In this chapter, the strategic audit focuses on the firm itself. What are its own distinctive capabilities and its strategic assets? Which are the markets in which these might yield competitive advantage? Are there other markets in which, although the firm may not have a competitive advantage as such, it should nevertheless compete because there are economies of scale or scope associated with its primary market?
What competitive advantages result, and relative to which competitors? What are these competitive advantages worth? To what extent are they realized in added value, and if they are not fully realized, what are the factors which prevent full realization? When and to what degree have these competitive advantages been reflected in the company's share price? What steps is the company taking in order to secure the sustainability and appropriability of its distinctive capabilities and strategic assets?
The answers to these questions define the firm's corporate strategy. They describe the business, or businesses, the company should be in. The strategic audit must also tackle questions of business strategy. The analysis of markets leads naturally to questions of market positioning and market segmentation. Positioning will partly be dictated by the nature of the firm's distinctive capabilities, and partly by an assessment of the positions of competitors. In identifying its markets the company must distinguish as many distinct economic markets as there are. What steps can it take to keep these distinct economic markets apart? What pricing policies should it adopt relative to its competitors? This latter is partly an issue of positioning, partly one of competitive dynamics. What is the role of advertising and branding for the firm and in its industry? What is the nature of vertical relationships with the firm's suppliers and towards its distributors--what is their style, what is their effect on incentives and on actual and potential competition? Can added value be effectively defended against them?
These are some of the principal issues for a strategic audit. This chapter poses some of these questions for two companies--British Airways and Benetton.