1. Introduction and concepts Strategy development and planning are closely related. Both are concerned with the future activities of a project or organisation. Where planning is meant to identify concrete activities, strategy development is more concerned with the future direction, rather than with concrete objectives and activities. A strategy is a translation of the organisations mission into aims, and provides ideas how these aims could be pursued. As there may be various ways, depending on the environment, strategy development provides a choice among alternatives. Planning is then the concrete translation of the chosen strategy into concrete objectives, activities and related means. Some key differences between planning and strategy development are given in table below: Table 1. Some key differences between Planning and Strategy Development Strategy development Searching direction Innovation (search for new) Synthesis Aims/visions Ideas Long term Attention to strengths and opportunities Expansion/forward orientation/anticipation Allowing intuition, including soft information Planning Concrete (direction is given) Rearranging old ideas Analysis Objectives Actions Short term Problem solving (weaknesses, threats) Consolidations/past - present orientation prediction/reaction Rational, using hard information is a specific method to develop strategies. It is a method based on the analysis of strengths, weaknesses, opportunities and threats (SWOT). It generates a number of realistic alternatives and provides a prioritisation. The SWOT framework has been developed as a simple tool for analysis within a strategic planning process. However, a SWOT analysis is never the first nor the last step, but has its designated place within the cycle of analysis, planning and evaluation. The SWOT analysis combines an internal analysis of a project (Strengths and Weaknesses) with an external analysis (Opportunities and Threats). It therefore has to be based on a sound knowledge of the present factors and actors in the working environment, as well as on a sound analysis of the internal resources and functioning of the organisation. In other words - as prerequisite to do a SWOT analysis - the environment needs to be scanned and the institutional setting needs to be analysed in order to identify opportunities and threats, while simultaneously the internal organisation needs to be analysed to identify its strengths and weaknesses. Various ID/OS instruments can be used in the process. The figure below shows the position of SWOT and Strategic Orientation in relation to different ID/OS tools and concepts within the planning cycle. ref:12716.054 - DI Page 1 (9)
Figure 1. Place of SWOT and Strategic Orientation in Strategic Planning Strategic Planning: from SWOT to Action Plan Formulation Appraisal Environmental Scan Identification Insitutional Setting Opportunies & Threats OT In-depth analysis of e strategically important strengths/ weaknesses Mission/ Objectives Alternative Strategies Strategic Orientation Strategic Plan (Action) Planning Integrated Organisation Model SW Strengths & Weaknesses Financing Monitoring Implementation Evaluation Implementation It follows that strategic orientation can be used: as a basis for a strategic plan including objectives, activities and means; to identify a direction for further analysis and investigation of major strengths and weaknesses, necessary to seize an opportunity or to reduce a threat. 2. The SWOT analysis The SWOT analysis consists of two parts: The external analysis of the environment to identify opportunities and threats, and the internal analysis of the organisation to identify the existing strengths and weaknesses. 2.1 External analysis of opportunities and threats The external analysis is described in a dynamic sense taking into account the actual situation (existing threats, non-exploited opportunities) as well as possible trends and developments. However, in order to include them in the analysis, they have to be realistic with clear indications and without major speculations. Moreover, the effect on the performance of the organisation should be substantial. An opportunity can be defined as an external fact or development that, if taken advantage of, can substantially contribute to the realisation of the organisation s mission. Examples of opportunities are new possibilities for cooperation, a new target group or demands for new services. ref:12716.054 - DI Page 2 (9)
Opportunities for development organisations may exist or arise in the event of: gaps in the service/product delivery to the target group (non-existence of certain goods or services, or non-availability in certain locations); favourable trends (increase in incomes, growth of urban population with specific needs for more sophisticated products; weaknesses shown by other development organisations (low quality, high costs); better access to new methodologies/technologies; potential for improved cooperation. In relation to target group oriented opportunities the following table can be considered: Table 2. Opportunities related to products/services and target groups Present products/services New products/services present target groups project intensification product/service development new target groups project replication project diversification A threat can be defined as an external fact or development that has or can