8 strategic analysis tools (with definitions and benefits)

By Indeed Editorial Team

Published 22 November 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

If you're involved in developing business strategies, making the most of all the tools available ensures you can make significant decisions. This involves working within a specific budget and achieving the organisation's projects and goals on time. In particular, using such tools helps you examine an organisation from a data-driven perspective. In this article, we discuss what strategic analysis tools are, list some important examples of these tools and explain their benefits.

What are strategic analysis tools?

Strategic analysis tools, or business analysis tools, are tools and systems that organisations use to increase the effectiveness of their operations. This ranges from developing a better understanding of their budget to creating efficient project time frames. The strategic nature of these tools refers to the long-term impact of the decisions these tools support. An organisation that uses its analysis tools effectively has a better strategy for long-term growth and development, as it supports its decisions with extensive data.

Related: What is a business strategy (and business strategy examples)

8 business analysis tools

See a list of business analysis tools below, in addition to the benefits of using each tool:

1. SWOT

SWOT is one of the simpler forms of strategic analysis available to an organisation. This is an initialism of Strengths, Weaknesses, Opportunities and Threats. When completing a SWOT analysis, an organisation looks at each of its Strengths, Weaknesses, Opportunities and Threats to develop a strategy. These strategies use strengths to form business opportunities and limit threats while creating solutions to the organisation's weaknesses.

Related: SWOT analysis in marketing: importance and examples

2. Porter's value chain

Porter's value chain is a simple method for finding and describing the main functions of an organisation. For example, in a shop that sells its own goods, the functions are the manufacturing side of the business and the sales aspect of the organisation. The value chain also discusses how these functions contribute to value creation, with the manufacturing side creating value and the shop converting this value into financial results. This is a beneficial tool for organisations seeking a better understanding of their own facilities and functionality and is ideal for full structural reviews.

Related: What is value engineering and why is it important?

3. McKinsey 7S

McKinsey 7S is a relatively complex tool organisations use to identify various strengths and weaknesses. Each S refers to a different part of the organisation. These include:

  • structure

  • systems

  • style

  • staff

  • skills

  • strategy

  • shared values

By developing a comprehensive understanding of each of these aspects, the organisation finds the strengths and weaknesses of each part. In future strategies, organisations then focus on accentuating the benefits of these sections and work towards removing any weaknesses. This breakdown provides opportunities to limit weaknesses in the organisation and improve future outcomes.

Related: Creating core values in organisations: a guide with examples

4. PESTEL

A PESTEL analysis considers external factors rather than the organisation itself. These include those that provide the organisation with potential threats or opportunities for growth in the future. The factors are:

  • Political: The implications of current government decisions on the organisation.

  • Economic: The implications of the macroeconomic situation on the organisation's business outlook.

  • Social: The implications of current social trends and ideologies.

  • Technological: The implications of technological advances on the organisation.

  • Environmental: The implications of climate and environmental changes on the organisation.

  • Legal: The current legal state of the organisation's primary industry.

By having a comprehensive understanding of each of these aspects, the organisation develops a strategy for the future that amplifies its opportunities and limits any threats. This increases the organisation's potential for growth and accounts for future shifts in these aspects to create a more functional and future-proof business. This is an ideal tool for an organisation in a rapidly changing industry.

Related: What is a political economy? (With careers and FAQs)

5. The Business Model Canvas

The Business Model Canvas is a tool that organisations use when developing an understanding of their own business model and the potential opportunities this model offers. This is a large document with several features surrounding the business, including:

  • Key activities: A list of the activities the organisation engages in, such as manufacturing, sales or consultancy.

  • Key partners: A list of any partners the organisation has, including vendors, owned businesses and shareholders.

  • Key resources: A list of the organisation's useful resources, including materials and infrastructure.

  • Cost structure: A list of the organisation's main costs and the extent of these costs.

  • Revenue streams: A list of the organisation's revenue streams and the scale of these streams.

  • Customer relationships: A list of the organisation's most important clients and the relationships the organisation has with them.

Filling out a Business Model Canvas provides a significant amount of insight into the organisation. This relatively limited level of detail offers an overview of what the organisation does, who the organisation does it for and its current operating costs. The information in this document offers a lot of insight into ideal operational changes within the organisation.

Related: What is a business continuity plan? (Plus how to create one)

6. Pareto analysis

A Pareto analysis bases itself on the idea that 80% of an organisation's profit comes from completing just 20% of the work, with 80% of issues coming from 20% of causes. The origin of this theory was Vilfredo Pareto, an Italian economist who discovered that 80% of Italian land fell under the ownership of just 20% of Italians. This is an applicable theory in the majority of industries.

Using a Pareto analysis effectively provides insight into where an organisation makes the most of its opportunities. Finding the profitable 20% of products provides a strong foundation for the organisation and suggests that it may innovate rather than change its products. Similarly, understanding the source of 80% of issues, when this is a different part of the organisation, is an opportunity to limit problems and increase efficiency.

7. Growth-share matrix

The growth-share matrix establishes the value of an organisation's portfolio. It measures the relative market share on the Y-axis and the market growth rate on the X-axis to establish the value of each individual investment. There are four different sections, which are:

  • Stars: This is high value and high growth. These are the ideal parts of a portfolio, as they provide a lot of value while having a high ceiling for growth.

  • Cash cows: This is high value and low growth. These are beneficial for a portfolio as they present a consistent source of income.

  • Problem children: This is low value and high growth. These have varying roles in a portfolio, with low existing value alongside the potential for exponential growth.

  • Dogs: This is low value and low growth. Avoid having these investments in a portfolio.

By understanding the nature of a portfolio in this way, investment organisations may guide their future investment strategies. Organisations pivot towards cash cows and stars with some problem children while selling any dogs to maximise the portfolio's potential. A growth-share matrix is just one part of portfolio analysis, with financial assessments also beneficial.

Related: What is a portfolio company? What to include in a portfolio

8. Porter's five forces

Porter's five forces is a model that examines several aspects of a specific industry. Organisations use this when developing an understanding of the potential for growth in the industry. The forces are below, using the energy industry as an example:

  • Competition in the industry: This refers to the number of competitive organisations in the industry. In the energy industry, there are relatively few competitors generating energy.

  • Potential for new entrants: This refers to the barriers to entry in the industry. In the energy industry, there are high levels of regulation, thus the low potential for new entrants.

  • Power of suppliers: This defines the influence suppliers have over the industry. As there are few suppliers in the energy industry, each supplier has a lot of influence.

  • Power of customers: This details the power customers have in the market. As customers need energy and have very few competitive options, customers have little power.

  • Threat of substitutes: This gauges the potential for substitute goods replacing prominent products in the market. Energy has some incoming substitutes, such as the solar power market.

Having this comprehensive understanding of a market is beneficial for an organisation. It supports pricing strategy, supply preparation and long-term project preparation. Complete this assessment thoroughly, as an organisation's success comes from its interactions with the market.

Explore more articles