Strategic Analysis

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The strategic analysis comprises the environmental analysis and business analysis and culminates in a SWOT analysis. The analyses form the basis for the strategy (analysis, formulation, development). All four topics are closely interrelated. The aim is to provide you with information on how they are carried out or how you can carry them out yourself.

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If you are my client, you will get a first overview of relevant topics here. Even if you are conducting an analysis for your own company, the guide (the schema) will help you. As a student, you will benefit from the methodical approach and the sources presented in the context of a thesis (term paper, bachelor thesis, master thesis).

First, you will be given an overview of the four sub-areas. Then, the practical implementation is discussed and a guideline (schema) is provided in a concise form.

Environmental­ Analysis Overview

The aim of an environmental analysis is to obtain an overview of the environment in which a company operates and to identify opportunities and risks. This is of great importance for forecasts, e.g., for a company valuation, but also for strategy development (formulation).

An environmental analysis includes in particular the global environment as well as the task and competitive environment, enables a systematic classification of relevant factors, and is a component of the strategic analysis of a company.

The global environment, a part of the environmental analysis, can be subdivided into 1. an economic environment, 2. a political-legal environment, 3. a socio-cultural environment, 4. a knowledge-technological environment, and 5. a natural environment. These five environments represent the essential components of the global environment.

Another sub-area of environmental analysis is the analysis of the task and competitive environment, which includes an analysis of the stakeholders, an industry structure analysis, an intra-industry analysis, and a competitor analysis.

The stakeholder analysis can be carried out with the help of five criteria (goals, power, legitimacy, urgency, risk) and presented as a stakeholder map. The stakeholder analysis is part of the task environment analysis.

The industry structure analysis, part of the competitive analysis, includes five sub-items, namely threat from new entrants, bargaining power of customers, bargaining power of suppliers, threat from substitution, and rivalry among competitors.

The intra-industry analysis, part of the competitive analysis, is divided into two points, namely the earning power difference analysis and the analysis of the potential of strategic groups. The first point requires a competitor analysis and the second point an analysis of the global environment.

Competitor analysis is part of the analysis of a company's competitive environment and aims to identify competitors, find out their objectives and strategy, and create a response profile, taking into account their assumptions and capabilities.

Business­ Analysis Overview

The aim of the business analysis is to get an overview of the company and to clearly identify strengths and weaknesses. This is highly relevant in the context of a business valuation or strategy development.

The business analysis is structured according to the functional approach or the value-added approach and is often oriented to the VRIO reference framework (value, rarity, imitability, organization) and is also part of a strategic analysis.

The functional approach, part of the business analysis, can itself be divided into five kinds of resources. These are the analysis of financial resources, physical resources, human resources, organizational resources, and technological resources.

The value-added approach, which is also part of the business analysis, is divided into supporting activities and primary activities. Supporting activities overlay the primary activities cross-sectionally, i.e., they are part of the primary activities.

Supporting activities overlay so-called primary activities (value-added approach). They can be subdivided into four points: business infrastructure, human resources, technology development, and procurement.

Primary activities can be divided into inbound logistics, operations (sales), marketing and distribution, outbound logistics, and customer service and are part of the value-added approach. These are overlaid by the so-called supporting activities.

SWOT Analysis Overview

The aim of the SWOT analysis is to get an overview of the strengths, weaknesses, opportunities, and threats. A SWOT analysis is helpful in the context of a company valuation and strategy development (formulation).

By combining the results of an environmental analysis (Opportunities, Threats) and a business analysis (Strengths, Weaknesses), a SWOT analysis, usually in matrix form, (Strengths, Weaknesses, Opportunities, Threats) can be created. The SWOT analysis provides a compact overview.

Positive environmental developments, derived from the environmental analysis, represent opportunities for the company. These should be exploited ("exploitation of existing potentials") if strengths are present; otherwise, the potentials should be actively developed.

Negative environmental developments, derived from the environmental analysis, on the other hand, represent risks or threats, which should be counteracted as early as possible. This is particularly relevant when risks and weaknesses coincide.

Strengths refer to the potentials of a company where you are superior to your competitors, e.g., patents for certain technologies. Together with positive environmental development (opportunities), these should be developed and, in the case of negative environmental development, exploited.

