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. In this article we will try to explore the role of strategic analysis in analyzing business environment and tools of conducting the analysis. A manager has to deploy these tools of strategic analysis with an eye on internal and external events affecting the operations of the company.
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.
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.
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.
Stakeholder analysis calls for accommodating the interests of different parties affecting the business activities. It includes shareholders, employees, customers, suppliers, government and community in its gamut. Companies have to formulate their strategies than can synchronize the interest of these stakeholders. Stakeholder analysis thus helps in identifying the expectations of the stakeholders and finding the ways through which these are met. This analysis also helps management to focus on the key requirements of the stakeholders and help deploy resources to achieve these targets.
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.