Unit 2: Strategic Analysis

Meaning of Strategic Analysis: Strategic analysis is concerned with understanding the strategic
position of the organization in terms of the environment and the effects of the organization and
its activities. Strategic analysis is very crucial phase during the formulation of strategy. It helps
to develop the various strategic alternatives so that the best alternative can be chosen. The study
of strategic analysis is important because all types of organization have to face changing
situations in the environment. In such case, strategic analysis helps to reduce the uncertainty by
coping with changing situations. The aim of strategic analysis is to form a view of the main
influences on the present and the future wellbeing of the organization. This will obviously affect
the strategy choice. Essentially a business will address the following questions.
Where do we want to go?
What constraints exist on our resources?
What are the key threats from the external environment?
Together a consideration of the environment, resources, the expectations and the
objectives within the cultural and political framework of the organization provides the basis of
strategic analysis for the organization.
Importance of Strategic Analysis: The strategy formulation process involves environmental
analysis, organizational analysis development of strategic alternatives and the analysis and
selecting the more appropriate strategy from the alternatives developed. Therefore, strategic
management is not only concerned with taking decision about major issues facing the
organization. It is also concerned with ensuring that the strategy is put into action. Strategic
management can be defined as the function of strategic analysis, choice and implementation.
Thus, it is relevant to study strategic analysis before developing choice or alternatives.
Strategic analysis is very crucial phase during the formulation of strategy. It helps to
develop the various strategic alternatives so that the best alternative can be chosen. When
business managers examine and understand a business strategy that allows their business to
maintain or create a sustainable competitive advantage. Businesses become successful because
they analyze and possessed some advantages relative to their competitors.
The study of strategic analysis is important because all types of organization have to face
changing situations in the environment. In such case, strategic analysis helps to reduce the
uncertainty by coping with changing situations. By analyzing the situations, managers study
relevant variables and can decide about what to do and how to do. When managers analyze the
strategic management process, they can better cope with the uncertain environments.
Environment: It refers to all forces which have a bearing on the development, performance and
outcomes of an organization. Such force influences its ability to achieve objectives. Organization
must be ready to redefine reposition and rethink with the environment. Environmental forces
influence strategic management. Environment creates surprises.
Environment Analysis: Environment analysis is the process of monitoring the organizational
environment to identify both present and features threats and opportunities that may influence
the firms ability to reach its goals. The organizational environment is the set of all factors both
outside and inside the organization that can affect its progress toward its attainment those goals.
Finally, the environmental analysis is awareness of the organizations to the success.

The future moves with increasing rate of change in all aspects of organizational
environment. Because future organizations will be more dependent on their environments
performing environmental analysis will almost certainly be even more important to managers of
the future than it is to managers today.
Environmental Analysis Process-2: The nature of the environment can be complex, dynamic,
multi-faceted, far-reaching impact; influencing power etc. the environmental analysis process
involves the analysis of two types of environments. They are internal environment and external
environment.
I.
Internal analysis-2:- Internal analysis is generally easy to study and the managers can alter or
modify the factors. Therefore, it is also called controllable factors. Internal factors are resources
of the organization, competencies of human resources, organizational culture, and stakeholders
expectations.
a) Performance analysis: all organizations have strengths and weaknesses in the functional areas
of business. No enterprise is equally strong or weak in all areas. For example, Maytag is known
for excellent production and product design, whereas Procter and Gamble is known for superb
marketing. Strategies are established with the intention of capitalizing upon internal strengths
and overcoming weaknesses. Managers and employees from throughout the firm need to be
involved in determining a firms strengths and weaknesses.
Key internal factors for potential strengths and weaknesses for performance are
marketing, finance and accounting, production/operations/technical, personnel and organization
of general management. The competitive strengths and future performance of the firm should be
analyzed carefully. For this, it requires to gather and understand information about the firms
management, marketing, finance/accounting, production, research and development, and
management information system. Key factors should be prioritized and firms most important
strengths and weaknesses can be determined collectively.
b) Analysis of strategic options: Strategic options refer to identify the strategic alternative that
organization might pursue, it serves at the basis for making the choices of direction that a firm
adopts in order to achieve its objectives and provides basic future direction to the organization.
They enhance managers to identify strategic option. For the strategic option the business should
analyse strength and weakness and threats and opportunities. At the same time organization
economic, personnel, administration, products market and pricing policies should be analysed.
Organization should develop the strategic alternatives to link between organizations
strength and weakness with environmental opportunity and threat. Analysis of strategic options
seeks to determine the alternative courses of action that could best enable the firm to achieve its
mission and objectives.
Types of Strategic Options:
1 Stability strategies: Stability grand strategy is strategy that an organization pursues when it
continuous to serve the public in the same product or serve, market, and functional sectors as
defined in its business definitions. If the existing product or market condition is satisfactory
then, this type of strategy is selected. They do not want to go over a new activity. This strategy
highlights the non acceptance of new strategy. The existing strategic options are continued. At
this time the environment is also seem stable, no movement, and no new opportunities. So,
they dont want to change their strategy. Sometimes, it may be very dangerous for organization.
2 Expansion strategy: New products, market and functions are added. The pace of activities
increases. The product is in the growth stage of product lifecycle. Expansion is through

