firm’s

industry are accomplished using Porter’s Five Forces analysis tool. This tool is based on

perspectives from industrial organization (IO) Economics and the structure-conduct-

performance paradigm, which suggest that industry structural characteristics (e.g. numbers

and relative sizes of firms in industries, industry growth rates, etc.) determine the conduct of

firms within industries, which, in turn, determine industry and firm performance outcomes.

Porter’s Five Forces model allows assessment of the intensity of competition and ultimate

profit potential in an industry as a function of the collective strength of five forces: rivalry

among competitors, threat of new entrants, threat of substitutes, and bargaining power of

buyers and suppliers (Porter, 1980). Porter’s Five Forces analyses often involve analysts

opportunistically focusing on a small subset of factors with the most obvious impacts on

each of the five forces and providing qualitative descriptions of likely outcomes.

However, I recommend that industries be analyzed in a more comprehensive and

systematic manner, which includes the following steps: First, the boundaries of each of the

PAGE 40 j JOURNAL OF BUSINESS STRATEGY j VOL. 41 NO. 1 2020

T ab

le I

M ac

ro -e nv

iro nm

en ta la na

ly si s – S ou

th w es

tA irl in es

T h e m o s t s ig n if ic a n t P o lit ic a l, E c o n o m ic ,

S o c io c u lt u ra l, T e c h n o lo g ic a l,

E c o lo g ic a l, a n d L e g a lt re n d s , h a v in g

re le v a n c e to

th e fo c a lf ir m

a n d it s

in d u s tr y , in c lu d in g a fu ll d e s c ri p ti o n o f

e a c h tr e n d a n d c it e d , s u p p o rt in g

e v id e n c e

R a ti n g (H

ig h , M e d iu m , L o w ) o f th e

p ro b a b ili ty o f o c c u rr e n c e o f th e tr e n d

id e n ti fi e d in c o lu m n 1 , in c lu d in g c it e d ,

s u p p o rt in g e v id e n c e

C a te g o ri z a ti o n o f th e tr e n d id e n ti fi e d in

c o lu m n 1 a s e it h e r a th re a t o r o p p o rt u n it y

fo r th e fo c a lf ir m

& R a ti n g (H

ig h , M e d iu m ,

L o w ) o f th e p ro b a b le m a g n it u d e o f im

p a c t

o f th e tr e n d o n th e fo c a lf ir m

(c o n d it io n a l

o n th e tr e n d o c c u rr in g ), in c lu d in g c it e d ,

s u p p o rt in g e v id e n c e

Id e n ti fy w h e th e r th e c o lu m n 1 tr e n d

is a n o p p o rt u n it y o r th re a t a n d

in d ic a te

it s p ri o ri ty

le v e la s fo llo w s :

H ig h e s t (p ri o ri ty

1 ) = h ig h in b o th

c o lu m n s 2 a n d 3 ; P ri o ri ty

2 = h ig h /

m e d iu m

o r m e d iu m /h ig h in c o lu m n s

2 a n d 3 , re s p e c ti v e ly ; P ri o ri ty 3 =

m e d iu m

in b o th

c o lu m n s 2 a n d 3 o r

h ig h /l o w o r lo w /h ig h in c o lu m n s 2

a n d 3 , re s p e c ti v e ly ; P ri o ri ty

4 =

m e d iu m /l o w o r lo w /m

e d iu m

in

c o lu m n s 2 a n d 3 , re s p e c ti v e ly ;

P ri o ri ty

5 = lo w in b o th

c o lu m n s 2

a n d 3

C o lu m n 1

C o lu m n 2

C o lu m n 3

C o lu m n 4

E x a m p le S O C IO

C U L T U R A L T re n d :

In c re a s in g U S d e m a n d fo r le is u re

a ir

tr a v e lw

it h a c c o m m o d a ti o n s fo r s e n io rs

th ro u g h 2 0 3 0 . E v id e n c e : B a b y b o o m e rs

w ill d o m o re

tr a v e lin g b y a ir a s th e y

re ti re

a n d re m a in th e la rg e s t p u rc h a s in g

d e m o g ra p h ic fo r le is u re

a ir tr a v e lf o r

m o re

th a n a d e c a d e (c it e 1 ). A to p

c o n c e rn

fo r o ld e r A m e ri c a n s tr a v e lin g

b y a ir is h a v in g s u it a b le

a c c o m m o d a ti o n s (c it e 2 )

T h e p ro b a b ili ty o f th e c o lu m n 1 tr e n d

o c c u rr in g is H ig h .

