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In the last blog, we began discussing about performance. We continue the decision in today’s blog too – we here attempt to have a better understanding of one of the approached that could be taken to define and measure performance.

An organization could be looked at as an association of productive assets who voluntarily come together to create something of economic advantage. The owners of these productive assets would only be willing to make their resource available if they steadily see that total income (adjusted for risk – a rate of return higher than the bank could be thought of the minimum risk one could take) that is larger than the reasonable alternative one could have.

This gives us one base to define performance – The comparative value an organization is willing to create using its productive assets with the value that owners of these assets expect to obtain. If this value is larger than the value that the owner of the asset expects, he would be willing to make available these assets to the particular organization; else he would be dissatisfied and look at alternatives where the use of these assets would obtain its full value.

We would get this clearer with a hypothetical example we would give in the next blog.

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In the earlier blogs we discussed the concepts of competitive advantage, parity and disadvantage. We also had a discussion on why a strategy that creates a competitive advantage would “out-performs” the other that is either creates a competitive parity or competitive disadvantage. One question that obviously generates from here is that of Performance.

Performance could be defined in many angles and would vary according to the domain, the people involved etc. It is hard to have any agreement on the best way to define performance, forget measuring. There is no single measure of performance without flaws and the multiple approaches one adopts would be useful in actual strategic analysis.

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In the earlier blog we began our discussion about SWOT analysis, in todays blog we continue understanding the framework better.

Every organization has some weakness, but they possess some strengths as well. Any theory that is to be successful in assisting organizations gaining competitive advantage should look address all the four aspects of SWOT analysis. Any such theory would build on the firm’s strength and use it to exloit the opportunitities and nutralize the threats, it also suggests how these firms could either avoid the weakness of fix them.

While the SWOT framework clearly highlights the importance of lookin at a theory from the 4 dimensions, it doesnt povide any guidance in identifying the four – this limits its utilitiy to management decision makers. The SWOT framwork does tell the firms what questions they should ask about the strategic theory they are pursuing. Asking the right questions is the key to a lot of knowledge and improvement in any field – mastering it takes a lot of effort.

SWOT is only an evaluatory framework for your theory, it doesnt give any ready made solution. It is the company which develops its strategy and SWOT helps analyze to make it more comprehensive.

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In the earlier blogs we were in a discussion on emergent and intended strategy. However it is pretty much believed by most strategists that what makes a strategy successful is not the way it evolves, but whether the strategy addresses four aspects of the setting in which the firm operates

• Strength of the firm
• Weakness of the firm
• Opportunities in the environment
• Threats it faces from the environment.

These four aspects are represented as the famous acronym – SWOT is used to analyze the theory of the firm

We define the various terms as

• Strength – Firm’s Resources and Capabilities that it possesses that enable it to engage in activities that generate economic value and may sometimes lead to competitive advantage.
• Weakness – Firm’s Resources and Capabilities that either makes it difficult to realize economic value of the firm’s strengths or actually reduce the firm’s economic value if implemented
• Opportunities – the chances for a firm to improve its competitive position and performance. These could be expected or unexpected.
• Threats – are any external individual, group, or organizations that seek to reduce the firm’s performance.

We could represent this in the format as shown below:

We would deal with the way we could use this framework in the next blog.

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One could look at the earlier blog from another perspective – i.e. assume a firm begins operations with a well-developed theory and the market is the test of that theory; management at regular intervals would make adjustments to the theory to be able to generate competitive advantage.

One could always look at emergent strategies as a failure of a management’s ability to understand the economic processes; however this opens up the question of exploiting opportunities. While it is good to analyze the industry’s underlying economics process and create a strategy to handle that, but as the company begins to operate more avenues of business might open up which might not have been hitherto spotted and create a larger returns to the firm!

Another way of looking at the use of emergent strategy is when you think of the company who adopts a “second mover” strategy. These companies don’t explicitly lead the market creation or exploitation process, they merely follow the leaders. In the process they rely heavily on their ability to adapt quickly to the strategy that other firms demonstrate to be valuable ones.

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