increased market share and production capacity. This aim is high growth through
diversification integration, cooperation and globalization. Expansion strategy is followed,
when an organization substantially broadened the scope of its customer, group customer
functions and alternative technologies.
3 Retrenchment strategy: This strategy is persuading in threatening environment. Products,
markets and functions are reduced. The pace of activities decreases. The product is in the
decline stage of product lifecycle. The cash flow is negative. Retrenchment is aimed through
reduced market share, dropping the product lines and markets and investment. The aim is
contraction of activities through turn around, sale of portion of business, liquidation and
increasing cash flows. Generally it is not preferred because of managers capabilities may be
questioned.
4. Combination strategy: Combination grand strategy is followed when an organization adopts a
mixture of stability, expansion and retrenchment, either at the same time, in its different business
or at the different time in the same business with the aim of improving it performances. The
organization has several strategy business units (SBU). It simultaneously uses combinations of
stability, expansion and retrenchment strategies to different parts of the organization. Old
products, markets and functions are continued, dropped and expanded. Product lifecycles are in
different stages. The aim is to improve performance. The combination can be simultaneous
sequential or both.
II.

External analysis-4: external environmental analysis is the process by which strategists monitor
the environmental sectors to determine opportunities for and threats are challenges posed by an
unfavorable trend whereas environmental opportunity for a firm is an attractive area in which the
firm would enjoy competitive advantages. There are many factors in the environment to study
and analyze in order to enable the firm in a competitive position. Here we analyze the following
external factors for our study.
a) Customer analysis: The customer analysis involves the examination and evaluation of customer
need, desires and wants. It also leads to administering customers survey, analyzing consumer
information, evaluating market positioning strategies, developing customer profiles and
determining optimal market segmentation strategists. The information generate by customer
analysis can be essential in developing and effective mission statement. Customer profiles can
reveal the demographic characteristics of an organizations customers. Buyers, sellers,
distributors, sales people, managers, wholesalers, retailers, suppliers and creditors can all
participate in gathering information to identify customers needs and wants successfully.
Successful organizations continually monitor present and potential customers buying patterns.
b)

Competitor analysis: Competitors analysis refers to the understanding of the position of

competitors competing in an industry possessing relatively equal capabilities. The final outcome
of competitive analysis is that it helps to understand, interpret and predict its competitors actions
and initiatives. Besides looking at primary demand and supply sectors strategists examine the
state of competition the firm must face for this, too determines whether a firm will remain in its
current business and what strategies it will follow in pursuing its business. Competitor analysis is
important for two reasons:
a Good strategy cannot be formulated in a competitive vacuum, without perceptive understanding
of rivals strategies, they would be strategists is flying blind.
b Because rivals strategies are highly interdependent, the positions and success of competitors
have direct relevance choosing ones own based strategy.

Three factors need to be examining regarding competition analysis:

