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A.​ Overview
This learning material presents the different tools that may be used in strategic business
analysis.

As providers of information that is useful for decision-makers, accountants must exercise

due care in using these tools. Students of Accountancy should obtain knowledge and skills
pertaining to this matter in order to fulfill their professional duties in the future.

You will be able to achieve the desired learning outcomes by devoting time and effort in
studying this material, listening and participating actively in the online discussion, and
accomplishing the tasks assigned in the Classwork section of the Google Classroom for this
course.

B.​ Desired Learning Outcomes

After studying this module, you should be able to explain and apply the tools in
strategic business analysis.

C.​ Values Integration

In studying this module, it is hoped that you will be able to develop and manifest the
following UA Core Value/s:

✓ Integrity
✓ Excellence
✓ Teamwork
✓ Open Communication

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D.​ Content/Discussion

​ Strategic Analysis Tools

In the previous module, we studied how to describe the business environment which can be divided
into three layers:
1.​ The macro-environment
2.​ Industry or sector, and
3.​ Competitors and markets

The layers and the elements within them all interact with one another. There are many available
strategic analysis tools that we can use but let us focus our discussion on those identified by the
Chartered Institute of Chartered Institute of Management Accountants (CIMA). These are:
1.​ SWOT analysis
2.​ PEST/PESTEL analysis
3.​ Porter’s Five Forces Analysis
4.​ Four Corner’s Analysis
5.​ Value Chain Analysis
6.​ Early Warning Scans
7.​ War Gaming

A.​ SWOT analysis

It is one of the most widely used tools in business analysis. It can help analysts identify the
organization’s strengths, weaknesses, possible opportunities and potential threats. Mindtools
also provide a very insightful guide in preparing the SWOT analysis.

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 organisation, while opportunities and threats are usually external.
Often these are plotted on a simple 2x2 matrix.

​ When using SWOT analysis, it should be ensured that:

• Only specific, verifiable statements are used.
• Internal and external factors are prioritised so that time is spent concentrating on the most
significant factors. This should include a risk assessment to ensure that high risk or high impact
threats and opportunities are clearly identified and are dealt with in priority order.
• Issues identified are retained for later in the strategy formation process.
• The analysis is pitched at the project or business activity level rather than at a total company
level, which may be less actionable.

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• It is not used in exclusivity. No one tool is likely to be completely comprehensive, so a mixture

of option-generating tools should be used.

​ Sample questions:
Strengths Opportunities
• What does your organisation do better • What political, economic, social-cultural,
than others? or technology (PEST) changes are taking
• What are your unique selling points? a place that could be favourable to you?
• What do you competitors and customers • Where are there currently gaps in the
in your market perceive as your market or unfulfilled demand?
strengths? • What new innovation could your
• What is your organisations competitive organisation brought to the market?
edge?

Weakness Threats
• What do other organisations do better • What political, economic, social-cultural,
than you? or technology (PEST) changes are taking
• What elements of your business add a place that could be unfavourable to you?
little or no value? • What restraints do you face?
• What do competitors and customers in • What is your competition doing that
does your market perceive it as your could negatively impact you?
weakness?

B.​ PEST Analysis

Harvard professor Francis Aguilar included what was then known as ETPS in his 1967 book,
“Scanning the Business Environment”. This later evolved into what we now know as PEST
analysis which deals with political, economic, socio-cultural, and technological changes in the
business environment. It can be used for evaluating market growth or decline, and as such the
position, potential and direction for a business.

PEST Analysis is often linked with SWOT analysis but the focus of the two are different. PEST
looks at the bigger picture (factors affecting a decision, a market or potential business) while
SWOT explores these factors at a more specific level (business or product line).

This may sometimes be referred to as:

●​ PESTLE/PESTEL: Political, Economic, Socio-Cultural, Technological, Legal,
Environmental.
●​ PESTLIED: Political,​ Economic,​ Socio-Cultural,​Technological,​ Legal,​
International, Environmental, Demographic.
●​ STEEPLE: Social/Demographic, Technological, Economic, Environmental, Political,
Legal, Ethical

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●​ SLEPT: Socio-Cultural, Legal, Economic, Political, Technological

●​ LONGPESTLE: Local, National, and Global versions of PESTLE. (These are best used for
understanding change in multinational organizations.)

