A means of converting the data obtained during the analysis of the environment into an organizationâs strategy plan is strategic analysis. Its tools are quantitative methods, formal models and the study of the specifics of this organization. Usually, strategic analysis goes through two stages - comparative, when the gap between the organizationâs guidelines and real opportunities is analyzed, and identifying strategic alternatives when the possible development options of this organization are analyzed. This is followed by the final stage of developing a strategy, choosing the most suitable option and preparing a strategic plan.
The first way to analyze
Analyzing the gap is quite simple, and this is an effective method in management when the first stage of strategic analysis is carried out. Its purpose is to determine the gap between the desires of the organization and its capabilities, and if such a gap exists, it is necessary to search for the most effective filling it. Strategic analysis requires a certain algorithm in the study of such a gap.
First you need to identify the main interest of the company, which is expressed in terms of strategic planning. Increased sales, for example. Next, real possibilities are clarified, a strategic analysis of the environment is carried out, and the future state of the organization is projected, for example, in five years. It is necessary to determine specific indicators in a strategic plan that would correspond to the main interests of the company. Then the difference between the identified indicators and those opportunities that dictates the real state of things is established. And finally, special programs are being developed that carry in themselves ways to fill this gap.
Second analysis method
The second way to do gap analysis is to determine the difference between extremely modest forecasts and highest expectations. If, for example, management counts on twenty percent of the real rate of turnover on capital invested by it, and the study shows that the real value is a maximum of fifteen percent, then a detailed discussion of the search for funds and the necessary measures to fill this gap of five percent is necessary.
You can fill it in many ways. This may be an increase in productivity to achieve the desired twenty percent or a rejection of ambition and satisfaction with fifteen. The latter is definitely a joke. But in any case, a strategic analysis of the organization will certainly make it necessary to find the right way to fill the gap between the desired and oneâs own capabilities.
Classic model
One of the most effective models of the organizationâs strategic analysis appeared back in 1926, when the dynamics of costs were already being investigated and an experience curve was emerging. In this method, the definition of a strategy and the achievement of an advantage are associated through minimal cost. How did the costs go down if production increased? This was due to a number of specific factors. A deep internal strategic analysis of each of them was carried out. First of all, costs were reduced due to the expansion of production, in which new technologies almost always appear, giving such an advantage. In parallel - the choice of the most effective way of organizing production and training of personnel with the transfer of such experience. In this way, the organization achieves economies of scale.
The experience curve is mainly applied in the field of material production. Accordingly, the goal of strategic analysis is to identify the main direction of the organizationâs strategy. Usually this is a capture of the largest possible market share, because only the largest competitors have the opportunity to achieve the lowest costs, which means the highest profits. But the reduction in costs may not be strictly related to the increase in production. It is much more important to have high-tech equipment that is designed for absolutely any production on a scale, including a very small one. Today, for example, modular equipment or computerization has penetrated literally everywhere, and this cannot fail to provide high performance. The main thing is to be able to maneuver, to quickly rebuild, to solve the most diverse and most specific tasks. This model, of course, over time revealed flaws. The main one is one that provides for taking into account only the only internal problems of the organization, and a strategic analysis of the external environment is not performed at all (that is, the needs of customers are ignored, for example).
Market and Life Cycle
Strategic planning and strategic analysis can not do without an analysis of the dynamics of the market, for which it is necessary to apply a well-known model that repeats, by analogy with the life cycle of a biological being, the life cycle of any product. On the market, the product also goes through the main stages, each of which has its own sales level and many characteristic marketing features. For example, a new baby product is born and enters immediately into life, that is, to a market where at first they will not expect big achievements from it, that is, sales will be small, and manufacturers will focus only on growth.
This stage may be delayed, but if the baby is healthy, and the products are of high quality, he will grow up quickly, and sales will increase. The second stage is the growth stage, requiring a different strategy. Next comes maturity: the strategy focuses on stability, since sales are stable. And finally, old age. The market is saturated with these products, a decline is coming, sales are declining, and therefore a reduction strategy is being developed. The purpose of this model is to determine the right strategy in business, tracking the product path in the market in stages. There are a lot of modifications of such life cycles, it all depends on the type of product. But it is impossible to tie modern strategic analysis to the life cycle model.
Products and Market
In 1975, a prominent economist Steiner proposed a new model, which is a kind of matrix with the classification of markets, as well as existing products, new, related to existing, and completely new. This matrix can show different risk levels and degrees of probability of successful production and profit, considering the most different combinations of market and products. This model is still used to conduct strategic management analysis to determine the probability of success at the very beginning, when choosing a type of business, without losing the opportunity to see the ratio of investments for different units. All this means that you can correctly form the organizationâs securities portfolio.
