PURPOSE is to gain understanding of the organization in the context of its external environment and to develop a set of critical issues:

• Issues that should be central and vital in the considerations and actions of top management
• Usually problems, serious weaknesses, or threats, sometimes opportunities
• Small number - to provide focus
• Framed as issues, rather than solutions
• Include both short- and long-range considerations

DIAGNOSIS OVERVIEW

* Current mission, strategic objectives, strategies, & performance

• Identify or infer the organization's current mission, purpose, and key management values/philosophy. Identify (as well as the information allows) the long-range business objectives and strategies (especially corporate-level and competitive strategies). Merely describing their business activities is not identifying strategies.
• Evaluate the current objectives and strategies in terms of consistency, how well they are working, intrinsic merits and disadvantages/risks.
• Focus particularly on identifying and evaluating the current strategies, since you may be proposing change to these in the Formulation phase.
• Analyze the appropriateness of the organization's portfolio of businesses (for diversified firms).
• Determine how well the organization has been performing.

* Scan & analyze external environment: [see external module for more details.

• Key point is that an organization needs to be in tune with its external environment. There must be a strategic fit between what the environment wants and what the organization has to offer (also a strategic fit between what the organization needs and what the environment can provide)
• Since there is so much happening in the external universe, we have to be selective and smart in scanning:
• For a given industry (sometimes is company-specific), certain aspects of the external environment tend to be more important (e.g., technology trends for a high-tech industry, relevant government actions for a highly regulated industry, interest rates for a home lender)
• Helps to scan initially fairly quickly, then zoom in on areas where something of importance seems to be happening
• Competitive (Task) environment
  • Industry structure and competitive environment (use Porter's 5-force model). Include industry growth trends, key success factors, value chain. Identify key stakeholders. Evaluate the relative strength/importance of the forces and focus primarily on the important forces.
• General (Societal) environment
  • Technological (note connections with technology under internal environment analysis)
  • Political-Legal
  • Economic
  • Social-Cultural

• Look at the value chain (see separate value chain module)
• Scan and analyze each of the major functional areas, particularly to identify the organization's strengths and weaknesses. Go beyond mere description to evaluate, how well is this working? Add value by including evaluation and conclusions . Look for distinctive competencies, sources of competitive advantage, and major ways the organization creates value through its operations.
• Financial (see separate financial analysis module)
• Marketing (more details in subsequent sections for this and the following three functional areas)
• Production/Operations
• Technology
• Organizational

• Key stakeholders and implications for organization
• Both external and internal

* S.W.O.T. table:

• Strengths: important resources or capacities that the organization can use effectively to accomplish its objectives
• Weaknesses: important defects, limitations, or faults of the organization that may keep it from accomplishing its objectives (sometimes have external weaknesses, as well)
• Opportunities: favorable situations in external environment, often a trend, change, or overlooked need
• Threats: unfavorable situations in external environment, likely to occur, that are potentially damaging to the organization, its purposes and strategies (sometimes have internal threats, as well)

* Set of "Critical Issues"

MARKETING ANALYSIS:
NOTE: As we scan and analyze each of the internal functional areas, we want to understand major things they are doing, and are especially looking for strengths and weaknesses in each functional area

* Four P's:

• Product
• Price
• Place
• Promotion

PRODUCTION/OPERATIONS

* Often neglected

* Much of COGS here

* Can have large effects on competitive position

* Key strategic decision variables:

• Locations & capacities of facilities
• Planning of output (what, where, when, cycles, continuous/intermittent...)
• Flexibility (economies of scope)
• Efficiency
• Labor/capital intensity (operating leverage)
• Inventory levels (raw, WIP, finished goods)
• Quality

* Experience Curve

• Empirical observation - with effort, unit cost decreases at inverse exponential rate
• Learning curve effects, economies of scale, substitution, innovation, value engineering
• Tie with pricing strategy
• Watch limitations & effects of computer assisted manufacturing

TECHNOLOGY (R&D)

* Tie to technology developments in external scan

* Note successive S-curves (product performance vs. R&D expenditures). Key to competitiveness is when to shift resources to different technology, plus picking a "winning" technology

* Major strategic variables:

• Technology strategy
• Technology position
• How we obtained & maintain position:
• Buy or build
• Funding levels
• Product/process
• Application (i.e., is the organization getting results from its funding?)
• Technology transfer
• Trends, threats, what competitors are doing

ORGANIZATIONAL

* Many aspects that could be considered, both in diagnosis and later in implementation

* Major considerations:

• Top management resources (do we have what is needed?)
• BOD situation (strengths, weaknesses, conflicts?)
• Employee (labor) relations (problems?)
• Structure (serious indications of needs for change?)
• Reward systems
• Culture
• Information systems (won't do much with this and following, in 497 cases)
• Human resources systems...