Summary to Analysis Without Paralysis | Babette E. Bensoussan

If you want to make better decisions and get better results in your business, you need to use business analysis tools. But how do you choose the right tool for each situation, and how do you use it effectively? In this article, we will review a book that can help you answer these questions: Analysis Without Paralysis: 10 Tools to Make Better Strategic Decisions by Babette E. Bensoussan and Craig S. Fleisher.

Whether you are a manager, a business owner, or an analyst, you will find this book useful and informative. To learn more about the book and how it can help you, read on!

Review

The book is a practical guide for managers and business owners who want to use business analysis tools to make better decisions and achieve better results. The book covers 10 core sets of analysis techniques that can help managers address various strategic and tactical challenges, such as understanding the competitive environment, assessing the market potential, identifying the best opportunities, and developing effective strategies and tactics.

The book explains each technique in plain English, with clear descriptions, context, rationales, strengths, weaknesses, step-by-step instructions, and case study examples. The book also provides guidance on how to choose the right tool for each situation, and how to avoid common pitfalls and biases in analysis. The book covers the following techniques:

• BCG matrix: a tool for evaluating the relative performance and potential of different business units or products based on their market share and growth rate.
• Porter’s Five Forces: a tool for analyzing the competitive forces that shape the profitability and attractiveness of an industry or market.
• SWOT analysis: a tool for assessing the strengths, weaknesses, opportunities, and threats of an organization or a situation.
• Competitor analysis: a tool for identifying, evaluating, and anticipating the actions and reactions of current and potential competitors.
• Financial analysis: a tool for measuring and comparing the financial performance and health of an organization or a project.
• Issue analysis: a tool for identifying, prioritizing, and addressing the key issues that affect the success of an organization or a project.
• Value chain analysis: a tool for examining the activities and processes that create value for customers and stakeholders, and identifying the sources of competitive advantage and improvement opportunities.
• Scenario planning: a tool for exploring and preparing for alternative future outcomes and uncertainties, and developing robust strategies and plans.
• STEEP/PEST analysis: a tool for scanning and monitoring the social, technological, economic, environmental, and political factors that influence the external environment of an organization or a project.
• War gaming: a tool for simulating and testing the possible moves and counter-moves of competitors and other players in a competitive situation.

The book is a valuable resource for anyone who wants to learn how to use business analysis tools effectively and efficiently. The book is well-written, easy to read, and full of practical examples and tips. The book covers a wide range of tools that can be applied to various situations and industries, and provides a balanced and critical perspective on each tool. The book also helps readers to avoid common mistakes and biases that can undermine the quality and validity of analysis. The book is not a comprehensive or exhaustive guide to all the possible tools and methods of business analysis, but rather a selective and focused introduction to the most useful and relevant ones. The book is suitable for beginners who want to learn the basics of business analysis, as well as for experienced analysts who want to refresh their skills and knowledge.

Genres

Entrepreneurship, Management, Leadership, Business, Strategy, Decision Making, Analysis, Problem Solving, Planning, Competitive Intelligence, Marketing, Finance

Recommendation

Analysis Without Paralysis is a practical guide to the ten most powerful strategic analysis tools that will help you make better and faster business decisions. It is a simple and straightforward tour through models such as Porter’s Five Forces, PEST, and SWOT, teaching you when and how to utilize these powerful techniques.

Developing a good corporate strategy requires rigorous analysis. You don’t need to become a quant or a statistics expert, but you should understand how worthwhile analytics abet planning. Strategic analysis expert Babette E. Bensoussan and management professor Craig S. Fleisher explain, in simple terms, 10 classic, tried-and-true diagnostic techniques in this introduction to strategic development. This isn’t a book for nerds, but for business executives and managers who need to know the basics of analysis so they can develop better corporate strategies. This guide is easy to use, with concise but thorough introductions to major analytical tools, their pros and cons, and step-by-step instructions for how to implement each one. We recommend this useful primer on corporate analytics to any managers who need grounding in this important discipline.

