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 endeavor 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. For an enterprise to function effectively, it is vital to know the ways through which the positive changes that need to be implemented.
If an organization has a particular set of goals and missions, then the strategic analysis is very much significant for them. 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 know about their competitors. This will help them to remain as an unbeatable player in the market. 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.
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 strategy of an organization
- Defining the external as well as internal environments of a company
- Implementation of some famous analytic methods like SWOT, value chain and PESTLE analysis.
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, 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. 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.
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 of an organization will create a foundation of strong long term vision through strategic planning of an enterprise. SWOT-analysis helps to detect all the aspects of the project and also foresee the nearby threats that the company may suffer. 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.
Now let us break down the SWOT analysis further and understand how an enterprise can conduct a strategic analysis to plan for better performance with each passing year.
1. Strengths of the Business
There are several attributes of a business that makes them stand out from the other competitors in the market. These elements are the strengths of an organization. There are certain strategies and resources within an organization that has been carried on for years. These resources or plans are known as strengths. Knowing these factors is very vital to remain ahead of the rivalries in the industry. Through SWOT a company can be:
- A strong brand
- Can include a strong balance sheet
- Can build a loyal customer base
If the following questions can be answered during strategic analysis, then those are the strengths of an organization.
- What are the advantages of the company over other competitors?
- In which section the organization does well?
- Will this plan enhance the current profitability of the organization
2. The weakness of the Business
An organization can’t have only strengths and not many weaknesses. The factors that need to be corrected or need to perform better to compete in the market are known as the weaknesses. Most of the problems can be detected beforehand and can be corrected in time with preventive measures. Some of the weaknesses of the company that are noticeable are:
- The higher level of debt
- A weak brand reputation
- Insufficient supply chain
- Lack of capital
To find out the weaknesses of an organization, the following questions must be answered.
- What are areas which are lagging and could do better?
- Which areas should be avoided?
- What are the consistent complaints of the customers and the employees?
- What are the internal and external processes that are too slow?
3. Opportunities for the Business
If an organization can detect the opportunities that lay for them in the future and follow those steps, then success will be doubled for the business. Through Strategic analysis, you just have to find out those positive traits that will be beneficial for an organization. The golden opportunities for the enterprise can be determined if the below questions are answered during strategic analysis.
- What are the obvious opportunities that can be grabbed in the future?
- What are the existing and predicted future trends that will be ruling the market?
- Are there any chances of exploitation of the social, population and lifestyle changes?
4. Threats to a Business
Certain factors can harm the growth of a business. These factors can also be detected via Strategic analysis and a proper risk management system should be implemented so that they cannot affect the growth of a company. Strong competitor brand value, multiple companies with the same product, better advertising campaigns by the rivals, down in the economy and good relationship of the competitor with the retailers are examples of such negative aspects that can be a sure threat to any organization. Strategic analysis notices these treats and dealt with them very tactfully. The biggest threats for the company can be detected if the below questions get an affirmative response during the analysis.
- What is the biggest obstacle in the external field?
- What difference are the competitors doing to remain ahead of the company?
- Are there any regulatory and government changes?
- How can we keep up with the advanced technological changes?
- What is the nature of the relationship between the organization and the suppliers?
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?
How 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.
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 and qualitative. 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.
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.
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.