Strategic Analysis refers to analyzing where the business is now, and where it aims to be in the future. Strategic Analysis involves looking at the business’s current situation by analyzing its internal and external situation.
When planning for the future of a business organization, senior business managers need to consider the current position of the firm, what is happening in the world around the business on the market, how this could affect the firm, how realistic will the plan be and what might happen in the future.
Any long-term strategic plans must fit with this external analysis which is mainly based on the market research. Effective Strategic Analysis will help to set clear, relevant and realistic business goals, so the business can be better prepared for the future operating with less risk.
Strategic Analysis uses a number of different business techniques. Let’s take a look at them in details.
Strategic analysis – 1st step of strategic management process
STAGE 1: Analyzing where the business is now, and where it aims to be in the future.
Strategic Analysis involves looking at where the business is by analyzing its internal and external situation. The following business tools can be used in order to do so:
1. SWOT Analysis. This is the starting point for strategic analysis. Managers need to undertake and interpret strengths and weaknesses the business in a given situation. The opportunities and threats faced will vary according to the nature of the business. Development of the outcome of SWOT Analysis will be put into strategic objectives.
2. STEEPLE Analysis / PEST Analysis. Conducting STEEPLE Analysis will follow in order to analyze in details social, technological, economic, environmental, political, legal and ethical factors related to the external environment of the business.
3. Vision Statement & Mission Statement. Evaluation of the role of business Vision Statement and Mission Statement and business objectives in strategic analysis is very important. Questions to be considered may include the following:
- Is the business new or well-established?
- Is the business operating for-profit or not-for-profit?
- What is the type of a business organization?
- Who are the main stakeholders?
- What are the objectives of the firm?
- How do Vision Statement and Mission Statement reflect what the organization is doing now and where it is going?
- What are the attitudes of management towards taking risk?
- What is the firm’s present financial situation?
- Should the business expand internally or externally?
4. Ratio Analysis. This includes conducting financial analysis of the entire business organization. Ratio Analysis should be conducted at this stage in order to evaluate the overall financial situation of the firm.
5. Boston Matrix. Analyzing the whole product portfolio of a business will help to judge whether the present product portfolio is adequate and appropriate to meet business objectives. Looking at the resources available to the business will allow business managers to decide whether it is possible or not to invest in selling current products and developing new products, and how much money can be spent.
6. Porter’s Five Forces. Using Porter’s Five Forces market analysis as a framework for business strategy enables managers to determine the competitive forces facing the business in the market. The question here is how the firm can develop its competitive advantage in the industry.
7. Core Competencies. Strategic analysis requires to investigate what capabilities the business has developed that give it competitive advantage over other firms in the same industry. It will open opportunities for developing core products.
In summary, the Strategic Analysis of the present market and the firm’s competitive situation will dictate the nature of future strategy – the aims, objectives and core principles. It will help to answer the questions that will help to form that strategy including where the business is now, how the business might be affected by what is happening around it and how the business will respond to changes in external environment.
