The means of transforming the data obtained during the analysis of the environment into a plan for the organization's strategy is strategic analysis. Its tools are quantitative methods, formal models and the study of the specifics of a given organization. Typically, strategic analysis goes through two stages - comparative, when the gap between the organization's targets and real opportunities is analyzed, and identifying strategic alternatives, when possible options for the development of this organization are analyzed. This is followed by the final stage of strategy development, the selection of the most appropriate option and the preparation of a strategic plan.
First analysis method
Gap analysis is fairly simple and is an effective method in management when doing the first step of strategic analysis. Its purpose is to determine the gap between the desires of the organization and its capabilities, and if such a gap exists, it is necessary to search for the most effective filling of it. Strategic analysis requires a certain algorithm in the study of such a gap.
Firstit is necessary to identify the main interest of the company, which is expressed in terms of strategic planning. Increasing sales, for example. Further, real opportunities are clarified, a strategic analysis of the environment is carried out and the future state of the organization is projected, for example, in five years. It is necessary to define specific indicators in the strategic plan that would correspond to the main interests of the company. Then the difference between the identified indicators and the possibilities dictated by the real state of affairs is established. And, finally, special programs are being developed that contain ways to fill this gap.
Second analysis method
The second way to conduct a gap analysis is to determine the difference between extremely modest forecasts and the highest expectations. If, for example, management expects a twenty percent real rate of return on their capital invested, and research shows that the real rate is a maximum of fifteen percent, then a detailed discussion of fundraising and the necessary measures to fill that five percent gap is needed.
You can fill it in different ways. It can be an increase in productivity to achieve the desired twenty percent, or the abandonment of ambition and satisfaction with fifteen. The last one is definitely a joke. But in any case, the strategic analysis of the organization will certainly force you to find the right way to fill the existing gap between what you want and what you can do.
Classicmodel
One of the most powerful models of strategic analysis of an organization appeared back in 1926, when the dynamics of costs were already being studied and the experience curve was looming. In this method, the definition of a strategy and the achievement of an advantage through minimal costs are associated. How did the costs decrease if the volume of production increased? This was due to a number of specific factors. A deep internal strategic analysis of each of them was carried out. First of all, costs were reduced due to the expansion of production, in which new technologies almost always appear that give such an advantage. In parallel - the choice of the most effective way of organizing production and training of personnel with the transfer of such experience. In this way, the organization achieves economies of scale.
Experience curve is applied mainly in the field of material production. Accordingly, the purpose of strategic analysis is to identify the main direction of the organization's strategy. Usually this is to capture as much market share as possible, because only the largest of competitors have the opportunity to achieve the lowest costs, and therefore the highest profits. But the reduction in costs may not be associated solely with an increase in production. It is much more important to have high-tech equipment, which is designed for absolutely any scale production, including a very small one. Today, for example, modular equipment or computerization has penetrated literally everywhere, and this cannot but provide highperformance. The main thing is to have opportunities for maneuvering, for quick restructuring in order to solve the most diverse and most specific tasks. This model, of course, eventually revealed shortcomings. The main one is the one that takes into account only a single internal problem of the organization, and the strategic analysis of the external environment is not carried out at all (that is, the needs of customers are ignored, for example).
Market and lifecycle
Strategic planning and strategic analysis cannot do without an analysis of market dynamics, for which it is necessary to apply a well-known model that repeats, by analogy with the life cycle of a biological being, the life cycle of any product. In the marketplace, a product also goes through major stages, each with its own level of distribution and many distinct marketing traits. For example, a new baby product is born and immediately enters life, that is, the market, where at first no great achievements are expected from it, that is, sales will be small, and manufacturers will focus only on growth.
This stage may be delayed, but if the baby is he althy and the products are of high quality, he will grow up quickly, and sales will increase. The second stage is the growth stage, requiring a different strategy. Next comes maturity: the strategy focuses on stability, because sales are stable. And finally, old age. The market is saturated with this product, a decline occurs, sales are declining, and therefore a reduction strategy is being developed. aimThis model is to determine the right strategy in business, tracking the step-by-step path of products on the market. There are a lot of modifications of such life cycles, it all depends on the type of product. But it is impossible to firmly tie modern strategic analysis to the life cycle model.
Products and market
In 1975, a prominent economist Steiner proposed a new model, which is a kind of matrix with the classification of markets, as well as products that already exist, new, related to the existing, and completely new. This matrix can show different levels of risk and probability of successful production and benefit, considering a variety of market and product combinations. This model is still used today to conduct strategic management analysis to determine the likelihood of success at the very beginning, when choosing a type of business, without losing the ability to see the ratio of investments for different units. All this means that it is possible to form an organization's securities portfolio quite accurately.
