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Strategic Analysis: What It Is & How To Do It Effectively
Are you confusing strategic analysis with one of these other business functions? If so, you could be focusing on the wrong priorities.Strategic analysis is often confused with other types of data tracking and analysis. Here’s a full definition of what it is and how it’s done, along with some helpful examples.
Unlike strategy planning and execution, strategic analysis can be a fuzzy term. Sometimes it’s confused with the tracking and analysis of operational data points—an important business activity, but not one that is usually associated with strategy. Strategic analysis is a crucial part of long-term business planning and the first step in the planning process.
In this article, we’ll define strategic analysis in more detail, describe the methods used to conduct it, and list the key components of strategic analysis so you can carry it out successfully.
What is strategic analysis?
Strategic analysis (sometimes referred to as a strategic market analysis) is the process of gathering data that helps a company’s leaders decide on priorities and goals, shaping (or shifting) a long-term strategy for the business. It gives a company the ability to understand its environment, and formulate a strategic plan accordingly. Strategic analysis is paramount in any organization because it provides the context and backbone upon which the strategy and overall position of the business is formulated.
Why isn’t it enough to simply refer to quantitative data and charts to make a plan for the future? Because it is impossible for an organization to understand how it will achieve success without first having contextual information—in the form of both qualitative and quantitative data—regarding its internal resources and external environment. The process of performing a strategic analysis is what adds context to quantitative data. Spotting trends and patterns in the data and evaluating them will inform your organization’s long-term plan.
You’ll know you’re performing a strategic analysis if you are:
- Focusing on high-level strategy. If you’re prioritizing operations, sales, marketing, or any other function, organization-wide strategic analysis won’t happen. The focus should be on information that directly impacts your long-term strategies and goals.
- Looking both backward and forward. Strategic analysis means assessing data about what happened in the past, so you can determine the implications of that performance and predict what is likely to happen in the future. The better your reports are at looking backward, the better your organization will be at moving forward.
- Involving company leaders in the process. Junior analysts may assemble the information, but the leadership team needs to make decisions and take action based on the information.
You don’t do a strategic analysis once and then disregard it when your strategy is developed and implemented. To remain adaptable in a changing business environment—whether the changes are due to a growing number of employees, new government regulations, or anything else—it’s advisable to conduct a strategic analysis periodically. Organizations that are part of fast-changing industries should conduct this exercise (in abbreviated form if need be) more frequently than those that are not. Doing an annual strategic market analysis refresh will not only help your organization stay on track over the course of a few years, but can also help inform your annual slate of initiatives.
Types Of Strategic Analysis
There is no standard strategic analysis “format”; rather, there are a number of methodologies available to help guide you through the process of collecting and analyzing relevant data for strategy planning. Two of the most commonly used methods are SWOT and PESTLE.
- A SWOT analysis (which stands for strengths, weaknesses, opportunities, and threats) helps organizations identify where they’re doing well and where they can improve, both from an internal and external perspective. Strengths and weaknesses are considered internal factors, and opportunities and threats are considered external factors.
- A PESTLE analysis focuses entirely on external factors in the political, economic, social, technological, environmental, and legal realms that your organization can’t control but should prepare for. Such an analysis might call attention to things like changing tax legislation, new laws or legal procedures, fluctuating interest rates, etc. Any change that might occur and would have a material impact on your business should be considered in your strategy planning.
Many organizations do both a SWOT and PESTLE analysis to get a complete picture of the business environment. Your entire leadership team should be heavily involved in these analysis sessions, as should any other personnel who can bring relevant data points or perspectives to the table. Some team members may be able to speak to strengths and weaknesses through experience; others may have access to data that supports (and provides context around) those viewpoints. A team that is knowledgeable about both the company and industry will produce the most effective strategic analysis.
Key Components In Strategic Analysis: 5 Steps
Listed below are the five steps to carrying out a strategic market analysis. But before we jump into the steps, remember: What differentiates strategic analysis from strategic decision making is that strategic analysis is only part of the decision making process. It’s a necessary (and very important) step, and will ensure you make informed and thoughtful decisions. So once you’re finished with your analysis, think of it as a tool in your decision making toolbox and refer to it often.
The five steps of a strategic market analysis are:
- Determine the level of strategic analysis you’re performing. Is your analysis intended for the corporate, divisional, or functional area (such as marketing or sales) level? It’s helpful to understand your company’s strengths, weaknesses, opportunities, and threats at all levels of the business, so you can devise the best strategy for future progress.
- Gather a team to help. Participants should include members of the board or leadership, along with representatives from finance, human resources, operations, sales, and any other critical functions. Remember—you need people with different perspectives on the business, at least some of whom can help identify and evaluate internal and external data.
- Use one or more analytic methods such as SWOT or PESTLE to conduct your analysis. Direct team members to bring relevant quantitative and qualitative information, which may also include feedback from outside groups such as customers or industry experts, for example. Whether or not your organization uses the Balanced Scorecard (a strategy management framework), its four perspectives can be very helpful for guiding the discussion once everyone is assembled. (You can see what we mean in this SWOT analysis example.)