A sample template is provided below:

FACTOR OPPORTUNITY THREAT

POLITICAL

ECONOMIC

SOCIO-CULTURAL

TECHNOLOGICAL

​
1.​ Political factors. These include government regulations such as employment laws,
environmental regulations and tax policy. Other political factors are trade restrictions and
political stability.

2.​ Economic factors. These affect the cost of capital and purchasing power of an organisation.
Include economic growth, interest rates, inflation and currency exchange rates.

3.​ Social factors. These impact on the consumer’s need and the potential market size for an
organisation’s goods and services. Social factors include population growth, age demographics
and attitudes towards health.

4.​ 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.
​
Note: It is also worth noting that the four paradigms of PEST vary in significance depending
on the type of business. For example, social factors are more obviously relevant to consumer
businesses or a B2B business near the consumer end of the supply chain. Conversely, political
factors are more obviously relevant to a defence contractor or aerospace manufacturer.

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C.​ Porter’s Five Forces Analysis

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 help to identify
where power lies in a business situation. This is useful both in understanding the strength
of an organisation’s current competitive position, and the strength of a position that an
organisation may look to move into.

Strategic analysts often use Porter’s five forces to understand whether new products or
services are potentially profitable. By understanding where power lies, the theory can also
be used to identify areas of strength, to improve weaknesses and to avoid mistakes.

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.

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 organisation
●​ the cost to the buyer of switching from one supplier to another
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If a business has just a few powerful buyers, they are often able to dictate terms

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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D.​ Four Corner’s Analysis

Developed by Michael Porter, the four corner’s analysis is a useful tool for analysing
competitors. It emphasises that the objective of competitive analysis should always be on
generating insights into the future.
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Many organisations carry out basic SWOT analysis and have an appreciation for their
competitor’s strategies. However, motivational factors are often overlooked and yet are
generally the key drivers of competitive behaviour. Understanding the following four
components can help predict how a competitor may respond to a given situation.

The ‘four corners’ refers to four diagnostic components that are essential to competitor
analysis: future goals; current strategy; assumptions; and capabilities

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Summary of Four Corner’s Analysis:

1.​ Motivation – drivers. Analysing a competitor’s goals assists in understanding whether

they are satisfied with their current performance and market position. This helps
predict how they might react to external forces and how likely it is that they will change
strategy.

2.​ Motivation – management assumptions. The perceptions and assumptions that a

competitor has about itself, the industry and other companies will influence its
strategic decisions. Analysing these assumptions can help identify the competitor’s
biases and blind spots.

3.​ Actions – strategy. A company’s strategy determines how a competitor competes in the
market. However, there can be a difference between ‘intended strategy’ (the strategy as
stated in annual reports, interviews and public statements) and the ‘realised strategy’
(the strategy that the company is following in practice, as evidenced by acquisitions,
capital expenditure and new product development). Where the current strategy is
yielding satisfactory results, it is reasonable to assume that an organisation will
continue to compete in the same way as it currently does.

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4.​ Actions – capabilities. The drivers, assumptions and strategy of an organisation will
determine the nature, likelihood and timing of a competitor’s actions. However, an
organisation’s capabilities will determine its ability to initiate or respond to external
forces.

Illustration: Four Corners Analysis for a Smartphone Company

SmartTech, a smartphone manufacturer, conducts a Four Corners Analysis to assess its

competitive position against rivals MegaPhone and QuickMobile.

Objective: Understand competitors’ likely moves and inform SmartTech’s strategy.

The Four Corners:

1.​ Drivers:
○​ SmartTech: Focuses on innovation and user experience.
○​ MegaPhone: Prioritizes cost reduction and mass-market appeal.​
QuickMobile: Emphasizes fast product cycles and brand loyalty.​

2.​ Current Strategy:

○​ SmartTech: Premium, high-quality products with advanced features.
○​ MegaPhone: Low-cost smartphones with basic features.
○​ QuickMobile: Mid-range phones with frequent model updates.​

3.​ Assumptions:
○​ SmartTech: Assumes consumers will prioritize quality over price.
○​ MegaPhone: Assumes cost leadership will maintain market share.
○​ QuickMobile: Assumes consumers value frequent upgrades.​

4.​ Capabilities:
○​ SmartTech: Strong R&D and design capabilities.​
MegaPhone: Efficient production and distribution.
○​ QuickMobile: Fast production cycles and strong marketing.

