UNIT 6

POSITION AUDITING

The purpose of the position audit is to act as the starting point for the corporate appraisal of an organisation. This is an essential part of the strategic management process as it raises the question where are we now?. If an organisation is unsure of its current position then it will be very difficult to plot a successful strategy. It establishes the starting point for the process of strategic choice. It requires an analysis of all of the environments that an organisation operates within the internal, external and stakeholder environments. There are several well-known tools that are available to assist in this process, one of which is the SWOT analysis. This will identify the strengths, weaknesses, opportunities and threats as they relate to a particular organisation and acts as the starting point whereby we capture relevant data.

Key points
SWOT analysis is a tool to assist the position audit process. It is not the only tool: e.g. the competitor analysis framework works well in this context and can provide a useful framework to analyse a company even though it is not designed for that purpose. Position auditing asks the question where are we now? and is viewed by many as being the starting point for the process of strategic choice. The audit will usually be undertaken by a team with a preset budget, objectives listing and support functions. The management accountant will be involved with delivering and monitoring the data and information flows into the process.

The position audit would seek to identify: Threats focusing on weakness This would usually have top priority and the company should seek to identify and consider possible solutions. This requires a defensive response of some kind and may well necessitate rapid change. Threats focusing on strength this requires a review of the supposed strength to ensure that it is still as strong as previously thought. Remember what is good today, may not be so tomorrow. Opportunity focusing on strength this gives the organisation the chance to develop strategic advantage in the marketplace. Check the research and assess the strengths again. Opportunity focusing on weakness this will require management to make a decision as to whether to change and pursue the opportunity or, alternatively, ignore the prospect and ensure resources are not wasted in this area in future. Usually substantial change will be required if the company is going to pursue the opportunity. Check that the companys internal competencies will allow them to exploit the opportunity.

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The review should initially seek to identify what would happen if the organisation chose to do nothing. Remember this is always a strategic option!

An approach
There are many, many ways that a position audit can be approached. Essentially you should have one in mind that you would be able to use as a basis for analysing a situation. Here is a starter....

The stakeholder environment Who are they? How powerful are they? What is there level of interest? What is the likely prioritisation of the objectives?

The internal environment Where do we add value? Product or process or a combination of the two? Do we have any areas that destroy value? What are we good at?

The external environment The PEST factors and their derivatives 5 Forces influence Competition and rivalry

Essentially this will involve the use of the systems approach i.e. there will be input, process and output involved here. Input needs data, information and knowledge Process the team working together using tools Output will involve the formal report as this will be a key document in the determination of strategy

Tools: SWOT / Gap analysis / Scenario planning / Delphi techniques & other forecasting techniques

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GAP ANALYSIS
The comparison between an entity's ultimate objective and the expected performance from projects both planned and under way, identifying means by which any identified difference or gap might be filled. CIMA

Objective Measure

Objective Gap

Future Operations

Current Operations Time

This is a simple tool that was designed to provide a visual starting point for the analysis of the position. It projects into the future with a view to identifying issues before they evolve so that we may develop responses in advance to reduce the potential damage from threats and/or exploit opportunities. The central idea to understanding position is to predict what the future may hold. This will affect the interpretation of where we are now A plan is what you want to happen whilst a forecast is what you predict will happen given the current context and assumptions. The whole approach of gap analysis is based upon the feed-forward control concept, i.e. the comparison of plan with forecast. The aim is to identify deviance before the problems of missed targets arise so enabling corrective action to take place in advance. The strategy is too important to leave to reactive control systems. A proactive approach is needed and this will see the need for a significant spend on the forecasting systems.

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Benefits
1 2 3 4 5
The approach acts as a simple starting point to initiate further debate and consideration. It is easy to understand and as such acts as an effective communication device. It highlights the need to keep an eye on the long-term time horizon and draws attention away from the short-term focus. It provides some basic options via a linkage with Ansoff, which can assist in closing the gap. If it is held as a tool to assist and not as the solution provider, the approach still has a place in most planning systems within organisations. Proactive! Spot the problem early one and you can do something about it. It allows the questioning of the realism of the objective if there is a gap, it may be that the objective is unrealistic given the strategic capability of the organisation. This may lead to a reappraisal of the objectives and the generation of more realistic versions. Stable environments will still provide a basis for effective gap analysis especially in the public sector e.g. Education and Health

Problems
1
The uncertain business environment makes it difficult to predict what the future may hold. Thus the whole basis is open to question as the forecast may be inaccurate. The complex nature of the interactions within the environment makes it difficult to apply forecasting techniques when they assume that everything else remains equal. As such, it becomes one large exercise in guesswork. There are usually a significant number of powerful stakeholder groups who all have different orderings in terms of priority of objectives. Achieving one objective may well be at the expense of another. Thus a gap opening up in one area may reflect the closure of a gap elsewhere.

Closing the Gap using the Ansoff growth model

Objective

Plan Diversification

Development

Penetration Forecast

Time

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Scenario Planning
Used when confronted by uncertainty in the business environment. Essentially the company prepares plans for possible scenarios or events that may confront them in the future. So when one of the events arises, the company has a plan of action already prepared. Proactive strategy!

Approach
1. A team is appointed opinion and expertise required given the subjectivity here 2. Data captured, information created secondary and primary research 3. Information and experience are combined to create knowledge about the environment 4. Possible scenarios are considered and a final list agreed 5. Strategic responses are prepared to deal with each scenario identified 6. Probabilities are attached to each scenario. 7. Resource constraints are identified and solution actioned. 8. Final report prepared with narrative, numerical and pictorial content

Disadvantages
Costly and inaccurate use up substantial resources and time Knowledge can quickly become dated Tendency for cultural distortion and for people to get carried away The risk of the self-fulfilling prophecy i.e. thinking about the scenario may be the cause of it Many scenarios considered will not actually occur so very inefficient. Stakeholders may perceive this to be waste.

Advantages
Faster delivery of strategic response as have been proactive. Speed can be a basis of advantage. Focuses management attention on the future and possibilities Encourages creative thinking new competitive advantage and disadvantage? Can be used to justify a decision - formal back up Encourages communication via the participation process parties talk to each other Can identify the sources of uncertainty new ones as well as re-evaluating old known ones Encourages companies to consider fundamental changes in the external environment. A formal process that forces research and review

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Delphi Techniques
The Delphi method is a systematic, interactive forecasting method which relies on a panel of independent experts.

The carefully selected experts answer questionnaires in two or more rounds.

After each round, a facilitator provides an anonymous summary of the experts forecasts from the previous round as well as the reasons they provided for their judgments.

Thus, experts are encouraged to revise their earlier answers in light of the replies of other members of their panel. It is believed that during this process the range of the answers will decrease and the group will converge towards the "correct" answer.

Finally, the process is stopped after a pre-defined stop criterion (e.g. number of rounds, achievement of consensus, stability of results) and the mean or median scores of the final rounds determine the results.

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