Strategic analysis methods

Strategic analysis methods
See also
Economic feasibility IT management system Definition of controlling Marketing research Strategic controlling Growth potential Business segment Strategic management Strategic risk

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) 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

Examples of Strategic analysis methods

• SWOT Analysis: SWOT Analysis is a strategic planning tool used to evaluate the Strengths, Weaknesses, Opportunities and Threats of a company or project. It is a framework for analyzing the internal and external factors that can have an impact on the success of a business. This analysis is used to create a strategic plan for the company and can be used for any size of business, from a small startup to a large corporation.
• PEST Analysis: PEST Analysis is a framework used to analyze the external environment of a business. It stands for Political, Economic, Social and Technological factors. It is used to identify and assess the external factors that may affect the performance of a business. These factors can be both positive and negative and can have a wide range of impacts.
• Porter's Five Forces Analysis: Porter's Five Forces Analysis is a framework used to analyze the competitive environment of a business. It is used to identify and assess five key forces which can affect the success of an organization. These five forces are: Bargaining Power of Buyers, Bargaining Power of Suppliers, Threat of New Entrants, Threat of Substitutes, and Rivalry Among Existing Competitors.
• Market Segmentation: Market Segmentation is the process of dividing a market into distinct groups of buyers who have similar needs and preferences. This allows businesses to target their marketing efforts to specific groups of consumers, increasing the effectiveness of their marketing campaigns. Segmentation can be based on demographic, psychographic and behavioural characteristics.
• Value Chain Analysis: Value Chain Analysis is a framework used to analyze the activities and processes of an organization. It is used to identify the sources of value creation, and to assess the potential for efficiency improvements. It is a tool for identifying the key activities that drive a business’s competitive advantage and profitability.

Advantages of Strategic analysis methods

Strategic analysis methods are used by managers to identify and evaluate their current strategies, identify potential markets and competitors, and develop strategies to best position the company for success. They provide a structured approach to analyzing the company's environment and business objectives, which can help inform decision making. The following are some of the advantages of using strategic analysis methods:

• Firstly, it helps managers to identify and evaluate their current strategies and develop plans to meet their objectives. By providing a structured approach for assessing the company's environment and objectives, the methods can help inform decisions and help managers to determine where to focus their efforts.
• Secondly, strategic analysis methods can help managers to identify potential markets and competitors, which can help them to develop strategies that will place them in the best position to succeed. By gaining an understanding of their competitors and the markets they are targeting, managers can then develop strategies to maximize their competitive advantage.
• Thirdly, strategic analysis methods are also useful for monitoring the progress of current strategies and making adjustments as needed. By keeping track of changes in the competitive environment and the company's objectives, managers can make necessary adjustments to ensure that their strategies remain effective.
• Finally, strategic analysis methods can also help managers to plan for the future. By using the methods to assess potential markets and competitors, managers can develop strategies that will help them to remain competitive in the future.

Limitations of Strategic analysis methods

The following are the limitations of strategic analysis methods:

• Outdated information: Strategic analysis methods rely on the data available to the company at the time the strategy was created. As situations and markets change over time, this data can become outdated and irrelevant to the current situation, leading to ineffective strategies.
• Limited scope: Strategic analysis methods often only consider the current situation of the company and its competitors, rather than looking at the big picture. This can lead to strategies that are too narrow or fail to consider long-term goals.
• Poor communication: Strategic analysis methods often require complex documentation and analysis, which can be difficult for managers to explain to stakeholders. Poor communication can lead to misunderstandings and resistance to the proposed strategy.
• Lack of creativity: Strategic analysis methods often involve a lot of data and calculations, which can lead to a lack of creativity in the strategy development process. This can result in strategies that are too similar to those of competitors.
• Information overload: Strategic analysis methods can involve a large amount of data, which can be overwhelming for managers. This can lead to analysis paralysis and ineffective strategies.

Other approaches related to Strategic analysis methods

In the field of strategic analysis, there are a number of methods which can be used by managers to evaluate, plan, and implement strategies within their organisations. These methods include:

• SWOT Analysis – A popular tool used to evaluate the Strengths, Weaknesses, Opportunities, and Threats faced by an organisation or initiative.
• PESTEL Analysis – An approach which looks at the Political, Economic, Social, Technological, Environmental, and Legal factors that may affect an organisation.
• Porter’s Five Forces – Developed by Harvard professor Michael Porter, this tool is used to assess the competitive position of an organisation.
• Balanced Scorecard – A method used to measure performance from four different perspectives: financial, customer, internal business processes, and learning and growth.
• Strategic Mapping – A visual representation of an organisation's strategy, which is used to identify areas of success and potential improvement.
• Scenario Planning – A method used to anticipate future events and plan for them.

Overall, these approaches provide managers with valuable tools to analyse their organisations and develop effective strategies. By utilising these methods, managers can gain a deeper understanding of the external environment and their own competitive position, which will in turn help them to create and implement successful strategies.

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