Internal analysis of your resource and capabilities
One of the most important elements of strategy reviews is to assess your internal resources and capabilities. The resources and capability of a firm underpin the strategy position – allowing the firm to compete in certain ways. Understanding what your resources are, how they are different from other firms, and the difficulty that other firms would have in copying your resources is an integral part of the strategy review process.
The VRIO framework is a systematic approach to understanding the resource position of the firm. The framework assesses whether each of the resources the firm has is valuable, rare, hard to imitate or substitute, and whether the firm is organized to capitalize on that resource. Having resources that pass the elements of the VRIO can provide the basis of a sustainable competitive advantage – allowing companies to separate themselves from intense competition with other firms.
Alignment of the different areas of your business
Another key aspect to undertake in a strategy review is to examine the alignment of different areas of the business. An important aspect of the strategy is ensuring that the various different parts of the business are aligned with one another. Without alignment of the different internal areas, the firm will pull in different directions. Identifying inconsistencies between the functional strategies of the business is an important first step in ensuring a consistent unified approach is taken by the firm.
The macro environment and changes to the industry
The next area that is important to consider when conducting a strategy review is any changes that are occurring in the broad macro-environment. The macro-environment includes the political, economic, social, technological, ecological, and legal factors that can influence firms (the PESTEL factors). Ensuring that you are aware of changes in the broad environment is important to ensure that the firm is able to identify risks and capitalize on new opportunities.
In addition to the broad environment, considering the industry structure is also important. This also influences the profitability of the firm, and becoming aware of, for example, powerful suppliers or downstream firms may allow the company to consider vertical integration to try and reduce the power of other parts of the overall industry system.
Conducting competitor analysis is another component of a strategy review. A company’s approach should be informed by what other companies are pursuing. The strengths and actions of other firms may influence what opportunities are worth the company focusing on. Becoming aware of likely competitor actions may also give your firm greater opportunities to respond in advance or adapt the its offerings to better compete.
Your strategy going forward
A final important element of a strategy review is determining how the company will compete in its market. Analyzing the external environment, the industry, and competitors in the industry, as well as the firm’s existing resources and capabilities, should inform the best approach to take.
While some adaptation to the strategy may be needed over time, the actions from the strategy review likely will involve building on prior success. Some degree of dynamic consistency is important – with subsequent firm actions building on prior decisions made by the company.