Take-Aways

• Managers should know some common analytical techniques since good analysis is the basis for strategic planning. Turn to 10 well-tested analytical tools:
• First, the “BCG Growth Matrix” labels each product as a “cash cow, star, dog or problem child.” Second, “competitor analysis” gives you a handle on your rivals.
• Third, use basic financial statements and ratios to make sense of your numbers.
• Fourth, understand your industry’s “five forces”: barriers to entry, supplier power, consumer power, product substitution and competitive challenges.
• Fifth, turn to “issues analysis” to prepare for changes in your public environment.
• Sixth, supplement that with “political risk analysis” that studies external challenges.
• Seventh, “scenario analysis” can help you plan your firm’s future.
• Eighth, “macroenvironmental analysis” illuminates the “political, economic, social and technological” (PEST) aspects of your business.
• Ninth, “SWOT analysis” uncovers corporate strengths and weaknesses.
• And tenth, “value chain analysis” shows you how to improve your costs and serve your customers.

Introduction: 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 opportunities 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 equipped to make the best strategic decisions.

In this summary, we’re going to look at ten of the most impactful analysis tools that can empower you to make better and more 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!

The Boston Matrix

Being realistic about your business’s strengths and weaknesses is crucial, especially when evaluating which products to prioritize. 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 categories: 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.

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 about 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 model 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 you 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.

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 into 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 begin 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.

Five Forces Model

Porter’s Five Forces is an analytical framework designed to evaluate competition within an industry and shape an effective business 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 industry. 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 Power 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.

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 technology 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 that 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.

SWOT

SWOT analysis is a strategic planning technique used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved 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 support 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 angles.

Macro Environments

Businesses don’t operate in a microcosm. They exist in a broader environment, influenced by several macro factors. This is where PEST analysis comes in, which is a model to brainstorm the Political, Economic, Social, and Technological influences on a given 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 other factors that might impact operations, particularly in a global trade setting.

The Economic factors include macroeconomic conditions like economic growth, inflation, interest rates, or unemployment 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 chains. And Legal factors include everything from international regulatory frameworks, consumer laws, or employment laws that businesses 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.

Value Chain Analysis

Value chain analysis is a strategic tool used to analyze internal activities that contribute value to customers and competitive 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, inbound or outbound logistics, marketing, sales, and services.

On the other hand, Support Activities provide resources, capabilities and functions that enable and enhance the performance of 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 also 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.

Issue Analysis

Issue analysis involves identifying and evaluating potential problems and situations that will impact an organization’s strategy 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 that 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 stakeholders, ensuring that their voices are heard. While this seems time consuming, getting people’s input will save you further trouble down 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.

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 Corporation 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 legislative 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.

Summary

Do You Know What You Don’t Know?

Executives must develop solid, sustainable, original corporate strategies tailored to give their companies a competitive advantage. But strategies don’t blossom out of the ether; they usually start with sharp analytics. Thorough analysis of your strategy, your industry, your rivals and your business setting should provide an “early warning” of upcoming challenges and “an objective, arm’s-length assessment” of your competitive position. Cogent analysis will enhance your capacity to respond rapidly to environmental changes, give you assurance that your decisions are based on “systematically derived” data and provide the tools you need to transform your ideas into concrete plans.

“Analysis is without a doubt one of the more difficult and critical roles a manager is called upon to perform.”

Relying on your “intuition” or “experience” to drive your business is no longer enough. Today’s competition is global, and you’re working in a “knowledge economy” that increasingly puts a premium on synthesizing data in new, creative ways. Keeping rivals from co-opting your products and processes is harder now, so you need to work faster and smarter. You don’t have to be an expert in statistics or a quantitative analyst, but you do want a basic grasp of the advantages that worthwhile analysis can bring to your company.

“Effective analysis requires experience, good inputs, intuition, models and, some would argue, even a dash of good luck.”

Gathering data is much easier than analyzing it. For a variety of reasons, analysis doesn’t always provide the outcomes you need. For example, using the same analytics time and again leads to “tool rut,” where every problem looks like a nail if all you own is a hammer. Moreover, many business school graduates tend to apply finance and accounting skills to strategic questions instead of using data analysis. Finally, many people analyze the information they have, never asking what other data they need to address the problems they face.

“What Is Analysis?”

Simply put, analysis means dividing a problem or issue into its components and then studying each element’s “value, kind, quantity or quality.” The basic approach consists of four stages:

1. The “analytical framework” describes the reason for the analysis.
2. The collection assembles the facts.
3. The analysis attempts to uncover the sense behind the facts.
4. The “implications” set the stage for a final decision.

