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[ 143 ]
Management Decision
35/2 [1997] 143–154
© MCB University Press
[ISSN 0025-1747]
Establishing a strategic direction: a review
Tony Proctor
Management Department, Keele University, Keele, Staffordshire, UK
Corporate planning involves
setting down overall corpo-
rate financial goals and using
these as the basis for setting
goals in the various functional
areas of the business. In the
case of marketing, strategies
aimed at achieving stated
goals and objectives are
based on an analysis of mar-
keting strengths, weaknesses,
opportunities and threats and
their impact on the organiza-
tion. Employs cross impact
analysis to assess the impact
of environmental variables –
such as technology, economy,
customers and competition –
on the strategic business
units of an organization. It
can be extended to look at
the impact on future or poten-
tial businesses as well. The
technique helps to identify
various threats and opportu-
nities which surround the
organization. Employs gap
analysis to identify the differ-
ence between aspirations and
likely achievements with the
current product-market
portfolio. Aids choice of
marketing objectives and
strategy by an analysis under-
taken to identify strengths
and weaknesses of the orga-
nization and opportunities
and threats which exist in the
environment.
The corporate strategy of a business reflects
its objectives and goals, usually set within a
time framework, and specifies the main poli-
cies and plans for attaining those goals. It
also usually defines the nature of the organi-
zation’s business which in turn influences
the kind of economic and human organiza-
tion that is required. Strategy involves
matching a firm’s activities with its resource
capability. There is little point in trying to
take advantage of some new opportunity if
the resources needed are not available or
cannot be made available. A firm must
develop strategies in line with its resources.
Strategy also concerns the matching of a
firm’s activities to the environment in which
it operates. Since the environment is continu-
ally changing, strategic decisions necessarily
involve coping with change. The extent and
speed of environmental change will vary and
the pace at which strategy must change will
vary too.
The corporate plan
The corporate plan is the plan for the com-
pany as a whole. It defines the business in
which the company operates, indicates finan-
cial objectives which have to be accomplished,
specifies how revenues are to be generated
through various marketing programmes and
assesses the various costs which will be
incurred in achieving these objectives. The
corporate plan answers the questions: Where
are we now? Where do we want to go? How do
we organize resources to get there?
Specifying an appropriate definition of the
nature of the firm’s business is most impor-
tant. For example, if Cunard had not seen its
business as being that of transportation it is
less likely that would it have moved into con-
tainerization from its position as a provider of
a passenger liner service. The consequences
of remaining solely in the passenger liner
service would probably have meant extinction
of the firm ultimately. The goals pursued must
be realistic and the first phase of corporate
planning entails setting long-term goals in
terms of sales turnover, profit before tax and
return on capital invested.
At the same time as setting goals to be
achieved, a management audit needs to be
undertaken to assess the availability of
resources to enable the set goals to be pur-
sued effectively. All of the functional areas of
management are audited: marketing, produc-
tion, finance and personnel. For example, a
marketing audit amounts to an evaluation
and assessment of all factors which affect the
firm’s marketing performance. The factors
can be internal or external to the firm. The
internal audit comprises a detailed analysis
by product/service of the market share and
profitability of the various lines. In addition
strategies relating to marketing mix elements
are reviewed and studied together with the
use made of marketing research data. At the
same time, an examination is made of mar-
keting budgets and how they were drawn up
and related to previously set agreed objec-
tives. The external audit begins with a review
of the general economy and then makes an
assessment of the prospects for the firm’s
markets. The external audit assesses the
appropriate action taking into account the
economic and market situations. Economic,
fiscal, social, business, legal and technologi-
cal developments all have a substantial
impact on the business. In addition, market
segments, channels, products, end uses,
needs, tastes, attitudes, stocks and profits
have to be considered. Consideration also has
to paid to the activities of competitors and
potential competitors.
The changing nature of the
business environment
One of the strongest environmental influ-
ences on the activities of firms is technology.
Rapid advancements in technology influence
not only the products and services offered by
firms to customers but also the work
processes employed to produce them. Techno-
logical developments can express opportuni-
ties for those who can take advantage of them.
Conversely, failure to anticipate and respond
to technological trends can be very costly. The
invention of the quartz movement in Switzer-
land was not initially adopted by the Swiss
watch firms but was successfully adopted by
[ 144 ]
Tony Proctor
Establishing a strategic
direction: a review
Management Decision
35/2 [1997] 143–154
manufacturers in the far east. In a one-year
period following the appearance of quartz-
driven watches, Swiss manufacturers lost
around 25 per cent of the market as a result of
not exploiting the technology.
Inflation and the general economic situa-
tion have a considerable impact on the for-
tunes of a business. It may be advantageous to
make heavy investment in a capital intensive
industry coincide with a strong economy to
avoid a damaging period of losses. Economic
upswings and downturns in the home market
affect the demand for goods and services that
can in turn result, for example, in more or
less being produced for export markets. This
in turn can influence the exact specifications
to which goods have to be produced and
require training to be given to workers. Many
firms which operate in industries which are
highly susceptible to the economic upswings
and downturns of the domestic economy
spread the risk by ensuring that they have the
bulk of their sales in export markets. How-
ever, this may not be altogether a foolproof
strategy since with the advent of large trad-
ing blocs in which there is often a degree of
economic interdependence, adverse economic
conditions may permeate a substantial pro-
portion of their export markets.
