[The TOWS Matrix] Strategic Planning

Equally important, the matrix ‘forces’ practicing managers to analyze the situation of their company and to develop strategies, tactics, and actions for the effective and efficient attainment of its organizational objectives and its mission.

Strategic Planning
The term ‘strategy’ (which is derived from the Greek word ‘strategos’, meaning ‘general’) has been used in different ways. Authors differ in at least one major aspect, Some, such as Kenneth Andrews,2 Alfred D. Chandler3 George A. Sterner/John B. Miner,4 and Richard Vancil,5 focus on both the end points (purpose, mission, goals, objectives) and the means of achieving them (policies and plans). But other writers such as Igor H. Ansoff6 and Charles W. Hofer/Dan Schendel7 emphasize the means to the ends in the strategic process rather than the ends per se. The great variety of meanings of the word ‘strategies’ is illustrated in the glossary of one book:

[Strategies are] general programs of action and deployment of emphasis and resources to attain comprehensive objectives; the program of objectives of an organization and their changes, resources used to attain these objectives, and policies governing the acquisition, use, and disposition of these resources; tile determination of the basic long-term objectives of an enterprise and the adoption of courses of action and allocation of resources necessary to achieve these goals.8

In this article, primarily because of space limitations, the narrow meaning will be used, that is, the ends will not be emphasized so that sufficient attention can be given to the analysis of the current situation. It is assumed that the purpose of the firm has already been established, yet is subject to change after an evaluation of the situation.

 Although specific steps in the formulation of the strategy may vary, the process can be built, at least conceptually, around the following framework:
(1) Recognition of the various organizational inputs, especially the goal inputs of the claimants to the enterprise.
(2) Preparation of the enterprise profile.
(3) Identification of the present external environment.
(4) Preparation of a forecast with predictions of the future environment.
(5) Preparation of a resource audit with emphasis on the company’s internal weaknesses and strengths.
(6) Development of alternative strategies, tactics and other actions.
(7) Evaluation and choice of strategies.
(8) Consistency testing.
(9) Preparation of contingency plans.

These steps—shown in Figure 1—then, serve as the framework for the discussion that follows.

Inputs for Strategic Planning
Strategic planning, to be effective, must carefully consider the inputs into the system. These inputs, de-emphasized in this discussion, are enclosed by broken lines, as shown in Figure 1. They include people, capital, managerial and technical knowledge and skills. In addition, various groups of people make demands on the enterprise. Unfortunately, many of the goals of these claimants are incongruent with each other and it is the manager’s task to integrate these divergent needs and goals.

Employees, for example, want higher pay, more benefits and job security. Consumers demand safe and reliable products at a reasonable price. Suppliers want assurance that their products are purchased. Stockholders want not only a high return on their investment but also security of their money. Federal, state and local governments depend on taxes paid by the enterprise; they also expect the enterprise to comply with their laws. Similarly, the community demands that enterprises be ‘good citizens’, providing jobs and emit a minimum of pollutants. Other claimants to the enterprise may include financial institutions and labor unions; even competitors have a legitimate claim for fair play. It is clear that many of these claims are incongruent with each other, and it is management’s job to integrate the legitimate objectives of the claimants.

The Enterprise Profile
The way an enterprise has operated in the past is usually a starting point to determine where it will go and
where it should go. In other words, top executives wrestle with such fundamental questions as:

‘What is our business?’
‘Who are our customers?’
‘What do our customers want?’
‘What should our business be?’

These and similar questions should provide answers about the basic nature of the company, its products and
services, geographic domain, its competitive position and its top management orientation and values. These
topics demand elaboration.

Geographic Orientation. A company must also answer questions such as:

‘Where are our customers?’
‘Where are those who should be our customers, but are not at present?’

Companies need to develop a profile of their geographic market. While some firms may restrict themselves to the eastern part of the United States, others view the whole country as their region of operations. Many large
companies, of course, conduct their business on different continents.
Competitive Situation. Business firms usually do not have an exclusive market; instead, they compete with
other firms. But current market share is not necessarily a sufficient indicator of a firm’s long-range potential.
One must also consider other factors and competitive items such as price, quality, cost, services, product
innovation, distribution systems, facilities and locations.
The assessment of the competitive situation involves several steps. First, key success factors must be
identified. Then the relative importance of these key success factors needs to be estimated. Next, the firm’s
competitive position in respect to these key success factors must be evaluated and ranked. Thus, only a careful analysis of the current competitive position provides an indication of the company’s future growth and profits.
The competitive analysis, especially for large firms, is done for individual business units, product lines or even specific products. Moreover, the competitive analysis focus is not only on the present situation, but also looks into the more distant future.9 This analysis becomes intricate for firms that compete in the national and
international markets.
Top Management Orientation. An enterprise profile is shaped by people, especially executives. They set the
organizational climate, they influence the atmosphere in the organization and they determine the direction of the
company. For example, management may not pursue opportunities in the liquor business because it conflicts with top management’s values that are against the production and consumption of alcohol. Another example of the influence of values may be management’s commitment to socially responsible actions, believing that these activities will benefit the enterprise in the long run.