The development of strategic analysis takes place during the formation of portfolio models, since it is then that it becomes possible to predict both the present and the future of a starting business, to consider the attractiveness of the market and the ability of new products to compete on it. The first classic portfolio model came from the Boston Consulting Group (BCG). With its help, the main positions of the new business were determined. There are four of them:
1. The business is highly competitive, created for a fast-growing market. The position is ideal - "star".
2. The business is also highly competitive, but created for markets that are already mature and saturated, even prone to stagnation. This is an excellent source of cash for the organization, what is called - "cash cow", "money bag".
3. A business without good competitive positions, but operating in a promising market. It's not a very well-defined future yet, with a question mark.
4. A business with a weak competitive position in a market that is stagnant. These are the outcasts of the business world.
Using the Boston Model
The BCG model is used to make interrelated conclusions about a business's position, about each of its business units within an organization, and, of course, about strategic perspectives. Using this matrix, the management of the organization forms a portfolio, since combinations of all capital investments in different industries and business units are determined. What else is good about this model: the BCG matrix offers various options for strategies. With an increase in market share and business growth, the “question mark” easily turns into a “star”, and following the “cash cow” strategy, that is, by maintaining market share, the business will also retain revenues that are important for financial innovation and solving the problems facing each growing type of business.
The third option is the so-called "harvesting" whenthe business gets the maximum short-term profit share, even if it reduces market share. This strategy is not for strong businesses. This is how the old "cows" and "question marks" act, which failed to become an exclamation. If opportunities to invest in a difficult business dry up, and the position still does not improve, there is a strategy for this case. The business is being liquidated, and the proceeds are used in other industries.
Advantages and disadvantages
The advantages of the BCG model are, firstly, that it can be used to analyze the relationships between all the business units that make up the organization, pursuing the longest-term goals. Secondly, this model is able to analyze the various stages of development of the business as a whole and each of its business units. And the most important advantage: the model is simple and easy to understand, but nevertheless offers an excellent approach to collecting a business portfolio (that is, the organization's securities).
The disadvantages are two things. The first is that with the help of this model, business opportunities are not always accurately assessed, not all opportunities are calculated. They may advise leaving the market, when not all internal and external changes have yet been completed, and the position of the business could still be straightened out and even move up to a successful one. For example, a certain farmer in the seventies barely made ends meet, and then the fashion for organic products went, and his business could become a "cash cow", but late, he was sold, because the BCG model did not foresee this possibility. The second drawback is an excessive focus on cash flows (cash), and organizational moments are almost always supported by investments, this way is much more efficient. The focus on ultra-fast growth is also not so good, because it does not see the possibilities of applying new and more effective management methods to improve the business.
Multi-factor matrix
This is a more sophisticated version of the portfolio model developed by McKinsey & Company, a well-known international consulting company operating even in Russia. This matrix was ordered by the General Electric Corporation. Next to a simple portfolio model, a multi-factor matrix has many advantages and no less significant disadvantages.
First of all, this is taking into account the largest number of factors, both external and internal environment of the organization. But, using this model, it is also impossible to completely protect the analysis from erroneous conclusions. Perhaps that is why there are no specific behavioral recommendations for activities in a particular market. A subjective or distorted assessment of the position of a business in the market is also possible.
Purpose of strategic analysis
The main goal is to assess the largest impacts on the current and future position of the analyzed organization, it is equally important to determine the specific impact on the strategic choice. Based on the identified goals of the organization, the main tasks facing the organization are determined, which will help to provide indicators forstrategic planning (moreover, completely regardless of the nature of these indicators - financial or not).
So the first step in strategic analysis is to identify the following components: the main goal, the main objectives, expectations and empowerment within the organization. Against the background of the goal and the main tasks, it is much easier to formulate strategies and all the criteria by which they will have to be evaluated. In the goal - the whole meaning of the existence of the business and the nature of the organization. The main tasks are medium-term and long-term plans to achieve this goal.
Exterior and interior furnishings
This is the second component of strategic analysis - a description of the external environment where the organization exists, and all elements of the external environment - economic, social, technological, political - should be investigated. Since the external environment is constantly fluid and forced to undergo significant changes, the organization will have to solve the most important strategic problems as they arise. There is a micro and macro environment, and they are interconnected with each other. The microenvironment is the immediate environment. It is necessary to analyze the competitive structure of this industry, where this organization has worked, as well as the parameters of development of this industry. The macroenvironment offers for analysis macroeconomic, social, legal, technological, international factors that directly affect this organization.
The third component of strategic analysis is internalsituation in the organization. It determines the quality and completeness of the resources at the disposal of the organization, taking into account the key disadvantages and advantages of this business. Internal strategic analysis reveals the big picture of the constraints and impacts that are imposed on strategic choices, identifying the strengths and weaknesses of the organization, identifying expectations and opportunities to influence the performance planning process.