Cultural trends can be both threats and
opportunities for many firms. They are
reflected in customer wants and needs in
terms of a product or service. While the
demand for existing products may wane, the
demand for new products will increase. There
is thus a threat to existing business but prof-
itable new opportunities are opened up at the
same time. In the UK higher disposable
incomes have been associated with a growth
in the number of people wanting to take holi-
days abroad. This has led to a growth in travel
firms, a growth in the demand for travel
books, and a growth in the demand for lan-
guage courses. In contrast, the demand for
holidays in the traditional seaside UK holi-
days resorts has declined.
The continual adjustment to environmental
change creates many new types of problems
for management. These new types of problem
cannot necessarily be solved by well-
established, tried and tested approaches. It is
here that creative problem solving can lend a
helping hand. There are several well-known
techniques which can be used to assist in the
process of creative problem solving, for exam-
ple:
• brainstorming;
• morphological analysis;
• lateral thinking; and
• synectics.
Structured, analytical approaches to problem
solving coupled with creative problem-
solving aids can produce new insights into
difficult problems posed by rapidly changing
environments.
Cross impact analysis
One of the first things one has to do in strat-
egy formulation at any level in an establish-
ment is to examine how the organization
relates to the environments around it. In
particular one must focus on the impact that
these environments can have on the enter-
prise’s future prosperity.
Cross impact analysis is a technique which
helps in examining the impact that a mixture
of external threats and opportunities can
have on the undertakings of an organization
(see Table I). In implementing the technique,
one has to obtain data from a range of sources
including customers, competitors, the market
and the environment. The procedure involves
assessing the impact that changes or trends
in these factors are likely to have on present,
proposed or potential activities of the organi-
zation. Anything which threatens the pros-
perity of the organization is viewed as having
a negative effect on the establishment, while
opportunities are reasoned to have positive
effects.
One records the various impacts on a grid
and on a scale ranging from +4 to –4, where 0
specifies a lack of impact. The sum of various
extraneous threats and opportunities on each
one of the identified business/organizational
activities is then noted. In addition the total
scores of opportunities and threats facing
Table I
Cross impact matrix
Strategic business units
Existing Planned Possible Total
Environment 6121432
Technology –2 3 2 3
Regulation 1236
Economic 2237
Cultural 2237
Demographic 3339
Market 6 2 –2 6
Europe 3 3 –2 4
Far East 3–1 02
Competitor 2 0 –8 –6
Alpha 1 0 –4 –3
Beta 1 0 –4 –3
Customer –5 6 6 7
Wholesalers –3 3 3 3
Large retailers –2 3 3 4
Total 9201039
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Tony Proctor
Establishing a strategic
direction: a review
Management Decision
35/2 [1997] 143–154
each activity of the organization are
recorded. All ratings are a matter of the sub-
jective opinions of executives.
The technique can be employed in any type
of organization. For example a moderately
large health-care enterprise successfully
employed the technique in reviewing its
strategic position. The main activities of the
enterprise, present, proposed and potential,
were related to threats and opportunities.
These came from customers (purchasing
authorities), competitors local provider
units, both NHS and private), and the market
and environment in which the enterprise
operated. The application of cross impact
analysis summarized the activities which
had an important impact on the future pros-
perity of the organization. It also helped to
identify the key relationships which had to be
fostered and monitored. The analysis indi-
cated that the GP beds were under threat and
highlighted the importance of the geriatric
service and the surgical facility.
Gap analysis
While cross impact analysis provides a useful
way of identifying and gaining a rough idea of
the impact that various environmental forces
will have on the firm’s strategic business
units, more precise measures are required
when it comes to the setting of goals. Fore-
casting what is likely to happen in each busi-
ness sector in the immediate and longer-term
future is a key element in this process. More-
over, the organization must make predictions
which take into account factors which are
external to the firm, such as market trends,
economic trends, competitive trends, socio-
cultural trends and technological trends.
The implications of these trends are then
compared with the likely performance of the
company based on internal factors such as
product strengths, material costs, technical
ability, productivity prospects and financial
capacity. The next step is to project earnings
from existing business over the time-scale of
the forecasts and to make comparisons with
the required objectives. This is referred to as
gap analysis (see Figure 1).
For example, a manufacturer of wristwatch
batteries would recognize that technology
and the market demand for cells with longer
life are likely to have an impact on future
product requirements – for example, kinetic
watches which rely on an electronic current
being generated by movement of the arm –
the dynamo effect – and then stored in a
capacitor. The next step would be for the firm
to examine its current position. It would see
that if it carried on producing watch batteries
it would start losing sales sometime in the
foreseeable future as watch producers intro-
duce the alternative technology. It has to
predict when the changes are likely to occur
and what impacts these will have on its sales
and profitability. Technology and product life
cycles changes are often instrumental in the
process of producing potential sales and
profit gaps for firms. That is, a gap between
what the firm wants to achieve in terms of
sales/profit and what it is likely to achieve on
the basis of its existing portfolio of activities.
A firm has to relate the expected profit to
the amount of resources employed to achieve
that profit. The measure it needs to consider
is the return on investment generated by new
actions it may take.
Return on investment for individual prod-
ucts can be linked to the overall rate of return
on capital employed earned by the business.
