Business Strategy Analysis

Dr. C. Lakshmi Devasena, IBS Hyderabad

 Introduction
BAs have responsibility for the following areas:

• identifying the tactical options that will address a given situation and will
support the delivery of the business strategy;

• defining the tactics that will enable the organization to achieve its
strategy;

• supporting the implementation and operation of those tactics;

• redefining the tactics after implementation to take account of business

changes and to ensure continuing alignment with business objectives.

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Strategy Analysis
 Strategy Analysis - Areas
• Strategy Analysis – including external environment and
internal capability.
• Strategy Definition.
• Strategy implementation.
• Performance measurement.

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 Strategy Analysis
‘… the process of conducting research on the business
environment within which an organization operates and on the
organization itself, in order to formulate strategy.’
BNET Business Dictionary
‘… a theoretically informed understanding of the environment in
which an organization is operating, together with an
understanding of the organization's interaction with its
environment in order to improve organizational efficiency and
effectiveness by increasing the organization's capacity to deploy
and redeploy its resources intelligently.’
Professor Les Worrall, Wolverhampton Business School
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 Strategy analysis – external business
environment
• All organizations have to address the changes that have arisen, or
can be predicted to arise, within their operating business
environment.
• Such changes occur constantly, and any organization that fails to
identify and respond to them runs the risk of encountering business
problems or even the failure of the entire enterprise.
• Senior management carries out regular monitoring of the business
environment in order to identify any influences that may require
action.
• There are two techniques that are used to examine the business
environment within which an organization is operating:
• PESTLE analysis and Porter’s Five Forces analysis.

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 PEST analysis
• There are several similar approaches used to investigate the
global business environment within which an organization
operates.
• The most commonly used approaches to external
environment analysis are:
– PEST (political, economic, socio-cultural, technological);
– PESTEL (political, economic, socio-cultural, technological,
environmental (or ecological), legal);
– PESTLIED (political, economic, socio-cultural, technological, legal,
international, environmental (or ecological), demographic);
– STEEPLE (socio-cultural, technological, environmental (or ecological),
economic, political, legal, ethical).

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 PEST analysis
• PEST analysis is a scan of the external macro-environment in which an
organization exists.
• It can be used for evaluating market growth or decline, and as such the
position, potential and direction for a business.
• Political factors. These include government regulations such as employment
laws, environmental regulations and tax policy. Other political factors are trade
restrictions and political stability.
• Economic factors. These affect the cost of capital and purchasing power of an
organization. Economic factors include economic growth, interest rates,
inflation and currency exchange rates.
• Social factors. These impact on the consumer’s need and the potential market
size for an organization's goods and services. Social factors include population
growth, age demographics and attitudes towards health.
• Technological factors. These influence barriers to entry, make or buy decisions
and investment in innovation, such as automation, investment incentives and
the rate of technological change.
• PEST factors can be classified as opportunities or threats in a SWOT analysis. It
is often useful to complete a PEST analysis before completing a SWOT analysis.

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 Porter’s five forces
• Porter's five forces of competitive position analysis is a simple framework for
assessing and evaluating the competitive strength and position of a business
organization.
• This theory is based on the concept that there are five forces which determine the
competitive intensity and attractiveness of a market.
• Porter’s five forces helps to identify where power lies in a business situation.
• This is useful both in understanding the strength of an organization's current
competitive position, and the strength of a position that an organization may look
to move into.
• Strategic analysts often use Porter’s five forces to understand whether new
products or services are potentially profitable.
• The five forces are:
1. Supplier power. An assessment of how easy it is for suppliers to drive up prices. This is
driven by:
– the number of suppliers of each essential input
– the uniqueness of their product or service
– the relative size and strength of the supplier
– the cost of switching from one supplier to another.
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 Porter’s five forces
2. Buyer power. An assessment of how easy it is for buyers to drive prices
down. This is driven by:
– • the number of buyers in the market
– • the importance of each individual buyer to the organization
– • the cost to the buyer of switching from one supplier to another.

