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Strategic analysis: Why is it Essential for long term survival of every Business

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Table of Contents

01

WHAT IS A STRATEGY?

A strategy is simply a theory , idea or plan of action designed for the achievement of a goal keeping in mind the setbacks and possibilities that will be encountered in the process of doing so. An effective strategist keeps in mind its own abilities and resources to incorporates them into his/her strategy ,if the need be .

From a corporate perspective , strategies are a layout that guides organizations to their ultimate organizational objective . It uses manpower planning , financial summaries , market research and other external and internal data as inputs .

But these strategies cannot be made without being informed about current practices or anticipating future ones . This is where strategic analysis comes in.

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02

WHAT IS STRATEGIC ANALYSIS?

Strategic analysis is a business process involving researching a business and its industrial environment for the purpose of evaluation and assistance in business planning and strategizing. This provides valuable insights into current trends and practices and how the business can manage to cope up with these trends through the formulation of a plan. Strategic analysis allows businesses to prevent any uncertain damages to the business and its performance by preparing a defense plan of action. It warns the company of any approaching harm and anticipates future opportunities to capitalize. This keeps the firms on a stronger footing as against its competitors by providing the advantage of foresight.

Business environment is a dynamic force . One which keeps on changing depending upon the nature of the businesses . The degree to which this change occurs also varies from one industry to another. In an effort to achieve their goals, organizations need to stay updated and adapt themselves according to the changing circumstances to survive and grow in the long run . This is where the need to carry out periodic assessment comes in . By choosing the right tool and conducting a thorough analysis , the business can be sure of being prepared for upcoming situations . Although this consumes time and valuable business resources , the end result puts the business in a stable position .

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03

BENEFITS OF STRATEGIC ANALYSIS

Strategic analysis must not be dismissed or ignored by business thinking of it as a waste of time and money . For the long term benefit of the organization , it is necessary to understand how this benefits the business .

  • Strategic analysis prevents businesses from lagging behind due to lack of awareness . The research conducted on a periodic basis makes sure to prevent companies from staying stagnant with their practices and upgrade them with time and changing industry trends. This also helps them do away with obsolete methods .
  • Strategic analysis makes businesses self aware by pointing out their strong suits as well as their flaws . This allows organizations to identify their best practices which gives them an edge over its rivals . These practices can also be initiated in other areas of applicability. The weaknesses point towards areas that require improvement . These are the aspects where business has been lagging behind and thus need to be worked upon. Accordingly , the strategies can be modified to centre them around the weakness by incorporating techniques for improvement.
  • The external environment of any business includes legal , political , social, economical, technological and cultural factions . A thorough evaluation of each of these aspects can prove useful for in-depth knowledge for the business. This not only highlights the existing environmental information but sub divides it into these aspects to provide for the business planning. Moreover , the analysis looks into the past mistakes as well to make sure that companies are able to identify what went wrong and avoid repeating them in the future.

Provides valuable input to allow companies to make informed decisions. Implementing plans without market data is like a shot in the dark with equal chances of success and failure. Strategic analysis skews the results in favor of the business .

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04

WEAKNESSES OF STRATEGIC ANALYSIS

  • Although a thorough analysis is beneficial for an organization , sometimes it can lead to generation of too much information which can prove to be counter- productive . In other words, a detailed analysis can collect too much data which can cause confusion for the companies as it makes skimming through the data a difficult and cumbersome task.
  • The process of data collection is time consuming . This can cost companies , valuable personnel time which can be used to assist in other priority business tasks .
  • Companies hire professionals to conduct the strategic analysis for them , which can be costly especially for companies with limited resources.

05

TYPES OF STRATEGIC ANALYSIS

SWOT ANALYSIS

Developed during the 1960’s and 1970’s by Albert Humphrey , SWOT is a strategic evaluation tool that breaks down the process of analysis into four main headings that support  businesses by providing internal as well as external data. The four parts of the analysis are : Strengths , weakness, opportunity and threats . The first two elaborate on the internal characteristics of the organizations by a structured assessment supported by employee feedbacks, working environment condition, authority-responsibility distribution and superior subordinate relations . Opportunities and Threats , on the other hand , insert an external point of view to the study . It highlights the environmental conditions which could be used for the business growth and Situations which can cause harm to the businesses’ functioning.

