Strategic Analysis

Strategic Analysis is all about looking at what is occurring outside your organization now and in the future.

There are two critical questions:

1.    How does this affect you?

2.    What is the intelligent response to likely changes?

It is called strategic because it is high level, over the longer term, and about your whole organization.

It is called analysis because it is about breaking something that is big and complex down into more manageable portions.

An objective analysis and understanding of your markets and your costs and capabilities forms the bedrock for the strategy development process. From this analysis and by applying creativity will come a number of options and opportunities that can be used to build and implement a solid strategic plan for new or existing markets.

Setting a strategy requires knowledge in three areas:

Customers: Existing customers and potential customers and markets. What do they do? What would help them do what they do better? What are their needs? Where are the most profitable customers?

Competencies: Skills, knowledge and relationships. What do you do well? What abilities could you draw on? What costs do you have to carry? Where do you make money?

Competition: The whole competitive environment from regulation to real life competition. What is the basis of competition? Where are the threats? Where is their pressure and where is the market easy?

Analysis of the three areas is interrelated. Who you select as your target audience will have implications for what capabilities you need, which will have an impact on what competitive pressures are around which will influence who you choose as your target audience. Some companies will have all this knowledge to hand easily and readily. Others will require information and analysis to be carried out in order to bring together the knowledge together into one place. Within the process of carrying out Strategic Analysis is choosing which customers and markets to concentrate on and looking at what has value to these customers ensures that your efforts and resources can be focused on the areas with the most potential for return.

The best starting points for strategic analysis is to look at who your key target audiences and customers are and what they do and value. Once you understand what your customers do and value, you can start to look for ways of helping them do what they do better. Where "better" is as judged by your customers, looking at what they value, not necessarily what you are good at. The process of choosing a target audience can happen at two levels.

What existing customers we have and what is their value to us (profit not revenue)?

What potential customers can we address in the future if we chose to target untapped markets?

These demand-side views need to be matched against your capabilities and the competitive environment to understand what costs would be involved to reap these rewards.

Existing customers

In terms of customers you already have, many companies will have lists of customers and accounts (this is not always the case, particularly where there is a distribution channel involved).

The key questions to ask are: Who are the most important customers to you in terms of profit and strategic fit? What do these customers value? What are their business priorities? Where are the competitive pressures on these accounts? What can you offer in the way of improvements to keep them with you and increase your value to them, or your value to their customers?

For existing accounts we look at revenue and costs per customer to identify where the profitable customers are (which is not always as you would expect).  Secondly, we look at what these customers need and value to identify areas of opportunity, and possibly to find ways of grouping or sub-dividing customers who have similar needs or requirements. 

Although many companies have close working relationships with their major customers, there is plenty of evidence to show that few companies take the time to periodically review the whole relationship and to understand where and what customers really want. In particular, some of the existing knowledge has been filtered through distribution channels who may have their own agenda, or is focused on the here-and-now sorting out issues of delivery, price and quality on today's sales that the mechanics and future of the relationship can be overlooked, allowing competitors to sneak in.  Consequently this is where techniques such as relationship analysis and for supply chains conjoint analysis, value-chain analysis can have real power to unlock the profit potential from your customers.

New customers

The option for analyzing target markets is to ask who could your customers be in the future. What sectors would you attack? Where are there economies of scale in meeting a group of customer's requirements?

For new markets, research either in the form of desk research using existing studies and market intelligence, or in the form of market research studies will be needed to ascertain who are the best prospect areas.  It is possible to take an inner view without doing a data collection exercise, but it can be risky to rely on internal views of the wider markets, or even external views such as your distribution channel or existing customers.  The problem is that the perspective you have is likely to be biased because of your position in the market. This is known as the sales-view bias.

Sales are mainly going to be spending most of their time talking to people who are interested in your product (Pro). They see the market from the Pro end looking back. Consequently they spend less time talking to the rest of the market who become more interested in your competitors (Con). The risk is that the customers you don't see start changing the market (move you mouse over the picture to see this), or worse, you produce products and services that become more and more specific to a small number of existing customers and less and less relevant to a wider audience.

This means that it is always worth taking an objective, market wide look to try and identify new markets that are arising, or threats that are developing. Market intelligence can be used to identify likely target customers and to source lists and existing market data. If market research is carried out, a range of techniques such as segmentation can be used to identify likely prospects backed up by in depth qualitative examinations to find out what these new customers are looking for.  Developing a clear and profitable strategy relies on balancing your company's competencies and abilities against the market opportunities toward the future.

The process, when done well, allows the business to develop the Strategic Plan.

Many entrepreneurial ventures mistakenly believe that strategic planning is only for large businesses that can afford the time and personnel to develop a sound plan. However, if you are to compete in the marketplace against the larger competitors, you need to learn facilitate a game plan.  Strategic planning is a major part of any successful, large business. That does not mean that your startup needs all the bells and whistles of the more complex plans. You can in a matter of hours sketch out a good working draft that will help keep you on course to becoming a solid competitor. Let's take a look at the basics that will get your business strategically positioned to develop in the direction you want it to go.

