What is strategic analysis?

Strategic analysis (sometimes referred to as a strategic market analysis) is the process of gathering data that
helps a company’s leaders decide on priorities and goals, shaping (or shifting) a long-term strategy for the
business. It gives a company the ability to understand its environment and formulate a strategic plan
accordingly. Strategic analysis is paramount in any organization because it provides the context and
backbone upon which the strategy and overall position of the business is formulated.
It is impossible for an organization to understand how it will achieve success without first having contextual
information—in the form of both qualitative and quantitative data—regarding its internal resources and
external environment. The process of performing a strategic analysis is what adds context to quantitative
data. Spotting trends and patterns in the data and evaluating them will inform your organization’s long-term
plan.
Strengths of Strategic Analysis
 Strategic analysis allows you to have clarity of the internal positive attributes of the organization that
are under control. By knowing these positive attributes an organization can focus on the factors that
lead to positive performance and can replicate the strategy wherever applicable.
 It helps identify strength of both internal as well as external resources, such that it leads to an increasing
competitive advantage.
 It offers you the internal components that add value or offer a competitive advantage to your business.
When you have a reasonable competitive advantage over you competitors half the game plan is clear.
The only aspect that would need clarity is what is not going the company’s way.
Weaknesses of Strategic Analysis
 Strategic analysis can generate too many ideas but doesn’t help to choose which one is the best.
 Sometimes too much time is spent on existential problem solving, such that there is little or no time left
for innovating new products or making service level changes at the organizational level.
How to conduct a strategic analysis?
Strategy is not a linear process. Strategy is an iterative process where strategic planning and strategic
implementation interact with each other constantly. First, you plan your strategy, and then you implement it.
Once implemented or after a certain time period, you will go back to planning and redefining your strategy
and then move to the implementation phase once again. Strategic planning includes the strategic analysis
process. The content of your strategic analysis varies, depending on the strategy level at which you're
completing the strategic analysis. The key components in strategic analysis:
Understanding the Strategy Level: Strategy comes in different levels depending on where you are in an
organization and your organization's size. You may be creating a strategy to guide the direction of an entire
organization with multiple businesses, or you may be creating a strategy for your marketing team. As such,
the process will differ for each level as there are different objectives and needs. The three strategy levels are:
1. Corporate Strategy: The corporate strategy level concerns itself with the entirety of the organization on
an abstract level, where decisions are made with regard to the overall growth and direction of a
company. It’s helpful to divide corporate strategy into three classifications based on external and
internal factors.
a. Growth strategies are strategies designed to grow a business in a given way. Growth strategies
might include entering new markets, increasing or diversifying existing ones, or using forward or
backward integration to take advantage of economies of scale.
b. Stability strategies are designed to consolidate an organization's current position, with an eye
towards creating a strategic environment that will provide greater flexibility for the future
employment of growth or retrenchment strategies. Stability strategies are more conservative
 strategies, focused on preserving profit, reducing costs, and investigating future strategic
possibilities.
c. Retrenchment strategies are a response to unprofitable or damaging elements of a business or
organization. These might include the elimination or sale of unprofitable assets or product lines.
The Main Components of a Corporate Strategy are:
a. Visioning involves setting the high-level direction of the organization - namely the vision, mission,
and potentially corporate values.
b. Objective Setting involves developing the visioning aspects created and turning them into a series of
high-level (sometimes still rather abstract) objectives for the company, typically spanning 3-5 years
in length.
c. Allocation of Resources refers to decisions which concern the most efficient allocation of human
and capital resources in the context of stated goals and aims.
d. Strategic Trade-Offs are at the core of corporate strategic planning. It's not always possible to take
advantage of all feasible opportunities. In addition, business decisions almost always entail a degree
of risk. Corporate-level decisions need to take these factors into account in arriving at the optimal
strategic mix.
2. Business Strategy: Business level strategy describes the strategic planning and implementation
activities that occur to set and steer the direction for an individual business unit. These activities will
generally include how to gain a competitive advantage and create customer value in the specific market
the business unit operates in. As a result, organizations with only one distinct business will often
combine business strategy with corporate strategy as a single strategy level. In very general terms, we
can distinguish five strategies that organizations can utilize at a business level to foster competitive
advantage.
a. Cost Leadership: Offering a product at a lower price than competitors is the most straightforward
way in which businesses compete for customers. Business units can reduce costs by several means -
building better facilities, investing in tooling or reducing the cost of overheads, minimizing costs of
R&D, POS, and so forth.
b. Differentiation: Rather than focusing on lowering costs and passing those reduced costs onto
customers, differentiation strategies emphasize the development and marketing of products in a
manner that provides greater value to customers. In the laptop market, Apple has invested heavily in
R&D, customer service, and marketing, successfully carving a niche that allows Apple to charge
substantially more than other manufacturers without compromising market share. If you're looking
at pursuing a differentiation strategy, Mckinsey's Three Horizons of Growth is a great framework to
use.
c. Integrated low cost/differentiation: For some businesses, the optimal approach may be a hybrid
strategy, emphasizing both low cost, as well as differentiation. The rise of so-called ‘premium fast
food’ restaurants, which offer both the low price associated with more established fast-food chains,
as well as a differentiated range of offerings, is a testament to the effectiveness of this strategy. If
you're struggling to decide on the best business strategy to pursue for you business unit, Value
Disciplines is a great framework to help point you in the right direction for your company.
3. Functional Strategy: Functional level strategies are those put in place at the operating level of an
organization and will facilitate the achievement of the corporate (or business) level strategy. Typically,
functional level strategies will be created for departmental units - the strategic needs and goals of, for
example, the Human Resources department, will differ substantially from those of IT. Therefore, most
organizations will have multiple functional strategies, and each department will need its own. In terms
of strategic planning, functional strategy should be the last strategy level created in an organization, as
it is the strategy level that defines the 'how', after corporate strategy has defined the 'where' and business
strategy the 'what'.
Types of Strategic Analysis:
Business analysis models are useful tools and techniques that can help you understand your organizational
environment and think more strategically about your business. Dozens of generic techniques are available,
but some come to the forefront more frequently than others do. These include:
 SWOT (strengths, weaknesses, opportunities, threats) analysis
 PESTLE (political, economic, social, technological, legal and environmental) analysis
 Scenario planning
 Porter's Five Forces framework
 Four corner’s analysis
 Value chain analysis
 Early warning scans
 War gaming.