Weaknesses, on the other hand, represent aspects of a company where there is a kind of insufficiency compared to the competition. Weaknesses should be balanced out in the case of positive environmental development in order not to unnecessarily waste potential.

Often a SWOT analysis is done in the form of a matrix where opportunities and threats, as well as strengths and weaknesses, are presented in one of four fields. This is helpful to get an overview and serves especially for illustration.

Strategy (Analysis, Development, Formulation) Overview

The goal of strategy development (formulation) is to systematically develop (formulate) or analyze a strategy. In the context of internal planning processes, of a management consultancy, a strategy development (active) is of importance, while in the context of a company valuation, the passive analysis of a strategy can also be relevant.

Strategy development (strategy formulation) can be subdivided into strategy at the corporate level, strategy at the business area level, and strategy at the functional area level. It is based on the results of the environmental and business analysis or its summary of the SWOT analysis.

At the corporate level, the international orientation and the form and timing of market entry can be examined first. Furthermore, the product/market positions, the possibility of exploiting synergy potentials, and the determination of the desired company size are relevant.

In determining the desired company size, a classic distinction can be made between horizontal diversification, vertical diversification, and conglomerate diversification. The latter is independent of the previous business area and serves in particular to diversify the risks of a company.

In the case of a strategy at the business unit level, a distinction is made between cost leadership, differentiation, and concentration on focal points (focusing), but these can also be combined to form so-called hybrid competitive strategies. A hybrid competitive strategy is created through temporal or spatial decoupling, although sometimes no decoupling takes place.

Implementation of the Analyses

The environmental analysis, the business analysis, the SWOT analysis, and the strategy development or analysis are often part of internal planning processes, a management consultancy focused on strategy development, or an M&A consultancy. M&A consultancy particularly takes place in the case of the acquisition, sale, merger, or demerger of a company. These three components are interrelated and are often performed successively. It is recommended to project relevant factors.

Books about management sometimes contain more than a thousand pages. This makes it difficult to put an environmental analysis, a business analysis, a SWOT analysis, and the strategy development or analysis systematically into practice. For this reason, I would like to provide a guideline with sources for further in-depth study. Often, sources can be accessed free of charge through a university. This guideline is intended for people who already have a deep understanding of management.

A sensible approach is the following:

  • Relevant topics and factors are outlined. If necessary, the sources are consulted.
  • Data are obtained, if possible via an API, from statistical offices, the Chamber of Commerce, the World Bank, and other sources.
  • The data are presented concisely (bullet points, data series, figures) and without too much text using a Jupyter Notebook or a word processing program.
  • If applicable, the data are projected using econometric estimators.

A note on Jupyter Notebooks and APIs: A Jupyter Notebook is a kind of word processor in which you can also program. This is feasible even without in-depth knowledge, and it enables a much more efficient way of working. Through an API, data can be loaded directly into a Jupyter Notebook using the programming languages Python, R, or Julia, which makes work significantly easier. For example, the World Bank indicators can be searched for the GDP indicator and loaded directly into a Jupyter Notebook.

The sources in the following schema apply to the point itself or to one or more sub-items. The schema is presented below.