Performance of the firm in the latter respect
is reflected in the general confidence of other
firms and financial institutions in dealing
with the firm in the marketplace and in the
firm’s ability to attract and retain sharehold-
ers’ investments.
Firms strive to maintain their existing rate
of return on invested capital. In pursuit of
Figure 1
Gap analysis
[ 146 ]
Tony Proctor
Establishing a strategic
direction: a review
Management Decision
35/2 [1997] 143–154
such an objective they should only accept
new projects which promise a return on
investment potential which is at least equal to
the current rate of return on capital
employed. Of course, even then, as its more
profitable offerings start to decline, it still
may not actually maintain the existing rate of
return on invested capital.
In practice, of course, firms have to accept
the best available projects. These may gener-
ate below the required rate of return with an
inevitable negative impact on
medium/longer-term profitability. Next we
will look at ways in which firms can try to
close the “gap”.
Strategies for reducing the gap
Ansoff ’s product/market expansion grid (see
Ansoff, 1987) is a useful, though not exhaus-
tive, framework for looking at possible strate-
gies to reduce the gap (see Figures 2 and 3).
All four of the strategies indicated along the
two dimensions of the matrix are discussed
below along with others.
Market penetration
The aim in this case is to increase sales of
existing products while at the same time
trying to maintain current margins of prof-
itability on sales. In an expanding market
this may be accomplished by outlays of pro-
motional expenditure aimed at persuading
more first-time users to buy the product. In a
saturated market, however, extra sales may
only be generated as a result of increased
market share. Attempts to increase market
share can put heavy pressures on marketing
resources and can negatively affect short run
profitability. However, if economies of scale or
Figure 2
Ansoff matrix – an illustration
Ansoff Product Status = 66000
New Product development Diversification
Market development
Existing
Improved
10.0 5
3
2
00 5.0 10.0
Existing Extended New
Ansoff Market Status
5.0
Figure 3
Ansoff grid – concepts
[ 147 ]
Tony Proctor
Establishing a strategic
direction: a review
Management Decision
35/2 [1997] 143–154
the impact of the “experience curve” are felt
as a result of increased supply to the market
then this may more than offset the impact on
profitability of any additional marketing
expenditure.
Market development strategy
The discovery and entry to new markets does
not guarantee long- or short-term profitabil-
ity. However, economies of scale obtained in
producing for the market or in supplying the
market will contribute to profitability. Never-
theless, barriers to entry to the market may
exist which mean that neither short run nor
long-term contributions to overall profitabil-
ity are attractive. Barriers of entry can take
many forms. They may involve overcoming
distributor loyalties to existing firms operat-
ing in the market or matching higher than
industry-norm promotional expenditure
which is a characteristic of the market. They
could also involve developing new production
technologies or acquiring a new product
technology to be able to compete effectively in
the market. Indeed, the size or strength of
competition in the market may well be a bar-
rier to entry, for it my be difficult to achieve
similar profit margins or return on invest-
ment to firms already serving the market.
The latter point may often be ignored by new
entrants to a market with quite devastating
consequences. Existing firms may very well
manage temporarily on smaller profit mar-
gins and reduce price levels to make it impos-
sible for a new entrant to entrench itself in
the market. Eventually, the new entrant may
be forced to withdraw, not only having suf-
fered an actual financial loss on the venture
but also having suffered a variety of opportu-
nity costs as well.
Product development strategy
The introduction of new products can have a
positive impact on sales growth. However, it
has to be borne in mind that during the ini-
tial period of time following the launch of
new products, profitability may not increase
since there may be substantial research,
development and launching costs associated
with the ventures and these costs have to
recouped within a specified period of time.
Thus while from a sales point of view and a
return on investment point of view new prod-
ucts may seem to offer good rewards, the
specification of short-term pay-back periods
will effect short-term cashflow.
Longer-term rates of return on investment
which are at least equal to the current rate of
return on capital employed are generally
required from new products. Unfortunately,
this may not be possible and firms may have
to accept the possibility or even certainty of
lower profitability, just to stay in business.
Predicting demand for new products can be
difficult and hence so also is the estimation of
profit potential. Product development is an
attractive strategy where R&D and marketing
costs are relatively low and where additional
new investment in plant and equipment is
low.
Diversification
Diversification involves moving simultane-
ously into new products and new markets. It
is a risky strategy but with careful selection
of the right kind of businesses considerable
improvements in profitability can be experi-
enced. A distinction is usually made between
diversification into related products and
diversification into unrelated products. A
publisher of textbooks and academic journals
might move into producing compact disks
containing encyclopaedic information. This
might be seen as diversifying into related
products since both products make use of the
publisher’s expertise in disseminating knowl-
edge and the experience gained in the one
field might be usefully employed in the other.
The same enterprise diversifying into manu-
facturing car components would be moving
into unrelated products. Moving into areas
where a firm does not have any prior experi-
ence is highly risky and firms may prefer to
move into related markets. Moreover, there
may be some synergy to be gained from mov-
ing into related markets. The synergy may be
in marketing or even in production.
Diversification into related products may
be achieved through internal development
but more often it is easier and advisable to do
so through a process of acquisition and
merger or simply by forming a strategic
alliance with another producer (see below).
The Ansoff matrix can be used diagnosti-
cally to describe the current portfolio of prod-
uct market opportunities served by the firm.
