“Leadership is influence” by John C. Maxwell.
Strategy lies down at the heart of an organization’s success, requiring tough choices about the moves it will make now & in the future. But to set a successful strategy, leaders need a solid understanding of the dynamics leading change & innovation, and tools for securing growth opportunities and reducing risk. What is strategy? How do you decide what makes your business distinct? How can you ensure your business is working in the most systematic & fruitful way?
These are few questions you can explore. Then, you can think how to bring your strategy into action once you’ve developed it, how to prioritize so that the most important things get done, and how to manage partners & suppliers effectively.
There are some important considerations to be aware of when using strategy tools:
- The expected benefit of using the tool requires to be defined & it must be actionable.
- The tool must help to answer the question that the organisation has asked.
- Many tools benefit from input & collaboration with other people or even organisations. So, there should be enough time for collaboration.
The aim of the using these strategic management tools is to improve the focus of the analysis & to make sure a balanced, methodical approach. It is important for a strategic analyst to understand which tools are most relevant to the purpose of the analysis.
Here is the list of tools for strategy analysis-
1. SWOT Analysis–
The SWOT Analysis is the most fundamental of all the strategy analysis tools & techniques. It is also the most widely recognized tool that helps in understanding the strengths, weaknesses, opportunities and threats involved in a project or business activity.
Swot analysis involves the collection & portrayal of information about internal & external factors that are important to achieving the objective. Strengths & weaknesses are usually internal to the organisation, while opportunities & threats are usually external. These are defined as a 2×2 matrix in VUCA.
Strengths: These are the factors that give an advantage for the company over its competitors.
Weaknesses: These are those elements that can be savage if used by the competitors in opposition to the firm.
Opportunities: beneficial situations which can bring a competitive advantage.
Threats: These are some unlikely situations which can have negative impact on business.
Swot tool has 5 key benefits:
- Simple to do & practical to use.
- Helps to identify future goals.
- Initiates further analysis.
- Concentrates on the key internal and external factors affecting the company during its transformation process.
- Clear to understand.
How to perform the analysis?
SWOT analysis can be performed by a group or an individual that are straightly responsible for the situation evaluation in the company. Steps are:
- Listing the firm’s key strengths & weaknesses.
- Identifying Opportunities & threats.
- What is your distinct worthiness?
- What does your company do better than others?
- What do you competitors & customers in your market perceive as your strengths?
- What is your organisations competitive boundary?
- What do competitors & customers in your market perceive as your weakness?
- In which things other firms are better than you?
- What new innovation could your organisation bring to the market?
- What PEST changes are taking place that could be beneficial to you?
- Where are the space in the retail?
- What is your competition doing that could negatively impact you?
- What PEST changes are taking place that could be disadvantageous to you?
- What controls to you face?
FAQs in Blogs: How to Achieve Operational Excellence in 5 Steps?
Things to be noted, when performing SWOT analysis:
- Use specific & checkable statement. For Example: ‘price is £2.00 per unit lower than competition’ instead of ‘fair value for money’.
- Concentrate on facts not opinions.
- Internal & external factors are prioritized so that time is spent concentrating on the most significant factors.
- The analysis is tossed at the business activity level instead of at a company level.
2. PEST Analysis–
PEST analysis is a simple & effective strategic management tools used to scan the external macro-environment in which an organisation exists. It is a useful tool to understand the political, economic, socio-cultural & technological environment in which an organisation operates. It can be utilized to assess market decline or growth and also the potential, position & direction for a business.
The goal of performing PEST is to:
- To extract those external factors which may alter in the future.
- To assess those current external factors which affects an organization.
- To make use of the changes (opportunities) or protect against them (threats)
The end result of PEST is getting an understanding of the complete picture surrounding the company. PEST analysis is done to evaluate the future of a new market.
PEST analysis is the most common type of all PEST variations generated. Here are numerous kinds of PEST analysis, such as PESTLIED, PESTLE, SLEPT, STEEPLE, and even just PEST, with the other letter refers to Demographic, International, Labour, Ethical etc.
The Political sector includes any government laws like environmental regulations & tax policy. It is crucial to understand the political agenda & how it can move for or against certain industries. This might include:
- ‘Positive’ factors like subsidies provided for alternative green energy production, or
- ‘Negative’ factors like amplifying taxes on tobacco or alcohol.