have a substantial negative effect on an organisation s performance. Threats are challenges posed by unfavourable trends or developments in the environment that will lead to the erosion of the organisation's position, if no corrective action is taken. Threats to development projects/organisations can be found in for example: other projects/organisations coming in with similar products/services social, economic and cultural development affecting the direct needs of target groups collaborators changing their strategy, activities and target groups diminishing capability of collaborators (e.g. diminishing implementing capacity) changes in donor policies changes in availability of resources (man power, inputs, etc.) changes in government policies and regulations Opportunities and threats can be identified in a number of ways. Instruments that can be useful for identification of opportunities and threats are: institutiogramme network matrices environmental scan problem tree ref:12716.054 - DI Page 3 (9)
Essential in whether or not to include a factor in the analysis is: the relevance of the factor for the performance of the project the probability that the fact/development is or will become true the influence the project has to address the factor 2.2 Internal analysis The internal situation is discussed on the basis of the existing situation and explores existing strengths and weaknesses and not future ones. An organisation s strengths and weaknesses are an organisation s internal critical factors that determine its performance. A strength is therefore defined as an internal characteristic that contributes substantially to the realisation of the organisation s mission. A strength is any existing internal asset (management, staff capacity/motivation, knowledge, resources, business links, etc.) which will help to exploit opportunities (or to meet demands) and to fight off threats. A weakness is an internal characteristic that negatively and substantially influences the functioning of the organisation. Weaknesses are internal conditions that erode the organisation s position, hamper cooperation with others or obstruct the exploitation of opportunities. To identify strengths and weaknesses systematically, the following tools may be useful: IOM (balance between the components (outputs, inputs, structure, systems, staff, etc.) criteria for judgement (suitability, legitimacy, effectiveness, continuity, sustainability, flexibility, efficiency) process analysis problem tree 3. Strategic Orientation: the process 3.1 Introduction to Strategic Orientation Identifying strengths, weaknesses, opportunities and threats is not enough. Depending on their joint pattern strategic choices have to be made. Strategic Orientation is a way to combine/match strengths, weaknesses, opportunities and threats in order to arrive at a number of strategic options from which a choice can be made. 3.2 Steps in strategic orientation Strategic Orientation can be done individually, but it is much more effective when carried out in a participatory exercise involving all major stakeholders of the project/organisation. The strategy s rational and consequences can then be understood and accepted by all decision-makers and field workers. The proposed procedure therefore aims at reaching consensus among the stakeholders concerning strategic the choices. ref:12716.054 - DI Page 4 (9)
1. Define the entity or problem area 2. Identification of strengths, weaknesses, opportunities and threats from internal analysis: strengths and weaknesses external analysis: opportunities and threats based on joint discussion or brainstorm 3. Developing strategic options For each opportunity and each threat generate concrete strategic options (concrete objectives/aims) that would make advantage of this opportunity or that would reduce the threat. 4. Select the 4-5 best options Method 1: develop one or more criteria to select the best options and apply the criteria to the options. Often criteria will follow from a basic question; Method 2: select the 5 best options using consensus or using voting by participants. 5. Matching the strategic options with strengths and weaknesses Use the Strategic Orientation Matrix. Identify for each of the options which strengths can be used and which weaknesses should be reduced to be able to realise this option. 6. Formulate tentative strategies Select now the 2 or 3 options that have the most strengths and relatively few weaknesses; Formulate major tentative strategies for these options. 7. Follow-up Identify areas for further investigation (e.g. further analysis of the cost-effectiveness of the tentative strategies formulated); It is often possible to continue with the formulation of a project plan based on the strategies identified. 3.3 Limitations The strength of the above-described model is that it is logical approach to identify major strategic choices. When used in a participatory way, it assists in generating consensus among the stakeholders, providing a good basis for implementation of the project plan. However, the adequacy of the strategic choices depends on the adequacy of the strengths, weaknesses, opportunities and threats identified in the analysis phase and the ability of participants to draw relations between the strategic options and the strengths and weaknesses. It requires good knowledge of the situation to develop an adequate project plan from the strategies formulated. ref:12716.054 - DI Page 5 (9)
