Strategic Analysis Tools

What is Strategic Analysis?

Strategic analysis is the process of analysing the environment within which a company operates as well as the company itself in order to make well informed changes that help the business succeed and better compete in its sector. Analysing the environment involves knowing your competitors as best as you can as well as the clientele of your company’s sector. This also includes researching external factors, like political or legal changes, that could either positively or negatively affect a company in the future. Analysing the company itself involves examining both what the company is doing well and badly and then identifying from this information its potential opportunities and threats. Companies use all the information they attain from strategic analysis to make plans for and changes to the company that aim to promote growth and prosperity in the future.

What are Strategic Analysis Tools:

These are models and methods that can be used to ensure a complete and thorough strategic analysis is carried out by a company. These tools are often used in tandem with one another as they vary in their focus and aim.

Different Strategic Analysis Tools:

There are 2 main tools of strategic analysis. These are SWOT and PESTLE.

PESTLE is an external analysis tool. It aims to understand the external factors that could affect the company. These factors consist of political (P), economic (E), social (S), technological (T), legal (L) and environmental (E) ones. The model has been extended to include ethical and demographic factors.

PESTLE analysis benefits:

It allows a company to have a deeper understanding of the possible threats to the longevity of the business. Knowing these threats before they occur means plans can be made to minimise/avoid the damage they bring. If PESTLE analysis is neglected, these threats will seemingly come out the blue and will be much harder to deal with at that time.
It can be used not only to find external threats to the business but also external opportunities. Knowing how your external environment is likely to change means you can make plans and changes within your company that will benefit off these expected changes. Without PESTLE, these changes would come as a surprise and opportunities for growth would be missed.
It is an extremely cost-effective strategic planning method, with the only cost being time.

SWOT is an internal analysis tool normally used after PESTLE. It aims to encourage a company to self-reflect and acknowledge its strengths (S) and weaknesses (W). This information, along with that gathered from PESTLE analysis provides adequate context for the company to identify its opportunities (O) and threats (T).

SWOT analysis benefits:

SWOT has many of the same benefits as PESTLE, mainly that it allows a company to minimise its threats and exploit its opportunities.

Other benefits include:

Acknowledging on your strengths allows you to take advantage of them.
Acknowledging your weaknesses allows you to correct them.
SWOT analysis is very simple. It consists of drawing a 2x2 grid with strengths, weaknesses, opportunities, and threats all in separate boxes.
Only resource spent is time.

Michael Porter’s Strategic Analysis Tools:

Michael Porter is an academic and professor at Harvard Business School. He is the author of books on competitive strategy and competitive advantage in which he outlines different strategic analysis tools he has designed:

Porter’s 5 Forces – The most prominent of his models, it is used to analyse the level of competition within a certain industry. This model helps company understand the risks in the industry it is operating in and decide how it wants to execute its strategies in response to competition.

Four Corners Analysis –It aims to analyse competitor’s strategies, goals, and market predictions. This information can be used to the advantage of one’s own company.

Value Chain Analysis – A value chain is the combined systems a company uses to generate money. Porter breaks down value chains into 5 primary activities that can be analysed with the goal of generating more value than it costs to conduct these activities in order to generate higher profits.

Other Strategic Analysis Tools:

Gap Analysis

VRIO Analysis

Strategy Evaluation

Early Warning Systems

War Gaming