Strategic Analysis Tools

In today's era companies operate in a very and complex and uncertain business environment. They have to plan for short term as well as long term keeping in the mind the uncertain nature of business cycles and disruptive innovations taking place round the world. Strategic analysis is of crucial importance for gauging future twists and turns and helps devise mechanism to exploit potential opportunities and neutralize threats. Thus it uses the following tools to do an analysis:

1.

MICHAEL PORTER'S FIVE FORCE MODEL

Prof Michael Porter's five forces model of industry analysis is vastly used while analyzing industry structure and its potential. Porter identified five forces affecting the composition of entire industry which are as follows. 1. Rivalry between existing firms 2. Threat of substitutes 3. Bargaining power of buyers 4. Bargaining power of suppliers 5. Threat of new entrants A manager has to analyze industry in the light of above forces while devising actionable strategy for its company.
2. PEST ANALYSIS

PEST analysis is an acronym of political, economic, social and technological analysis. A manager has to analyze external business environment by analyzing the factors viz. political climate, economic scenario, social and demographic changes and technological trends. Proper analyses of these forces help manager identify opportunities offered by external environment and devising an action plan to exploit the opportunities.
3. SWOT ANALYSIS

SWOT is an abbreviation of Strength, Weaknesses, Opportunities and Threats. In SWOT analysis manager has to analyze external and internal business environments so as to know the potential opportunities and threats arising out of external forces and internal strengths and weaknesses that can help in deploying resources. SWOT analysis thus focuses manager's attention on core activities which can determine competitive advantage of the company and help him devise appropriate business strategy to leverage those competencies profitably. However, SWOT analysis should not be used rigidly. It should always be used coupled with continuous monitoring of the environment and market intelligence and research.

4. BCG matrix
The BCG relates to marketing. The BCG model is a well-known portfolio

management tool used in product life cycle theory. BCG matrix is often used to prioritize which products within company product mix get more funding and attention. The BCG matrix model is a portfolio planning model developed by Bruce Henderson of the Boston Consulting Group in the early 1970's. The BCG model is based on classification of products into four categories based on combinations of market growth and market share relative to the largest competitor.
5. Value Chain Analysis

The value chain is a systematic approach to examining the development of competitive advantage. It was created by M. E. Porter in his book, Competitive Advantage (1980). The chain consists of a series of activities that create and build value. They culminate in the total value delivered by an organisation. The 'margin' is the same as added value. The organisation is split into 'primary activities' and 'support activities.
6. GE/MCKINSEY MATRIX

The GE/McKinsey Matrix is a nine-cell (3 by 3) matrix used to perform business portfolio analysis as a step in the strategic planning process. The GE/McKinsey Matrix identifies the optimum business portfolio as one that fits perfectly to the company's strengths and helps to exploit the most attractive industry sectors or

markets. Thus, the objective of the analysis is to position each SBU on the chart depending on the SBU's Strength and the Attractiveness of the Industry Sector or Market on which it is focused. Each axis is divided into Low, Medium and High. SBUs are portrayed as a circle plotted on the GE/McKinsey Matrix, where the size of the circle represents a factor such as Market Size. The GE/McKinsey Matrix differs from other tools like the Boston Consulting Group Matrix in that multiple factors are used to define Industry Attractiveness and Business Unit Strength.
7. GAME THEORY

It analyzes strategic interactions in which the outcome of ones choice depends on the outcome of others. If the actions of other players are not considered then the problem becomes one of standard decision analysis and one is likely to arrive at a non-optimal strategy. In this theory, the player puts his feet in the opponent players shoes thinking that the opponent is also clever and must be doing the same. It helps one get a clear perspective. Game theory forces one to consider rivals responses.

8.

BENCHMARKING

Benchmarking is the process of identifying "best practice" in relation to both products (including) and the processes by which those products are created and delivered. The search for "best practice" can take place both inside a particular industry, and also in other industries. The objective of benchmarking is to understand and evaluate the current position of a business or organization in relation to "best practice" and to identify areas and means of performance improvement.
9. ANSOFF MATRIX

To portray corporate growth strategies, Igor Ansoff presented a matrix that focused on the firms present and potential products and markets. By considering ways to grow via existing products and new products, and in

existing markets and new markets, there are four possible product-market combinations. Ansoff's matrix is shown below: Ansoff's matrix provides four different growth strategies:
1. Market Penetration - the firm seeks to achieve growth with existing

products in their current market segments, aiming to increase its market share.
2. Market Development - the firm seeks growth by targeting its existing

products to new market segments.

3. Product Development - the firms develops new products targeted to its

existing market segments.

4. Diversification - the firm grows by diversifying into new businesses by

developing new products for new markets.

10. SPACE MATRIX

Strategic Position and Action Evaluation or the SPACE Matrix is a four quadrant framework which indicates whether aggressive, conservative, defensive, or competitive strategies are most appropriate for a given enterprise or company. The SPACE Matrix consists of two internal dimensions of a competitive firm which are its financial strength and its competitive advantage and two external dimensions which are environmental stability and industry strength. These four factors are the most important determinants of an enterprise's overall strategic position in the marketplace. Depending upon the type of firm and its industry, a number of variables could make up each of the dimensions represented on the axes of the typical SPACE Matrix. Factors that are typically included are those found in the firm's External Factor Analysis

and its Internal Factor Analysis and these should be considered in developing a SPACE Matrix. Other important variables that can be included in a SPACE Matrix examination are a firm's financial performance such as return on investment, leverage, liquidity, working capital, and cash flow commonly are considered determining factors of an organization's financial strength.
11. STRATEGIC GAP ANALYSIS

Forecasting technique in the current performance

which levels

the the is needs

difference extrapolated measured to be

between and

the

desired performance levels and This measurement indicates what

results of examined. done and

what resources are required to achieve the goals of an organization's strategy.

Endpoint

Strategic analysis is an ongoing process. A company has to continuously monitor its external and internal environment so as to spot the opportunities and neutralize the threats to create and sustain its competitive advantage. Though strategic analysis is a very set of complex activities it is essential for companies to do it regularly to be more agile and dynamic while facing the competitions head on.