In a previous article about Key Business Concepts 101, we covered the topics of business process and how to improve their quality. The article was an introduction into the world of business management and its concepts, and it was planned to be the first article in a series about business management and planning topics. Continuing our discussion on the topic, in this article, we take a look at strategic business management aspects and the common techniques used in strategic planning.
Establishing and running a business requires careful planning. Strategic planning is the first step in strategic business management. It requires thorough analysis and proper preparations to make sure that the work to be done is based on careful study and a justified approach.
While there is no one particular way to do strategic business planning as it differs based on your business situation, there are a number of tools and frameworks that help greatly in the process. These are well-known and proven techniques used in the business community that help in properly planning business initiatives. These practices can be used during the initial feasibility study before starting the business or when doing annual business planning once the business is up and running.
There are numerous methods and frameworks that help in strategic business planning and management. In this article, we will examine two of the most common ones PESTLE (or PESTEL) analysis and SWOT analysis. Then, in a sequel article, we will cover competitive analysis using Porter’s Five Forces framework.
PESTLE Analysis
This model is a good place to start your strategic business process. At the macrolevel, this tool helps organizations evaluate their external environment from several perspectives. Started as PEST analysis with four areas, Political, Economic, Sociological, and Technological then adding Legal and Environment to become PESTLE analysis. The idea is to research key issues impacting any of these six key areas of the organization’s external environment.
These include:
- Political issues related to the political situation in the country or region where the organization is
- Economic factors such as GDP, exchange rates, growth, etc.
- Sociological aspects like consumer demographics or social distancing during the pandemic.
- Technological factors including the technology landscape and infrastructure
- Legal considerations related to laws and legislations, etc.
- Environmental matters such as regulations and other issues.
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| Figure 1 - PESTLE Analysis |
SWOT Analysis
After evaluating the external environment using PESTLE analysis, performing SWOT analysis of the internal and external environments relevant to your organization would be a valuable step.
This is the most well-known analysis technique used in business today. The process involves evaluating key strengths and weaknesses of the internal environment of the organization as well as examining the opportunities and threats of the organization’s external environment. Performing PESTLE analysis of the external environment makes it easier to spot opportunities and threats when performing the SWOT analysis.
Refer to Figure 2 below for a sample of this with ideas and examples. As we can see in the Strengths and Weaknesses sections, financial resources can be a strength if you have them or a weakness in the lack thereof. Another example listed for opportunities is technology breakthroughs if you can utilize them to your advantage, but it can also be a threat if it has the potential to negatively impact your business such as bringing feasible alternatives to your key products or services. We have seen, for example, how the Internet, digital movie formats, and online platforms disrupted the movie industry. Netflix and other online movie platforms put businesses such as Blockbuster and Hollywood movie stores out of business.
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| Figure 2 - SWOT Analysis |
Based on the results of the SWOT analysis, organizations need to utilize their strengths and try to remedy their weaknesses in order to take advantage of market opportunities and minimize potential threats or risks.
So, what is next…
You have examined the impact that the macro environment could have on your business. You then evaluated your organization’s strengths and weaknesses and what potential opportunities and threats could be there. So where do you go from here?
Well, once you know where you want to be, and how to utilize the strengths of your organization to deal with threats and exploit market opportunities, the next step is to look at the competitive landscape. Competitive analysis helps organizations evaluate where their business would fit, consider what the competition is like. Based on that, they decide on their business strategies, formulate their goals and objectives, design and plan their products and services, etc.
In our next article, we will take a look at how to do competitive analysis. We will discuss what things to consider when doing competitive analysis utilizing one of the most prominent frameworks, the famous Porter’s Five Forces analysis tool, so stay tuned!
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