E v id e n c e : T h e re ti re m e n t ra te

is

p re d ic te d to

e x c e e d 1 0 ,0 0 0 p e o p le p e r

d a y in th e U S b e tw e e n 2 0 1 1 a n d 2 0 3 0

(c it e 3 ). In

2 0 1 5 , 5 8 p e r c e n t o f B a b y

b o o m e rs

tr a v e le d fo r le is u re

b y a ir ,

ta k in g a n a v e ra g e o f 2 -3

tr ip s d u ri n g th e

y e a r (c it e 4 )

T h e c o lu m n 1 tr e n d is a n O p p o rt u n it y w it h

a H ig h P ro b a b le Im

p a c t o n S o u th w e s t

A ir lin e s if it o c c u rs .

E v id e n c e : T h e m a jo ri ty

o f B a b y B o o m e rs

p re fe r d o m e s ti c tr a v e la n d s a v in g m o n e y

o n fl ig h ts s o th e y c a n s p e n d m o re

a t th e ir

d e s ti n a ti o n s (c it e 5 ). R e c o g n iz in g th e

n e e d s o f th e la rg e B a b y B o o m e r m a rk e t,

B o e in g is d e v e lo p in g m o re

a g e fr ie n d ly

a ir c ra ft (c it e 6 ). S o u th w e s t A ir lin e s fo c u s e s

o n lo w fa re s a n d th e d o m e s ti c m a rk e t a n d

it s fl e e t is e x c lu s iv e ly B o e in g 7 3 7 a ir c ra ft

(c it e 7 )

P ri o ri ty

1 O p p o rt u n it y

VOL. 41 NO. 1 2020 j JOURNAL OF BUSINESS STRATEGY j PAGE 41

industries in which the focal firm competes or intends to compete should be defined. This

step could involve developing one or more strategic group map(s) to define which firms

constitute the group of firms the analyst considers to be the rivals in each industry in which

the focal firm competes, as well as the relative sizes and market positions occupied by each

of the rivals in each of the relevant industries (Thompson, 2018/2019).

Then, for each industry, it is recommended that strategists complete a separate Five Forces

analysis, using the systematic approach illustrated in Table II and including information and

ratings for all factors identified by Porter (1980) and other reference sources as relevant for

determining the strength of each of the five forces. The ratings allow the identification and

prioritization of the factors and forces that provide the most significant, industry-based,

opportunities (those with the lowest ratings, indicating the forces are weakest) and threats

(those with the highest ratings, indicating the forces are strongest).

Table II shows the required information for each cell, specified in the column headings, and

one completed example row for one of the factors identified by Porter (1980) “equally

balanced competitors” as relevant for determining the strength of one of the five forces

“rivalry among competitors”, for the US airline industry. By providing the information and

cited evidence specified in Table II, strategists create a living document that can be revised

over time and allows for full traceability of the reasoning and data used to identify and

prioritize the relevant factors contributing to the strength of each of the Porter’s Five Forces

in the relevant industries. This fine-grained analysis also provides for greater depth of

understanding about the relevant industries, which facilitates strategy formulation.

Systematic analysis of the organization’s internal environment

Identification, understanding, and prioritization of the strengths and weaknesses within the

firm (the internal environment) are accomplished using two tools: value chain (Porter, 1985)

and resource-based view (RBV) analysis (Barney, 1991, 2010). First, according to Porter

(1985), all of the activities performed by companies internally are chained together into a

value chain. In particular, the goal of creating value for customers causes all of the activities

the company performs to be chained together into meaningful groups. In value chain

analysis, there are two broad categories of groups of activities, referred to as primary and

support activities. Primary activities are the main activities companies perform to create

value for their customers (e.g. operations, logistic, marketing and sales and service), while

support activities (e.g. firm infrastructure, human resource management, research &

development, and procurement) facilitate and enable companies to execute their primary

activities. The specific primary and support activities deployed are different for different

companies, based on the specific characteristics of each company’s approach to creating

value. All primary and support activities performed by the focal firm should be specified, in

significant detail, using Porter’s (1985) approach to value chain analysis.