Figure 2 illustrates how this is done. The size
of the circles denotes the relative sales/profits
of the product market and the position relative
to the axis denotes the relative newness of that
product market from the firms perspective.
In addition to the four strategies identified
by Ansoff there are a number of additional
strategies.
Vertical integration
Vertical integration involves the firm taking
over functions either behind or in front of its
own position in the production chain. For-
ward integration occurs when a producer
takes over a distributor whereas backward
integration occurs when a manufacturer
[ 148 ]
Tony Proctor
Establishing a strategic
direction: a review
Management Decision
35/2 [1997] 143–154
takes over a supplier. Integrative strategies
enable firms to gain greater control over the
chain of production and distribution. This
can be important where, for example, a manu-
facturer may have difficulty in gaining vital
components from a supplier. It may be
because the supplier is also selling the same
component to other firms and cannot produce
enough to satisfy everyone. Under such cir-
cumstances the manufacturer may be
tempted to try to buy out the supplier (i.e.
become the owner of the supplier’s business)
to ensure that it can always have supplies of
the key component. The same kind of princi-
ple may apply in the case of a producer trying
to gain distribution for its products. The
existence of tied outlets or franchises may
make it difficult for the producer to gain the
level of distribution it aspires to. Under such
circumstances forward integration may pro-
vide a means of circumventing the problem.
As in the case of diversification, the appropri-
ate vehicle for achieving vertical integration
may be through merger, acquisition or strate-
gic alliance.
Reducing costs
Reduction in the costs of running the organi-
zation is another way of reducing the profit
gap. It involves either the better use of materi-
als or labour; the reduction of distribution or
management costs; or the reduction of other
overheads. There is often scope for this kind
of cost saving in most organizations.
Value engineering is an extremely useful
tool which can enable enormous cost savings
to be achieved. It is not only applicable to
manufactured products but also applicable to
services as well. Value analysis is an impor-
tant aspect of product management which is
concerned with finding the most economical
and cost-effective method of producing a
product or service. In effect, the specifica-
tions of a product or service are considered in
minute detail and management looks for
more cost-effective ways of performing the
same function. For example, a piece of equip-
ment may be made up of all metal parts which
are relatively expensive to produce. Substitu-
tion of parts made from other materials may
lower the cost of producing the equipment
but without impairing performance, includ-
ing its reliability. When properly carried out,
value engineering should prevent over- or
under-engineering from occurring.
Not only do products have to be designed so
that they help to maximize a firm’s long-term
profitability, but they have to be designed so
that they can be used with safety. Marketing
products which are unsafe can have
disastrous consequences for a firm. In the
next section we will look at problems which
can arise from marketing unsafe products
and what steps can be taken to avoid such
problems in the first place.
Adjusting prices
The adjustment of prices and discounts to
propel the firm to new, higher gross profits
without losing sales revenue can enable a
firm to close an identified profit gap. Such a
strategy could imply repositioning the prod-
ucts or services, or even modifying them in
one way or another. Another strategy is
increasing prices without increasing prices.
Organizations can often disguise price rises,
permanent or temporary, by making it appear
that no price rise is in fact occurring. This
can be achieved in any one of the following
ways:
• The discount structure can be altered so
that the total profit to the company is
increased but the list price to customers
remains the same.
• The minimum order size is increased so
that small orders are eliminated and over-
all costs thereby reduced.
• Delivery and special services are charged
for.
• Invoices are raised for repairs on
purchased equipment.
• Charge for engineering, installation and
supervision.
• Customers are made to pay for any over-
time required in order to get out rush
orders.
• Interest is collected on overdue accounts.
• Lower margin models in the product line
are eliminated and more profitable ones
sold in their place.
• Escalator clauses are built into bids for
contracts.
• The physical characteristics of the product
are changed – e.g. it is made smaller.
Joint venture/strategic alliance
While many of the above approaches can be
implemented by a firm without outside assis-
tance, most of them can be assisted by co-
operation with other organizations. This may
take the form of acquisition of firms operat-
ing in markets to which entry is desired or
the acquisition of firms at different stages in
the production and marketing chain for the
purpose of assuring vertical integration.
However, there is now a trend towards
forming joint ventures and strategic alliances
between two or more firms.
[ 149 ]
Tony Proctor
Establishing a strategic
direction: a review
Management Decision
35/2 [1997] 143–154
Joint ventures involve inter-organizational
pooling of strengths for the effective delivery
of product market strategies. Franchise
arrangements such as those used by Coca-
Cola and McDonald’s, are examples of one
type of joint venture. There are many reasons
for joint ventures but they revolve around a
beneficial exchange of resource strengths the
franchiser provides the systems, products,
marketing material and image, for example,
and the franchisee provides local knowledge
and expertise, human resource inputs and
cash.
There are various kinds of strategic
alliances. Some are new ventures formed
between sellers and customers to ensure a
smooth flow of raw materials, components, or
services into the customers’ manufacturing
operations. Other alliances may be found
between potential competitors in order to co-
operate in the development of related or con-
vergent technologies, or in the development
of a new product or close products, or in the
development of a new market.
