Strategic business analysis are those actions and decisions made by management while trying to understand the impact of strategic events like: introduction or development of new product line, setting up a factory in a new location, employing key staff, selecting organizational structure, investing in new technology, managing risks, complying with relevant laws and regulations, implementing changes, etc.
While traditional business analysis deal with individual items, strategic business analysis look at things from both corporate perspective and longer term view.
Strategic business analysis in modern day business is hard to separate from strategic management and planning where management have to battle with the ever changing business environment. Strategic business analysis depicts the role of strategy in business.
The purpose of evaluating business investment decisions on a strategic basis is to meet the four most important goal of a business. The four goals of a business are: (1) satisfying customer’s needs, (2) keeping employees happy at their job, (3) complying with regulations, and (4) operating profitably.
A firm’s internal capabilities are analysed against external opportunities and threats with the aim of optimally aligning a firm’s long term goal with short term decisions. In the word of Ansoff, strategic business analyses help to keep organizations secure from surprises that characterises business environment.
Businesses cannot afford to analyse matters that are important to its long-term survival in silos and short-termism. By thinking of the effect of one variable on the other and also on the future operation of the business activities, management would have an idea of what is likely to happen in the future.
The length of the term to be covered in the analysis depends on the nature and type of the business. A technological company that specialise in fast-moving consumer goods (FMCG) will for example have a planning and analysis time horizon of say 10 months while organizations that construct dams will have to analyse into years in advance.
CHARACTERISTICS OF STRATEGIC BUSINESS ANALYSIS
Long term in nature: for any business analysis to be strategic in nature, it must have a long term view. When designing a balanced scorecard for example, management should think of the impact that each target and objectives that is contained in the strategic map will do to the long run survival of the company.
Every company wants to have a larger market share in any chosen industry, but care should be taken to ensure that activities of managers now while trying to meet their target would not jeopardise the organizational long term goals.
Focus on external events and activities: senior managers spend about 60% of their time gathering and interpreting information from outside source which will significantly improve decision making process. They interact with people and organizations outside the entity in order to achieve this goal.
Place more emphasis on qualitative matters: in as much as financial indicators play vital role in shaping the fortune a business entity, attention should also be given to those qualitative factors that an establishment cannot afford to ignore, else, business failure will imminent. A qualitative emphasis means that detailed calculations and manipulation of figures are unnecessary. All that is needed is the big picture.
CHALLENGES FACED BY MANAGEMENT IN THE PROCESS OF STRATEGICALLY ANALYZING A BUSINESS
- Identifying organizational objectives and matching it with its environment
- Identifying the need for change and initiate both the incremental and transformational change
- Blending the conflicting needs of stakeholders in such a way that the knockoff effect on the business will not be felt so much
- Striking a balance between short term and long term concerns
ADVANTAGES AND DISADVANTAGES OF STRATEGIC BUSINESS ANALYSIS
- Monitor and control progress through management accounting controls
- Makes management think in advance
- Optimizes the use of scarce resources
- Ensures consistency in the pursuit of goals and objectives
- Seamlessly make organization fit into its environment
- Guides the path of the business
- Could be expensive in terms of time and money
- Could lead to bottleneck and bureaucracy
- Not so useful in managing crisis
- Blindfold management from identifying and taking opportunities as they arise
A strategic business analysis would not be complete if a complete does not understand the triangle of strategy which: (a) strategic position, (b) Strategic choices, and (c) Strategic actions