9.3 The Role of Strategic Analysis in Formulating a Strategy
3 min read•june 25, 2024
Strategic analysis is crucial for effective strategy formulation. It involves systematically evaluating a firm's internal and external environment to guide decision-making. This process helps identify strengths, weaknesses, opportunities, and threats, enabling evidence-based choices.
Key aspects include industry analysis using , of macro-environmental factors, and competitor analysis. These tools help assess the competitive landscape, identify market opportunities, and evaluate a firm's position relative to competitors.
Strategic Analysis in Strategy Formulation
Strategic analysis for decision-making
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- Provides systematic approach to evaluate firm's internal and external environment
- Identifies strengths, weaknesses, opportunities, and threats through (internal capabilities, external factors)
- Assesses competitive landscape and industry dynamics (market trends, competitor strategies)
- Evaluates firm's resources, capabilities, and (unique assets, skills, expertise)
- Guides decision-making in strategy formulation
- Informs development of and goals (long-term targets, milestones)
- Helps identify strategic options and evaluate their feasibility (growth strategies, )
- Supports selection of most appropriate strategy based on firm's unique situation (market position, competitive advantages)
- Enables evidence-based decision-making
- Provides foundation for rational and informed strategic choices (data-driven insights, logical reasoning)
- Reduces risk of strategic missteps by considering multiple factors and perspectives (comprehensive analysis, )
- Allows for continuous monitoring and adaptation of strategy based on changing conditions (market shifts, emerging technologies)
Key questions in competitive analysis
- Industry analysis using Porter's Five Forces model
- Assesses level of competition in the industry (rivalry among existing firms)
- Determines of suppliers and buyers (input costs, customer demands)
- Identifies barriers to entry and exit in the industry (capital requirements, regulations)
- Evaluates likelihood of new entrants or substitutes disrupting the industry (innovative startups, alternative products)
- analysis of macro-environmental factors
- Examines political, economic, social, technological, environmental, and legal factors affecting industry and firm (government policies, economic trends, demographic shifts, technological advancements, sustainability concerns, legal regulations)
- Identifies opportunities or threats created by these factors (new markets, changing consumer preferences, disruptive technologies)
- Competitor analysis
- Identifies main competitors and assesses their strengths and weaknesses (market share, product offerings, financial performance)
- Analyzes how competitors differentiate themselves and their key success factors (unique value propositions, operational efficiency)
- Evaluates competitors' market shares, growth rates, and profitability (competitive benchmarking, financial analysis)
- Utilizes to visualize competitive positions within the industry
- Customer analysis
- Identifies target customers and assesses their needs, preferences, and behaviors (customer segmentation, )
- Evaluates how customers perceive firm's offerings compared to competitors (brand perception, customer satisfaction)
- Examines key trends and drivers influencing customer demand (changing lifestyles, emerging technologies)
Evaluation of business opportunities
- Identifies and assesses market opportunities
- Uses and targeting to identify attractive customer segments (demographic, psychographic, behavioral factors)
- Evaluates size, growth potential, and profitability of different market segments (market research, financial projections)
- Considers firm's ability to serve and compete in these segments effectively (core competencies, resource allocation)
- Evaluates firm's competitive position
- Assesses firm's strengths and weaknesses relative to competitors (competitive advantages, areas for improvement)
- Identifies firm's and competitive advantages (differentiated products, superior customer service)
- Determines firm's market share, customer loyalty, and brand reputation (market research, customer feedback)
- Conducts SWOT analysis to synthesize insights
- Identifies firm's internal strengths and weaknesses based on its resources and capabilities (financial resources, human capital, technological expertise)
- Identifies external opportunities and threats based on industry and macro-environmental factors (untapped markets, regulatory changes, economic downturns)
- Develops strategies that leverage strengths, mitigate weaknesses, seize opportunities, and counter threats (product innovation, cost optimization, market expansion, risk management)
- Makes informed decisions on strategic direction
- Uses strategic analysis insights to evaluate attractiveness and feasibility of different strategic options (cost leadership, differentiation, focus strategies)
- Selects most appropriate strategy that aligns with firm's vision, mission, and long-term objectives (growth, profitability, sustainability)
- Ensures chosen strategy is consistent with firm's resources, capabilities, and competitive environment (resource allocation, organizational alignment)
Advanced Strategic Analysis Tools
- to identify sources of
- for aligning strategic objectives with operational metrics
- for creating uncontested market space
- to guide long-term organizational aspirations
- assessment to ensure alignment between strategy and organizational capabilities
Key Terms to Review (19)
Balanced Scorecard: The balanced scorecard is a strategic performance management framework that helps organizations measure and track progress towards their goals and objectives. It provides a comprehensive view of an organization's performance by considering financial, customer, internal business processes, and learning and growth perspectives.