Theory of core competence
The notion of core competences, particularly
technological competences has long been part
of strategic thinking. As long ago as 1957
Selznick used the term distinctive compe-
tence to denote what a particular business
was uniquely good at by comparison with its
close competitors (Selznick, 1957). Selznick
suggested how distinctive competence and
what he called “organizational character” –
what we would now call culture – could be
combined to fulfil an organization’s basic
mission – at least analogous to strategic
intent. Selznick’s idea of distinctive compe-
tence pinpointed the competitive element
which differentiates one business from
another. Such differentiation is no longer
enough because the current speed of techno-
logical development means that competitive
advantage based on a singular competence is
unlikely to be sustainable for long.
Prahalad and Hamel (1990) argued that core
competences are the bases on which to build
strategies. Their argument resulted from
studies examining the way in which success-
ful firms, mainly Japanese, appeared system-
atically to acquire, develop and exploit combi-
nations of fundamental technologies in order
to develop generic or core products with
which to dominate global markets. Multiple
core competences can thus give a business a
sustainable competitive advantage.
By identifying its distinctive competences
and relating them to its core products a firm
can be specific with its plans to develop those
capabilities and acquire new ones where
necessary and so maximize the utility of its
limited resources to achieve the greatest
sustainable advantage. An inability of a firm
to identify core competences correctly will
result in the firm overlooking attractive
opportunities and pursuing poor ones.
Core competences are the basis for produc-
ing a competitive advantage. The achieve-
ment of a transformational strategic intent
will almost inevitably demand competences
which may at first appear far beyond the
capacity of the relevant firm. Competences
have therefore to be leveraged up as far as
possible. The acquisition and nurturing of
competences which are not core is wasteful of
resources and effort and only serves to dissi-
pate concentration on the core. It is therefore
preferable to buy in non-core competences
(Quinn et al., 1990) and focus all internal
efforts on the acquisition and development of
core competences. Core competences which
are lacking can be developed internally
through focused investment in R&D or
acquired externally through various forms of
collaborative arrangements. It should be
noted, however, that internal development is
increasingly expensive and beyond the means
of all but the largest organizations. Moreover,
in an era when the diffusion of technology is
rapid, the resultant competitive advantage
may be short-lived.
Prahalad and Hamel (1990) provide several
such examples of the use of core competences.
The success of NEC for example, systemati-
cally exploited the convergence of core com-
petences in computing and communications.
A committee oversaw the development of
these core competences and resulting core
products. This was supported by other co-
ordination groups and teams which cut
across the traditional organization structure
and ensured that each member of the organi-
zation knew and understood the strategic
intent. They developed competences inter-
nally and also through over 100 purposive
collaborations and alliances with other orga-
nizations. Between 1980 and 1988 sales grew
from $3.8 billion to $21.9 billion and the com-
pany became the world number one in semi-
conductors and a leading player in telecom-
munications and computers (Prahalad and
Hamel, 1990, pp. 79-91). The organizational
implications of this approach to strategy
formation in the face of rapidly developing
technology are clearly recognized in the
growing literature on the deconstruction of
organizational monoliths to forms based
around more or less loosely coupled teams
and alliances.
[ 150 ]
Tony Proctor
Establishing a strategic
direction: a review
Management Decision
35/2 [1997] 143–154
Strategic intent
Strategic intent states succinctly the direc-
tion in which a business is headed in the long
term. It can have a profound effect on the
firm’s stakeholders, both internal and exter-
nal, if it is expressed in clear and simple
terms. Employees know what they are trying
to achieve and therefore how they should
make their greatest efforts; customers know
what the firm’s products and services
embody; suppliers understand what the key
elements are when dealing with the firm.
Hamel and Prahalad (1989) showed how
strategic intent generated a tension by rais-
ing competitive challenges which identified a
competence gap which it was necessary to
close if the strategic intent was to be
achieved. Przybylowicz and Faulkner (1993)
also suggested that to be effective strategic
intent must create a sense of urgency, be com-
petitor focused, search for weaknesses in
competitors’ positions which can provide
competitive advantage if properly addressed,
and must remain stable over time while being
flexible as to the means used to achieve the
intended goals. Some of these essential char-
acteristics of effective strategic intent are
purely analytical, but the distinctive feature
is their transformational impact. For exam-
ple, compare Canon’s stated strategic intent
of “beat Xerox”, with the perhaps more tradi-
tional corporate objectives of “15 per cent
return on capital employed” and “10 per cent
per annum asset growth”. Canon’s is direc-
tional, memorable and engaging. The finan-
cial objectives are as transformational as last
year’s Christmas pudding.
Herein lies a great strength of the approach
and also a great danger. On the face of it “beat
Xerox” appears entirely aimed at the motiva-
tion of the organization’s employees, i.e. a
psychological statement. Undoubtedly it
contains these characteristics. If that was all,
then it would greatly increase the probability
of being entrapped in a strategic window. On
the face of it the possibility of a camera manu-
facturer beating Xerox appears extremely
slight – certainly not an apparently open
strategic window. The espousal of such an
intent, motivational though it might be in its
directional focus and apparent simplicity,
would therefore seem likely to ensnare and
entrap. Moreover since the achievement of
such an intent would be a very long-term
process, it would be a correspondingly long-
term project to recognize that entrapment
had occurred and that the strategic window
was firmly closed.
