Analysis Without Paralysis – Babette E.

Bensoussan
(10 Tools to Make Better Strategic Decisions)
Introduction
What’s in it for me? Ten Powerful Strategic Analysis Tools.
When making decisions for your business, it should come as no surprise that information is key. This is the difference between
making a random guess, and making sound, strategic decisions.

Strategic analysis provides insights on the internal and external environment to identify issues you might encounter or oppor tunities
you’d otherwise miss out on. It’s the essential foundation that high quality strategic planning is built on. But strategic analysis is
more than just collecting data: it’s about processing that data into useful information about your situation, so you’re equip ped to
make the best strategic decisions.

In this document, we’re going to look at ten of the most impactful analysis tools that can empower you to make better and mor e
strategic decisions for your business. You’ll learn about influential models like Porter’s Five Forces, Value Chain analysis, and
PEST analysis.

Let’s get started!

Key idea 1
The Boston Matrix
Being realistic about your business’s strengths and weaknesses is crucial, especially when evaluating which products to prior itize.
Enter the BCG Growth-Share Matrix, often simply termed the Boston Matrix. Crafted in the 1970s by the Boston Consulting
Group, this strategic management tool offers a method to categorize products using two pivotal factors: market growth rate and
relative market share.

By measuring your products with these objective financial indicators, you can divide your products into one of four categorie s:
Stars, Cash Cows, Question Marks and Dogs.
Your Stars are the products that have high growth as well as a high market share. Your customer base for these products still has
room to grow, and though this would require more investment to maintain dominance, there is also a lot of potential.

Cash cows are your products that have slowed down in terms of growth, but saturate most of your market. These are the products
that generate cash reliably that you can use to invest in others.

A Question Mark product line is one that is growing but doesn’t have a large market share yet. They require investment and
strategy in order to keep growing, but you’ll want to keep close tabs on them.

Dogs have low growth and low market share. These are weak products that you probably want to consider divesting from.

The Boston Matrix is a great way to take a snapshot of your portfolio and identify where you should put your resources. But though
it’s a good tool for quick, up-high analysis, it shouldn’t be your only tool for resource allocation decisions. It’s best to be used in
combination with other techniques that help to give those findings context.
Key idea 2
The Four Corners Model
In business, competition is ever-present. Competitor analysis aids in understanding rivals and crafting differentiated strategies to
gain an edge. Always monitor current competitors and anticipate new ones, as the competitive landscape evolves.

Michael Porter, a Harvard Business professor, is renowned for developing a range of strategic analysis tools, including the Four
Corners Model. This model segments information you’ve gathered on your competitors into four categories: Drivers, Assumptions ,
Strategies and Capabilities.

The first category Is Drivers. This includes a competitor’s mission, encompassing their financial goals, growth aims, and
stakeholder expectations. The next category is Assumptions, which is what you think your competitor’s management believes abo ut
themselves, the industry, and even you. These categories form the top two corners of the model, and shed light on your
competitor’s internal motivation.

The two bottom corners of the mode” explore your competitor’s external actions through their Strategies and Capabilities. The
Strategies corner includes what you’ve learned about their decisions related to areas such as pricing, product, positioning, and
marketing. Capabilities are their assets, technology, processes and workforce strengths and weaknesses.

By considering these four elements of your competition, you can get a holistic view on them, as well as some understanding of their
likely reactions and potential moves. But this analysis is very dependent on the availability and accuracy of information yo u can
gather on your competitors. Be wary of a competitive focus diverting your attention away from other vital areas such as your
customers or internal process improvement.

Key idea 3
Financial Ratios
Whether you’re looking at your competition or working out how things are going at home, financial reports contain vital
information for strategic decisions. Financial Ratios help to make sense of financial statements by converting raw numbers in to
meaningful indicators of business performance that anyone can understand.

There are many different ratios that measure things like activity, leverage, liquidity, and profitability. We can’t even begi n to cover
them all here, so let’s take a look at a couple of them, and how they can be used to understand a business more deeply.
Your current ratio Is a type of liquidity ratio that takes the value of all your current assets and divides it by all current liabilities.
The result gives you a rough idea of what would happen if you needed to pay back all your debts at once. Would all your assets
cover the cost of your liabilities?