Second, a RBV analysis (Barney, 1991, 2010) should be conducted. Barney (2010, p. 143)

defines resources as “all assets, capabilities, competencies, organizational processes, firm

attributes, information, knowledge, and so forth that are controlled by a firm and that enable

the firm to conceive of and implement strategies that improve its efficiency and

effectiveness.” The RBV of the firm focuses on resources possessed by firms that are

Valuable, Rare, Inimitable, and exploitable based on the Organizational characteristics of

the firm (VRIO) and, therefore, potential sources of competitive advantage for the firm

(Barney, 2010). According to Barney (2010), a resource is:

� “valuable” if it enables exploitation of opportunities or neutralization of threats;

� “rare” if it is possessed by fewer firms than would be needed to generate perfect

competition dynamics in the industry;

PAGE 42 j JOURNAL OF BUSINESS STRATEGY j VOL. 41 NO. 1 2020

T ab

le II

In du

st ry

an al ys is us

in g po

rt er ’s fi ve

fo rc es

m od

el – U S ai rli ne

in du

st ry

N a m e e a c h fa c to r th a t d e te rm

in e s th e s tr e n g th

o f e a c h o f th e 5 fo rc e s a n d in c lu d e c it e d

e v id e n c e a b o u t th e s it u a ti o n in th e in d u s tr y

b e in g a n a ly z e d . G ro u p th e fa c to rs

to g e th e r

u n d e r e a c h re le v a n t fo rc e

R a te

(o n a s c a le o f 1 -5 ) th e e x te n t to

w h ic h th e fa c to r in c o lu m n 1 w o u ld

b e

e x p e c te d to

c a u s e th e a s s o c ia te d

P o rt e r’ s fo rc e to

b e w e a k e r=

1 v s .

s tr o n g e r= 5 . A ls o , c a lc u la te

th e a v e ra g e

o f th e ra ti n g s fo r a ll fa c to rs , a s s o c ia te d

w it h e a c h o f th e fi v e fo rc e s , to

in d ic a te

th e o v e ra ll s tr e n g th

o f e a c h fo rc e . A ls o ,

c a lc u la te

th e a v e ra g e o f th e o v e ra ll

s tr e n g th s o f th e fi v e fo rc e s , to

in d ic a te

th e o v e ra ll c o m p e ti ti v e in te n s it y o f th e

in d u s tr y

B ri e fl y e x p la in w h y th e e v id e n c e re la te d

to th e fa c to r in c o lu m n 1 ju s ti fi e s th e 1 -5

ra ti n g a s s ig n e d to

th e fa c to r in c o lu m n

2 . In c lu d e c it a ti o n s to

P o rt e r (1 9 8 0 ) o r

o th e r s tr a te g y lit e ra tu re

th a t s u p p o rt s

th e e x p la n a ti o n s o f th e a s s ig n e d fa c to r

ra ti n g s

P ri o ri ti z e th e fa c to rs

a n d fo rc e s

th a t re p re s e n t o p p o rt u n it ie s

(h ig h e s t- p ri o ri ty

1 = ra ti n g s o f

1 ; p ri o ri ty

2 = ra ti n g s o f 2 ) v s .

th re a ts (h ig h e s t- p ri o ri ty

1 =

ra ti n g s o f 5 ; p ri o ri ty

2 = ra ti n g s

o f 4 )