- Tax policy
- Political harmony/conflict and stability/instability
- Consumer protection & e-commerce
- Elections & coalitions
- Foreign trade policy
- Labour laws
- Government policy
- Copyright, patents / Intellectual property law
- Terrorism, war and other military considerations
- Environmental laws
- Funding grants and initiatives
- Trade restrictions
- Anti- trust law
The Economic sector include interest rates, inflation & currency exchange rates, general economic environment & the impact that this might have on distributors, customers & suppliers. It affects the cost of capital & purchasing power of an organisation. While performing analysis in lean transformation, it is crucial to distinguish between:
- Cyclical issues
- Structural issues & long-term trends
- Employment/unemployment rates
- Economic growth (e.g. GDP)
- Monetary policies
- Interest rates
- Disposable income of consumers & businesses
- Exchange rates
- Wage rates
- Financial markets
- Property prices
- Commodity prices
- Availability of finance
- Supply and demand factors
- Climate Change
This is also known as the Socio-Economic or Socio-Cultural sector. The Social sector considers changes in social preferences & norms, population growth & attitude towards health. It affects the consumer’s need & the potential market size for an organisation’s goods and services.
- Demographics, including
- Population growth
- Population age distribution
- Family size and dynamics
- Attitudes toward product quality & customer services
- Attitudes toward work, leisure, career and retirement
- Living standards
- Ethnic and religious view and norms
- Average disposable income level
- Health and health consciousness
- Education standards
- Career choices and attitudes
- Work patterns & preferences
- Customer preferences
The Technological sector considers the impact of all forms of technological development & innovation. It influences restrictions to entry, make or buy decisions & investment in innovation, such as automation, investment incentives used during digital transformation. This could include Production, manufacturing & transportation technologies.
- Research and development capability and pipelines,
- Producing goods & services
- Legislation regarding technology
- Distributing goods & services
- Emerging technologies
- Technological maturity & inactivity
- Target market communication
- Increased training required to use new technologies
- Potential return on investment from new technologies.
PEST can be seen as threats or opportunities in a SWOT analysis. It is practical to perform a PEST analysis before doing a SWOT analysis. These 4 factors of PEST differ in consequence depending on the type of business. For example, political factors are more relevant to a defense contractor. While social factors of organizational strategy tools are more relevant to consumer businesses.
Hand-picked for you- HR Transformation & Manage Transition
3. Porter’s Five Forces
Porter’s 5 Forces model analyses the competitive strength in a business. This is based on the concept that there are five forces that determines the intensity of competition in an industry & its profitability level. Porter’s five forces was developed in 1979 by Michael E. Porter of Harvard Business School.
Porter’s five forces determines where potential resides in a business situation. With this information, this theory is effective to refine weaknesses, find zones of strength. To understand whether new products are profitable or not, strategic analysts mostly use Porter’s five forces for having a better organizational transformation.
Threat of New Entrants-
This force discovers how difficult or easy it is to set foot in a particular industry. If an industry is profitable & there are only a few hurdles to enter like patents, capital requirements or government policies, competition soon increases in VUCA environment. When more organizations participate for the same market share, profits begin to decline. It is crucial for existing organizations to generate big hurdles to enter to put off new entrants. Threat of new entrants is high when:
- There is no government rules.
- Low amount of capital is needed to enter a market.
- There is low consumer faith.
- Survived companies can do little to strike back.
- Existing firms do not contain patents, trademarks.
- Products are nearly identical.
- Economies of scale can be easily obtained.
Supplier’s Bargaining power-
When suppliers sell excessive priced or low-quality raw materials to their buyers, this is the supplier strong bargaining power. This straightly impacts the buying firms’ profits because they have to pay more. Suppliers have strong bargaining power when:
- The uniqueness of their product.
- There are few suppliers but many buyers.
- Less option for substitute raw materials.
- Expense of shifting raw materials.
Bargaining power of buyers-
If the bargaining power of buyers is high, they have the capability to order lesser price or higher product quality from industry producers. Lesser price results in lower income for the producer, whereas higher quality products uplift production costs. In both cases, outcome is less profits for producers. Buyers have strong bargaining power when:
- Less no. of buyers exist;
- Option of several substitutes;
- Buying in good quantities or control many access points to the final customer;
- Cost of switching to other supplier is low;
- Buyers are price sensitive.
Rivalry among existing competitors-
This force primarily determines how profitable & competitive an industry is. In competitive industry, firms have to participate aggressively for a market share, result of which is less profits. Rivalry among competitors is severe when:
- Industry of growth is slow;
- There are several competitors;
- Exit barriers are high;
- Products are not differentiated & can be easily replaced;
- Competitors are of equal size;
- Low customer belief.
Threat of substitutes-
This force is mostly frightening when close replaced products with fascinating prices or better quality exist & when buyers can shift from one product to another. For example, A producer can shift from coffee to tea as it doesn’t cost anything, but shifting from car to bicycle does. It decreases both the power of suppliers & the allure of the market.
Value Chain Analysis
This is crucial to understand how activities within the supply chain transformation process generate value for customers. One way to do this is to perform a value chain analysis. Value chain analysis (VCA) is a process where a firm specifies its primary & support activities which add any value to its final product & then inspect these activities to decrease costs or amplify distinction.
