What is Strategic Analysis?
The strategic analysis can be defined as a process for the research of the business environment of an organization within which the enterprise performs. Strategic analysis is required to formulate decision making strategic planning and smooth operation of the organization. With proper strategic planning, the goals or aims of the company can be fulfilled. Due to the constant endeavour to be successful in this competitive world, business organizations periodically conduct strategic analysis to determine which segments need improvement and which areas are doing exceptionally well and also try to keep a track of external factors. For an enterprise to function effectively, it is vital to know the ways through which the positive changes that need to be implemented, how to better manage the value chain and to identify its strengths and weaknesses.
If an organization has a particular set of goals and missions, then the strategic analysis is very much significant for them and it serves as an analytical tool. All the successful organizations that have big achievements, have years of strategic analysis and planning that are implemented at various stages of operations. Strategic analysis is a long term resource investment involving systematic and continuous planning. During the conduct of the strategic analysis, organizations should also perform competitor analysis and consider external factors. This will help them to remain as an unbeatable player in the market and get competitive advantage. One of the most important aspects of strategic analysis is the prediction of the future events and deduction of substitute strategies if plan A does not work out as anticipated. Such strategic decisions for a part of internal analysis and provide any organisation with a clear picture.
In other words, Strategic Analysis is a process of researching an organization and its working environment to formulate an operating strategy. The strategic analysis takes advantage of the path that is less difficult to achieve the goal. The process includes some common factors which are:
- Evaluation and identification of the data that will be relevant to the business strategy
- Defining the external as well as internal environments of a company
- Implementation of some famous analytic methods like SWOT Analysis, SOAR Analysis, and PESTLE analysis.
Strategy formulation and analysis is critical for success of any organization. The organizations can get real strategic analyses that are designed to allow managers to make more informed decisions for efficient management of their business operations. It helps the stakeholder in strengthening and regaining competitive position while providing strategic alternatives.
Applications of Strategic Analysis
Market Sizing Analysis – Market sizing is critical for any company that wishes to either enter a market, launch a new product or service. Your team needs to specialize in analysing market size and market dynamics. A multi approach market sizing methodology helps to accurately analyze a market. Our experience of suggests that small markets are less likely to be able to support a high volume of goods and large markets could bring in more competition.
Product Portfolio Analysis – Every product firms realizes that a product has to go through a series of changes throughout its life cycle from introductory to maturity and eventually decline. This is where Product Portfolio Analysis becomes very critical for an organization to assess where their products stands in terms of competition, consumer perception, market share, SWOT analysis, future consumer behaviour etc to identify star products that can sustain growth over a longer period of time.
Forecasting Analysis – Organizations realize that foreseeing future is important to measure current businesses growth over a period of time and it is also critical for assessing potential business opportunities and re-evaluate previous strategy. A business requires team which specializes in building forecasting models using forecasting techniques like Time Series Analysis, Simple Moving Averages, Weighted Moving Averages, Regression, Econometrics and Drivers & Inhibitors model. We can apply these forecasting techniques for assessing Consumer Spending Behaviour Analysis (Credit card firm) Market Size Forecasting and Product Price Fluctuation etc for clients. If appropriate data can be collected and identified, then it can provide you with better performance measurements and perform in depth analysis.
Brand Perception – branding and consumer perception of a brand has became key to success of any product/service in any market. Teams need to understand, place, perceive and analyze brand from the point of view of consumers. Conduct brand perception studies for media houses and educational institutes.
Market Assessment – In today’s cut-throat environment, where complete market assessment and product positioning are the most important factors for a company to differentiate its products from those of competitors. Companies should identify market segments, industry trends, consumer preferences and position their products accordingly.
Business Partner Analysis – With companies going global or trying to cut down on costs, it is becoming increasingly important for the sales & marketing, talent acquisition, sourcing, supply chain & logistics division of companies to identify the right business partners and potential vendors. Various firms have built a strong partner identification analysis framework that studies complete dynamics of potential business partner. They study the partnering strategies of top players, best practices, potential partner’s impact and revenue generation capabilities.
Market Player Analysis – With the help of the business research division, create detailed profiles of key players/competitors that may include management profiles, product information, market share, key infrastructure initiatives, partnerships, M&A activities, research focus, etc.
Competitive Analysis – In today’s competitive business environment, it is becoming mandatory for companies to know what their competitors are doing, what are the research activities being undertaken, what the image the company has, etc. A business prepared to deal with external threat, strategic issues, internal weaknesses and derive benefit of external opportunities, excels in business world.
Also Read: Strategy Mapping
What are the steps to Perform a Strategic Analysis?
The strategic analysis can be performed in an enterprise in the following different ways.