C o lu m n 1

C o lu m n 2

C o lu m n 3

C o lu m n 4

F O R C E 1 : R iv a lr y a m o n g c o m p e ti to rs

F O R C E 1 : F a c to r 1 ‘‘E

q u a lly

b a la n c e d

c o m p e ti to rs ’’ E v id e n c e : In

2 0 1 7 , th e U S a ir lin e

in d u s tr y c o n s is te d o f s ix a ir lin e s w it h th e

fo llo w in g m a rk e t s h a re s , b a s e d o n d o m e s ti c

re v e n u e p a s s e n g e r- m ile s fo r th e y e a r: A m e ri c a n

2 3 .3 % , S o u th w e s t 2 3 .2 % , D e lt a 2 1 .4 % , U n it e d

1 9 % , J e t B lu e 7 % , a n d A la s k a 6 .1 %

(c it e 8 )

4 E x p la n a ti o n : 8 0 %

o f th e U S a ir lin e

in d u s tr y is c o n tr o lle d b y fo u r ri v a ls ,

w h ic h a re

e q u a lly

b a la n c e d in s iz e a n d

re s o u rc e s , th u s c a u s in g th e ri v a lr y

a m o n g c o m p e ti to rs

to b e h ig h . C it a ti o n :

“E v e n w h e re

th e re

a re

re la ti v e ly fe w

fi rm

s , if th e y a re

re la ti v e ly b a la n c e d in

te rm

s o f s iz e a n d p e rc e iv e d re s o u rc e s ,

it c re a te s in s ta b ili ty

b e c a u s e th e y m a y

b e p ro n e to

fi g h t e a c h o th e r a n d h a v e

th e re s o u rc e s fo r s u s ta in e d a n d

v ig o ro u s re ta lia ti o n ” (P o rt e r, 1 9 8 0 , p . 1 8 )

P ri o ri ty 2 T h re a t

F O R C E 1 : F a c to rs

2 -j

.. .

.. .

.. .

O v e ra ll s tr e n g th

o f F O R C E 1 : R iv a lr y a m o n g

c o m p e ti to rs

= a v e ra g e o f F O R C E 1 : fa c to rs

1 -j

F O R C E S 2 -5 : F a c to rs

O v e ra ll s tr e n g th

o f A L L fi v e fo rc e s (=

o v e ra ll

in d u s tr y a tt ra c ti v e n e s s )

A V E R A G E o f a ll O v e ra ll s tr e n g th

ra ti n g s

fo r a ll 5 F O R C E S (i .e . th e a v e ra g e o f th e

fi v e a v e ra g e s )

VOL. 41 NO. 1 2020 j JOURNAL OF BUSINESS STRATEGY j PAGE 43

� “inimitable” if it is imperfectly imitable, due to unique historical conditions, causal

ambiguity, or social complexity, or non-substitutable, due to there being no

strategically equivalent resources; and

� only useful if the firm is “organized” appropriately to exploit the resource.

Note that rating whether a resource is valuable requires referencing the previously

completed analysis of the external environment to determine whether the resource allows

exploitation of any of the identified opportunities or avoidance of any of the identified threats

(Barney, 1991). Thus, the analysis of the external environment should be performed before

the analysis of the internal environment.

The RBV analysis should be performed using a systematic approach, which includes

completing each cell in the rows in Table III, in accordance with the specifications in the

corresponding column headings. Table III enables the systematic development of an

inventory of the firm’s strengths and weaknesses, which is based on detailed information

about and prioritization of the resources that either underlie the individual activities specified

in the firm’s value chain or create links across multiple activities. Thus, value chain analysis

should be completed prior to RBV analysis. The Yes/No ratings for the VRIO characteristics

(Columns 2-5 in Table III), which are made in accordance with the definitions provided in

the preceding paragraph for each of the identified resources (Column 1 in Table III), allow

these attributes to be categorized as either strengths or weaknesses and assigned an

ordinal priority level (Column 7 in Table III).