Another example would be your gross profit margin. In this ratio, you divide your gross profit – that is, revenue minus costs – by
your revenue. This way, you can get an idea about how much profit you’re making for every dollar that comes in from customers .

You can gain additional context by comparing your ratios to your competition, or looking at the trend a ratio takes over time .
Comparing across different business units or different geographic markets allows you to go even deeper into performance drivers.

Key idea 4
Five Forces Model
Porter’s Five Forces is an analytical framework designed to evaluate competition within an industry and shape an effective bu siness
strategy. Like the Four Corners model, it was designed by Michael Porter. The difference is that it presents a broader perspective of
industry environments.

Five Forces looks at five key areas within an industry. The first is Competitive Rivalry, that is, how intense your current
competition is within an industry. Next is the Threat of New Entrants, or how easy it is for a new competitor to enter the in dustry.
Third is the Threat of Substitutes. This is how easy it is for a product or service to be replaced by an alternative, such as digital
downloads replacing CDs.

The final two forces are Buyer Pow”r and Supplier Power. If your buyers have a lot of bargaining power, then this can impact
things like the price they’re willing to purchase something for, and the quality that they expect from you. On the other hand , if your
suppliers have a lot of leverage, it might impact the cost and quality of your supply chain from the other side.

By using this framework to look at different aspects of an industry, you’ll be able to identify opportunities to improve competitively
in an industry you’re currently in, or to judge how changes within that industry might affect you. The same model can be used in
other contexts as well, for instance to support decision-making on how attractive a new industry could be for you to enter.

Key idea 5
Scenario Analysis
Scenario analysis involves creating different hypothetical scenarios to explore the potential outcomes and implications of key
strategic decisions. It is used to stress-test strategy and prepare for uncertain futures.

To conduct scenario analysis, first identify the key uncertainties and variables that will impact your business, such as tech nology
changes, competitor moves, regulatory shifts, and economic fluctuations.

Next, define plausible scenarios that might happen based on different ways those variables could behave. Think about what an
optimistic, a neutral, and a pessimistic case could be for each combination.

For instance, an uncertainty could be a competitor releasing a new product in the market. There are many possible scenarios t hat
could stem from this, from that product being a flop, to the product making your current offerings obsolete. The scenarios should be
realistic, divergent, and relevant.

With scenarios defined, analyze the potential effects on operations, finances and customers. You want to assess risks, opportunities,
and impacts. What does it look like for you if your competitor’s product fails? What does it look like if it succeeds?
Scenario analysis provides a framework to think through “what-if” situations and prepares for a range of potential environments. It
enables making strategic decisions that are more robust and resilient.

Key idea 6
SWOT
SWOT analysis is a strategic planning technique used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involv ed
in a project or business venture. It involves specifying an objective and identifying the internal and external factors that are
favorable and unfavorable to achieving that objective.

Strengths and Weaknesses are both internal factors. Strengths are capabilities, resources, and positive situations that suppo rt your
objective. Weaknesses are lacks of capabilities, deficiencies, and negative situations that are harmful to your objective. A strength
for your organization might be its workplace culture, but you might not have a well-developed marketing team or strategy, which
would be a weakness.

The external factors In SWOT analysis are Opportunities and Threats. Opportunities are external positive situations and
circumstances that can benefit the objective. Threats are outside elements that could cause trouble, damage, or harm to achieving
the objective. The rising cost of raw resources might be considered a threat, whilst a growing market could be an opportunity .
These are external, and largely depend on what capabilities or deficiencies your organization currently has.

Conducting a SWOT analysis helps uncover priorities, alerts you to potential problems, and allows strategizing based on awareness
of the overall environment. It is an easy yet powerful technique to evaluate a plan, situation, or business from multiple ang les.

Key idea 7
Macro Environments
Businesses don’t operate in a microcosm. They exist in a broader environment, influenced by several macro factors. This is wh ere
PEST analysis comes in, which is a model to brainstorm the Political, Economic, Social, and Technological influences on a giv en
business strategy. This model can also be expanded to include Environmental factors and Legal considerations.

When looking at the Political factors, you’ll want to assess government stability, policies, corruption, foreign trade, and o ther
factors that might impact operations, particularly in a global trade setting.

The Economic factors includeincludee macroeconomic conditions like economic growth, inflation, interest rates, or unemploymen t
rates which may affect business performance.