3. Competitive rivalry. The key driver is the number and capability of

competitors in the market. Many competitors, offering undifferentiated
products and services, will reduce market attractiveness.
4. Threat of substitution. Where close substitute products exist in a market, it
increases the likelihood of customers switching to alternatives in response
to price increases. This reduces both the power of suppliers and the
attractiveness of the market.
5. Threat of new entry. Profitable markets attract new entrants, which erodes
profitability. Unless incumbents have strong and durable barriers to entry,
for example, patents, economies of scale, capital requirements or
government policies, then profitability will decline to a competitive rate.

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 Strategy analysis – Internal capability
• Analyzing the internal capability of an organization provides
insights into its areas of strength and the inherent
weaknesses within it.
• An analysis of internal capability is essential to understand
where the core skills of the organization lie, so that relevant
courses of action can be identified, and any changes be made
in the knowledge that they have a good chance of success.
• There are three techniques that may be used to examine the
internal capability of an organization:
– MOST Analysis
– Resource Audit
– Boston Box

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 MOST Analysis
• MOST analysis is used to analyze what an organization has set out
to achieve (the mission and objectives) and how it aims to achieve
this (the strategy and tactics).
• It is also used during the strategic analysis, since it can demonstrate
strength within the organization or expose inherent weaknesses.
MOST stands for:
• Mission: the rationale and direction for the organization.
• Objectives: the goals that the organization aims to achieve.
• Strategy: the medium- to long-term plans and actions that will
enable the organization to achieve its objectives.
• Tactics: the detailed, short-term plans and actions that will deliver
the strategy.
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 Using MOST analysis
• When examining the MOST for an organization, the technique is used to identify strengths and
weaknesses.
• This is done by considering the following:
Definition: Is there a defined MOST for the organization? Is it complete and consistent, or are
there elements missing or out of alignment with each other?
Clarity: Does the MOST set out a clear direction and plan that will enable the organization's
development and provide a focus for the work carried out?
Communication: Are the staff of the organization aware of the MOST, and is it available as a
context for the work they do?
Organizational: Do the staff work to deliver the MOST? Do they agree with commitment, the
content of the MOST and are they supportive of its intent?
• If the answer to any of these question is ‘no’, then there is a potential for weakness in the
organization.
• If the answer to any of these questions is ‘yes’, there are potential strengths in the organization.
For example, the clear definition and planning as encapsulated in the MOST can help motivate
the staff to work towards an agreed set of objectives.
• MOST analysis can be a tricky technique to use when assessing internal capability.
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Variation2023
: VMOST (Vision, Mission, Objectives, Strategy & Tactics)
Strategy Analysis
12
 Resource Audit / Resource Analysis
Resources can be:
 tangible resources – financial and physical;
 intangible resources – technology,
reputation and culture;
 human resources – skills, knowledge,
communication and motivation.
• The Resource Audit is used to analyze key
areas of internal capability in order to
identify the resources that will enable
business change and those that will
undermine or prevent such efforts.
• It is also used to examine internal resources
at many different levels, ranging from an
entire organization to a localized team .
• Figure beside shows the areas analyzed as
part of the Resource Audit.

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 Resource Audit / Resource Analysis
The five areas of resource to examine are:
• Financial: The financial resources available – which may simply be the
organization's financial assets, but could also include the possibility of
loans and credit. We need to consider whether the organization is
financially stable, and whether it has access to funds for investment and
development.
• Physical: The land, buildings and equipment available for use by the
organization, whether owned or leased
• Human: People employed by the organization (permanent / Temporary)
• Reputation: The market place perception of the organization, amount of
good will, or antipathy generated by this reputation.
• Know-how: The information held with in the organization, and the way it
support the organization’s work.