- Analysis of the environment of the current strategies: From the very first, an organization needs to finish up the environmental analysis of the ongoing strategies. Operational affectivities and inefficiencies, financial constraints, the morale of the employee, etc are included in the internal environment analysis. Political trends, changes in consumer opinions and economic shifts are some of the factors to consider while analyzing the external environment.
- Determination of the efficiencies of the Current Strategies: The main motive of strategic analysis is to determine the efficiency of the existing strategies that an organization is following in its prevailing environment of the business. The strategic analysis helps to find all the answers for difficult questions like Is these strategies good or failing? Can the company meet the set goals? Or does the strategy the organization is going to implement will align with the values, vision, and mission of the company?
- Formulating the Plans: If the answer to any of the above questions is still unknown or unsure, then the company undergoes a planning stage where the strategic analysts propose different alternatives. Lower production costs, leaner operations, changes in the structure of the capital and management of the supply chains are some of the potential alternatives that an organization can choose from.
- Recommendation and Implementation of the most Feasible plan: Lastly, after all the assessment of the available strategies, the analysts recommend the most quantitatively profitable and viable strategy to the enterprise. After the recommendation and implementation of the plan, it should be repeatedly re-assessed.
Related Articles: What is PEST Analysis?, What is STEEP Analysis?
Advantages of Strategic Analysis
There are a few of the benefits of strategic advantages which are discussed as follows:
- The strategic analysis offers clarity of the positive attributes within an organization that are totally under control.
- It assists in identifying both external as well as internal factors that help a business to take a lead over its competitors
- It gives a clear idea about all the components that add competitive advantage and value to the business.
Disadvantages of Strategic Analysis
However, along with numerous benefits, strategic analysis has some weaknesses also. They are as follows.
- Strategic analysis detects all the factors or creates different ideas, but does not clarify which aspect needs more attention or which idea is the best.
- Sometimes a large amount of time is spent on problem-solving, which left us with no or little time for the discovery of new products affecting the level of the service of a business.
Different Types of Strategic Analysis
Two types of Strategic Analysis are embraced by different organizations for future planning. They are:
A. Internal Strategic Analysis
Through internal strategic analysis, organizations look inside the enterprise for the negative and positive elements and launch a resource set that is used to enhance the image of the company in the market. The internal strategic analysis begins with the evaluation of the potentiality, growth, value chain analysis and performance of an organization. The analysis of the strength of the company should be market and client-oriented. The strength will only make any sense if the company can understand the needs of the clients and manages the entire process well. The weaknesses and limitations of the organization should also be known to the strategic analysts that a company is facing or will face in the future. To reduce the impact of weaknesses, corrective measure should be taken in timely manner.
One of the most popular techniques for internal strategic analysis is the SWOT (Strength, Weakness, Opportunities, and threats) analysis. Performing an analysis through the SWOT Matrix will create a foundation of strong long term vision through strategic planning of an enterprise. SWOT-analysis helps to understand external factor and make strategic choice. It helps in adopting a better corporate strategy and one of the critical success factor. A SWOT analysis evaluates the environment in which the organization operates and acts according to the situation. SWOT analysis prevents different problems that can generate if there is no presence of systematic analysis within an organization.
The SWOT Matrix is a strategic planning tool designed to evaluate the Strengths, Weaknesses, Opportunities, and Threats associated with a project. The SWOT framework makes it easier for you to clearly identify your objectives, and then to consider the factors that might help or hinder your progress toward those objectives. This can help you to identify the most important areas to concentrate on for your plan. In order to make sure your SWOT Matrix is complete, you should include all of the factors that might have an effect on your project. For each one of these factors, assign a rating of high, medium, or low.
B. External Strategic Analysis
Once there is a thorough examination of all the negative internal factors through internal strategic analysis, a business needs to know the causes that can be a reason for hindrance to the growth of the company. Knowing how the market of that particular industry functions, the reaction of the customer to the services and products, and measurement of customer satisfaction are some of the methods of external strategic analysis. Like SWOT, PESTLE (Political, Economic, Social, Technological, Legal and Environmental) analysis is one of the most extensively used techniques in the external strategic analysis.
PESTLE is a framework of factors for the macro-environmental scanning components. The model can sometimes include Demographic and ethical factors. PESTLE also gives an overview of the elements that an organization has to overcome through market research and strategic analysis. By the application of the PESTLE analysis, an organization can know:
- The key issues that are beyond the control of an organization like the change of the ruling party in the political scenario that can modify the rules at any point of time
- Identification of the impact of every negative factor
- Rating of the occurrence likelihood
- How important these factors are and how can they affect the growth of the company
- Considering all the consequences on the business, if the issues did happen in the future
There are three steps for the PESTLE analysis which are:
- Identification of the changes in the big picture by the application of mnemonic analysis
- Identification of the threats or opportunities due to the changes
- Inclusion of the strategies to lessen the chances of threats and take full benefits of the opportunities.
