Strategy Analysis

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What is Strategy Analysis?

❗First of all: Strategy Analysis is NOT the same as Strategic Analysis:

  • Strategic Analysis analyzes the the market and the company to find and define ways of enduring advantage, and employs a set of well-known tools (e.g. SWOT Analysis, Ansoff Matrix, 5Ps etc.) to formulate a plan accordingly.
  • Strategy Analysis by contrast dissects an EXISTING or intended strategy to check its validity, to uncover hidden or obvious contradictions and to examine its practicability. You may also encounter the terms Strategy Check and Strategy Validation.

Strategy analysisOrigin of Strategy Analysis. History

The origins of Strategy Analysis are in the military. Strategy has been the commander’s art of deploying his forces in the most advantageous way to accomplish a favorable outcome. As the commander’s opponents try the same, he has to take into consideration their expected moves and integrate them in his plans. This means the good commander tries to to outwit his enemies by analyzing their assumed strategy (and vice versa) to make his moves effective and beat him. 

The military origin of the term Strategy can lead to erroneous conclusions for business as it focuses too much on direct competition. War is mostly a zero-sum game, but business is mostly not as companies are disproportionately rewarded when they create new value for customers and grow the market for everyone. Instead of focusing too much on competitors, focus on the unlimited opportunities to grow customer value. Gain new customers in unique ways - ways others can’t compete with.

Therefore the best business strategies try to avoid competition, whenever possible (see Blue Ocean Strategy). Strategy Analysis is a methodology to figure out whether a given strategy has the potential to do so. 

Usage of Strategy Analysis. Applications

Strategy Analysis can be used on multiple occasions. Examples:

  • You want to understand your company’s moves
  • You are about to check a strategy for inconsistencies
  • You want to figure out why the outcome of your strategy is not as expected. What strategic assumptions were wrong?
  • You analyze some company and try to understand why they do, what they are doing
  • You try to understand the choices a company has
  • You validate a business model, its underlying assumptions, and inherent logic.
  • You have to test alternative strategic solutions for some venture

Strategy Analysis is required whenever we need to understand and qualify a strategy.

Steps in Strategy Analysis. Process

The most important tool in Strategy Analysis is sanity, reason and common sense. Don’t get blindfolded by lengthy explanations of authorities. If the idea the strategy is based on cannot be explained in a few sentences, it might not be a good strategy. This general idea acts as guidance for the strategy’s formulation and execution. Good strategies are enlightening. 

There is a caveat you should keep in mind, if you are asked to review a strategy: be critical but not destructive. You are here to help working out a better strategy not to discourage people. 

A good way to start with the analysis of a strategy is:

  • Cross out the word „strategic“ and all fluffy buzz words in the plan. These words just disguise the substance. If the strategy makes no sense without the words „strategy“, „strategic“, etc. then there has never been a valid strategy.
  • Don't spend too much time on the paragraph called „vision“. Needless to say that we all want to achieve something for the better. The vision normally does not add much to the strategy. Deliberate action, not declarations of noble intent is the basis of strategy. 
  • Check the mission statement: normally it annunciates some pious, political correct statement that the company wants to make the world a better place. But does the mission statement tell you what it wants to achieve for the customers? At the end of day it is him, the customer who is paying the bills, nobody else.  
    In many strategy plans vision and mission are just an idle claim. But you can turn this around and ask yourself: if the company takes all the steps intended in its strategic plan, where will it end up in your opinion and why? Can you still envision the same bright future for the company and why?

To enter more deeply into Strategy Analysis the following questionnaire might be useful:

  • Check for consistency: Analyze all the measures of the strategy and check whether they are consistent with expected market development, the company’s culture and in line with all its operations. Every strategy is a model for an envisioned future. Contradictions and inconsistencies won’t disappear with implementation and make the strategy fail. 
  • Is the strategy compatible with the organization’s culture? Strategy means change. Culture abhors change and is very hard to alter. Therefore strategy must be context-sensitive to meet the company’s culture or it will not be successful. Every working system - whether it is a social or knowledge system - is orthodox. It is homeostatic, i.e. it tries to defend its prevailing state and wants to proof itself. There is an inherent tendency in every organization to see the customer just as a mean to assert itself.
  • Are the challenges clearly defined? If not, it is difficult or impossible to assess the quality of the strategy. If the strategy fails to identify, name and analyze these obstacles, you don’t have a strategy. Instead, you should have a stretch goal or a budget or a list of things you wish would happen.
  • Is „the difference that makes the difference“ thoroughly worked out? Here you will find the key performance drivers that set the company apart. Focus must be on the pivotal objectives whose accomplishment will lead to a cascade of favorable outcomes. Incremental improvements of ongoing operations are strategically irrelevant. These things are necessary and must be done right, but they don’t tell anyone, whether the company is doing the right things.
  • Is the strategy telling a new story or is it just the sequel of an old one? Future needs and developments are often just seen as an updated past. Past experience determines expectations and narrows down the development space. Experience is a tool, but if your only tool is a hammer then every problem looks like a nail. 
  • How serious is the perception of the customer base in the strategy? Figure out whether the strategists did really talk to possible customers personally. On what observations is their judgment based on? Check their arguments meticulously. How do they see the customer and his needs? Is the strategy the perfect answer to these needs or fungible?
  • Check the value-added for the customer. Only the value-added perceived by the customer can be shared with the customer. Offering a superior solution means that it can be exchanged against another solution only with loss. How high is the deadweight loss the customer will experience, if he goes for some other solution? 
  • What choices have to be made to back the strategy? As every company has only a limited amount of resources, it has to decide how to use them in the most advantageous way. Acknowledge the power of choice and focus. Avoid to accommodate a multitude of conflicting demands and interests. 
  • Are there tradeoffs between the various goals the strategy is addressing to? A strategy that tries to enchant every customer will be hampered by the unwillingness to focus on those things that really matter for success. E.g. you cannot run a hotel that is at the same time a budget hotel and a luxury resort. Customers expect you to make a clear decision for them and not for someone else as well. Different types of business means different culture. If you want to be distinct, you must face your choices and have to make a decision. There is no this-size-fits-it-all solution. 

To analyze a strategy you have to keep in mind, that a good strategy includes:

  • A diagnosis: an explanation of the nature of the challenge by identifying the certain aspects as the critical ones.
  • A guiding policy: an overall approach chosen to cope with or overcome the obstacles identified in the diagnosis.
  • Coherent actions: steps that are coordinated with one another to support the accomplishment of the guiding policy.

Assumptions of Strategy Analysis. Conditions

Strategy Analysis has much in common with Popper’s Critical Rationalism as it shares a view of life, „that admits that I may be wrong, that you may be right and that together we might track the truth maybe.“ 

Strategy Analysis is a system of knowledge that knows how to apply the tools that are used in Strategic Analysis and is aware of their advantages and disadvantages. Whether the assumptions that are made are right or wrong, only future will prove. But already now we can show whether the strategy is logically, whether the conditions on which it is based on are given already or whether they have to be created first. Where not rational expectations but irrational wishful thinking prevails, this type of analysis will experience a hard time to assert itself. When the necessary openness and willingness to question strategy is missing, then this method will produce no meaningful results.

Strengths of Strategy Analysis. Benefits

Strategy Analysis can be an eye-opener for a strategy’s weaknesses and strengths. Its value is based on the avoidance of costly mistakes. Made assumptions are questioned, blind points disclosed, contradictions detected and incompatibilities shown. Strategies become more convincing and credible by such kind of analysis. Thereby strategic objectives will be better understood and can be more easily communicated. Acceptance for a strategy shift is increased.

Limitations of Strategy Analysis. Disadvantages

Strategy Analysis can ameliorate strategy only if someone is contracting the advise. The company must be ready, wiling and able to work with the advisor. 
Strategy Analysis has to be unbiased to the result. It won’t work if a predetermined outcome had to be achieved. 
If the strategy of a firm is bad, you can expect that the readiness for advice is low. This can be seen as an expression of a prevailing corporate culture, that is reluctant to change.
Like any diagnosis Strategy Analysis can operate only on the knowledge it has access to. Wittgenstein’s cognition applies here as well: „Whereof one cannot speak, thereof one must be silent.“ This does not mean that silence has no influence, but we cannot work with it albeit it acts upon us.

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