Insights:

●​ SmartTech: Must focus on high-quality features and differentiate through

design.
●​ MegaPhone: Likely to keep competing on price.
●​ QuickMobile: Can capitalize on its fast product cycles but risks alienating
budget-conscious consumers.

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E.​ Value Chain Analysis

Introduced in 1985 by Porter, the concept of value chain describes the full range of activities
which are required to bring a product or service from conception up to final disposal after use.
Zamora (2016) wrote that value chain analysis has been employed to examine and evaluate
entire industries and industry clusters as well as specific systems within firms.

Value chain analysis is based on the principle that organisations exist to create value for their
customers. In the analysis, the organisation’s activities are divided into separate sets of
activities that add value. The organisation can more effectively evaluate its internal capabilities
by identifying and examining each of these activities. Each value adding activity is
considered to be a source of competitive advantage.

The three steps for conducting a value chain analysis are:

1.​ Separate the organisation’s operations into primary and support activities.
Primary activities are those that physically create a product, as well as market the
product, deliver the product to the customer and provide after-sales support. Support
activities are those that facilitate the primary activities.

2.​ Allocate cost to each activity. Activity cost information provides managers with
valuable insight into the internal capabilities of an organisation.

3.​ Identify the activities that are critical to customer’s satisfaction and market
success.
There are three important considerations in evaluating the role of each activity in the
value chain.
●​ Company mission. This influences the choice of activities an organisation
undertakes.
●​ Industry type. The nature of the industry influences the relative importance of
activities.
●​ Value system. This includes the value chains of an organisation’s upstream and
downstream partners in providing products to end customers.

​ Sample of Value Chain:

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Value chain analysis is a comprehensive technique for analysing an organisation’s source of

competitive advantage.

Illustration: Value Chain Analysis for a Coffee Company

BrewCo, a coffee company, wants to improve profitability by analyzing its value chain—from
sourcing raw materials to delivering coffee to customers.

Objective: Identify inefficiencies and areas for cost reduction in BrewCo's operations.

Value Chain Analysis sample:

1.​ Inbound Logistics:​

BrewCo sources beans from different regions. The company examines its suppliers and
shipping costs to identify more cost-effective sourcing.
2.​ Operations:​
BrewCo analyzes the coffee roasting and packaging processes. It identifies outdated

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equipment that leads to high energy consumption and proposes upgrading machinery
to improve efficiency.
3.​ Outbound Logistics:​
Delivery to stores is managed through third-party distributors. BrewCo evaluates
alternative logistics providers to reduce delivery times and costs.
4.​ Marketing & Sales:​
BrewCo’s advertising is effective, but they find that direct-to-consumer sales (via
online platforms) are growing. They decide to invest more in e-commerce.
5.​ Service:​
Customer support is underused. BrewCo decides to implement a loyalty program and
enhance post-purchase services to retain customers.

F.​ Early Warning Scans

Big things come in small packages. Usually, strategically important events give off weak signals
that a company must be able to identify in order to promptly and proactively address it.
Schwartz (2005) wrote about “Pitfalls in implementing a strategic early warning system.”
​
The purpose of strategic early warning systems is to detect or predict strategically
important events as early as possible. They are often used to identify the first scene of
attack from a competitor or to assess the likelihood of a given scenario becoming reality.

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The seven key components of an early warning system are:
1.​ Market definition. A clear definition of the scope of the arena to be scrutinised. For
example, is the arena a particular geographical region, brand or market?

2.​ Open systems. An ability to capture a wide range of information on relevant

competitors.

3.​ Filtering. Information that has been collected on the arena needs to be filtered
according to significance. Expert interpretation is required in order to identify
particular events that signify strategic moves or shifts.

4.​ Predictive intelligence. Using knowledge of the forces driving a competitor to predict
which direction they are likely to take. One technique is to build likely scenarios and
actively seek the signals that confirm the scenario. The predictions need to be
assessed for their probability of occurring and potential impact.

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5.​ Communicating intelligence. Ensuring that the right people in an organisation receive
regular briefing on key signals.

6.​ Contingency planning. Events that have a high potential impact or probability of
occurring may merit contingency plans, for example, a change of strategy or mitigating
actions.

7.​ A cyclical process. The process of scrutinising information for new warning signals
should never stop. While the emphasis is on emerging threats and opportunities, the
process should be flexible enough to tackle unexpected shorter term developments too.

Illustration: Early Warning Scan for Cybersecurity Threats in a Financial Institution

FinSecure, a financial services provider, conducts an early warning scan to identify emerging
cybersecurity risks after expanding its online services.

