Following are the three issues in strategic analysis:
Strategy evolves over a period of time: It is said that good decision is taken on the basis of experience and experience always comes in time. Strategy of a firm, at a particular point of time, is a result of a series of small decisions taken over an extended period of time. Therefore, it is essential to consider the past, the present and the future impact of decisions being taken.
Balance of external and internal factors: The process of strategy formulation is often described as one of the matching the internal potential of the organization with the environmental opportunities. In reality, as perfect match between the two may not be feasible, strategic analysis involves a workable balance between diverse and conflicting considerations. A manager working on a strategic decision has to balance opportunities, influences and constraints. There are pressures that are driving towards a particular choice, such as entering a new market. Simultaneously, there are constraints that limit the choice, such as existence of a big competitor. These constraining forces will be producing an impact that will vary in nature, degree, magnitude an importance. Some of these factors can be managed to an extent; however, there will be several others that are beyond the control of manager.
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Strategy and Environment
Risk: In strategic analyses, the principle of maintaining balance is important. However, the complexity and intermingling of variables in the environment reduces the strategic balance in the organization.
Following factors influences the risk in the industry or the firm in the industry
Memory Code: RISK
All affect businesses and poser is at varying degrees. An important aspect of strategic analysis is to identify potential imbalances or risks and assess their consequences.
STRATEGIC RISK
A broad classification of the strategic risk that requires consideration in strategic analysis is given below:
Strategic Risks
External risk is on account of inconsistencies between strategies and the forces in the environment. Internal risk occurs on account of forces that are either within the organization or are directly interacting with the organization on a routine basis.
Industries differ widely in their economic characteristics, competitive situations, and future profit prospects.
Example
Fast food business vs. internet service provider-The economic and competitive traits of the fast-food business have little in common with those of internet service providers.
Telecom vs. aviation industry -The telecom business is shaped by industry and competitive considerations radically different from those that dominate the aviation industry.
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