“As a process, analysis depends upon raw data. However, not just any data will lead to effective analysis.”

Analytic skills are like muscles: The more you exercise them, the stronger they get. Set a goal for your research before you choose your analytics, and don’t use the same tools too often. Analysis is not a panacea; you still must use good judgment in assessing the results. The following 10 “classic techniques” for developing strategy form a base level of knowledge for any executive:

1. “BCG Growth/Share Portfolio Matrix”

In the early 1960s, General Electric and the Boston Consulting Group (BCG) developed a methodology that “multiproduct, multimarket…multinational” firms can use to assess their portfolio strategies and allocate their resources. The “BCG Growth Matrix” compares a firm’s current market share to the market’s growth prospects, and it categorizes the results in four boxes: 1) low growth and high market share equal a “cash cow” – milk it for all it’s worth; 2) high growth and high market share denote a “star” – invest; 3) high growth and low market share can indicate a “problem child” – study it; and 4) low growth and low market share mean a “dog” – sell or close it. The matrix is simple to develop and understand, but it has some flaws: Market share does not always indicate profitability, and some firms succeed in low growth markets.

2. “Competitor Analysis”

Understanding your competitors can help you discover and manage prospects and risks. Studying your rivals helps you to learn their strategies, judge their predictable responses to your moves, correlate their plans and capabilities, and develop insights into weak spots you could exploit. First promulgated by Harvard’s Michael Porter, one of the first strategists to propose a “formal and systematic model to gather information about competitors,” this analysis helps you prepare defensive moves and launch offensive plans. Gather and analyze four categories of data about your peers: 1) Their “drivers” or “future goals, philosophies and strategies”; 2) their “current strategies”; 3) their “current capabilities and resources”; and 4) their “management assumptions.” This analysis can help your firm move decisively in a competitive environment, rather than just react to rivals’ actions. But don’t base all your strategy on this analysis; you might ignore issues and opportunities from outside your peer group or industry. Being too much of a “copycat” can limit innovative thinking.

3. “Financial Ratio and Statement Analysis”

Becoming comfortable with certain financial concepts and terminology will make you a more effective strategist. Financial Ratio and Statement Analysis (FRSA) helps you make sense of your fiscal numbers and – combined with other analytical techniques – is an important part of strategic planning. First, study the “accounting equation” – a company’s liabilities and net worth equal its assets – and then examine the parts of that equation: current, fixed and noncurrent assets; current and long-term liabilities; and “owner’s equity.” Learn to read an income statement of revenues and expenses and to understand its relationship to the balance sheet – as a snapshot of a firm’s assets, liabilities and equity. Monitor cash flow by using the “position statement” and the “statement of changes in owner’s equity.” Ratios like “inventory to sales” or “debt to equity” indicate performance, that is, how your firm compares to its peers and its industry standing. But FRSA offers only a past, static view of your progress. Be wary of “benchmarking for mediocrity” by overemphasizing your company’s financials relative to its peers.

4. “Five Forces Industry Analysis”

Is your industry cutthroat or monopolistic? Porter’s methodology for studying industry dynamics reveals your competitive environment. Measure five forces: 1) the “threat of new entrants” overcoming your industry’s barriers to entry; 2) the “bargaining power of suppliers,” that is, who wields the power; 3) the “bargaining power of buyers,” or the extent to which clients dictate terms; 4) the “threat of substitute products or services,” usually from outside the industry; and 5) the “degree of rivalry among existing competitors.” Rank the intensity of each force from one to five (five being weakest), and indicate with an arrow if the trend is growing or declining.

“Analysis would be less necessary if people could execute their decisions themselves and nobody had to convince anybody of anything.”

This analysis can help you predict how shifts in one force affect the others, how such changes might influence industry profitability and how to respond. Your industry is only one component of your strategy; your “core competencies” might override your concerns about your overall industry.

5. “Issue Analysis”

External environments pose challenges that can influence your strategic choices. Assessing “public environmental intelligence” alerts companies to emerging societal or policy issues. For example, executives can voice opinions about pending legislation that might affect their operations, they can adjust their human resources practices in light of social trends, or they can exit businesses that conflict with community standards. Choose issues and areas most likely to shape your firm’s operations and plans. Evaluate various scenarios in order of their magnitude and likelihood, and identify possible responses. Preparing for these issues can give you the flexibility and time you need to deal with them, but going forward you must keep your analysis current. Apply creative reasoning in your research because many policy issues are unpredictable and “defy logical or rigorous assessment.”

