STRATEGIC ANALYSIS TOOLS

Strategic analysis tools help in a systematic way of planning for the future. One
reason many businesses fail during the first year or two is that the business owners do not
think through their longer term strategies, and when things in the world change, they
either lack the resources (i.e. capital, talent) or the business strategies, to allow them to
remain competitive. Thinking strategically involves looking not just at the present, but
the future. The various tools for strategic analysis are SWOT analysis, PEST analysis,
Porter’s Five Forces, BCG matrix,value chain analysis.Four corner analysis,Early
warning systems,War gaming,Generic Startegies, GE / McKinsey Matrix.
A SWOT analysis is a simple but widely used tool that helps in understanding the
strengths, weaknesses, opportunities and threats involved in a project or business activity.
It starts by defining the objective of the project or business activity and identifies the
internal and external factors that are important to achieving that objective. Strengths and
weaknesses are usually internal to the organisation, while opportunities and threats are
usually external. The problem with it is One major problem with the SWOT analysis is
that while it emphasizes the importance of the four elements associated with the
organizational and environmental analysis, it does not address how the company can
identify the elements for their own company. Many organizational executives may not be
able to determine what these elements are, and the SWOT framework provides no
guidance. For example, what if a strength identified by the company is not truly a
strength? While a company might believe its customer service is strong, they may be
unaware of problems with employees or the capabilities of other companies to provide a
higher level of customer service. Weaknesses are often easier to determine, but typically
after it is too late to create a new strategy to offset them. A company may also have
difficulty identifying opportunities. Depending on the organization, what may seem like
an opportunity to some, may appear to be a threat to others. Opportunities may be easy to
overlook or may be identified long after they can be exploited. Similarly, a company may
have difficulty anticipating possible threats in order to effectively avoid them.PEST
analysis is a scan of the external macro-environment in which an organisation exists. It is
a useful tool for understanding the political, economic, socio-cultural and technological
environment that an organisation operates in. It can be used for evaluating market growth
or decline, and as such the position, potential and direction for a business .The main
problem with PEST analysis is that they keep changing. A proper PEST analysis requires
a lot of information to be collected. But when handling too much information, the users
tend to get confused and lose sight of what factors are more critical. This ambiguity in
prioritizing the affecting factors can put the entire planning on the wrong track. The
model is best applicable for analysis of simple market structures.Porter’s five forces helps
to identify where power lies in a business situation. This is useful both in understanding
the strength of an organisation’s current competitive position, and the strength of a
position that an organisation may look to move into.But a comprehensive description and
analysis of all five forces gets very difficult in complex industries with multiple
interrelations, product groups, byproducts and segments. A too narrow focus on particular
segments of such industries, however, bears the risk of missing important elements
Boston Consulting Group (BCG) Matrix is a four celled matrix (a 2 * 2 matrix).It is the
most renowned corporate portfolio analysis tool. It provides a graphic representation for
an organization to examine different businesses in it’s portfolio on the basis of their
related market share and industry growth rates. It is a two dimensional analysis on
management of SBU’s (Strategic Business Units). In other words, it is a comparative
analysis of business potential and the evaluation of environment. But the Market is not
clearly defined in this model. High market share does not always leads to high profits.
There are high costs also involved with high market share. Growth rate and relative
market share are not the only indicators of profitability. This model ignores and
overlooks other indicators of profitability. At times, dogs may help other businesses in
gaining competitive advantage. They can earn even more than cash cows sometimes. This
four-celled approach is considered as to be too simplistic. Before making a strategic
decision, it is important to understand how activities within the organisation create value
for customers. One way to do this is to conduct a value chain analysis. Each value adding
activity is considered to be a source of competitive advantage. The limitations of the
include the fact that ‘value’ for the final customer is the value only in its theoretical
context (Svensson, 2003), and not practical terms. The real value of the product is
assessed when the product reaches the final customer, and any assessment of that value
before that moment is only something that is true in theory. Four corner’s analysis
Developed by Michael Porter, the four corner’s analysis is a useful tool for analysing
competitors. It emphasises that the objective of competitive analysis should always be on
generating insights into the future. The ‘four corners’ refers to four diagnostic
components that are essential to competitor analysis: future goals; current strategy;
assumptions; and capabilities. Early warning systems The purpose of strategic early
warning systems is to detect or predict strategically important events as early as possible.
They are often used to identify the first scene of attack from a competitor or to assess the
likelihood of a given scenario becoming reality. War gaming War games are a useful
technique for identifying competitive vulnerabilities and misguided internal assumptions
about competitors’ strategies. Simulations of competitive scenarios are used to explore
the implications of changes in strategy in a ‘no risk’ environment. They also encourage
new ways of thinking about the competitive context. War games are often particularly
useful for organisations facing critical strategic decisions. Generic strategies are the
primary determinant of a firm's profitability is the attractiveness of the industry in which
it operates, an important secondary determinant is its position within that industry. Even
though an industry may have below-average profitability, a firm that is optimally
positioned can generate superior returns. It iscalled generic strategies because they are
not firm or industry dependenthe GE / McKinsey matrix is similar to the BCG growth-
share matrix in that it maps strategic business units on a grid of the industry and the
SBU's position in the industry. The GE matrix however, attempts to improve upon the
BCG matrix in the following two ways:

• The GE matrix generalizes the axes as "Industry Attractiveness" and "Business

Unit Strength" whereas the BCG matrix uses the market growth rate as a proxy
for industry attractiveness and relative market share as a proxy for the strength of
the business unit.
• The GE matrix has nine cells vs. four cells in the BCG matrix.

Industry attractiveness and business unit strength are calculated by first identifying
criteria for each, determining the value of each parameter in the criteria, and multiplying
that value by a weighting factor. The result is a quantitative measure of industry
attractiveness and the business unit's relative performance in that industry.