The development of strategic analysis occurs during the formation of portfolio models, because it is then that it becomes possible to predict the present and future of a starting business, to consider the attractiveness of the market and the ability of new products to compete in it. The first classic portfolio model came from the Boston Consulting Group (BKG). With its help, the main positions of the new business were determined. There are four of them:
1. A highly competitive business created for a fast-growing market. The ideal position is the "star".
2. The business is also highly competitive, but created for markets that are already mature and saturated, even prone to stagnation. This is an excellent source of cash for the organization, as they say - âcash cowâ, âmoney bagâ.
3. Business without a good position in the competition, but acting on the promising market. This is not a well-defined future yet, with a question mark.
4. A business with weak competitive positions in a stagnant market. These are outcasts in the world of business.
Using the Boston Model
The BCG model is used to determine interconnected conclusions about the positions of a business, about each of its business units in an organization, and, of course, about strategic prospects. Using this matrix, the organizationâs management forms a portfolio, since combinations of all capital investments in different industries and business units are determined. What is still good with this model: the BCG matrix offers various options for strategies. With increasing market share and business growth, the âquestion markâ easily turns into a âstarâ, and following the strategy of the âcash cowâ, that is, by maintaining market share, the business will also retain the revenues that are important for financial innovation and solving the challenges facing every growing kind of business.
The third option is the so-called "harvesting", when the business receives a short-term share of profits in the maximum amount, even if it reduces market share. This strategy is not for strong businesses. This is how old "cows" and "question marks" act, which failed to become an exclamation. If opportunities to invest in a difficult business are running out, and positions are not improving, there is a strategy for this case. The business is being liquidated, and the funds received are used in other sectors.
Advantages and disadvantages
The advantages of the BCG model, firstly, is that it can be used to analyze the relationships between all business units that are part of the organization, pursuing the long-term goals. Secondly, this model is able to analyze the various stages of development of the business as a whole and each of its business units. And the most important advantage: the model is simple and easy to understand, but nevertheless offers an excellent approach to collecting a business portfolio (that is, the organizationâs securities).
The disadvantages are two points. The first is that, with this model, business opportunities are not always accurately evaluated, not all opportunities are miscalculated. They may advise leaving the market, when not all internal and external changes have been completed, and the position of the business could well be straightened and even move to successful. For example, a farmer in the seventies barely made ends meet, and then went on a trend for environmentally friendly products, and his business could become a âcash cowâ, but it was sold late, because the BKG model did not foresee this possibility. The second drawback is the excessive focus on cash flows (cash), and organizational issues are almost always supported by investments, this way is much more efficient. The focus on superfast growth is also not so good, because it does not see the possibilities of applying new and more effective management methods to improve the business.
Multifactor matrix
This is a more complex version of the portfolio model that was developed by McKinsey & Company, a well-known international consulting company operating even in Russia. This matrix was ordered by General Electric Corporation. Next to a simple portfolio model, a multifactor matrix has many advantages and no less significant disadvantages.
First of all, it takes into account the largest number of factors of both the external and internal environment of the organization. But, using this model, it is also impossible to completely protect the analysis from erroneous conclusions. Perhaps this is why there are no specific behavioral recommendations for activities in a particular market. A subjective or distorted assessment of a businessâs market position is also possible.
Strategic Analysis Goal
The main goal is to assess the biggest impacts on the current and future position of the analyzed organization, it is equally important to determine the specific impact on strategic choice. Based on the identified goals of the organization, the main tasks facing the organization are determined, which will help to present indicators for strategic planning (moreover, regardless of the nature of these indicators - whether it is financial or not).
This means that the first step in the strategic analysis will be the determination of the following components: the main goal, the main tasks, expectations and empowered relationships within the organization. Against the background of the goal and main tasks, it is much easier to formulate strategies and all the criteria by which they will have to be evaluated. The goal is the whole meaning of the existence of business and the nature of the organization. The main objectives are set medium-term and long-term plans , so that this goal is achieved.
Exterior and interior
This is the second component of strategic analysis - a characteristic of the external environment where the organization exists, and all elements of the external environment â economic, social, technological, political â should be investigated. Since the external environment is constantly mobile and forced to undergo significant changes, the organization will have to solve the most important strategic problems as they arise. There is a micro and macro environment, and they are interconnected. The microenvironment is the immediate environment. To analyze the competitive structure of the industry, where the organization worked, as well as the development parameters of this industry. The macroenvironment offers for analysis macroeconomic, social, legal, technological, international factors that directly affect this organization.
The third component of strategic analysis is the internal environment in the organization. It determines the quality and completeness of the resources that the organization manages, taking into account the key disadvantages and advantages of this business. Internal strategic analysis reveals the overall picture of the limitations and impacts that are superimposed on strategic choices, identifying the strengths and weaknesses of the organization, identifying expectations and opportunities for influencing the planning process.