Strategic analysis methods

In its core business and in the company's functional areas, managers use a variety of methods described in the literature and disseminated by scientific-research centers and other institutions. These methods were developed by practitioners and theorists in various fields of management. For the purposes of the presentation following methods were extracted:

• methods of economic analysis,
• forecasting methods
• methods of projects risk assessment
• methods of analysis of competitive advantage
• strategic analysis methods
• methods of product quality analysis,
• logistics system analysis methods,
• IT methods and systems.

Attention should be paid to the importance of company's principal activity for strategic management. The objective of the Management Board, the mission and strategic objectives, are translated into on the daily "operational" activities of all employees. Strategic management can not be "separated" for the purposes of research analysis and evaluation of operational management.

Fig.1. Strategic analysis methods groups

List of methods

Summary of the specific methods and techniques used within the groups listed above is shown in the following table. It should be noted that the method does not only relate to strategic management. Only two groups of methods may be classified as methods of strategic management par excellence (these are: methods of strategic analysis and competitive analysis). However, despite the loose connection with strategic management, these methods may be also applied in this area significantly expanding the scope of the analysis and the complexity of the results.

Group

Description

Specific methods and techniques

Methods of economic analysis

They concern fundamental analysis of economic values, such as revenues, costs, profits, expressed in monetary units, as well as their transformations in the form of indicators, measurement of dynamic, methods of forecasting and evaluation of investment projects. A common characteristic of these methods is to manipulate the data that is relatively easily available within the company.

• Cost analysis:
  • the cost of credit,
  • cost of capital from the bond,
  • cost of capital on the preference shares,
  • cost of capital on the ordinary shares,
  • cost of capital of the undistributed profits,
  • fixed costs,
  • cost of capital from depreciation,
  • weighted average cost of capital (WACC).
• The break even point (BEP):
  • quantitative threshold of profitability,
  • qualitative threshold of profitability,
  • as a percentage of capacity utilization,
  • the maximum unit selling price level
  • the border level unit cost variables,
  • safety margins.
• Economic Lever:
  • the degree of operating leverage
  • the point of indifference,
  • the degree of leverage.
• Liquidity indicators:
  • current index
  • fast rate.
• The profitability indicators:
  • the profitability of sales,
  • ROA: return on assets
  • ROE: return on equity.
• Debt indicators:
  • the overall level of debt,
• long-term debt,
  • cover of credit
  • fixed assets cover by equity,
  • financial assets cover by equity,
• Performance indicators:
  • the cycle of debts,
  • the cycle of commitments,
  • inventory cycle.
• Dynamic methods of investment appraisal:
  • net present value (NPV)
  • discounted rate of return (NPVR)
  • internal rate of return (IRR),
  • annuity methods,
  • MIRR method
  • budgeting,
  • target cost analysis.

Forecasting methods

They rely on the determination of the accuracy of specific economic variable used in the framework of strategic intelligence at the time.

• Time series analysis
• Method of barometers
• Econometric models
• Intuitive methods

Methods for assessing the risk of projects

Within this group we can specify the methods used in assessing the level of risk of an investment in the company

• The determination of safety margin
• The certainty equivalent
• Statistical measure of risk:
  • standard deviation and variation coefficient,
  • average deviation of NPV,
  • the level of security
  • the level of aspiration,
  • probability density curve.
• The sensitivity analysis
• Strategic scenarios method
• Simulation scenarios
• Method of decision trees
• Break-even analysis

Methods for the analysis of competitive advantages of the company

These methods constitute an important tool for determination of lines of action and decision making.

• Managerial methods
  • value analysis,
  • ABC and XYZ analysis,
  • directive analysis,
  • benchmarking,
  • reengineering,
  • creative methods,
  • rational methods,
  • method aimed at creative thinking,
  • brainstorming,
• analysis of key success factors
• business plan

Strategic analysis methods

These are the methods of strategic analysis par-excellence. They include a wide set of methods for the analysis of sector and portfolio of company and its environment.

• The scenario Method
• Strategic analysis of stakeholders
• 7S model
• Structural analysis of sector
  • PEST analysis
  • STEEP analysis
  • STEEPLE analysis.
• Value chain model
• The company's strategic balance
• Matrix of functions and resources
• The portfolio methods:
  • BCG matrix,
  • McKinsey matrix,
  • ADL matrix
  • Hofer matrix,
  • Goal intensity matrix,
  • SWOT analysis
  • TOWS analysis

Methods for the analysis of the quality of products

Methods for the analysis of the quality of products are closely related to operating activities, because from there they derive the data, and their results are used directly in the production. Some of these methods are not only diagnostic, but also has the forecast element

• Quality Function Deployment (QFD)
• Failure Mode and Effects Analysis (FMEA)
• Failure Mode and Effects Critical Analysis (FMECA)
• Ishikawa diagram
• Analysis of control cards
• The Pareto-Lorenz method,
• Quality inspection
• Taguchi loss function,
• Analysis of quality cost
• Support methods:
  • the histograms,
  • observation cards
  • correlation charts
  • graphic forms of presentation of data,
  • affinity and relationships diagrams
  • tree, matrix, direction, decision diagrams
  • data matrix analysis,
  • statistical process control (SPC).

Methods for the analysis of logistics system

Methods are used in analysis of enterprise logistics system, their goal is to improve it.

• ABC analysis method
• SWOT analysis
• value chain analysis method
• analysis of distribution of objects

IT methods and systems

Associated with the use of information technology and tools for data processing.

• Material requirements planning MRP
• MRP II manufacturing resource planning
• Enterprise resource planning ERP
• Customer relationship management CRM
• Management of workflow
• Knowledge Management Systems
• Analytical systems:
  • OLAP,
  • data warehousing,
  • expert systems,
  • neural networks.
  • integrated systems

Integrated measurement systems

A group of methods which aim is to provide a comprehensive look at the issues of the company in all the key areas of its activities.

• Balanced Scorecard,
• Management Dashboard,
• Tableau de Bord
• Performance Pyramid (SMART)
• Matrix of results and determinants
• EF2M
• EFQM Model (European quality award)
• Maisel model

Source: own elaboration

References

• Bakos, J. Y. (1991). A strategic analysis of electronic marketplaces. MIS quarterly, 295-310.
• Fleisher, C. S., & Bensoussan, B. E. (2003). Strategic and competitive analysis: methods and techniques for analyzing business competition (p. 457). Upper Saddle River, NJ: Prentice Hall.
• Postma, T. J., & Liebl, F. (2005). How to improve scenario analysis as a strategic management tool?. Technological Forecasting and Social Change, 72(2), 161-173.

Author: Krzysztof Wozniak