Businesses executives employ all possible strategies to produce high and outshine other companies that operate in the same industry. Usually, every new measure that has positive results is “strategic.” However, the strategic measures become infinite after several years of operation, and the managers find it difficult to identify the imperative measures to adopt. To combat such a problem, the managers are obligated to understand the strategic direction of the business. With a clear understanding of the current position and the competitive level of the business, the managers can easily allocate resources to the business processes that enhance the competitive advantage. To understand the current position of a business, a stringent strategy audit is indispensable, as it will offer the managers the necessary external and internal information regarding the business.
Strategy audit is the process of making a critical assessment of the current position of the business, and determining the direction it should take to achieve its goals in the contemporary world (Grant, Macdonald and Sharifi 38). It is necessary for the business executives to scrutinize the internal activities of the business, the approaches that the business can employ to do better than before, and the level of preparedness to adopt the new approaches. Most importantly, the viability of the approaches is determined by inspecting their feasibility in the internal and external business environment. Essentially, internal and external assessments of the business are the key components in carrying out a strategy audit.
Every business aims at having a competitive advantage over its competitors. Businesses desire to produce distinct products and services that are more valuable than what their competitors produce. However, business executives have to be informed of what the customers need. They should be ready to meet the emerging needs in the evolving world with great competition in fashion, taste, and preference. Executives ought to know that a highly selling fashion, or a unique product today would be commonplace in a few days, and it would be outdated in a few months (Carey 2). They have to know the newest technologies that would facilitate their production, identify new strategies to stay in the competitive business environment, and outshine the competitors. Once the executives understand the business environment, they have to take the necessary action. Essentially, executives should have a significant link with the customers and the competitors to ensure that the business is addressing the external environmental needs accordingly. They should have a clear understanding of the macro-business environment and the industry components to accomplish an environmental assessment.
Understanding the macro-business environment
It is necessary for executives to understand the business approaches that might have a significant effect on the industry in which the business operates. PESTEL analysis speculates the political, economic, social, technological, environmental, and legal factors that might change and affect the business in one way or another. Moreover, competition may change, as the number of substitutes and the number of new entrants may influence the bargaining power of suppliers and the buyers (Bentley, Omer and Sharp 786). The executives have to understand the viability of the industry and the trends that are likely to change their ways of operating the business. It is crucial to understand the reaction of the capital markets whenever there are new developments and the success factors in the industry. Budgeting and financial forecasts should be indispensable, as they will enable the executives to predict the growth levels of the company in the succeeding years. The predictions will be vital in determining the cost or reward of being the winner in the industry in which the company operates.
Understanding of the industry components
It is crucial to understand the competitors, customers, and the various stakeholders within the industry (Liana and Elena 556). Enlisted below are some of the items that the managers ought to understand regarding their competitors.
Business review: To understand the competitors, the company auditors ought to scrutinize the competitors’ business strategies. It is necessary to understand the cost, quality, speed, or service competitive strategies of the competitors. Determining whether competitors are niche or global players will establish their competitiveness and weakness. It would be vital to know the partners and all the efforts that the competitors employ to reach their target customers.
Financial review: To have a clear understanding of the profitability levels of the competitors, business auditors have to take an initiative to find out the amount of profit that the competitors generate annually. They will have to identify the driving factors to the competitors’ financial success and the strengths that they portray in the capital markets. Lastly, the auditors will scrutinize the constraints and opportunities that the competitors have in the financial market.
Organization review: The organization structure is very crucial in determining the success of a company. The auditors will take an initiative to determine the key players of the competitor companies. They may determine if the competitors operate in a centralized or decentralized environment. Most importantly, it will be vital to determine if the companies are over or understaffed. Thereby, it will be easy to determine whether the competitors aim at attaining business objectives or human objectives.
Culture assessment: Culture determines the operations in a business, thus, it is very crucial to identify the culture that guides the employees of the competitor companies. Auditors will determine if the competitors adhere to a result-oriented culture and if the culture is bureaucratic or flexible.
Integrating the industry components into the environmental picture
The last step in carrying out an external analysis is combining the data obtained from the industry component analysis with the macro-business environment analysis data. With the integrated data, the managers will understand the direction in which the industry heads and how the entire scenario would affect the company’s competitive position (Simon 502). Essentially, an external analysis creates the pathway to carry out an internal analysis of the business. Thereafter, the executives of the company can determine the approaches that the company should employ to fit into the industry.
Once the executives of a company have a clear understanding of the external environment, they can easily reassess the internal operations of the company. They will only identify the right strategies to employ using the insights listed below.
Strategy clarification: The executives of the company should determine the current position of the business and the criteria for making strategies. Strategy clarification enables stakeholders of a company to have focus, cooperation, and the spirit to work hard to attain a competitive advantage.
Viability and robustness enable the executives to propose achievable and sustainable business strategies. Market and financial viability and robustness enable managers to employ feasible and advantageous strategies.
Business process analysis enables the leaders of the company to identify the strategies to improve the product design, manufacturing, and product delivery processes.
Capabilities assessment enables the managers to recognize the skills to employ in delivering products and services in the most suitable way. It is important to identify the available capabilities and determine ways to improve them accordingly.
Organization design and resourcing enable the managers to incorporate the environmental needs, strategic needs, skills needed to attain the strategy, and the available human resources. The executive should plan to reorganize the organization structure to have competent top leaders. The approach improves the effectiveness and efficiency of the entire operations in the company (Sweeney and Lillis 45).
Culture: The executives should review their culture that determines the behavior of the employees. The company should plan to align its cultures to enhance the execution of new strategies.
Once the internal and external assessments are complete, the audit team should review their strategies and determine if they are in line with the external environment. The company should emphasize strategies that match the customer’s needs. The auditors should determine if the company is at par with the changing need of the customers in the evolving and competitive market. Thereafter, there should be plans to implement change strategies wherever needed. Ideas on the changes to make should come from the front line employees, where, change in the core business practices should have the first priority.
The author of the article emphasizes that business strategy audits are very essential in any business that intends to prosper in the future. Having done the external and internal assessments, necessary adjustments are vital in every business operation. However, teams conducting audit strategies are cautioned about expecting the entire data to be equally useful, failing to communicate strategy changes to the employees, failing to link support systems in enforcing the changes and doing nothing with the audit findings. Moreover, failing to prioritize core practices and failing to think strategically about the processes to amend is an erroneous way of doing strategy auditing. Therefore, any team that intends to carry out a business strategy audit should consider the abovementioned strategies to complete the entire exercise successfully.
Bentley, Kathleen A., Thomas C. Omer, and Nathan Y. Sharp. “Business Strategy, Financial Reporting Irregularities, and Audit Effort Business Strategy, Financial Reporting Irregularities, and Audit Effort.” Contemporary Accounting Research 30.2 (2013): 780-817. Print.
Carey, Andrew 2011, How to Edit Your Business Strategy. PDF file. Web.
Grant, Gerry H., Pam Macdonald, and Mohsen Sharifi. “The Strategy Audit.” Internal Auditor 68.6 (2011): 37-40. Print.
Liana, Elefterie, and Ruse Elena. “Intelligent Strategies as a Support for Business Process Auditing – Research Directions.” Journal of Academic Research In Economics 3.3 (2011): 551-558. Print.
Simon, Alexandra. “An Empirical Analysis of the Integration of Internal and External Management System Audits.” Journal of Cleaner Production 66.1(2014): 499-506. Print.
Sweeney, Mike, and Bob Lillis. “Auditing Strategic Business Management: Why and How.” Management Services 56.4 (2012): 44-47. Print.