However, strategic intent is not simply a
psychologically transformational statement,
it is also analytical. By this is meant that it is
analytically sound. “Beat Xerox” was not just
a rallying call, but the result of some detailed
analysis of the competitive position, includ-
ing an analysis of Xerox’s own attitude and
likely actions to the approaching expiry of its
patents. The analysis also involved the devel-
opment, and detailed discussion throughout
the organization, of a painstaking detailed
action programme of competitive challenges,
first, to identify and close the competence gap
(through a carefully planned programme of
licensing and investment in internal R&D),
and, second, to compete and beat their target
competitor. Clearly each of these stages in the
process resulted from a very clear under-
standing of what they were trying to achieve
and much detailed analysis of technologies,
markets and competitors (not simply Xerox
itself). The approach is both effectively trans-
formational and analytically sound. This is
what rescues it from the shortcomings of
previous approaches which were either one
or the other, but rarely both. And this is what
makes it an effective escape from entrapment
in strategic windows.
Strategic intent needs to be defined with
precision and it also needs to be supported by
indications of how fast the firm proposes to
travel and how far. The milestones along the
route need to be spelled out and progress at
each stage monitored and the people involved
rewarded according to progress.
“Become the leading world producer of
photocopiers” is a statement of strategic
direction which could be a powerful organiz-
ing and motivating concept. The strategic
intent of “beat Xerox” is still more powerful,
focusing as it does on the major competitor
and thus identifying standards to be beaten,
or mechanisms to be avoided, right across
every aspect of the business. The way Canon
achieved their strategic intent in essence
involved spelling out the strategic intent in
terms of a competitive challenge, identifying
the existing and required competences and
then setting about acquiring those compe-
tences which need to be added in order to
achieve the challenge set.
Strategic intent has to be expressed in sim-
ple, unambiguous terms. These are state-
ments of mission or long-term objectives
capable of initiating and galvanizing action
and being converted into competitive chal-
lenges which are staging posts along the way.
The expression of strategic intent in terms of
a competitive challenge identifies a gap
between the actual competences possessed
and those required in order to achieve the
strategic intent. The process involved is
relatively straightforward:
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Establishing a strategic
direction: a review
Management Decision
35/2 [1997] 143–154
1 Identify the competitive challenge and
state the strategic intent.
2 List core competences in terms of:
• managerial skills;
• technological competences which are
required to attain the strategic intent.
3 List core competences in terms of:
• managerial skills;
• technological competences which are
currently possessed.
4 Identify the nature of the gap between
actual competences and those required to
achieve the strategic intent.
5 Determine the best way to improve man-
agerial skills and technological compe-
tences by:
• internal development;
• external acquisition.
The core competences and strategic intent
conceptual approach to strategy formation
and planning is explicitly concerned with the
technology of the business, the
organizational structure of the business
(organized as cross-cutting strands of compe-
tence rather than product-based business
units), the actual and potential core products
of the business (which may or may not be
conceivable) and the strategic intent of the
business.
Strategic intents can take many forms,
related to the achievement of specific chal-
lenging goals – “put a man on the moon by the
end of the decade”, “encircle Caterpillar” etc.
The end result of a successful intent is, how-
ever, likely to be the achievement of a leader-
ship position in either the served market or
some radically new, previously undreamed of
market. Following the path of strategic intent
is not without dangers. Hamel and Prahalad
(1989) argue that market share leadership
typically yields shareholder wealth and
nearly all companies pursue market share.
However, few achieve exemplary
performance for their shareholders. More-
over, Kontes and Mankins (1992) suggest that
one of the weaknesses of the strategic intent
proposition is the absence of an economic
framework for making investment decisions.
In following a strategy of global market lead-
ership it is assumed that competitors will not
respond in ways that drive investment
returns to or below the cost of capital. How-
ever, this does in fact often happen when all
players try to lead all markets. Thus although
the results of a successfully pursued strategic
intent may be market leadership, that is not
in itself an adequate strategic intent, lacking
in both the analytical and transformational
requirements
Strategy formulation itself requires a more
detailed approach in which specific attention
is given to the strengths and weaknesses of
enterprises and the opportunities and threats
which exist in the marketplace, in the next
section we look at ways of doing this.
SWOT and the TOWS matrix
SWOT analysis is a technique specifically
designed to help with the identification of
suitable business strategies for an organiza-
tion to follow. It involves specifying and relat-
ing together organizational strengths and
weaknesses and environmental opportunities
and threats. The TOWS matrix (see Figure 4.)
presents a mechanism for facilitating this
linkage and a framework for identifying and
formulating strategies. Implementing the
TOWS matrix requires that the following
steps are followed:
• Pinpoint and assess the impact of environ-
mental factors: economic, political, demo-
graphic, products and technology, market
and competition on the organization.
• Make a prognosis about the future.
• Undertake an assessment of “strengths and
weaknesses” in terms of management and
organization, operations, finance and mar-
keting.
• Develop strategy options.
Working through this process enables inter-
nal and external factors to be entered on a
grid and different combinations to be studied.
For example, the entry to one cell of the grid
could involve maximizing opportunities and
maximizing strengths. This would amount to
putting together at least one strength and one
opportunity to produce a strategy that
capitalizes on this combination.
