Strategic analysis is an evaluation of a business's internal and external environment to formulate strategies to achieve the objectives. There are different types of Strategic analysis and choice, but regardless of the framework, the goals are usually similar. Strategy analysis is more than conducting SWOT and PESTEL analysis of your organization. SWOT analysis tool aims at informing you about your internal and external factors influencing business operations. I bet you should focus mostly on weaknesses since they are the major source of trouble in many organizations. Weaknesses give information about what you need to do to retain your existing customers.
Opportunities highlight areas that you may venture into for additional advantages. Therefore, a better understanding of your internal and external environment will assist in creating strategies that solve the problem and identify hidden opportunities. Above all, you must utilize intuitive thinking to have a strategic analysis and action plan that is measurable and achievable at the end of the process.
So what is a SWOT analysis?
SWOT is a framework that is used to assess a company's current internal and external factors. These factors include strengths, weaknesses, opportunities, and threats. Additionally, you need to be informed about your external environment to formulate effective strategies. For example, you need to understand government changes and formulate strategies that reflect those changes but would not deter your objectives.
Besides, you need to understand the current economic situation as well as expected future economic changes to create long term strategies. For instance, information about future changes in consumer net income is essential in strategy formulation as it sets limits on expectations. If in the future consumers are likely to have higher disposable income, the strategy should focus on how to get more sales when consumers afford to purchase. PESTEL analysis is often used to explain the external environmental factors influencing the business.
So what is PESTEL analysis?
Pestle analysis is a tool that is used to evaluate the external factors that influence the business. These factors include political, economic, social, technological, environmental, and legal.
The benefit of pestle analysis is that it allows you to understand your position in the market, thus giving your insight into creating strategies. To understand what goes into the PESTEL section, kindly check the strategic analysis of Apple.
So what does the strategic analysis process include?
1.Set the goals for the analysis
First, you need to ask the question, why do we need this analysis? The analysis can serve different purposes. It may serve to understand the viability of current strategies to propose necessary changes to make them align with trends. Besides, it may be used as a basis for introducing new strategies. Therefore, the analysis can be used to inform the management if it is the right time to make changes.
2.Analyze the internal and external environment
After deciding the purpose of the analysis, it is time to evaluate factors that may influence strategies. These are internal and external factors. SWOT and PESTEL analysis are the tools used to analyze the internal and external environment. These tools identify the weaknesses and threats that the company faces. It also shows the opportunities that are available and can bring about additional advantages.
More so, it informs management about regulation changes, economic shifts, technological shifts, and new environmental requirements. SWOT and Pestel analysis are major sources of important data that can be used to reinforce analysis for strategy formulation, implementation, and changes.
3.Formulate the strategies
Since now you have ideas about what really influences your company's operation, able to identify the strengths and weaknesses of your previous strategies, and have knowledge about setting the objectives; it is the right time to formulate the strategies. Setting strategies should reflect the intention of your objectives as well as future expected changes, internal and external factors.
Example of strategy formulation
Example of objective: increase market share by 20% in the next five years
Example strategies to meet this objective:
- Increase marketing budget by 20% yearly
- Carry out market research to understand market requirements
- Introduce 1 product yearly based on market research suggestions
- Hire three experts who have at least seven years' experience in the targeted industry.
- Resolve at least 90% of customers complaints by the next 12 months and beyond
- Respond to at least 90% of customers query by the next 12 months and beyond
From the objectives and strategies provided above, strategies were designed based on what the company lacked. For example, the company lacked experienced personnel to assist in attaining the objectives. That is why the strategy proposes specified personnel recruitments to bridge the gap. The strategies also show that the company may not have enough products to compete with others. To solve the problem, the strategy proposes market research to aid the introduction of new products.
4.Implement the strategies
To implement the strategies, you need a balanced scorecard. A balanced scorecard theory is also known as Kaplan Norton.
What is a balanced scorecard?
A balanced scorecard is a framework that measures strategies attractiveness to shareholders and customers while evaluating what needs to be done in internal processes and learning to achieve the desired strategic goals.
How does a balanced scorecard model help you implement strategies?
This is the most understood aspect of a balanced scorecard, although not the most important. Since you already have a strategy, a balanced scorecard under financial perspectives tries to evaluate it from the lenses of shareholders and financial supporters.
While implementing a strategy, a financial perspective should prompt you to ask the question; will this strategy improve our shareholder interest? If not, then you need to rethink it and create something that promises value.
You need to understand that without satisfied customers, you cannot satisfy the needs of shareholders. Therefore, this balanced scorecard perspective tries to evaluate strategies based on customers' needs.
Here balanced scorecard aims at evaluating what customers really want. For example, it should try to evaluate the customers' needs based on the quality of service, pricing strategy, and after-sales support. If the strategies proposed have passed the test regarding customer satisfaction, it is likely to satisfy the interest of shareholders.
Internal business processes perspective
Internal processes include production methodologies, technology, quality control techniques, and core competencies. Any strategy will need to be aligned with the internal business process for it to be implemented successfully.
A balanced scorecard evaluates the internal processes to measure if they are effective and whether they can be aligned with the strategies. For example, the balanced scorecard will help to identify the weakness in the internal process that can hamper the success of strategy implementation and advise accordingly on how to manage internal issues.
Learning and growth perspective
Do employees need more knowledge and skills to implement the strategies? In this case, the balanced scorecard will be looking for knowledge and skills gaps that must be bridged for the strategy to be implemented successfully. Learning and growth is an ongoing process meaning that needs can be identified while the project is being implemented.
Balanced scorecard advantages enable the management to evaluate the organization's key stakeholders and identify strategy elements that are influenced or influence the strategies, thus prompting new processes that will try to connect strategies to stakeholders and organization processes. A good connection between strategy and stakeholders assist in identifying ways to implement strategies properly to achieve strategic goals proposed.
It also enables the management to select the right KPIs and metrics that can be used to evaluate the effectiveness of the strategies during implementation. Besides, it also evaluates the capability of available resources in meeting strategic needs.
5.Evaluate and correct
The final step is to take measurements and evaluate the strategies implemented to identify their effectiveness.
The aim of the evaluation is to make corrections where necessary and to make adjustments according to changes in internal and external factors that influence the strategies.
It is my hope that this article has been helpful to you in strategic analysis. However, if you are struggling with strategic analysis, strategic formulation, or implementation, Click here to ask for help from strategic analysis experts.