In the analysis, the activities are split into different sets of activities that add value. The organisation can more productively inspect its internal capabilities by identifying & analyzing each of these activities. Each & every value adding activity is regarded to be the key of competitive advantage.
Steps for performing value chain analysis are:
- Divide the organisation’s operations into primary & support activities– Primary activities are those that add value to the production process. It objectively generate a product then market the product, transport the product to the customer & offer after-sales support. Support activities are those which eases the primary activities by using strategy development tools.
- Assign cost to different activity– Assigning the cost to an activity gives the managers a precious vision into the internal abilities of an organisation.
- Find the activities that are evaluative to consumer’s satisfaction & market success- There are 3 important things in identifying the role of each activity in the value chain.
- Company mission- This effects the option of activities an organisation tackles.
- Industry type- The type of the industry has impact on the respective importance of activities.
- Value system- It includes the value chains of an organisation’s downstream & upstream partners in offering products to end customers.
Best Video for you–
5. Porter’s Four Corner’s Analysis
It was given by Michael Porter. It is a useful strategy evaluation tools for inspecting competitors. It stresses that the aim of competitive analysis should always be on producing vision into the future.
This analysis is used to:
- Discover each competitor’s likely response to the span of practical planned moves other competitors may make.
- Mature a profile of the probable practical changes a competitor may make & how progressive they may be.
- Identify each competitor’s reaction to the range of industry switch & environmental changes that may occur.
The ‘four corners’ mentions 4 diagnostic components that are important to competitor analysis: future goals; current strategy; assumptions; and capabilities.
Mastering the following four components can help forecast how a competitor may answer to a given situation-
- Motivation – drivers: Inspecting a competitor’s goals helps in understanding whether they are satisfied with their market position & current performance. This assist to forecast how they react to external forces & how probable it is that they will alter their strategy.
- Motivation – management assumptions: The insight & beliefs that a competitor has about itself, the industry & other companies will affect its strategic decisions. Inspecting these beliefs can help identify the competitor’s partiality & blind points.
- Actions – strategy: A company’s strategic planning tools and techniques decides how a competitor competes in the market. Although, there can be a difference between ‘intentional strategy’ (the strategy in accordance with interviews, annual reports & public statements) and the ‘registered strategy’ (the strategy that the company is following in practice, as confirmed by capital spending, assets & new product development). Where the present strategy is submitting acceptable results, it is logical to believe that an organisation will resume to compete in the same way as it currently does.
- Actions – capabilities: The drivers, assumptions and strategy tools of an organisation will determine the character, probability & timing of a competitor’s actions. Although, an organisation’s capabilities will determine its capacity to begin or respond to external forces.
A strategic plan is a process that helps a company or organization achieve its goals and objectives. It is a set of tools that help a CEO or a team develop a strategy to achieve a definite objective. A strategic plan is a set of goals and principles that are guiding the organization’s operations. These goals and principles are the foundations on which the organization’s vision is built.
Frequently Asked Questions
1) What are strategy tools?
The aim of the using strategic management tools is to improve the focus of the analysis & to make sure a balanced, methodical approach. It is important for a strategic analyst to understand which tools are most relevant to the purpose of the analysis.
2) What are the main strategy development tools?
SWOT Analysis( strengths, weaknesses, opportunities and threats) , PEST Analysis(Political, Economic, Social, Technological) , Porter’s Five Forces, Porter’s Four Corner’s Analysis,
“4 Best SWOT Books”
👉 Global Reader’s Click Below:
- The SWOT Analysis: Using your Strength to overcome Weaknesses, Using Opportunities to overcome Threats
- SWOT Analysis Log Book: Special Notebook for SWOT Analysis
- SWOT Analysis of a Person: Notebook for Assessing a Person’s Strengths, Weaknesses, Opportunities, and Threats
- SWOT Analysis Business Poster – Laminated – 33” x 23.5” – Educational School and Classroom Posters
👉India Reader’s Click below:
- SWOT-Analyse am Beispiel McFit
- The SWOT Analysis: A key tool for developing your business strategy (Management & Marketing Book 21)
- SWOT: Law of Evidence
- Swot Analysis: A Guide to Swot for Business Studies Students
👉 Leader’s Choice:
- WIN AWARD by sharing your good practices
- Leaders Shop – Exclusive Books/ Gifts selection for Leader’s
- Leader’s Courses that are best suitable to your role
- Check your Your Leadership Score in 1 minute
- Community- Leader’s Only
- Submit/Publish your events/webinars
- Best Quotes for leaders in VUCA World
👉 Hand Picked for Leader’s :
- Call Me Him : A Transgender Coming Of Age Story
- Leaders Who Lust: Power, Money, Sex, Success, Legitimacy, Legacy
- Why Women Harassment still exist in organizations?
- Best Leadership Book that every leader should read before die
- Top 25 Lean tools in the world
- How to be a VUCA Leader?
- 10 Best Leadership Styles of Great Leaders