Objective: Identify potential cybersecurity threats and vulnerabilities.

Key Players:

●​ FinSecure’s Cybersecurity Team

●​ Hackers/Cybercriminals
●​ Regulatory Authorities
●​ Clients

Scan Setup:

1.​ Data Collection:

○​ Monitor new cyber threats like phishing and malware targeting financial
institutions.
○​ Check for internal system vulnerabilities and track regulatory changes.​

2.​ Pattern Recognition:

○​ Surge in phishing attacks and malware targeting online banking.
○​ New regulations requiring stronger encryption standards.​

3.​ Simulation:
○​ A phishing attack could compromise customer accounts.
○​ Malware could disrupt transactions.​

4.​ Outcome Review:

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○​ FinSecure updates encryption, enhances employee phishing training, and

strengthens multi-factor authentication (MFA).

G.​ War Gaming

War games are a useful technique for identifying competitive vulnerabilities and misguided
internal assumptions about competitors’ strategies.

Simulations of competitive scenarios are used to explore the implications of changes in

strategy in a ‘no risk’ environment. They also encourage new ways of thinking about the
competitive context. War games are often particularly useful for organisations facing critical
strategic decisions.

​ It also has the following characteristics.

●​ A structure where games comprise several ‘moves’ or decision rounds. Each move
consists of a fixed, predetermined amount of time ranging from a couple of months to
several years. During each move, teams make and carry out strategic decisions. After
each move, teams assess their positions relative to other teams.
●​ A ‘control team’ of facilitators who serve as the board of directors. They ensure
that strategic plans are acceptable and legal. They also facilitate the debrief, in which
participants review the merit of each strategy.
​
​ Illustration:

Objective: To assess the potential success of TechCo's smartwatch launch and predict the
competitive responses from FitTrack and PulsePro.

Key Players:

●​ TechCo (The company launching the new smartwatch)

●​ FitTrack (A major competitor with an established smartwatch line)
●​ PulsePro (A premium competitor with loyal customers)
●​ Retailers (Distributors, considering product placement and promotions)
●​ Consumers (Target demographic, concerned with features, price, and brand loyalty)​

1.​ Scenario Development:

○​ TechCo plans to launch the smartwatch at a price of $300, offering unique
features like long battery life, advanced fitness tracking, and integration with
other smart home devices.

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○​ FitTrack and PulsePro are expected to react based on their market share,
product offerings, and pricing strategies.​

2.​ Role Assignment:

○​ TechCo’s team (marketing, R&D, finance) plans the product launch.
○​ FitTrack's team decides how to respond—whether they will lower prices,
enhance their product, or launch a new advertising campaign.
○​ PulsePro’s team decides whether to push a premium version with new features
or promote aggressive discounts.
○​ Retailers discuss the pricing and shelf space allocation, balancing their profit
margins and consumer preferences.​

3.​ The Simulation:

○​ The game begins with TechCo launching its product.
○​ FitTrack responds by lowering the price of its smartwatch by 10%, and
PulsePro releases a limited-time promotion offering a trade-in bonus for old
devices.
○​ Retailers begin to choose sides, with some preferring the cheaper option
(FitTrack) while others go with the more premium offering (PulsePro).​

4.​ Iteration:
○​ TechCo reacts by introducing a short-term bundled offer, providing discounts
for early adopters.
○​ PulsePro counters by offering exclusive features (e.g., premium materials or
enhanced health tracking), while FitTrack invests in an aggressive marketing
campaign.​

5.​ Outcome Review:

○​ After several rounds of decision-making, the game concludes, and participants
analyze the results. TechCo finds that while the smartwatch remains
competitive, the price-cutting from FitTrack and PulsePro’s promotions will
lead to lower-than-expected sales.
○​ The team identifies that TechCo’s strategy may need refinement, either through
further differentiation, price adjustments, or targeted marketing to shift
consumer perceptions.

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E.​ Assessment of Learning

For the regulated assessment of what you have learned from this module, please prepare for an
activity assigned in the google classroom.

F.​ References

Cabrera, M. E. (2015). Management Consultancy. Manila, Philippines: GIC Enterprises & Co. Jenkins, W.,
& Williamson, D. (2016). Strategic Management and Business Analysis. New York, NY, USA:
Routledge.
Congratulations for having completed this module!
See you in the next module!

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