The External Environment: Threats and Opportunities
In the analysis of the external environment, many diverse factors need to be considered. Today, the threats certainly would include the problems of inflation, energy, technological change and government actions. The diverse factors—which can be either threats or opportunities—can be grouped into the following categories: economic, social and political factors, products and technology, demographic factors, markets and competition, plus others.
Economic Factors. The general state of the economy certainly affects strategy formulation. For example, the expansion phase of the business cycle in the 1960s created an abundance of business opportunities while the recession in the first half of the 1970s required many industries to change their strategy, and drastically reduce their business activities. The strategist, of course, takes other economic factors besides the business cycle into account, such as the level of employment, the availability of credit and the level of prices. Also, individual companies are affected differently by economic factors. What is a threat to one firm is an opportunity for another.

Social and Political Factors. Social developments also influence the business strategy. For instance,
consumerism and consumer protection movements require the firm’s attention to product safety and truth in
packaging. Similarly, managers are confronted by a host of federal, state and local laws and regulations. The
public’s demand for clean air, clean water and a clean environment is often considered a threat to business. At
the same time, these factors can become opportunities, as shown by the car emission test requirements in many states which presented opportunities for the companies to develop, produce or operate such test equipment.
Products and Technology. Products need to be adjusted to technological changes. For example, the astonishing success of the Volkswagen Beetle in the 1960s diminished in the 1970s. New customer demands for optional equipment, safety requirements and competition, along with new technology, gave rise to a new generation of VWs. It must be remembered that in almost all situations success is only temporary and product innovation is needed to ensure a competitive advantage for the firm. Of course, innovation is also costly and risky and the failure rate of new products is high; yet, a policy of no innovation at all may cause the demise of a company.
Demographic Factors. Demographic changes significantly affect business. In the United States there are geographic shifts such as the movement of many people to the ‘sun belt’. White-collar jobs tend to increase proportionally to blue-collar occupations. Income levels are expected to change, although the direction is less clear and may vary for different sectors of the labor market. The age composition will also change with elderly people making up an increasing proportion of the population. The strategist must take these and other factors into account because they influence the preferences for the kinds of products and services demanded by consumers.
Markets and Competition. In the United States, coping with competition in the marketplace is a corporate way of life. The following questions and the answers to them are crucial for formulating a strategy:

‘Who are our competitors?’
‘How does our company compare with the competition’
‘What are the strengths and weaknesses of our competitors?’
‘What are their strategies?’
‘How do we best compete?’

Other Factors. There are, of course, many other factors that might be particularly important to a specific firm. The availability of raw materials, suppliers and the transportation system, are a few examples. The everchanging environment demands continuous scanning for opportunities and threats. A company that discovers customer needs and provides the products and services demanded, certainly has a better chance for success than an enterprise that ignores such changes.
Information Gathering and Forecast of the Future. To collect data on the various factors is, to say the least, a tedious task. The study by Jerry Wall of 1211 executives, all readers of the Harvard Business Review, gives some insights on how companies collect information about their competitors. The sources used most
frequently include: company sales persons, published sources, and personal and professional contacts with
competitors and customers. Other less frequently used sources include: formal market research, brokers,
wholesalers and other middlemen, analyses of processes and products of competitors, and suppliers. The least utilized sources include: employees of competitors, advertising agencies and consultants.10
Since there are many factors that need to be analyzed, the executives must be selective and concentrate on
those factors that are critical for the success of the enterprise. Furthermore, it is not enough for the strategist to assess only the present environment. Planning for the future, and strategic planning in particular, is very much concerned with the more distant future. Thus, managers must anticipate the future and forecast changes in the environment that will crucially affect the enterprise.
The Internal Environment: Weaknesses and Strengths. The demands of the external environment on the
organization must be matched with the resources of the firm. Internal strengths and weaknesses vary greatly
for different enterprises; they may, however, conveniently be categorized into (1) management and
organization, (2) operations, (3) finance and (4) other factors important for a particular organization.
Management and Organization. This category includes not only managerial talent but also the labor force as a
whole. It also encompasses labor relations; personnel policies; the appraisal, selection, training and
development of employees; and the reward system. The planning and control system as well as the
organization structure and climate are equally important for the success of the organization.

Operations. Operations must be carefully analyzed in terms of research and development capabilities, and the
adequacy and productivity of the manufacturing facilities available to meet the expected growth and other
objectives of the firm. Similarly, marketing must be assessed in terms of product distribution channels, brand
name protection, competitive pricing, appropriate customer identification, service, and company image.

Finance. A careful evaluation of the company’s strengths and weaknesses also must be made in the areas of
capital structure, financing, profitability, the tax situation, financial planning and the accounting system. Many
financial ratios are available for making analyses. But financial management not only requires focusing on the
past and the present situation; it also demands short- and long-term financial planning congruent with the
firm’s objectives and strategy.