Annex 1: Example Strategic Orientation ISPA Institutional Strengthening of Private Agriculture - Romania Step 1. Define Entity / Basic Question Basic Question: How can ISPA develop into a financially sustainable farmers' organisation while delivering substantial and relevant services to its members? Step 2. Identification of major Strengths, Weaknesses, Opportunities and Threats Strengths Flexibility to start new (related) activities ISPA has good image ISPA offers quality Quality related payment (milk, etc.) Unique service package Weaknesses Scattered locations of Dependency on small number of processors High operating costs Weak planning & task division Limited management capacity Opportunities High demand for input supply New/other clients for potatoes and milk Access to cheese processing expertise & funds farmers interest in ISPA activities Threats Monopoly position of LACTIS (dairy company) Non payment of clients Still weak relations with farmers Uncertain access to finance extension activities Resistance of elephants ref:12716.054 - DI Page 6 (9)
Step 3+4. Develop Strategic Options + select the best options Major opportunity/threat Major Strategic Options Effect on sustainability High demand for input supply Increase sales Input supply High /establish new New/other clients for potatoes and milk Increase purchase & sales of potatoes. High Access to cheese processing expertise & funds. Monopoly position of LACTIS (dairy company) Non payment of clients Increase milk collection Establish own milk processing unit High Improve contracts + more strict High follow up Still weak relations with farmers. Increase membership promotion & High Farmers interest in ISPA activities activities. Uncertain access to finance Survey on sources Medium extension activities Resistance of elephants Use government relations Low 5. Matching Strategic Options with Strengths and Weaknesses Strategic Orientation Matrix Strategic options Expand input supply Expand potato sales & milk Establish own milk processing unit Increase membership promotion Strengths collection & activities 1. Flexibility to start new ++ + (related) activities 2. ISPA has good image + ++ ++ + + 3. ISPA offers quality + +++ + 4. Quality related payment + ++ +++ (milk, etc.) Improve contracts + follow up 5. Unique service package ++ ++ 6 6 5 6 2 Weaknesses 1. Scattered locations of + + + 2. Dependency on small ++ number of processors 3. High operating costs. + + 4. Weak planning & task + + + + division. 5. Limited management ++ + +++ + + capacity Total 5 4 5 2 3 Difference S-W 1 2 0 4-1 + = using this strength/ removing this weakness has some effect on this strategic option ++ = using this strength/ removing this weakness has substantial effect on this strategic options +++ = using this strength/ removing this weakness has a major effect on this strategic option ref:12716.054 - DI Page 7 (9)
6. Formulate Tentative Strategies 1. Increase Membership promotion using quality related payment and unique service package while improving planning and monitoring 2. Expand Potato sales and milk collection using ISPA s good image and emphasising quality while reducing operating costs and improving planning and monitoring 3. Expand Input supply using the flexibility to start new activities and ISPA unique service package (to attract customers) while reducing operating costs and improving planning and monitoring ref:12716.054 - DI Page 8 (9)
www.mdf.nl MDF copyright 2010 Step 7. Logical Framework for implementation Overall Objective Project Purpose Intervention Logic Improved income agricultural producers To improve support to agricultural producers Indicators Sources of verification Assumptions Difference between market price and ISPA price to Agr. Producers Purchases from Agr. Prod. Intermediate Results Indicators of results 1. Input supply established No of established No of customers per centre Sales Gross result Net result Return on investment 2. Potato marketing and milk collection expanded No of established No of customers per centre Sales Gross result Net result Return on investment (ROI) 3. Financial position strengthened Net result Net result econ. activities Liquidity ROI of economic activities Existence of relations with potential donors. 4. Membership of Agricultural Producers strengthened No of members. No of locations No of members per location Number of services used by members Source of verification Activities 1.1 To analyse fin. feasibility input supply 2.1. Establish new milk collection (5) 3.1 Organise the accounting system 4.1. Improve use of payment days for information and extension 1.2 To develop logistic system input supply 1.3. To develop administr. system input supply 2.2. Identify more reliable partners 2.3. Improve delivery and transport planning 3.2 Improve regular financial analysis and planning and improve monitoring. 3.3 Assess reduction of administration costs and review costs/hour 4.2 Improve information at input supply 4.3 Improve extension and mobilisation capacity 1.4 2.4 Improve contracts and follow up on contracts 3.4 Identify and assess new economic activities 1.5 2.5 3.5. Identify financial sources for members services 4.4 Re-define relations with other extension agencies 4.5 Develop relation with cattle breeders organisation ref:12716.054 - DI Page 9 (9)