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 Boston Box
• Other Names: Boston Consulting Group matrix or the BCG matrix.
• The Boston Box is to aid portfolio management. The box is a 2 x 2 matrix with four quadrants.
The axes represent low to high market growth and low to high market share.
• The quadrants represent the following areas:
• Star: These are high-growth business units or products with a high percentage of market
share. Over time the market growth will slow down for these products, and, if they maintain
their relative market share, they will become ‘cash cows’.
• Cash cow: These are low-growth business units or products that have a relatively high
market share. These are matured, successful products that can be sustained without large
investment. They generate the income required to develop the new or problematic products
that will become ‘stars’ in the portfolio.
• Wild cat or problem child: These are businesses or products with low market share, but
operating in high-growth markets. They have potential but may require substantial
investment in order to develop their market share, typically at the expense of more powerful
competitors. Management has to decide which ‘problem children’ to invest in, and which
ones to allow to fail.
• Dog: These are the business units or products that have low relative share and are in
unattractive, low-growth markets. Dogs may generate enough cash to break even, but they do
not have good prospects for growth, and so are rarely, if ever, worth investing in.
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 The Boston Box

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 Strategy definition – Organization Modeling
• During strategy definition, the results of the external and
internal environmental analyses are summarized and
consolidated in order to examine the situation facing the
organization and identify possible courses of action.
• When defining the business strategy, the factors outside the
management’s control are examined within the context of the
organization and its resources.
• There are two techniques that may be used to define
organizational strategy:
– SWOT analysis
– Ansoff’s matrix.

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 SWOT analysis
• 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 organization,
while opportunities and threats are usually external.
• SWOT analysis is used to consolidate the results from the external
and internal business environment analysis.
• Variant: TOWS Analysis (threats, opportunities, weaknesses and
strengths).

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 SWOT Analysis

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 SWOT analysis
• Strengths - the internal positive capabilities of the organization,
for example financial resources, motivated staff or good market
reputation;
• Weaknesses - the internal negative aspects of the organization
that will diminish the chances of success, for example out-of-date
equipment and systems, unskilled staff or poor management
information;
• Opportunities - the external factors that present opportunities for
success, for example social changes that increase demand for the
organization's services, or the development of technology to
provide new service delivery channels;
• Threats - the external factors that have the potential to harm the
organization, for example a technological development that could
enable new competitors to enter the market, or economic
difficulties leading to a reduction in market demand.

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 Ansoff’s Matrix/ Ansoff’s Box
• Ansoff’s Matrix provides a set of strategic alternatives that may be
considered by the organizations when defining their business strategy.
• This maps new and existing markets with new and existing products.
• Market Penetration: This situation is where existing markets are targeted
for higher penetration by existing products. In this approach the
organization decides to continue with existing products and markets but
to adopt tactics such as additional promotion, increased sales effort, etc.
• Market development: In this situation the organization adopts a strategy
of exploring other markets for its products.
• Product development: This strategy involves developing new products or
services and targeting existing markets.

• Diversification: The most radical strategic alternative is to develop new

products or services and target new markets. This is a risky strategy to
adopt, since it does not use existing expertise or leverage the current
customer base.

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 Ansoff’s Matrix/ Ansoff’s Box

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 Strategy implementation – Business Process
Analysis
• When the strategy has been defined, it is important to
consider the range of issues associated with implementing it.
• One of the key problems here is recognizing the range of
areas that need to be coordinated if the business changes are
to be implemented successfully.
• The approaches that support the implementation of strategy
or Business Process Analysis are
– McKinsey’s 7-S model
– four-view model

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 McKinsey 7-S model
• The McKinsey 7-S model defines the areas of an organization that need to
be in alignment if it is to operate effectively. The model is used to identify
areas that need to change when implementing a business strategy, and
areas that will be affected by proposed business changes.
• The seven elements of the model are:
• Shared values: the values that underpin the organization and express the
beliefs held by the people who drive it.
• Skills: the skills required to carry out the work of the organization. Key
skills of particular staff may be defined, and these can be linked to the
staffing categories.
• Staff: the staffing requirements for the organization, including the
number and categories of staff.
• Style: the culture and management style of the organization. Contrasting
examples of styles include ‘mentoring manager/empowered staff’ and
‘commanding manager/instructed staff’.