During PESTLE analysis, the following questions need to be asked for each of the external elements.
- How is the stability of the government?
- Is the election due in the recent months?
- Who are the contenders for the political positions?
- Are there any changes in the legislation or taxes?
- Is there any probability of any political factors that can cause a big change?
- What is the age profile of the growing population?
- What is the pattern of employment?
- Is there any shift in the generational attitude?
- Can religious and lifestyle choices impact the selling of the product?
- Are there any major international changes in the law?
- Is the consumer protection law changed or is it about to change?
- Is there any specific regulatory law for the industry?
- Is the economy of the country growing, declining or stagnant mode?
- Are the exchange rates of any particular currency volatile?
- Is there any rise or fall in disposable income?
- What is the current employment rate of the country?
- Is there any introduction of the new technology that the competitors have access to?
- Is any technological change causing the social changes?
- Is there any communication system available?
- Can environmental issues impact the products?
- Can waste management and pollution impact the organization?
- Do any global factors need immediate attention?
- Are the employees morally low or down?
Different Levels of Strategic Analysis
There are three different levels of strategic analysis based on scopes. They are:
- Functional Level of Strategic Analysis: Functional level strategic analysis is the lowest level of decision making. This analysis focuses on the activities within the different segments and aims for the overall improvement of the organization. The plans are meant for particular groups or functions.
- Business level Strategic Analysis: In the middle is the business level of strategic analysis. This business-level decision mainly focuses on the positions of the market to help the organization to gain a competitive advantage in its field.
- Corporate Level of Strategic Analysis: This is the highest level of decision making in strategic analysis. Corporate level strategic analysis is based on the entire function of an organization and thus affects the profitability of the company in future times.
Different Types of Strategic Analysis Tools
There are different techniques to determine the strategic analysis of an organization. We have already discussed the SWOT and the PESTLE analysis in the different types of strategic analysis section. Now let us have a sneak peek into the other techniques as well.
When starting a strategic analysis process, it would be very wrong to throw away the old strategies in which a lot of people have already invested their effort and time into communicating, formulating and implementing a plan. The missing items in the old strategy should be detected and validated. This process of identification is known as Gap Analysis. It is an analysis of existing strategies to find any gap that needs to be immediately addressed.
To make sure that any item is not left behind, the strategic analysts employ a benchmark to compare to the items of the competitors or to follow a previously tried, established and tested general list. The Gap analysis ensures that the entire strategic activities are covered to offer a good reference throughout the analyzing process. It also helps to determine which analysis technique should be used among the numerous ones.
Porter’s Five Forces
Porter’s Five Forces Analysis is based on microenvironmental factors. These factors are closely related to the company that can affect the capacity to serve the customers to make a profit. The Five Forces are:
- Buyers: Buyers always want to buy more and pay less for a product. The price competition is very high in the mobile industry. Buyers simply want the best smartphone with all the updated features and that too at the lowest price.
- Suppliers: Suppliers want to be paid more and deliver less. They always insist on high price value or for the terms that are more favorable for them. The demand increases in he/she are the only supplier in the vicinity.
- New Entrants: New entrants in the industry often cause tension to different organizations. Most of the time a new company provides all the same services or products but at a much lower cost. This enforces the existing enterprises in the business to expand more money to keep up the old customer base.
- Substitutes: This can be a cause of concern for an organization when someone else comes with a substituting option for the same product or services.
- Existing competitors: Existing competitors are still a big threat to an organization that can reduce profitability in the long run.
Boston Matrix is the other name of service and product portfolio. This tool for strategic analysis needs to analyze the product or service of an organization and determine if it is a sick dog, a cash cow, or a flying star. After proper consideration through market share and growth, the review of a particular product or service can be determined by implementing this technique.
How are Strategic Analysis and Market Research related?
Information on various market scenarios and recommended strategies to gain more leads, both of them can be achieved through methodical market research. There are two types of market research according to the nature of the conduct. They are quantitative research and qualitative research. Market research can help a company to know the decree of brand recognition among the customers and plan an advertising campaign accordingly.
Organizations can also know about the reaction of the introduction of a new product via market research and attract the attention of the customers through various innovative ideas. Strategic analysis through market research can include a survey with a questionnaire to know the feedback of the customers. This will help the business to know the factors that need to change and have exponential growth in their revenue.
The strategic analysis gives the owner of an organization a clear view of the business operations, goals, objectives and how to achieve their set targets. All the techniques like SWOT, PESTLE, Gap, Porter’s Five forces and Boston Matrix of strategic analysis assists in measuring the level of failure or success of the plans that are and will be implemented in the organization.