- Summarize your findings and present them to the team. Because the analysis will serve as the foundation of your strategy, you’ll need to prepare a document that summarizes your findings. Prepare a report that provides some context around your analysis and highlights the conclusions that were drawn, preferably in a way that’s visually pleasing. While presentation might not seem like a big deal, it is—your audience will find the information easier to read and absorb if it’s presented in an attractive way. Ultimately, you’re more likely to get buy-in for whatever strategy you devise when you show that it originated from a thoughtful, detailed analysis.
- Devise a formal strategy based on the analysis. Use your strategic analysis to organize your priorities and create goals, as well as measures and projects that will help you achieve them. How can you use your strengths to take advantage of opportunities? How can you minimize threats and weaknesses going forward? Have any new priorities emerged as a result of this analysis? Create a strategy map that visually shows your organization’s overall objectives and how they relate to one another.
Done correctly, this analysis is a valuable tool for improving business performance; it can also prompt organizations to be more innovative with their strategy.
Strategic Analysis Examples
Some organizations struggle to differentiate strategic analysis from other types of analysis; that means they’re also usually confused about what software tools should be used for the job. As co-founder of the strategy software company ClearPoint, I often find myself having conversations with prospective customers to clarify their activities (are they doing strategic planning or not?) and discuss whether ClearPoint can help. Below are summaries of three such conversations—do any of them reflect what you’re currently doing?
Story #1: Strategic Analysis Vs. Operational Data
A local government prospect asked me if ClearPoint’s software could track individual court cases and budget line items.
I explained that ClearPoint is designed to track information that enables organizations to do strategic analysis. We can track summary information—such as the total number of cases each month or budget status for projects—but not individual court cases or department expenses. Here’s why:
- Analyzing summary information is strategically useful because it provides direction for an organization’s long-term strategy. For example, if one type of court case is appearing frequently, the local government may want to change its five-year plan to increase court staffing levels or reorganize the layout of a court building. The strategic analysis might also be something the municipality communicates to lawmakers in an effort to change the way current laws are executed through the court system.
- Tracking individual court cases or standalone budget items is operational data and not as helpful for strategic analysis. While important, operational data as individual items is too detailed to extrapolate into trends or summaries that might shift an organization’s strategy. For example, ClearPoint doesn’t track the outcome of Case #1234 and how long it took to process. The ideal way to use our system would be to analyze the average length of time to close a specific type of case, but not to track cases one by one. Another example: You can’t make strategic decisions to fund (or defund) certain projects based on a team’s expenses for new computers or division’s investment in technology upgrades.
The goal of strategic analysis is to chart performance in order to see patterns and trends, which can help predict future outcomes. Tracking one-off items won’t accomplish that goal. (Don’t get me wrong; you need to track all of the transactions, but just not in ClearPoint.)
ClearPoint can link strategic data from an operations system. This gives you the complete data story—both high-level and detailed information—within one platform.
Story #2: Strategic Analysis Vs. Data Analytics
I met with a manager at a large media corporation who inquired if ClearPoint could provide insights on its media campaigns, similar to what data visualization software like Tableau offers.
ClearPoint can report on the status, progress, and results of different campaigns or initiatives, but again is not designed to provide individual data points. For example, our platform cannot provide impressions from thousands of individuals or tweak information by demographic groups. That is data analytics, and very different from strategic market analysis. Similar to the previous section, you should look at the results of media impressions to learn how the market is reacting to your products—but those impressions or data analytics will not drive your strategy.
You should have strategic goals and measure progress in achieving those goals. Changes over time to the average reaction of those media impressions will help you make strategic decisions. ClearPoint’s strength is in summarizing and interpreting data analytics to simplify and improve management reporting, so organizations can focus on making better strategic decisions.
Story #3: Strategic Analysis Vs. Customer Relationship Management
A nonprofit organization asked me if ClearPoint could replace its customer relationship management (CRM) software.
CRM software cannot do strategy management. Managing customers and managing strategy requires very different functions and capabilities within a software platform...and it won’t surprise anyone if the strategy planning office and sales team have different opinions on which software has the biggest benefit for an organization.
Tracking all of your customer interactions and the results of those interactions isn’t a job for ClearPoint or any other strategic analysis program. To focus on strategy from a customer standpoint, you need the ability to summarize all prospect and customer information to discern trends. Then your sales leadership team can make decisions like which audiences to target, which products or services to push, etc. Again, this is managing high-level information and not one-off data points.
Both types of software are important, and they are important for solving different types of problems.
Given the pace of change in the business world, I strongly believe you need strategy at the center of your management process to ensure you're achieving your goals.
That’s not to say you should ignore operational or customer data—data that aids internal analysis in strategic management meetings is critical to your success, but it won’t determine how your business should be run. Strategy management and analysis should be the big gear that drives all the smaller gears doing operations, data analytics, and more. You likely need different tools to manage all your data, but platforms like ClearPoint can connect all the pieces to tell the entire story and help you drive your organization with strategy, not data points.
If you’re interested in a tour of our software, let us know—we’re happy to show you around!