Bargaining Power: Bargaining power refers to the ability of an individual or group to influence the terms and conditions of an exchange or negotiation. It is a crucial concept in the context of competition, strategy, and strategic analysis as it can significantly impact a firm's competitive positioning and ability to achieve a sustainable advantage.
Blue Ocean Strategy: Blue Ocean Strategy is a strategic framework that focuses on creating new, uncontested market space rather than competing in existing, crowded markets. It involves identifying and pursuing opportunities to innovate and differentiate, allowing businesses to break away from the competition and achieve high growth and profitability.
Buyer Personas: Buyer personas are semi-fictional representations of a company's ideal customers based on market research and real data about existing customers. They help organizations better understand their target audience and make more informed decisions about product development, marketing, and sales strategies.
Competitive Advantage: Competitive advantage refers to the unique capabilities, resources, or strategies that allow a business to outperform its competitors and gain a favorable market position. It is the edge a company has over its rivals in attracting customers and generating superior financial performance.
Core Competencies: Core competencies are the fundamental capabilities, skills, and resources that provide a company with a competitive advantage in the market. They represent the areas of expertise and proficiency that are central to a firm's success and allow it to deliver unique value to customers.
Diversification: Diversification is the process of expanding a company's operations or investments into new areas, products, services, or markets in order to reduce risk and increase stability. It involves the strategic allocation of resources to different business segments, products, or geographic regions to mitigate the potential impact of volatility or downturns in any single area.
Market Segmentation: Market segmentation is the process of dividing a broad consumer or business market into sub-groups of consumers (segments) based on shared characteristics. This allows organizations to better understand and target their ideal customers with tailored products, services, and marketing strategies.
PESTEL: PESTEL is a strategic analysis framework used to examine the external macro-environment of an organization. It stands for Political, Economic, Social, Technological, Environmental, and Legal factors that can impact a firm's operations, performance, and competitive position.
PESTEL Analysis: PESTEL analysis is a strategic management tool used to assess the external environment of an organization. It examines the Political, Economic, Social, Technological, Environmental, and Legal factors that can impact an organization's operations, performance, and competitive position.
Porter's Five Forces: Porter's Five Forces is a framework developed by Michael Porter to analyze the competitive environment of an industry. It examines the intensity of competition and the profitability potential within a market by considering five key forces: the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, the threat of substitute products or services, and the rivalry among existing competitors.
Scenario Planning: Scenario planning is a strategic foresight tool used to explore and prepare for potential future events or situations that an organization may face. It involves the systematic development of alternative plausible futures, allowing decision-makers to better understand the uncertainties and complexities of the business environment and make more informed and adaptive plans.
Strategic Fit: Strategic fit refers to the alignment and compatibility between an organization's internal capabilities, resources, and strategies with the external environment in which it operates. It is a crucial concept in strategic management that ensures an organization's activities and choices are well-suited to the demands and opportunities presented by its industry, market, and competitive landscape.
Strategic Group Mapping: Strategic group mapping is a strategic analysis tool that helps identify and visualize the competitive positioning of a firm within its industry. It involves grouping together companies that have similar competitive approaches and market positions, allowing for a better understanding of the competitive landscape and the firm's relative standing.
Strategic Intent: Strategic intent refers to the overarching and ambitious goal that an organization sets for itself, which guides its long-term strategic direction and serves as a unifying force to focus the organization's efforts and resources. It goes beyond just financial targets and encapsulates the organization's aspirations and desired future state.
Strategic Objectives: Strategic objectives are the specific, measurable, and time-bound goals that an organization sets to achieve its overall strategic vision and mission. They provide a clear direction and focus for the organization's activities, guiding decision-making and resource allocation to ensure the successful implementation of the chosen strategy.
SWOT Analysis: SWOT analysis is a strategic planning framework used to evaluate the Strengths, Weaknesses, Opportunities, and Threats of an organization or a project. It provides a structured approach to assess the internal and external factors that can impact an entity's performance and guide decision-making.
Unique Selling Proposition: A unique selling proposition (USP) is a factor that differentiates a product or service from its competitors, making it stand out in the market. It is the unique value a company offers to its customers that competitors cannot easily replicate, and it is a critical component in formulating an effective business strategy.
Value Chain Analysis: Value chain analysis is a strategic management tool that examines the activities within and around an organization, and relates them to an analysis of the competitive strength of the organization or its position in the market. It is a framework for identifying and analyzing the sequence of activities that an organization performs to deliver a valuable product or service to the market.