Social factors include cultural trends, demographics, income distributions, and broader customer behaviors that shape supply and
demand dynamics.

When we examine the Technological factors in PEST analysis, we’re looking at both current and emerging technology. Factors
include upcoming innovation, R&D activity, and automation tech which can disrupt an industry or provide new opportunities.

Environmental factors include the ecological and climate considerations that influence costs, sustainability, and supply chai ns. And
Legal factors include everything from international regulatory frameworks, consumer laws, or employment laws that businesse s
must comply with.

PEST analysis helps provide a comprehensive framework to monitor your external operating environment, allowing you to
capitalize on opportunities and prepare contingencies to threats.

Key idea 8
Value Chain Analysis
Value chain analysis is a strategic tool used to analyze internal activities that contribute value to customers and competiti ve
advantage to your business. The last of Michael Porter’s models, it divides a company’s internal activities into Primary and Support
Activities.

Primary Activities are those directly involved in creating and delivering a product or service, for instance operations, inbo und or
outbound logistics, marketing, sales, and services.
On the other hand, Support Activities provide resources, capabilities and functions that enable and enhance the performance o f
primary activities. This includes functions like procurement, human resources, technological development and infrastructure. They
support and enhance the performance of primary activities.

To utilize value chain analysis, look at each of your primary and secondary activities and determine which of them add value to an
end user, and which don’t. For instance, you might want to look at how lower cost suppliers can allow you to transfer savings to
your customers. Be wary though that cost savings might not be as valuable to your customer if the quality of your product als o
drops.

Aim to streamline processes, reduce costs, enhance differentiation, and bolster competitive positioning. Your analysis will reveal
ways to outperform competitors by delivering superior value at reduced costs. Remember, value is ultimately determined by the
customer.

Key idea 9
Issue Analysis
Issue analysis involves identifying and evaluating potential problems and situations that will impact an organization’s strat egy and
strategic objectives, and finding solutions. One model for understanding Issue Analysis is known as the Policy Cycle.

The Policy Cycle begins with Identification. What challenges or potential areas of improvement are you facing, and why is tha t an
issue? After you know what the issue is, you should thoroughly research it. Seek stakeholder opinion, collect data, and make sure
you understand the causes of the issue.

With the insight you now have, it’s time for Policy Drafting. A proposal begins to take shape, outlining potential solutions and
strategies. But before this solidifies completely, you should include a Consultation phase. Present the proposal to your stak eholders,
ensuring that their voices are heard. While this seems time consuming, getting people’s input will save you further trouble d own the
road, as well as improving your stakeholders’ commitment to the plan.

After your proposal has undergone scrutiny from everyone involved, we arrive at the Implementation stage. The green-lit policy
can be rolled out, resources allocated, and the plan becomes action.

Finally, you want to Review and Adapt based on evaluations. You might need to tweak the plan, or even majorly revise it. This
cyclical nature of policy making underscores the ongoing evolution and adaptability that needs to be inherent to effective strategy.

Key idea 10
Political Risk Analysis
When navigating the vast expanse of international business landscapes, understanding political risks becomes paramount. Among
the tools used in political international risk analysis, the Delphi Method stands out. Originally developed by the RAND Corpo ration
during the Cold War, this technique is about achieving consensus from a panel of experts.

Participants, often anonymous to one another, provide feedback on a specific issue, like potential political shifts or legisl ative
changes in a foreign market.

After the initial round of insights, responses are aggregated and shared with the group, prompting further refinement. This iterative
process continues until a consensus emerges.

What makes the Delphi Method particularly captivating is that it relies on diverse expert opinions while eliminating biases that can
emerge from face-to-face interactions. This does come with some negatives though, particularly how time-consuming it is. But in
the realm of political risk, where uncertainties are vast and stakes are high, tools like the Delphi Method offer businesses a
structured approach to foresee and adapt to future challenges.

Final summary:
Strategic analysis is indispensable for converting data into insights that drive performance. Different models are suited
for different situations, and some, like scenario planning, financial ratios, and SWOT are flexible tools that can provide
insight in a variety of different contexts. Remember though that these tools should complement, not constrain, strategic
thinking. Combining approaches fluidly based on circumstances is key. With analytical rigor and an agile mindset,
leaders can master strategic analysis to chart a winning course for their organization.