Based on guidance provided by Barney (2010), the following three priority levels for

strengths (from highest to lowest priority) are proposed: Priority 1 strength = Yes ratings in

Columns 2-5; Priority 2 strength = Yes ratings in Columns 2, 3 and 5; and Priority 3

strength = yes ratings in Columns 2 and 5. Newly developed in the present article and

based on the assumption that there is a higher probability that the firm can be reorganized

to be capable of exploiting valuable resources versus that the external environment will

change in an unanticipated way, causing resources that are not valuable to become

valuable, the following seven priority levels for weaknesses (from highest to lowest priority)

are proposed: Priority 1 weakness = Yes ratings in Columns 2-4 (could become a Priority 1

strength if the firm could be reorganized to be capable of exploiting the resource); Priority 2

weakness = Yes ratings in Columns 2 and 3 (could become a Priority 2 strength if the firm

could be reorganized to be capable of exploiting the resource); Priority 3 weakness = Yes

rating in Column 2 (could become Priority 3 strength if the firm could be reorganized to be

capable of exploiting the resource); Priority 4 weakness = Yes ratings in Columns 3-5 (could

become a Priority 1 strength if the external environment changes, causing the resource to

become valuable); Priority 5 weakness = Yes ratings in Columns 3 and 5 (could become

could become a Priority 2 strength if the external environment changes, causing the

resource to become valuable); Priority 6 weakness = Yes rating in Column 5 (could become

a Priority 3 strength if the external environment changes, causing the resource to become

valuable); Priority 7 weakness = No ratings in Columns 2-5.

Table III shows the required information for each cell, specified in the column headings, and

one completed example row for the resource “Southwest Airlines’ unique corporate culture”.

By providing the information and cited evidence specified in Table III, strategists create a

living document that can be revised over time and allows for full traceability of the reasoning

and data used to identify and prioritize the resources of the firm. This fine-grained analysis

also provides for greater depth of understanding about the strengths and weaknesses

within the firm’s internal environment, which facilitates strategy formulation.

Developing a list of new alternative strands of strategies

To develop a list of strands or pieces of potential new strategies, based on a synthesis of

the analyses of the external and internal environments previously completed, it is proposed

PAGE 44 j JOURNAL OF BUSINESS STRATEGY j VOL. 41 NO. 1 2020

T ab

le III

A na

ly si s of

co m pa

ny st re ng

th s an

d w ea

kn es

se s us

in g R B V – S ou

th w es

tA irl in es

E a c h ro w p ro v id e s a d e s c ri p ti o n

o f o n e o f th e fi rm

’s re s o u rc e s

a n d c it a ti o n s to

s o u rc e s th a t

v e ri fy it s e x is te n c e

R a te

(Y e s /N o )

w h e th e r th e

re s o u rc e is

V A L U A B L E

R a te

(Y e s /N 0 )

w h e th e r th e

re s o u rc e is

R A R E

R a te

(Y e s /N 0 )

w h e th e r th e

re s o u rc e is

IN IM

IT A B L E

R a te

(Y e s /N 0 )

w h e th e r th e fi rm

is O R G A N IZ E D

to e x p lo it th e

re s o u rc e

E a c h ro w p ro v id e s b ri e f

ju s ti fi c a ti o n s , b a s e d o n c it e d

e v id e n c e , fo r th e Y e s /N o ra ti n g s

s p e c if ie d in c o lu m n s 2 -5

In d ic a te

th e p ri o ri ty

le v e lo f

th e s tr e n g th

o r w e a k n e s s

C o lu m n 1

C o lu m n 2

C o lu m n 3

C o lu m n 4

C o lu m n 5

C o lu m n 6

C o lu m n 7

S o u th w e s t A ir lin e s ’u n iq u e

c o rp o ra te

c u lt u re

o f a m a v e ri c k

s p ir it a n d p ro v id in g fu n a n d

g re a t s e rv ic e , w h ic h w a s

e s ta b lis h e d a n d fo s te re d b y

fo u n d e r H e rb

K e lle h e r a n d is

d e e p ly a c c e p te d a n d b ro a d ly

h e ld

b y e m p lo y e e s a t a ll le v e ls

(I n k p e n , 2 0 1 7 ). A t S o u th w e s t,

e m p lo y e e s -n o t c u s to m e rs -

c o m e fi rs t “W

h e n y o u tr e a t

[e m p lo y e e s ] ri g h t, th e n th e y w ill

tr e a t y o u r o u ts id e c u s to m e rs

ri g h t” (B ro o k e r, 2 0 0 1 ). T h e

“S o u th w e s t W a y ”: w a rr io r s p ir it ,

s e rv a n t’ s h e a rt , fu n -L U V in g

a tt it u d e , s a fe ty a n d re lia b ili ty ,

fr ie n d ly c u s to m e r s e rv ic e , lo w

c o s ts (S o u th w e s ta ir , 2 0 1 8 )