Schema

  • 1. Environmental Analysis
    • 1.1 Global Environment (Integration of Market and Location Analysis)
      • (Hungenberg, 2014; Düfler & Jöstingmeier, 2008; Kutschker & Schmid, 2011; Gloede, 1991)
      • 1.1.1 Economic Environment
        • Keywords:
          • economic growth
          • interest rate development
          • inflation
          • unemployment
          • economic situation
          • exchange rates
      • 1.1.2 Political-Legal Environment
        • Keywords:
          • legal norms
          • legal certainty
          • political organization
          • political stability
      • 1.1.3 Socio-Cultural Environment
        • (Hofstede, 2001; Hofstede & Minkov, 2010)
        • Keywords for demography:
          • population density
          • degree of urbanization
          • age structure
          • growth rate
          • migration
        • Keywords for individual relationships:
          • paternalism
          • authoritarianism
          • masculinity
          • nepotism
        • Keywords for group relationships:
          • vertical mobility
          • interregional mobility
          • conflict (management) between ethnic and religious groups
        • Keywords for temporal value structure:
          • sense of time
          • future orientation
        • Keywords for material value structure:
          • religiosity
          • individualism
          • materialism (pragmatism)
          • work (importance, role conflicts, incentives)
          • nationalism
        • Alternative keywords (Hofstede):
          • power distance
          • uncertainty avoidance
          • collectivism/individualism
          • masculinity/femininity
          • short-term vs. long-term orientation
          • indulgence/restraint
      • 1.1.4 Knowledge-Technological Environment
        • Keywords for thinking style and language:
          • perception of the environment
          • assessment of decision-making needs
          • risk attitude
          • language
        • Keywords for education:
          • literacy rate
          • proportion with higher education (secondary education)
          • quality of education
        • Keywords for technology:
          • basic infrastructure
          • advanced infrastructure
      • 1.1.5 Natural Environment
        • Keywords:
          • topographical conditions
          • climatic conditions
          • vital resources
          • natural resources
    • 1.2 Task and Competitive Environment
      • 1.2.1 Analysis of Stakeholders
      • 1.2.2 Industry Structure Analysis
        • (Porter, 1997)
        • 1.2.2.1 Threat of New Entrants
        • 1.2.2.2 Bargaining Power of Customers
        • 1.2.2.3 Bargaining Power of Suppliers
        • 1.2.2.4 Threat from Substitution
        • 1.2.2.5 Rivalry Among Competitors
      • 1.2.3 Intra-Industry Analysis
        • (Porter, 1998)
        • 1.2.3.1 Earning Power Difference Analysis
        • 1.2.3.2 Potential of Strategic Groups
      • 1.2.4 Competitor Analysis
        • (Porter, 1998; Scherm & Julmi, 2019)
        • Keywords:
          • competitors
          • goals
          • current strategy
          • assumptions (about themselves, about the industry)
          • capabilities (strengths, weaknesses)
          • reaction profile
  • 2. Business Analysis
    • (Barney, 1991)
    • Keywords for each subchapter in the functional and value-added approach VRIO (value, rarity, imitability, organization):
      • value
      • rarity
      • imitability
      • ability to utilize
    • 2.1 Functional Approach
      • (Hofer & Schendel, 1978)
      • 2.1.1 Financial Resources
      • 2.1.2 Physical Resources
      • 2.1.3 Human Resources
      • 2.1.4 Organizational Resources
      • 2.1.5 Technological Resources
    • 2.2 Value-Added Approach
      • (Porter, 2004; Scherm & Julmi, 2019; Faix & Kupp, 2002)
      • 2.2.1 Supporting Activities
        • 2.2.1.1 Business Infrastructure
        • 2.2.1.2 Human Resources
        • 2.2.1.3 Technology Development
        • 2.2.1.4 Procurement
      • 2.2.2 Primary Activities
        • 2.2.2.1 Inbound Logistics
        • 2.2.2.2 Operations (Sales)
        • 2.2.2.3 Marketing and Sales
        • 2.2.2.4 Outbound Logistics
        • 2.2.2.5 Customer Service
  • 3. Strengths, Weaknesses, Opportunities, and Threats (SWOT)
  • 4. Strategy
    • (Scherm & Julmi, 2019)
    • 4.1 Strategy at Corporate Level
      • 4.1.1 International Orientation
        • (Heenan & Perlmutter, 1979; Bartlett & Ghoshal, 1990; Gelbrich & Müller, 2011)
        • Keywords for orientation:
          • ethnocentric
          • polycentric
          • regiocentric
          • geocentric
        • Keywords for classification:
          • centralization/decentralization
          • differentiation/standardization
          • form and timing of market entry
          • configuration of value-added activities
          • (international) resources and capabilities
        • Keywords for strategy:
          • international strategy
          • multinational strategy
          • global strategy
          • transnational strategy
      • 4.1.2 Form and Timing of Market Entry
      • 4.1.3 Product/Market Positions
        • 4.1.3.1 Strategic Business Fields
      • 4.1.4 Exploiting Synergy Potentials
        • (Porter, 2004)
        • Keywords:
          • tangible interrelations
          • intangible interrelations
          • competitive interrelations
      • 4.1.5 Determination of the Desired Company Size
        • (Burr et al., 2012)
        • Keywords:
          • extension of product lines
          • development of new sales areas
          • reinvestment of profits
          • achieving a minimum size
          • reduction of dependencies
          • risk reduction
          • exploitation of synergy advantages
        • 4.1.5.1 Diversification
          • 4.1.5.1.1 Horizontal Diversification
          • 4.1.5.1.2 Vertical Diversification
          • 4.1.5.1.3 Conglomerate Diversification
    • 4.2 Strategy at Business Field Level
    • 4.3 Strategy at Functional Area Level
    • 4.4 Strategy Evaluation