The TOWS matrix in practice
As with cross impact analysis there is no
limitation as to the type of organizational
unit that can benefit from this type of analy-
sis. Moreover, any situation that involves
strategic decision making can benefit from
this approach. Weihrich (1982) discusses a
conceptual application of the TOWS matrix to
the strategic dilemma facing Volkswagen in
the USA during the 1970s. The discourse illus-
trates the usefulness of the TOWS matrix as a
structuring device for strategic problems.
This raises the interesting question of
whether the use of the TOWS matrix can lead
to the identification of appropriate strategies
for an organization.
In pursuit of this question the writer has
examined several instances in which the
TOWS matrix has been employed, three of
which are discussed below.
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direction: a review
Management Decision
35/2 [1997] 143–154
A small division of a large British manufac-
turing company was experiencing a problem
of what to do with an unwanted effluent
which was created as a result of a chemical
treatment process. The firm had tried a vari-
ety of ways of disposing of the unwanted
liquids but none was satisfactory. The prob-
lem was raised at a seminar at Keele Univer-
sity during which the TOWS matrix was
being explored in some depth.
Members of the seminar, all of whom except
the seminar leader were middle managers of
the same company, made use of the TOWS
matrix along with conventional brainstorm-
ing to generate insights into how the problem
might be resolved. Among the favourably
reviewed suggestions was the idea that the
company might profitably convert the efflu-
ent into a by-product which could be sold on
the open market. The need for brainstorming
became apparent when it was realized that
the TOWS matrix provided a useful structur-
ing mechanism for the problem that did not
automatically lead to the creation of new
insights.
The health-service enterprise, mentioned
above, applied the TOWS matrix extensively
in its analysis of the corporate strategy it
might follow. Internal strengths of the enter-
prise included spare surgical capacity, a good
stock of buildings built in the 1970s and 1980s,
a strong management team, good hotel ser-
vices (including laundry and catering) and an
active Leagues of Friends of the hospitals.
Internal weaknesses included problems of
recruiting and retaining staff, a lack of resi-
dent junior medical staff, the poor state of
some of the buildings, industrial relations
problems, and the continuing under-
utilization of some surgical facilities. The
enterprise identified growth in the size of the
ageing local population as an opportunity
and also the fact that there was a lack of pro-
vision to meet certain needs in the district.
These included the need for a rehabilitation
unit for the younger physically disabled and a
wide range of psychiatric facilities to replace
those provided in unsatisfactory conditions.
There was also the opportunity to utilize
government provided “waiting list initiative
moneys” to reduce the very long waiting lists
which existed in the district. The threats
facing the unit included competition for
patients arising from other provider units
(both public and private), competition for
staff from other local employers (who could
afford to pay higher salaries and wages), and,
an unknown factor, the power of the
fundholders. Another important threat was
related to problems associated with mental
handicap services. This took the form of
resistance to change among the relatives of
the client group, and the continuing down-
ward pressure on funding for community
services.
The TOWS matrix proved useful in struc-
turing the strategic choice situation for the
organization but unfortunately no new ideas
or insights arose as a direct result from using
this structuring mechanism. Indeed, the
organization simply reported that the strate-
gies evolved as a result of using the TOWS
mechanism merely confirmed what it already
knew. Nevertheless, executives considered it
a useful structuring mechanism and that it
was worth retaining for future use.
In yet another instance, a metal extrusion
company serving aerospace, defence, nuclear,
forging and stockist markets, developed a
TOWS matrix. It identified three opportuni-
ties:
1 growing general engineering market —
O1;
2 more specialization and target end users
— O2;
3 sub-contract assemblies — O3.
Threats comprised:
• declining defence and aerospace market —
T1;
• strong competition emerging from Europe
in 1992 — T2;
• unstable economy because of interest rates
—T3;
• lack of investment—T4.
Internal strengths were:
• knowledge of specialist alloys — S1;
• knowledge of process capabilities — S2;
• monopoly in terms of high-strength extru-
sion capability — S3.
Weaknesses were:
• reliability of plant — W1;
• lack of process control and IT — W2;
• lack of technical knowledge in the sales-
force —W3;
• costs — W4.
Among the strategies which emerged were:
• developing markets — building on O1, O2,
S1 and S2;
• developing maintenance programmes —
building on O1 and W1;
• diversifying into other markets — building
on T1, T2, S1, S2 and S3;
• developing joint ventures in Europe —
building on T2, T3, W2 and W4.
Again, while feeling that such a structuring
mechanism was useful, the company
reported that its usefulness was somewhat
limited. The technique was able to provide a
good structure for the problem but did not
really provide any really new insights into it.
[ 153 ]
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Establishing a strategic
direction: a review
Management Decision
35/2 [1997] 143–154
Brainstorming
Osborn (1957) is often credited with being the
inventor of brainstorming. Brainstorming
helps to overcome the restrictive nature of
evaluation which takes place in most busi-
ness meetings. Osborn believed that social
pressures inhibited individuals from stating
their ideas. He set about trying to remedy this
situation through the medium of structured
meetings at which ideas were to be freely
expressed before evaluation. Osborn consid-
ered that the approach was one which anyone
could apply whenever he or she is searching
for ideas. He extolled the virtue of “deferment
of judgement” as an aid to creativity. Later
work at Buffalo by Parnes (1963) supported
Osborn’s claims that through the deferment
of judgement principle more and more good
ideas could be produced in unit time.