Y e s

Y e s

Y e s

Y e s

V A L U E : M a n y S o u th w e s t

e x e c u ti v e s b e lie v e th a t th e

fi rm

’s c u lt u re

fo s te rs

h ig h la b o r

p ro d u c ti v it y , lo w e r c o s ts , a n d is

th e k e y to

c o m p e ti ti v e

a d v a n ta g e (T h o m p s o n ,2 0 1 8 /

2 0 1 9 ). S o u th w e s t is

O R G A N IZ E D to

e x p lo it it s

c u lt u re : “E v e ry

e m p lo y e e is

re s p o n s ib le fo r p ro m o ti n g a n d

p re s e rv in g o u r c u lt u re

[. .. ] O u r

c u lt u re

is w o v e n in to

a ll a s p e c ts

o f o u r b u s in e s s ” (S o u th w e s ta ir ,

2 0 1 8 ). R A R E A ll U S m a jo rs

b e s id e s S o u th w e s t u s e h u b -

a n d -s p o k e o p e ra ti o n s , v a ri o u s

a m e n it ie s , a n d a re

w it h o u t th e

d is ti n c ti v e c u lt u re

th a t

u n d e rp in s S o u th w e s t’ s s u c c e s s

(I n k p e n , 2 0 1 7 ). IN IM

IT A B L E In

s p it e o f d u p lic a ti n g m a n y

a s p e c ts o f S o u th w e s t’ s m o d e l,

C o n ti n e n ta lL it e , U S A ir w a y s ’

M e tr o je t, U n it e d A ir lin e s ’S

h u tt le

a n d T E D , a n d D e lt a ’s S o n g , a ll

fa ile d b e c a u s e th e y c o u ld

n o t

im it a te

S o u th w e s t’ s c u lt u re

(V o s s o u g h i, 2 0 1 3 )

P ri o ri ty 1 S tr e n g th

VOL. 41 NO. 1 2020 j JOURNAL OF BUSINESS STRATEGY j PAGE 45

that strategists develop a TOWS (SWOT spelled backwards) matrix (Weihrich, 1982).

Table IV illustrates the creation of a TOWS matrix to identify numerous alternative strands of

strategies, which address the potential options available at the intersections of various

subsets of the most important strengths and opportunities (SO alternatives), strengths and

threats (ST alternatives), weaknesses and opportunities (WO alternatives), and weaknesses

and threats (WT alternatives). Each of the alternative strands of strategies identified in

Table IV should include the following information:

� A brief description of the specific suggested action(s) that constitute the strategy

strand; and

� Identification of the specific intersecting row [&] column heading items addressed by

the specific suggested action(s).

For example, one of the key strengths of Southwest Airlines is that it has deep product

knowledge about the Boeing 737 type of aircraft because this is the only type of aircraft

Southwest uses to keep their operating costs low. A second key strength of Southwest

Airlines is that it operates the largest fleet of Boeing 737 aircraft in the world. A technological

opportunity available to airline companies is the recent development and FAA certification

(in 2017) of a new generation of Boeing 737 aircraft, named the 737 MAX. A sociocultural

opportunity available to airline companies is an increasing desire among customers to

patronize businesses that differentiate themselves as environmentally conscious. Thus, a

possible SO alternative strand of a strategy at the intersection of the two identified strengths

and the two identified opportunities would be for Southwest Airlines to leverage its

bargaining power as a high-volume, well-informed, repeat buyer of Boeing 737 aircraft to

obtain superior terms for upgrading their fleet to include a larger percentage of the

technologically superior, more fuel efficient, fourth-generation Boeing 737 MAX series

aircraft.

As the preceding example illustrates, it is not required that all identified strategy strands

address options at the intersections of just one row heading item matched with just one

column heading item. While strategy strands can be identified at one-to-one intersections

within the TOWS matrix, they can also be identified at one-to-many, many-to-one, and

many-to-many intersections.