6. “Political Risk Analysis”

Political risk analysis (PRA) provides intelligence about a crucial aspect of the external environment: government policies, actions and politics, and their impact on corporate activity. A good PRA might cover tax and tariff regimes, political unrest, corruption, legislation and “threats to physical and intellectual assets.” Globalization, outsourcing, intellectual property protection and political instability make PRA essential to your strategic arsenal. While lots of information is available online, you must check its reliability. Many firms now hire consultants to keep them updated because of the complexity of this field. Analyzing political risk is “part art and part science,” so don’t make assumptions, particularly about issues involving unfamiliar cultures.

7. “Scenario Analysis”

Businesses create scenarios, or “detailed descriptions of what the future might look like,” to address the chance and magnitude of change in their strategic planning. Scenario analysis clarifies situations that are highly uncertain, subject to change or prone to expensive shocks. Scenario analysts use “computer-generated econometric models” to assess quantitative variables and to apply several other methods in specific circumstances, such as “cross-impact analysis” to calibrate an event’s probable impact on fabricated scenarios. To develop a useful scenario analysis, create multiple possible descriptions of the future. Then either use “deductive reduction” to explore the possible paths each scenario presents or utilize “inductive reduction” to cut the number of variables down to the most likely ones. A good scenario analysis can kick-start discussion, thinking and action among strategy makers. Don’t opt only for scenarios that best match current competencies; be open-minded about possible real change in the future.

8. “Macroenvironmental Analysis”

This deals with variables outside your company’s control – that is, matters that are “social, technological, economic, ecological and political/legal” (STEEP – also called PEST, for “political, economic, social, technological”). These areas generate great uncertainty among strategic planners.

“Always assume that competitors are simultaneously performing similar analysis on your company.”

Think of your corporate environment as three concentric rings, like a target pattern: At the center is your firm’s “internal” environment; the next ring is the “operating” environment, which encompasses your clients, vendors and competitors; and encircling both is the “general” or STEEP environment. Social factors to consider include unionization, consumer ethics and income inequities in the population. Technological matters include bandwidth and access to university talent. Economic factors include inflation, GDP and interest rates. Ecological variables include your power sources, as well as pollution and environmental rules. The political milieu encompasses activism and regulatory regimes. Defining such externalities is a challenge.

9. “SWOT Analysis”

Assessment of your company’s strengths, weakness, opportunities and threats, called SWOT analysis, has been around since the early 1970s and is firmly entrenched in the business lexicon.

“By definition, any time someone tries to gauge risk, something unexpected can happen.”

A SWOT analysis assesses a company’s capabilities relative to its outside environment, so it pairs well with five forces and STEEP analyses. Use SWOT to strategize at the product, division or operating levels. Gauge your firm’s internal and external SWOT components by asking “What can we do?” “What might we do?”, “What do we want to do?” and “What do others expect us to do?” Implementing SWOT is simple and not costly, but it can produce answers that are too general since it uses qualitative measures. Individuals can interpret its inputs in different ways, making its results more useful in strategic thinking than in executing strategies.

10. “Value Chain Analysis”

Value Chain Analysis (VCA) separates the components of your firm that create economic value for customers, analyzes the cost of each component and improves them to build profits and satisfy clients. VCA, which Porter also popularized, considers two sides of a firm’s functions: its “primary activities” (supply and distribution logistics, operations, marketing, sales and service) and its “support activities” (technology, personnel and infrastructure). You can adjust profitability by changing these components.

“Environmental conditions affect the entire strategic management process.”

Value chain analysis can help you visualize your relative position in your industry. VCA can refine SWOT analysis by probing finer details about strengths and weaknesses and comparing cost to value. Its drawbacks lie in its focus on physical products and assets. Newer versions of VCA relate to information technology and services companies. While useful, VCA requires a substantial investment in time and in “benchmarking, customer research, competitive analysis and industry structure analysis.”

Conclusion

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.

About the Authors

Babette E. Bensoussan is managing director of the MindShifts Group, a strategic planning consultancy. Craig S. Fleisher is a management professor at the University of Windsor, Canada.