References

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Bartlett, C. A. & Ghoshal, S. (1990). Internationale Unternehmensführung: Innovation, globale Effizienz, differenziertes Marketing. Campus Verlag.

Barney, J. (1991). Firm Resources and Sustained Competitive Advantage. Journal of Management, 17(1), 99–120.

Burr, W., Stephan, M., & Werkmeister, C. (2012). Unternehmensführung (2nd ed.). Vahlen.

Düfler, E. & Jöstingmeier, B. (2008). Internationales Management in unterschiedlichen Kulturbereichen (7th ed.). De Gruyter Oldenbourg.

Faix, A. & Kupp, M. (2002). Kriterien und Indikatoren zur Operationalisierung von Kernkompetenzen. In K. Bellmann, C. Burmann, J. Freiling, H. G. Gemünden, W. H. Güttel, P. Hammann, H. Hinterhuber, D. von der Oelsnitz, H. Proff, C. Rasche, G. Specht, M. Stephan, E. Zahn, S. Laudin (Eds.), Aktionsfelder des Kompetenz-Managements (pp. 59–83). Springer.

Freeman, R. E., Harrison, J. S., Wicks, A. C., Parmar, B. L., & De Colle, S. (2010). Stakeholder Theory: The State of the Art. Cambridge University Press.

Fleck, A. (1995). Hybride Wettbewerbsstrategien: Zur Synthese von Kosten- und Differenzierungsvorteilen. Gabler.

Gelbrich, K., & Müller, S. (2011). Handbuch Internationales Management. Oldenbourg.

Gloede, D. (1991). Strategische Personalplanung in multinationalen Unternehmungen. Gabler.

Heenan, D. A., & Perlmutter, H. V. (1979). Multinational Organization Development: A Social Architectural Perspective. Addison Wesley Longman Publishing.

Hofer, C. W., & Schendel, D. (1978). Strategy Formulation: Analytical Concepts. West Publ.

Hofstede, G. (2001). Culture's Consequences: Comparing Values, Behaviors (2nd ed.), Institutions and Organizations across Nations. Sage Publications.

Hofstede, G., & Minkov, M. (2010). Long-versus Short-Term Orientation: New Perspectives. Asia Pacific Business Review, 16(4), 493–504.

Hungenberg, H. (2014). Strategisches Management in Unternehmen: Ziele-Prozesse-Verfahren (8th ed.). Springer.

Kutschker, M., & Schmid, S. (2011). Internationales Management (7th ed.). De Gruyter Oldenbourg.

Meffert, H., & Pues, C. (2002). Timingstrategien des internationalen Markteintritts. In K. Macharzina (Ed.), Handbuch Internationales Management: Grundlagen, Instrumente, Perspektiven (pp. 403–416). Gabler.

Mitchell, R. K., Agle, B. R., & Wood, D. J. (1997). Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Counts. The Academy of Management Review, 22(4), 853–886.

Müller-Stewens, G., & Lechner, C. (2002). Unternehmensindividuelle und gastlandbezogene Einflußfaktoren der Markteintrittsform. In K. Macharzina (Ed.), Handbuch Internationales Management: Grundlagen, Instrumente, Perspektiven (pp. 381–402). Gabler.

Porter, M. E. (1997). Competitive Strategy. Measuring Business Excellence, 1(2), 12–17.

Porter, M. E. (1998). Competitive Strategy: Techniques for Analyzing Industries and Competitors. Free Press.

Porter, M. E. (2004). Competitive Advantage: Creating and Sustaining Superior Performance. Free Press.

Scherm, E., & Julmi, C. (2019). Strategisches Management. De Gruyter Oldenbourg.

Welge, M. K., Al-Laham, A., & Eulerich, M. (2017). Strategisches Management (7th ed.). Springer.