How to Use Strategic Analysis to Determine Your Company’s Market Position
Here at Advisory Works, we are dedicated to helping businesses create a strategic plan that will inspire your people and get the results you desire.
Strategy enables your company to achieve its vision through developing people and culture, establishing and refining critical systems and processes, and growing customer and stakeholder relationships (Kaplan and Norton). Strategy is the map that will lead your company where it wants to go.
At Advisory Works, we use the Roger Martin’s Playing to Win construct as our strategic planning framework. In the strategic intent cornerstone, your company develops its winning aspiration (your vision), then determines it where to play and how to win choices. Having done this you work out the core competencies you need to win, and the key management systems and processes to deliver on your winning strategy.
This decision or choice making is supported by external and internal analysis of your business. One of the best ways to begin this strategic assessment is through using PEST analysis, Porter’s Five Forces, Value Chain Analysis and the assessment of core competencies.
PEST ANALYSIS – POLITICAL, ECONOMIC, SOCIAL, TECHNOLOGICAL
In the initial stages of strategic planning, you need to cast the net wide to incorporate data about the general state of your market and the world in general. This stage analyses these four areas that might have a macro or micro-impact on your business – political, economic, social, and technological.
Changes in the wider business environment can create great opportunities for your organisation, but also highlight potential threats. For example, technological innovations can open new markets for your products, but could also create threats to the status-quo. PEST analysis is all about understanding the “big picture” of the market, and the forces of change that impact your sector. All these changes are vital to consider when looking at strategic direction for the next five years.
PEST analysis has four main advantages:
- Identifying opportunities for the business.
- Providing advance warning of potential hazards.
- Highlights potential strategic lines of development or effort.
- Breaks through assumptions you may not realise you have when expanding into new territory.
PORTER’S FIVE FORCES
As you move from the “big picture” of the wider market implications into looking at your own industry, you start to employ a more narrow focus, and Porter’s Five Forces is a useful tool.
Developed by Michael E Porter at Harvard Business School in 1979, Porter’s Five Forces model assists you in determining whether a business will be profitable, based on comparing other businesses within an industry. Porter’s theory focuses on five competitive forces – competitive rivalry, supplier bargaining power, customer bargaining power, threat of new entry, threat of substitutes. It is a simple way to consider what is likely to be happening in these areas – and what do you need to do about it?
Porter’s Five Forces helps you:
- Understand the competitive landscape
- Reveals current profitability in your industry
- Providing a framework for anticipating and influencing competition.
VALUE CHAIN ANALYSIS
The final aspect of the planning and information gathering phase for strategic planning is diving into your company’s internal environment.
Value Chain analysis is another tool developed by Michael Porter in the 70s. It looks at the way or process by which your company creates value – how you transform inputs into outputs in a way that adds value. The value chain focuses on systems – a chain of activities common within all businesses. The value chain work to break down a company’s activities into sections that are strategically relevant. From there, you’re able to step back and gain a better idea of cost drivers, differentiation, apply competitive advantage, core competencies and your overarching business system.
We’ve talked before about the importance of identifying core competencies within your organisation when undertaking strategic initiatives. Core competencies are the attributes that make your company unique – the value you provide to your customers and clients, the point of differentiation that makes you stand out from your competitors. Core Competencies might be measures of quality, innovation, or strategic targeting, or they could have to do with your company’s flexibility to meet changing market demands.
Putting this data together gives you an analytical stance from which to begin to formulate your company’s strategic intent. From here, you can break down your organisation’s activities in a strategically relevant way, and come up with a roadmap for future success.
How is your company undertaking strategic planning? If you want more information about the strategic planning process, download our free guide, The Four Cornerstones of Strategic Execution.
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