What is strategic planning and how does it differ from other types of planning? Strategic planning involves setting up a strategy that your business is going to follow over a defined time period. It can be for a specific part of the business, like planning a marketing strategy, or for the business as a whole. Usually the owner (CEO) or a board of directors sets the overall strategy for the business and each area of the company plans their strategy in alignment with the overall strategy. Differing businesses use various time periods for their strategic planning. The time period is usually dependent on how fast the industry is moving. In a fast-changing environment like the Internet, 5-year plans don't make sense. In industries that change more slowly, longer range planning is possible and desirable.

Writing a Business Plan is different from strategic planning. One writes a business plan when one is starting something new or revising the forecast for the future, a business or a product/service line within a business. Strategy looks to growth while business planning looks to beginnings. Part of the strategy of a business may be to introduce a new product line. That product line would then have its own business plan for its development and introduction.

Without a strategy your business has no direction. Strategy tells where you want to go. It is like cooking without a recipe. It can be done, but the results may not be what you desire. Perhaps more apropos, it is like playing a sport, albeit running a race or playing football. Without a strategy, your chance of achieving your goals is significantly diminished.  And while strategic planning shouldn't be all you do in your business, it should be an integral part of it. Every action taken should fit with the direction you want the business to go.  Therefore, every action should be in alignment with your strategy. That means every employee knows the strategy and understands their part in making it happen, and in helping change it, when needed. No strategy should be set in stone. It needs to be revisited and revised at regular intervals, again related to how quickly your industry is changing. Set a good process and follow it.

There is no set format for a strategic plan. There are a large variety of models. The important criterion is finding a model that is workable for your particular business.  In its most basic form, the critical components are:

• Business Purpose
  
• Organizational Goals
  
• Strategies for Reaching Each Goal
  
• Action Plans to Implement Strategy
  
• Monitoring Plan Implementation

Business Purpose

The business purpose is often also called the mission of the business. It is a brief statement about why the business exists - what you want to achieve. This does not need to be complicated, but it must sum up the essence of what you are trying to do as a business. A good example is Nike's Mission Statement, "To be the world's leading sports and Fitness Company."

Organizational Goals

Goals are the ends to which your efforts are aimed - how you plan on accomplishing your purpose or mission. A sample goal might be to provide the highest quality widget in the world. This goal commits all your strategies to choosing quality as an endpoint. Brainstorm a wide variety of goals you might want to pursue. Do not worry about conflicts between goals on the first pass. Just get them out on the table for discussion and winnowing at a later time. There are thousands of goals one could set for each mission. Don't go for that many, but give yourself latitude for making choices.  Making choices is what this step is all about. You can't do everything, yet you want to have looked at the broader spectrum in choosing your business goals. A decision will need to be made about which of the possible goals you, as a business, are going to pursue. This doesn't mean you might not pursue some other goals later, just that these are what are planned within the time frame of this plan.

A logic sequence is as follows:  Do you have it and want it?  If the answer is yes, you preserve it.  If the answer is no, you eliminate it.

Strategies for Reaching Each Goal

A strategy is another way of saying what approach are you going to take in reaching this goal. For instance, in the quality goal example above, you may pursue it by buying the best possible components or you may have stringent quality checks throughout the process or any of a wide variety of other approaches. Interestingly, this is the part of your plan that may change most frequently. You may discover that one strategy is not working and look for other ways to get the result you want. The important thing in this step is to build in checkpoints to ascertain that the strategy is working and to be flexible about changing if need be.

Action Plans to Implement Strategy

Action plans are the specific activities that you will be using to implement the strategy. Often these are stated as objectives. For instance, on our quality goal, an objective might be to have only one percent reject rate at a certain rating point in the process. It is good to have this step stated as precisely as possible so that you can measure progress towards its achievement. If multiple departments are involved, it may be helpful to have each of them set their own objectives since that provides buy in which is critical to the actions actually being implemented.

Monitoring Plan Implementation

This is where many, many strategic plans fail. If you don't follow through on whether the plan is being implemented and how it is doing, you might as well have not spent the time doing it in the first place. Put checkpoints on your calendar and make it a point to not let them pass unnoticed. Include benchmarks in your financial reporting system. This is your chance to not only verify that you are on track towards your goal, but it gives you an opportunity to make modifications if they seem needed.

Summary:

While every analysis is unique to the organization under impact, there are logical steps to take to handle and avoid the confusion of how to act.  Business Management Counseling Services can aid your company or organization prior and during the time of strategic analysis.  We highly recommend a pro-active approach of preparedness, however when a pro-active plan does not exist we can facilitate the least amount of collateral damage to the event.