In order to conduct a strategic analysis a firm must conduct an industry or external analysis in which they must define the market in which they compete and the product or service with which they are to compete. This involves looking closely at competitors and other stakeholders. And identifying their key success factors. Next they have to look internally at their business and strategy by defining goals and objectives along with the capabilities and resources possessed by the organization. The final step in conducting the analysis is to make an evaluation of the situation as a whole and to provide recommendations as to where the firm should go from here and decide if objectives should be changed and should strategy's redefined. In order to make proper recommendations, you must identify what the key critical issues are that must be addressed so they can be taken into consideration when formulation the new strategy and objectives. Only then can implementation occur properly.
There are many tools that can be used when conducting a strategic analysis, below are some that I have come to learn about in my Strategic Management courses:
This is a framework that looks at the internal strengths and weaknesses of a firm as well as the external opportunities and threats that the firm must face. In order to create the proper strategy, there must be a fit between the firm's internal resources and its external environment.
Porter's Five Forces Model
This model is used to analyze the competitive position of an organization by looking into the following five forces:
Supplier power – How easy it is for suppliers to jack up their prices, this is driven by: number of suppliers, how unique the product is, strength and size of supplier, and switching costs involved in changing suppliers. Buyer power – How easy it is for buyers to drive down prices, this is driven by: number of buyers (if small in number they are more powerful), importance of the buyer to the firm, and switching costs for the buyer to switch to new supplier. Competitive rivalry –The more competitors present in an industry the less attractive it is to enter. Substitute products – If products exist that can be used in place of a firm's product, customers will switch to alternatives if prices rise. This will reduce the power of a firm and make the industry less attractive. Threat of new entry – If a market is profitable it will attract new entrants, which will in turn reduce profitability. Barriers to entry can help reduce this problem. Some examples of these barriers are: high capital requirements, economies of scale, Government policies, and access to distribution channels.
Value Chain Analysis
VCA is based on the fact that organizations exist to create value for customers by examining the different activities within the business that supply this value. This is