One of the most popular forms of brain-
storming takes the form of a group activity. A
warm-up session is advocated in the case
where participants have not had previous
experience of the technique. There is a group
leader who records all the ideas generated
during the session on a flip-chart. The group
members are invited to call out ideas relating
to the problem as they occur. The aim is to
generate as many ideas as possible — the
wilder the ideas the better. One does not eval-
uate ideas during the generation process. By
being able to see other people’s ideas
recorded, other individuals are able to find
new combinations or “hitchhike or
freewheel” on those ideas to produce insights.
Brainstorming and the TOWS
matrix
The success in finding new insights into the
first of the three instances recorded above
suggested that the combination of a TOWS
matrix and a brainstorming session could
well be beneficial. The health enterprise case
was taken as a topic for further exploration.
A brainstorming session was held at Keele
University to provide a platform for generat-
ing new strategies for the identified compo-
nents of the TOWS matrix as reported by the
NHS enterprise. The brainstorming group
comprised students following a creativity
course (MBA level) at Keele University. A
short session generated the following list of
ideas. In each case a cell of the TOWS matrix
was filled with ideas based on corresponding
identified opportunities/threats, opportuni-
ties/weaknesses, etc.
Opportunities and threats:
• Making use of spare capacity to meet the
needs of a growing population.
• Making use of strong professional people.
• Subcontract hospital management
strengths to other hospitals with weaker
management.
• Trying to organize spare surgical capacity
to meet waiting list needs.
• Eliminating competitors by take-overs.
• Building heliport for disaster contingency.
• Optimizing usage of surgical capacity by
selling to overseas clients
Opportunities and weaknesses:
• Building a rehabilitation centre for young,
physically handicapped (residential).
• Increasing levels of pay to staff to compete
effectively.
• Provide a cafeteria for staff as a fringe bene-
fit.
• Introducing a training scheme for support
staff to increase job prospects (rotation).
• Developing different management system
by asking disgruntled staff who have plenty
of ideas.
Threats and strengths:
• Training foreign doctors for shortages.
• Developing a teaching hospital in spare
room.
• Creating backup facilities for GPs in spare
buildings.
• Developing a mental handicap training
centre for changing perspectives.
• Advertising and PR to community to aid
funding.
Threats and weaknesses:
• Veterinary development for R&D.
Many ideas shown above represented new
perspectives on the situation which the enter-
prise had not previously considered. The
question of whether or not any of the new
ideas would be implemented is a different
matter since the decision-making process is
itself complex. The illustration simply shows
that structuring devices such as the TOWS
matrix simply enable us to ensure that we
have a reasonable base from which to exam-
ine problems or situations. To gain new
insights one can obtain benefit from using a
simple creative problem-solving aid such as
brainstorming.
There is no limitation as to the type of orga-
nizational unit which can benefit from this
type of analysis. Moreover, any situation
which involves strategic decision making can
benefit from this approach. Weihrich (1982)
discusses a conceptual application of the
TOWS matrix to the strategic dilemma facing
Volkswagen in the USA during the 1970s. The
discourse illustrates the usefulness of the
TOWS matrix as a structuring device for
strategic problems. Experience also shows
that the use of the TOWS matrix can lead to
[ 154 ]
Tony Proctor
Establishing a strategic
direction: a review
Management Decision
35/2 [1997] 143–154
the identification of appropriate strategies for
an organization.
References and further reading
Allaire, P.A. (1992), “Quality and beyond”, Journal
for Quality and Participation, Vol. 15 No. 2,
March, pp. 6-8.
Ansoff, H.I. (1987), Corporate Strategy, Penguin
Books, Harmondsworth (revised ed.).
Bower, J.L. and Hout, M. (1988), “Fast cycle capa-
bility for competitive power”, Harvard Busi-
ness Review, November-December, pp. 110-8.
Hamel G. and Prahalad, C.K. (1989), “Strategic
intent”, Harvard Business Review, May-June.
Kontes, P.W. and Mankins, M.C. (1992), “ Is global
market leadership worth it?”, Across the
Board, Vol. 29 No. 10, October, pp. 13-5.
Osborn, A. (1957), Applied Imagination, Scribner,
New York, NY.
Parnes, S.J. (1963), “The deferment of judgement
principle: a clarification of the literature”,
Psychological Reports, Vol. 12, pp 521- 2.
Prahalad, C.K. and Hamel, G. (1990), “The core
competence of the corporation”, Harvard
Business Review, May-June.
Przybylowicz, E.P. and Faulkner, T.W. (1993),
“Kodak applies strategic intent to the man-
agement of technology”, Research-Technology
Management, Vol. 36 No. 1, January/February,
pp. 31-8.
Quinn, J.B., Doorley, T.L. and Paquette, P.C. (1990),
“Beyond products: services-based strategy”,
Harvard Business Review, March-April, pp. 58-
68.
Selznick, P. (1957), Leadership and Administration,
Harper & Row, New York, NY.
Weihrich , H. (1982), “The TOWS matrix: tool for
situational analysis”, Long Range Planning,
Vol. 15 No. 2, pp. 54-66.
Application questions
1 What is your organization’s strategic
intent? 2 The author has reviewed techniques and
discussed the development of strategic
thought. Does business strategy have a
conceptual underpinning, or is it more of a
series of fashionable postures?