Entry and exit of major competitors: One of the 1st questions a strategist asks about the
competitive environment is, how has the competition changed? Are there new competitors
entering our business? How old rivals leaving it? If competitors leave, many times the
probability of achieving corporate objectives increases.
Availability of substitutes: How profitability and successfully a firm operates depends in part on
the availability of quality and less costly substitutes for the firms products and services, and
how competitive the substitute industry is well determined how viable the substitute is?
Successful strategists also scan the environment for the loss or potential loss of business to
substitute.
Major strategic changes of current competitor: While strategists are concern with the previous
two factors, they probably watch more carefully when major competitors change their
strategies in significant ways. Among rivalry firms in an industry the greater one leads to much
more competition on the basis of price, quality, service and other factors which can affect
whether objectives are reached or not. Unbranded products is also measure challenges and
needs a new look at the market place.
c) Market analysis: market consists of all potential customers having wants and desires, they
posses ability and willingness to engage in exchange to satisfy their wants. Markets can be
consumer, industrial and institutional. Market analysis can be viewed from profit and market
share approach and resource approach. Profit and market share are 2 main goals for many
businesses.
Techniques of Market Analysis:
a Market power: it is the capacity of the organization to influence the behaviour of competitors in
the market. Such organizations tend to be the leaders in their chosen market segments. Market
power is based on market share and market growth in chosen segments.
b Market share: market share of a specific organization is the share in total sales of a product
during a given period of time in a specific market. It can refer to industry, segment or area. The
market share and market power means, organizations elaboration of their influence. Market
share extends their market power. There is positive correlation.
c Market growth: it is an indication of market power. Market growth refers to all round annual
growth rate in sales, market share and profits. It should be analyzed in a relation to key
competitors. Opportunity in the external environment and internal resource strength. Provide
potential for market growth on organization must have high rate of market growth to maintain
and improved its market power.
d)

Environmental analysis: It is the process by which strategists monitor the environmental

sectors to determine opportunities for and threats to their firm. The environment includes factors
outside the firm which can lead to opportunities for or threats to the firm. Although there are
many factors, the most important sectors are socio economic, technological supplier,
competitor, and government. Analysis is the tracing of an opportunity or threat to a source. It also
involves breaking a whole into its parts to find its nature, function, and relationship. Strategic
management requires searching for opportunities and threats and determining where they come
from and which ones are coming.
Environmental analysis process: According to Miller analysis of the external environment can
be broken down into 3 parts as a process:

a Focusing your analysis on strategic group: Strategic groups are conceptually defined clusters
of competitors that share similar strategies and therefore compete more directly with each other
than with other firms in the same industry. They are conceptual clusters in the sense that they
are grouped together for purposes of improving analysis and understanding competition within
their industry they do not necessarily belong to any formal group such as industry, trade
association or a strategy alliance, and they do not necessarily differ in their average
profitability. The industries may be homogeneous or heterogeneous.
b Environmental scanning concern gathering intelligence: Competitive intelligence is
information relevant to strategy formulation regarding the environmental context within which
a firm competitors. Such information is used to guide strategy formulation, to challenge the
environment, to forecast to identify competitive weaknesses, to determine when a strategy is no
longer viable and how/when to adjust strategies.
c Scenario planning (organization information): Scenarios are stories about what the future
environment might hold and how a firm might respond to this future. Scenarios are useful
planning aids because they address two challenges facing those analyzing the environment to
improve strategic formulation process.
The scenario is based on the assumption. A scenario is based on the assumption.
A scenario for a play does not merely reveal the plays ending; it also explains the
developments leading up to the endings.
Environment Analysis Process or Appraisal of Environmental Forces: Environment analysis
is managerial decision making process which is based on the assessment of opportunities and
treats in the environment the environment analysis process can be explained as:
i) Environmental scanning: it involves information gathering for assessing the nature of the
environment in terms of uncertainty, complexity and dynamism. The is concerned the following
events
It identifies early signs of future environmental changes. They are indicated by trends and
events
It detects changes already on track. They are happening.
ii) Monitoring: It involves tracking environmental trends and events it is auditing of
environment. The likely impact of environmental influences on business performance are
identified this step provides
- Specific description of environmental trends and events
- Identification of trends and events for further monitoring
- Identification of areas for forecasting
iii) Forecasting: This step forecast what is likely to happen. It lays out of path for anticipated
changes this step provides:
- Key forces at work in the environment they can be political-legal, economic, cultural and
technological.
- Understanding of the nature of key influences and drivers of change
- Projection of future alternative path available.
iv) Assessment: This step identifies key opportunities and treats. The competitive position of
business is analyzed in terms of how the organization stands in relation to other organization
competing for same resources or customers.
- Opportunity is a favorable condition which strength organizational competitive position

- Treat is an unfavorable condition which periods risks and weakens the competitive position of
the organization.
Environmental analysis identifies competitive position of a business organization. It is
also known as strategic position. It indicates the standing of an organization in relation to other
organizations competing for the same resources or customers.