Table IV Developing a list of new alternative strands of strategies using a TOWSmatrix

List of the 5 highest priority

STRENGTHS identified in Column 7 in

Table IIIa

List of the 5 highest priority

WEAKNESSES identified in Column 7 in

Table IIIa

List of the 5 highest priority

OPPORTUNITIES, representing a

combined list of 5 items with the highest

priority ratings assigned in Column 4 in

Tables I and IIb

SO alternatives: List of strands of

strategies that use subsets of the 5 most

important strengths to exploit subsets of

the 5 most important opportunities

WO alternatives: List of strands of

strategies that overcome subsets of the

5 most important weaknesses to exploit

subsets of the 5 most important

opportunities

List of the 5 highest priority THREATS

representing a combined list of 5 items

with the highest priority ratings assigned

in Column 4 in Tables I and IIb

ST alternatives: List of strands of

strategies that use subsets of the 5 most

important strengths to avoid subsets of

the 5 most important threats

WT alternatives: List of strands of

strategies that minimize subsets of the 5

most important weaknesses and avoid

subsets of the 5 most important threats

Notes: aIf it is impossible to select just five Strengths and five Weaknesses, based on the priority ratings in Column 7 Table III (e.g.

because there are multiple items with equally high priority ratings), strategists should take the following steps: Determine whether

additional information and analysis associated with producing Table III could produce revised priority ratings that would allow selection

of five strengths and five weaknesses; and if Step A fails, strategists should then draw on their experience, expertise, and intuition to

select just five Strengths and five Weaknesses from among the multiple items with equally high priority ratings. The reasoning for any

such intuition-based selections should be documented as footnotes in the completed Table IV; bStrategists should draw on their

experience, expertise, and intuition when merging lists of the highest priority items identified in Column 4 in Tables I and II, to select just

five Opportunities and five Threats to include in Table IV. The reasoning for such intuition-based selections should be documented as

footnotes in the completed Table IV

PAGE 46 j JOURNAL OF BUSINESS STRATEGY j VOL. 41 NO. 1 2020

Formulating a new strategy by combining what is working in the existing strategy with new alternative strands of strategies

Strategy-making for existing business enterprises involves revising and/or replacing parts

or the entirety of the firm’s current strategy with new strands of strategies, woven together to

form a complete strategy. It is recommended that strategists formulate the latest iteration of

a firm’s strategy using the strategy diamond tool. The strategy diamond specifies that a

good strategy should have five elements, addressing five main questions (as well as a

number of related sub-questions): “1. Arenas: Where will we be active? 2. Vehicles: how will

we get there? 3. Differentiators: How will we win in the marketplace? 4. Staging: What will be

our speed and sequence of moves? And 5. Economic Logic: How will we obtain our

returns?” (Hambrick and Fredrickson, 2001, p. 50)

Strategists should carefully analyze focal firm literature, firm and industry analyst reports,

and records of the firm’s decisions and actions and then fully specify the composition of the

focal firm’s current strategy. This specification should discuss plans, decisions, and actions

taken in each of the five elements of the strategy diamond, addressing each of the

associated questions. Then strategists should determine which elements of the existing

strategy appear to be working (i.e. still well-matched to the circumstances in the firm’s

internal and external environments and producing desirable strategic and performance

outcomes) and which elements do not appear to be working. Observations should also be

made of the extent to which any element(s) of the existing strategy are incomplete, missing,

or misaligned with respect to other elements of the strategy. Finally, strategists should draw

upon their experience, expertise, intuition, and creativity to select a subset of the strands of

strategies identified in Table IV, which address the highest priority Strengths, Weaknesses,

Opportunities, and Threats and best fill gaps or replace misaligned or poorly functioning

elements in the existing strategy.

