Strategic analysis consists of measuring the strengths and weaknesses of a company’s position. There are a number of tools or methods used as the foundation for strategic analysis of a business; strategic factor analysis strategy is one of the most popular methods because not only does it focus on internal strengths and weaknesses but also on the external environment the company is operating in.
Strategic factor analysis strategy looks at 5 aspects of a business to determine the position of the company and what needs to be done to improve this position. These aspects include the company’s product or services, level of competition in the marketplace, ease or difficulty of market entry, growth and profit potential and the overall business environment.
Understanding and analyzing all these factors is crucial to developing strengths into competitive advantages over competition and improving certain weaknesses that hinder a company’s efficiency and growth.
Each of the 5 sections of analysis are given a certain rating or score usually between 1 and 100 depending on the attractiveness of the business characteristics relating to that section. Companies should structure their marketing strategies to compliment the highest rated categories while aiming to have a rating of more than 70 in every section.
A company must know how to improve internal operations before worrying about the external business environment. Analyzing a company’s product or services focuses on quality, production time, reducing defects, increasing efficiency, customer satisfaction, proprietary technology or information and production costs. The growth and profit potential aspect of this method looks at the internal structure of the company and its capabilities for growth; many companies are structured better for growth because of qualities such as high standardization in their business process or a hierarchical organizational structure.
The external analysis aids the company in understanding how to maximize their strengths. The external analysis looks at competitive rivalries in the marketplace, the competition’s staying power, the possibility of market penetration, demographic information and trends, demand for the product or service, and price sensitivity. Researching the competition in the marketplace is crucial for a company to know how much market share is possible to be gained from either basic entry into the sector or improvements in price or quality to existing products or services. Understanding the market demand for the product or service being offered and the price sensitivity of the consumers’ demand is important to a company’s business strategy.