What is Strategic Analysis?
Strategic analysis refers to the process of conducting research on a company and its operating environment to formulate a strategy.
The definition of strategic analysis may differ from an academic or business perspective, but the process involves several common factors:
1. Identifying and evaluating data relevant to the company’s strategy
2. Defining the internal and external environments to be analysed
3. Using several analytic methods such as Porter’s five forces analysis, SWOT analysis, and value chain analysis
EXTERNAL ANALYSIS
The word “External Environment Analysis” has been made up of two words ‘External Environment’ and ‘Analysis’.
The first word ‘External Environment’ Means elements or factors outside the institution of the entrepreneur, like – economic, social, cultural, political, physical, educational, technical, religious, ethical and international, etc. which affect his business.
The other word, ‘Analysis’ means reactions towards those factors or elements or issues, neglect thereof or taking of decisions by predicting the opportunities.
Firms engage in external environmental analysis to better understand and cope with the environment. The analysis has 4 parts:
1. Scanning
2. Monitoring
3. Forecasting
4. Assessing.
PEST Analysis can be defined as, “A framework which describes the arrayed inter-dependence of macro-environmental factors used in the environmental scanning component of strategic management”.
SCANNING • Identifying early signs of environmental changes and trends.
MONITORING • Detecting meaning through ongoing observations of environment changes and trends
FORECASTING • Developing projections of anticipated outcomes based on monitored changes and trends.
ASSESSING • Determing the timing and importance of environmental changes and trends for firms' strategies and management.
• Step 1.
Gathering information about political, economic, social and technological changes + any other factor(s).
• Step 2. Identifying which of the PEST factors represent opportunities or threats.
Political factors
• Corruption level
• Tax policy (rates and incentives)
• Trade control
• Tariffs
• Competition regulation
• Government involvement in trade unions and agreements
• Health and safety law
Economic factors
• Growth rates
• Inflation rate
• Interest rates
• Exchange rates
• Monetary policies
• Fiscal policies
Socio-cultural factors
• Education level
• Attitudes toward imported goods and services
• Attitudes toward saving and investing
• Emphasis on safety
• Lifestyles
• Religion and beliefs
Technological factors
• Basic infrastructure level
• Rate of technological change
• Spending on research & development
• Communication infrastructure
• Population growth rate
• Social classes
• Family size and structure
Environmental (ecological)
• Weather
• Climate change
• Laws regulating environment pollution
• Air and water pollution
• Recycling
• Waste management
Legal
• Discrimination law
• Copyright, patents / Intellectual property law
• Consumer protection
• Health and safety law
• Data Protection
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