Business and Project Interaction
When business strategy is implemented through projects it requires project activities to be aligned with corporate activities so that project objectives reflect those of the business. Projects are expected to contribute to the performance of the organisation by delivering improved products and/or services. With the increasing importance of projects, greater attention is given to the impact of project risks on business outcomes. If they are of a negative nature, risk response strategies are developed for value-protecting. The existence of positive project risks, however, provides opportunities for implementing value-creating strategies.
Business Strategy Formulation
Strategy has been defined in many ways, since '[t]here is no single unifying theory of strategy with many strategic schools of thought' (Young et al. 2012: 889). From the management literature it can be deduced that strategy sets direction for the organisation. It does this by:
• developing a plan that integrates the organisation's goals and polices with a set of actions;
• defining the scope of the organisation and publicising it in the organisation's vision, mission and objective statements;
• considering a time span that covers strategy for the short, medium and/or long term;
• gaining advantages for the organisation so that it is successful in the industry vis-a-vis competitors;
• responding to market needs and exploiting market opportunities;
• focusing on investments that grow the existing business and have the potential to transform it in the long term;
• making efficient use of resources by fully utilising the organisation's assets;
• exploiting the competencies of its people when implementing strategies;
• satisfying stakeholders' expectations for improved products and services;
• meeting shareholders' expectations for positive returns on the funds they invested in the organisation.
TOOLS FOR STRATEGY FORMULATION
Management can apply a number of approaches to formulate business strategy. They include the following:
• SWOT analysis. As the name implies, this approach identifies Strengths, Weaknesses, Opportunities and Threats. Strengths and weaknesses focus mainly on internal capabilities, resources and skills which are required to deal with opportunities and threats that are present in the external environment.
• Product and service life cycle. The premise is that products and/ or services have a finite life cycle by passing through stages of emergent growth before declining. Managerial action may be able influence the rate at which they pass through each stage. The purpose of strategy is to position the organisation within the cycle.
• PEST analysis. This approach analyses Political/legal, Environmental, Socio-cultural and Technological factors.
Included in the analysis are government legislation, rates of unemployment, demographic characteristics and technological innovation.
• Competitive forces. This analysis assumes that, at any given time, the organisation is affected by a number of different forces from its environment and from competition and rivalry in the industry. Also considered are the power of suppliers and buyers, the threat of customers changing to another product or service, and the likelihood of new players entering the market.
• Internal and external value chain analysis. The former breaks an organisation's activities into primary activities (e.g. inbound logistics, operations, outbound logistics, sales and marketing) and support activities (e.g. administration, human resource management). External value chain analysis links the organisation's activities with those of its suppliers, customers and alliances.
• Critical success factors. This analysis identifies areas that must go well for the organisation to achieve its objectives. Management needs to be supplied with information that enables it to track the organisation's performance in these areas. The factors are small in number to indicate their critical importance.
• Gap analysis. This identifies skills, knowledge, competencies and capabilities that the organisation requires to execute its strategies and achieve its objectives. Current resources and capabilities are compared with required ones to establish gaps and remedies to overcome deficiencies.
Strategic planning includes identification and management of project risk. As stated by Kendrick (2004: 71): 'Risk management is not an option. It naturally occurs as part of the strategic planning process (e.g. in more advanced applications of SWOT and PEST analyses) so the question is not whether or not it occurs, but how well it is understood and undertaken.' This chapter will now outline how project risks are identified and aligned with business strategy.