      PROS

  • Organizations gain first mover advantage by capitalizing on opportunities before their competitors.
  • Threats serve as early warning signals and companies can prepare for them before they impact its working.
  • Comprehensive evaluation of both internal and external environment.

     CONS

  • Highlights issues without providing any assistance in problem solving
  • Generalizes study results for all issues
  • Strengths can distract companies from the weaknesses and approaching threats

PESTLE ANALYSIS

PESTLE analysis is an important management investigation tool used for scanning the    environment through six sub-divisions that lie outside an organizations control but impact its working in major way . These six divisions make it easier for companies to study each aspect of the environment with respect to current methods and practices. The six attributes are as follows:

  1. Political : tax laws , tariffs, benefit , bureaucratic involvement in businesses etc
  2. Economic : employment/unemployment ,exchange rates , inflation
  3. Social : Customs , traditions , tastes , trends , preferences
  4. Technological: AI, Automation , Scientific discoveries and developments ,IOT
  5. Legal : laws , acts , prohibited advertising of certain products
  6. Environment : resource availability , climate , population

    

  PROS

  • In- depth analysis of each faction
  • Cost effective
  • Promotes outward thinking and problem solving
  • Allows business to predict detailed future trends of sub-division of the business environment

 CONS

  • Focuses only on external environment
  • Time consuming
  • Information overload

PORTER’S FIVE FORCES MODEL

This strategic analysis tool developed by Michael Porter scan through the major competitive and industry forces that influences the organizational performance and functioning . The five forces are listed as follows :

  1. Threat of new entrants
  2. Bargaining power of buyers
  3. Threat of substitutes
  4. Bargaining power of supplier
  5. Rivalry among existing competitors

These forces are a common aspect shared by all industries which makes this model useful for evaluation done by any business. The summary of this analysis can provide the companies with an overview of their industry’s existing establishments and can answer questions relating to scope for growth , number of rivals , degree of freedom for entry of new firms etc and based on this , the company can take major business decisions regarding methods of production , marketing investment required , Pricing and product development , among others .

PROS

  • Helpful in tackling competition
  • Sets industry benchmark
  • Cohesive overview of industry’s status quo

CONS

  • Lacks quantitative dimensions
  • Lacks detail i.e. not useful for gathering company data

Useful only for short term due rapidly changing environment

06

LEVELS OF STRATEGY IMPLEMENTATION

    • CORPORATE LEVEL STRATEGY

    Developed and implemented by the top management , these strategies direct the entire organizations operations . These strategies have to be followed by all sub-units and branches under a brand name. These strategies usually focus on long term needs and objectives of the organization .

    • BUSINESS LEVEL STARTEGY

    These plans are implemented by managers handling a branch or unit of the organization and are focused on gaining a competitive advantage over other companies . They focus on using their key strengths as means of gaining market share leadership.

    • FUNCTIONAL STRATEGY

    These strategies are formulated by departmental heads to improve their functioning and productivity . Business objectives and departmental contribution to those objectives are kept in mind before implementing these. Each of these strategies are tailor made for the specific departments keeping mind their flow of operations.

    • OPERATING STRATEGY
    Designed for short term objective , these strategies come into force through the directives or the foreman or supervisor . This is the lowest level of strategy implementation and so focuses on day to day tasks .

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07

PROCESS OF STRATEGIC ANALYSIS

  • Identify strategies current used by your organization

Conduct a comprehensive analysis within as well as outside the organization to identify the concepts and methods followed in each department of your company . For example : Method of inventory valuation , pricing strategy , production methods , distribution channels , method of payment collection , changes in exchange rates , customer buying habits etc . Also include the time frame for which these practices have been implemented

  • Gather information of the practices being followed by other organization in the same industry

Repeat the first step with rival firms as well as new entrants . This will allow you to compare your practices with those of other entities.

  • Test the effectiveness of all strategies

Gather data on the impact that strategies have had on company revenue , productivity , efficiency, savings , employee morale etc . Compare your findings with those of other firms to filter out the best plans . Study the feasibility of implementing these strategies within the current business environment .

  • Implement best strategies and conduct follow up actions

Once the feasibility has been checked , apply any modifications to suit the company and then go ahead with putting these strategies into force .

Observe strategy application and seek employee feedback . Document improvements or digressions based on evaluation .

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