The overall new strategy should be described in the format of the strategy diamond (i.e. in

outline form, with major categories corresponding to the five elements of the strategy

diamond – Arenas, Vehicles, Staging, Differentiators, and Economic Logic). Notes on how

the strategy will address the relevant issues should appear under the outline headings for

each of the five elements of a good strategy. Thus, consistent with recommendations by

Hambrick and Fredrickson (2001): aspects of the strategy that address the product or

service categories, market segments, geographic areas, core technologies, and value-

creation stages in which the firm will be active should be included under the Arenas

heading within the outline; aspects that address the mechanisms by which the firm will

grow, including through internal development, alliances, licensing, franchising, and

mergers and acquisitions, should be included under the Vehicles heading; aspects that

address how the firm will outcompete its rivals, including pricing, image, features,

customization, styling, quality, and reliability, should be included under the Differentiators

heading; aspects that address the proposed speed of expansion and sequence of

initiatives should be included under the Staging heading; and aspects that address the

means by which the firm will remain profitable, including economies of scale and scope,

experience curve advantages, and premium pricing based on key differentiators, should be

included under the Economic Logic. Strategists should include comments describing how

the new strategy is comprehensive (i.e. addresses all elements and all related questions of

the strategy diamond) and cohesive (i.e. all elements of the strategy diamond are mutually

reinforcing) and summarize any significantly new directions versus the existing strategy.

Significance, benefits and relevance of the procedure for strategy-making

This article discusses new classroom-tested techniques for applying six essential tools,

within an integrated procedure for strategy-making. As the procedure incorporates

consideration of the previous strategy that was actually implemented by the organization, as

a determinant of the new strategy, it connects strategy-making and executing in an iterative

VOL. 41 NO. 1 2020 j JOURNAL OF BUSINESS STRATEGY j PAGE 47

process. Thus, the procedure merges two perspectives on strategy formation: that strategy

is intentionally created through forward-looking, analytical planning versus the perspective

that strategy emerges through backward-looking retrospective sense-making of patterns of

actions that have worked in the past (Mintzberg, 1987). As the procedure seamlessly

integrates analysis of the organization’s external and internal environments with strategy

formulation, it fuses the two major perspectives on strategy formulation: the outside-in,

industrial organization economic perspective that strategy is primarily based on identifying,

establishing and, defending desirable positions (Porter, 1980); and the inside-out, RBV

perspective that strategy is primarily based on identifying and deploying the valuable, rare,

and inimitable resources that underlie the strengths and weaknesses within the organization

(Barney, 1991, 2010).

As the procedure is not specific to particular companies, industries or situations, it can be

applied in diverse contexts and, with minor adjustments, to a broad range of organizational

types. As the procedure requires the assignment of ratings to characteristics of the macro-

environment, industry, and organization, using shared, theory-based scales, applied to

fully-cited, real-world data, the effects of unsubstantiated opinion in the strategy-making

process are reduced. Because the procedure requires full documentation of the reasoning

used by strategists in their theory-based interpretations of cited facts and data, as they

apply each of the tools, there is full traceability of the reasoning and data used to determine

each iteration of the strategy. This historical record allows the accumulation and transfer of

relevant findings and knowledge over time and across strategists. It also facilitates ever

increasing efficiency of revisions and replacement of strategies for the organization, as the

documented, historical record of relevant research and learning about what works for the

organization grow.

The procedure for strategy-making described in the present article has significant

relevance for professors and students in educational settings that require efficient

instruction and learning in the essential tools of strategy and where the emphasis is on

incorporation of current real-world data in the classroom. The procedure also has significant

relevance for managers, consultants, and the broad spectrum of people throughout

organizations who are engaged in strategy-making. For practitioners to efficiently engage in

strategy-making, they need a procedure that is comprehensive, yet succinct, and rigorous,

yet adaptable. The task of strategy-making is far too complex to be programmed. However,

at the same time, strategies should not be determined predominantly by opinions, whims,

fads, fashions, politics, or the ad hoc use of random subsets of the growing and confusing

array of tools on the market. There is a small set of essential tools for strategy-making, which

are well-established and grounded in substantial theory- and practice-focused research.

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Corresponding author

Kurt Wurthmann can be contacted at: [email protected]

For instructions on how to order reprints of this article, please visit our website: www.emeraldgrouppublishing.com/licensing/reprints.htm Or contact us for further details: [email protected]

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