Other Factors. The focus here is on the obvious factors on which the strengths and weaknesses of the
organization must be evaluated. Other factors however such as patents inventions and the firms image may be
peculiar to an enterprise or may be prominent during a particular time period.

Strategic Alternatives
The foregoing analysis of environmental opportunities and threats and the company’s strengths and
weaknesses, encourages the creative process of developing alternatives. As any experienced manager knows,
in almost all situations alternative courses of action are available.
One strategy is to specialize or concentrate. Thus, a company may utilize its energy and strengths to pursue a
single purpose or it may restrict its efforts to only a few aims. For example, American Motors for many years
used its limited resources primarily for the production of small cars, rather than competing directly with
General Motors, Ford or Chrysler who had a complete product line ranging from relatively small models to
large, luxurious cars. Other alternative strategies are backward and forward integration. In backward integration a company may acquire suppliers to ensure a steady flow of materials. In forward integration the attempt is to secure outlets for products or services and to reach toward the ultimate user of the product.
Another strategy focuses on diversification by moving into new and profitable markets. This may result in
greater growth than would be possible without diversification.

Still another strategy would be to focus on innovation — new products and new services. Thus, a company,
vulnerable to obsolescence, may look for new ideas whose time has arrived. Polaroid, a company known for
innovation developed through tremendous research and development efforts and the successful SX70 instant
picture camera, a truly innovative product. But, as exemplified by the same company, investing in innovation
is also risky. Polaroid may have persisted too long and invested too much in promoting Polavision, the instant
movie system.
A company may adopt a ‘no change’ strategy and decide to do nothing. Instead of innovation or expansion, a
firm may continue to follow the tried and proven path, utilizing existing products and services and letting
others make possible mistakes in innovation.
A company may also select an international strategy, repeating the approach which was successful in its home
country and extending its operations from there to different parts of the world. Companies with global
strategies include Unilever, Colgate-Palmolive, Singer, Nestle and IBM, to mention a few.

Still another strategic alternative is for an enterprise to decide on liquidation, which may require terminating
an unprofitable product line or service. If the company is a one-product firm, this may mean dissolving the
company—an especially difficult strategic decision.
In some cases the extreme decision of liquidation may not be necessary. Instead, a retrenchment strategy may
be more appropriate. To be sure this is often only a temporary measure and may involve reducing operating
expenses or restricting the scope of the operation. Still, such a strategy may be a viable alternative to
liquidation.
Finally, there is the alternative of engaging in joint ventures, which may take different forms. For example,
corporations may join with foreign firms to overcome political and cultural barriers. Another example of a
joint venture is the Alaskan Pipeline which was a project even too big for one of the financially strong oil
companies. Still another kind of joint venture occurs when two or more firms pool their resources and establish a new company, which then is jointly owned.
The strategies discussed above provide an overview of possible approaches. Within these categories, of course, many variations are possible. In reality, enterprises often pursue a combination of these strategies. What has become clear is that evaluating and choosing a strategy, the next topic of discussion, is not a simple task.
Evaluation and Choice of Strategies
The strategic manager has to evaluate a multiplicity of possible strategies. Clearly, such a manager has to take
into consideration both external realities and internal capabilities. Unfortunately, environments are not static,
but are dynamic and subject to constant change. Thus, the strategist has to make predictions of changes about
the future.
In making strategic choices, opportunities must be evaluated in the light of risks. There may indeed be profit
opportunities for a new product, but the company may not be able to afford the risks involved in the new
venture. At other times, however, a firm cannot afford not taking a calculated risk.

Timing is another critical element in the strategic decision. Although early action may at times be desirable
(e.g. to be the first in the market), a firm may not be able to take the risk associated with it. On the other hand, a company may have to enter a new field because its survival depends upon it.
Companies do not operate in a vacuum, of course. A new strategic action is usually met with a reaction from
one or more competitors, this, in turn, requires counteractions. Clearly, strategic choices are made in a
dynamic environment and to cope with the many uncertainties demands executives with tolerance for
ambiguity.
Consistency Testing
During all stages of strategy formulation, the steps have to be examined for consistency with the enterprise
profile, the present and projected environment, and the resources of the firm. In addition, the goals of the
claimants to the organization have to be considered since the choice of strategy is not only based on a rational
analysis of the facts, but also on personal values and personal goals, especially those of the chief executive
officer, an important claimant to the enterprise, as pointed out above.
Alternative strategies are then tested for congruency with other medium- and short-range plans which, in turn,
may require adjustments of the master strategy. Similarly, the feasibility of implementing the plans also needs
to be examined. For example, the organization structure as well as the availability and suitability of human
resources should be considered before strategic choices are made. As shown in the model in Figure 1,
consistency testing is necessary at the various steps in the strategic planning process.
Contingency Plans
Contingency plans will have to be prepared. Since the future cannot be predicted with great accuracy, plans
need to be made with different premises. To be sure, not all possible contingencies can be taken into account,
but those crucial to the survival and success of a firm—such as a cutoff or reduction of oil from foreign
sources—should provide premises for alternative plans.