Are you experiencing a decline in sales? Do you notice how the competition is pulling away from you? – Then it’s time to question your business strategy and strategic management in order to make your business model fit for the future. Don’t worry, you don’t have to reinvent the wheel. There are already numerous strategy tools that can help you examine the status quo and identify opportunities for your business. Consequently, some of the most proven qualitative research models are presented.
The findings from a strategic analysis not only help with strategic realignment, but can also be equally supportive in formulating forecasts regarding the future revenue/cost situation. Particularly with regard to the latter aspect, however, a mixture of quantitative and qualitative analysis methods should be selected in order to obtain the most valid results possible. [see UHLIG, 2011, p. 96].
Although there are many different approaches to the qualitative study of business entities, there are some concepts that have become established in practice over time. In the following, three proven tools will be presented.
When it comes to qualitative environmental and business analyses, the SWOT analysis is often used for a realignment of the business strategy. The term “SWOT” is an acronym of the English terms for strengths, weaknesses, opportunities and threats. This “environmental analysis” deals with the competitive environment and the structure of the industry, whereby on the one hand opportunities and risks of the industry can be examined and on the other hand the strengths and weaknesses of the own company are compared within the analysis fields “Strengths” and “Weaknesses”. In this way, the SWOT analysis takes into account both internal factors that can be influenced directly and external factors that affect the organization from the outside and over which no influence or only indirect influence can be exerted. [cf. UHLIG, 2011, pp. 95-96; cf. GÜREL, 2017, p. 994].
The following diagram (Table 1) provides an overview of all four analysis components of the SWOT analysis.
Features that offer a decisive advantage over competitors
· Location advantage
Features that result in a disadvantage on the market
·High fixed costs
· Low economies of scale
·Dependency on suppliers
Factors in the business environment that can provide an advantage
·Beneficial industry trend
Factors in the business environment that may have an adverse effect
· Concentration of power within industry
· Legal regulations
Table 1: Components of the SWOT analysis for strategic management of companies, source: own representation based on Gürel, 2017, p. 994-995
Similar to the SWOT analysis, the portfolio analysis analyzes environmental as well as corporate factors and combines both types in a 4-field matrix. It serves as a classic tool for strategic management and defining a business strategy for SMEs as well as large companies. In the meantime, several variants of the analysis exist, which differ in the factors examined, but always have the external and internal dimension as a fixed component. [cf. UHLIG, 2011, p. 100].
The most common version is the one developed by the Boston Consulting Group, which analyzes the dimensions of market share and market growth. This produces a graph in which the ordinate represents the parameter “market growth” and the abscissa the second parameter “relative market share” (see Figure 2). Usually, the abscissa and ordinate are divided at the points where the value of the relative market share corresponds to that of the market leader or the market growth corresponds to that of the average value of the industry. In this way, strategic business segments of a company can be compared with each other in a clear manner and possible strategies can be weighed up using only two key figures.
Figure2: BCG portfolio analysis matrix for business strategy analysis, Source: German Institute of Marketing, 2016, URL: https://www.marketinginstitut.biz/blog/portfolio-analyse-als-instrument-im-business-development/
The classification of the existing business segments represents the analysis of the current situation – the current portfolio – and illustrates the current position of the company. Based on this analysis, the strengths and weaknesses of the company can be identified and a target portfolio subsequently defined. The path to the target portfolio is described by strategies formulated in the portfolio analysis for all the business units under consideration. [cf. BLOECH, 2013, p. 32].
When Micheal E. Porter first published his industry structure analysis based on the 5 forces model in the late 1970s, he defined the structure of the industry as a decisive factor for a company’s own strategic orientation. Accordingly, the art of devising an effective competitive strategy lies in viewing the company relative to its environment and relating it to it. [cf. PORTER, 2013, pp. 36-37]
‘Industry structure strongly influences both the rules of the competitive game and the strategies potentially available to the firm.’ [cf. PORTER, 2013, p. 37]
In this context, Porter’s 5 forces model describes the five driving forces that shape every industry to a greater or lesser extent:
ØRivalry among existing competitors
Ø Threat from new providers
Ø Negotiating power of suppliers
Ø Negotiating power of the customers
Ø Threat of substitute products.
According to Porter, the ultimate benefit of a competitive and business strategy for companies operating on the market is to position themselves, if possible, in such a way that the company protects itself from these competitive forces or manipulates them to its own advantage. Particularly since all competitors are equally exposed to these driving forces – but to varying degrees – the real essence of the business strategy development process lies in identifying the causes of the competitive forces in the company’s own environment.
According to Porter, knowledge of these causes and an understanding of the overriding interrelationships also makes the strengths and weaknesses of the company clear, assists in the choice of location, points to lucrative market areas that can be strategically developed, and reveals industry developments. An elaborated industry structure analysis according to the five forces model thus symbolizes the indispensable information basis for the design of a competitive strategy and allows the company to make proactive decisions that pay off in the long term. [cf. PORTER, 2013, p. 38]
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