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 McKinsey 7-S model
• Strategy: the defined strategy for the organization. This is likely to have been
developed following a SWOT analysis , and may be based upon Porter’s
generic strategies of market development or product development.
• Systems: the tactical and operational processes, procedures and IT systems
that define how the work of the organization is carried out. This definition
should be in line with the organization's strategy.
• Structure: the internal structures that define the lines of communication and
control within the organization. Examples include centralized or decentralized
control, and hierarchical or matrix management structures.
• The 7-S model elements are sometimes categorized as ‘hard’ and ‘soft’.
• The ‘hard’ areas are those that are more tangible and may be defined
specifically; the ‘soft’ areas are less tangible and are more difficult to define
precisely.
• The ‘hard’ group consists of strategy, structure and systems; the ‘soft’ areas
are shared values, style, staff and skills. Although the ‘hard’ areas are more
concrete, the ‘soft’ ones are of equal importance.

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 The McKinsey 7-S model

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 The Four - View model
• The four-view model of business change sets out the four key areas to be
considered when identifying the changes that need to be made to an
organization.
• This model also applies when changes are to be made to a business
system within an organization.
The four areas are
• Organization: the management structure, roles, responsibilities and
resources;
• Processes: the business processes used to deliver the organization's
products and services to customers, and to support its work;
• People: the staff members responsible for implementing the business
processes and carrying out the work of the organization;
• Technology: the hardware and software systems used to support the
work of the organization.

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 The Four - View model

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 Performance measurement – Managing the
change
• All organizations need to monitor performance.
• Two techniques used to identify performance measures and
carry out the evaluation.
• These techniques are
 critical success factors/key performance indicators

 Balanced Business Scorecard.

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 Critical success factors/key performance indicators
• Critical success factors (CSFs) and key performance indicators (KPIs) are used to determine
measures of organizational performance.
• CSFs are identified first, since they are the areas of performance that the organization
considers vital to its success.
• They are typically broad-brush statements such as ‘customer service’ or ‘low costs’.
• Two types of CSF should be considered:
• Industry-wide CSFs – the areas of effective performance that are necessary for any
organization operating within a particular business domain or market sector. For example, all
airlines have ‘safety of operations’ as a CSF – no airline that disregards safety is likely to
operate for very long.
• These CSFs do not differentiate between organizations, but they allow them to continue
operating.
• Organization-specific CSFs – the areas of performance that enable an organization to
outperform its competition. These are the areas that it focuses upon as key differentiators.
• KPIs are related to the CSFs, and define the specific areas to be monitored in order to
determine whether the required level of performance has been achieved.
• If an organization has defined ‘excellent customer service’ as a CSF, the KPIs could include the
volume of complaints received over a defined time period, and the percentage of customers
rating the organization ‘very good’ or ‘excellent’ in a customer perception survey.
• Since KPIs are related to CSFs, they need to be defined for both the industry-wide and the
organization-specific areas.
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 Balanced Business Scorecard
• Organizations' often have their own variants of the Balanced Business Scorecard (BBS),
reflecting aspects of the organization that are particularly important and that need to
be monitored. An example is the area of risk: a financial services provider might be
particularly keen to monitor this aspect of its business.
The BBS identifies four aspects of performance that should be considered:
• Financial: This aspect considers the financial performance of the organization, looking
for example at the profit generated by sales, the returns generated by the assets invested
in the organization, and its liquidity.
• Customer: Looking at the organization from the customer perspective shows how
customers view it. For example, the level of customer satisfaction and the reputation the
organization has in the marketplace are considered.
• Internal business process: This perspective shows the internal processes and procedures
that are used to operate the organization. For example, are the processes focused on
reducing costs, to the detriment of customer service? Is the technology used well to
support the organization in delivering its products and services?
• Learning and growth (also known as innovation): The learning perspective is concerned
with the future development of the organization. Examples of performance areas are
the development of new products and services, the level of creative activity in the
organization, and the extent to which this is encouraged.

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 Balanced Business Scorecard

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 Porter's five forces diagram

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