It’s no secret – rigorous business analysis is essential to establishing a solid corporate strategy and competitive advantage. In Analysis Without Paralysis, Babette E. Bensoussan and Craig S. Fleisher assert that a thorough analysis of an organization’s strategy, industry, rivals, and business setting can provide an objective assessment of competitive position. Further, analysis can enhance an organization’s capacity to respond to environmental changes, ensuring that decisions are based on solid data and that the tools for improvement and change are available.

But where to begin? The authors report that business leaders do not have to be experts in statistics or quantitative analysis to derive the benefits of analysis. A general understanding of 10 analysis techniques can be a good start.

BCG Growth/Share Portfolio Matrix

The BCG Growth Matrix compares an organization’s current market share to the market’s growth prospects, and places the results in four categories:

• low growth and high market share equal a “cash cow,” calling for organizations to “milk it for all it’s worth.”
• high growth and high market share denote a “star,” calling for a timely investment.
• high growth and low market share can indicate a “problem child,” calling for further study.
• low growth and low market share mean a “dog,” calling for selling or closing the related business activity.

While the matrix is simple, the authors note that market share does not always indicate profitability, while some firms are very successful in low-growth markets.

Competitor Analysis

Understanding competitors can help organizations discover and manage prospects and risks, and learn about rivals’ strategies, responses, plans, capabilities, and vulnerabilities. A formal and systematic model for analysis involves gathering and evaluating four categories of data about competitors:

• drivers or future goals, philosophies, and strategies,
• current strategies,
• current capabilities and resources, and
• management assumptions.

This analysis can help organizations act rather than react in regard to their competition.

Financial Ratio and Statement Analysis

Financial Ratio and Statement Analysis, or FRSA, can help organizations understand a past, static view of progress or performance. This analysis involves developing a basic understanding of an organization’s finances, including:

• liabilities, net worth, and current, fixed, and noncurrent assets,
• current and long-term liabilities,
• owner’s equity,
• revenues and expenses and their relationship to the balance sheet,
• position statement and the statement of changes in owner’s equity, and
• ratios like “inventory to sales” or “debt to equity.”

Five Forces Industry Analysis

Information on an organization’s competitive environment can be ascertained by identifying and ranking an organization’s:

• threat of new entrants,
• bargaining power of suppliers,
• bargaining power of buyers,
• threat of substitute products or services, and
• degree of rivalry among existing competitors.

With this information, organizations can see how changes in forces affect the other forces, how changes influence industry profitability and performance, and how to act in relation to an organization’s overall industry.

Issue Analysis

Analyzing external environments can help organizations understand and respond to emerging societal or policy issues, such as pending legislation that might affect operations. For example, social trends may affect an organization’s hiring or HR policies. Many issues and areas can shape an organization’s operations and plans, and preparing for them can give leaders the flexibility and time to get out in front of them and be responsive.

Political Risk Analysis

Political risk analysis can help organizations understand their external environments, including government policies, political actions, tax and tariff regimes, and legislation. All these factors can have implications for an organization’s globalization, outsourcing, intellectual property protection, and political stability. While a great deal of information about political environments can be found online, the authors caution to check the sources’ reliability and to not make assumptions.

Scenario Analysis

Scenarios or detailed descriptions of what the future might look like can be used in strategic planning. Scenario analysis clarifies uncertain situations or situations that are subject to change. Computer-generated econometric models can be used to assess quantitative variables or the impact of changes. By creating multiple descriptions of the future, deductive reduction can be used to explore the possible paths of each scenario, and inductive reduction can be used to limit variables to the ones most likely to occur. The authors say a good scenario analysis can kick-start discussions, thinking, and action among strategy makers.

Macroenvironmental Analysis

In this analysis, the corporate environment is considered in three concentric rings that look like a target pattern. The center is the company’s internal environment; the next ring is the operating environment; and the outer ring is the general environment, which involves variables outside a company’s control.

These variables are often defined as:

• STEEP — social, technological, economic, ecological, and political/legal or
• PEST — political, economic, social, and technological

This analysis helps organizations recognize and address social factors (e.g., unionization, consumer ethics, income); technological factors (e.g., bandwidth, access); economic factors (e.g., inflation, GDP, interest rates); ecological variables (e.g., power sources, pollution, environmental rules); and the political milieu (e.g., encompasses activism, regulatory regimes).

SWOT Analysis

SWOT Analysis calls for an assessment of a company’s strengths, weakness, opportunities, and threats. The authors say a SWOT Analysis assesses a company’s capabilities in relation to its outside environment, so it pairs well with five forces and STEEP analyses. SWOT Analysis is beneficial at the product, division, or operating levels to consider:

• What can we do?
• What might we do?
• What do we want to do?
• What do others expect us to do?

While SWOT Analysis is simple and cost-effective, the authors caution that it can produce answers that are too general or subjective.

Value Chain Analysis

Value Chain Analysis (VCA) considers two sides of an organization’s functions:

• primary activities — supply and distribution logistics, operations, marketing, sales, and service, and
• support activities — technology, personnel, and infrastructure.

VCA allows organizations to adjust profitability by changing these components and also visualize the organization’s relative position in its industry. A limitation is that VCA requires a substantial investment in time for benchmarking, customer research, competitive analysis, and industry structure analysis. Read more about Value Chain Analysis.

As a business analysis tool, Enfocus Requirements Suite™ can help organizations initiate and act on rigorous business analysis using any of these tactics.