Running head: STRATEGIC MANAGEMENT ANALYSIS TOOLS 1

Strategic Management Analysis Tools:

A Review of the Literature

Pamela McClinton

Liberty University
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Abstract

Strategic management allows organizations to review current processes and make intentional

decisions about the direction of a company. Many business managers do not fully understand the

goals behind strategic management or why it should be implemented in their organizational

environment. A thorough understanding of the purpose of strategic management can help

organizations gain a competitive edge within their industry, but not without the analysis of

various strategic management analysis tools that have been designed to aid in the strategic

management process and promote organizational growth. A review of the literature supporting

strategic management and tools such as Porter’s five-forces, SWOT, BCG growth matrix, value-

chain analysis, competitive advantage and balanced scorecard (BSC) provide a comprehensive

look at techniques engineering by researchers to help organizational managers move their

companies ahead of the competition and sustain a competitive advantage in the world

marketplace. This review also provides a synthesis of these tools to show organizational leaders

the differences when comparing one tool to another which facilitates the determination of the

best tool to fit organizational need.

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Strategic Management Analysis Tools: A Review of Literature

The global marketplace has changed dramatically over the past century. The rise of the

Industrial Age brought nationalization as businesses began to expand from being situated in one

city or state to positioning themselves across state lines and into various parts of the country.

The Information Age thrust businesses even further, taking expansion across continents and

establishing a full-fledged global marketplace. With a global outlook, businesses experienced

growth on a massive scale with divisions of their organizations thousands of miles apart. Not

only did organizations desire to thrive, but in order to continue their growth, managers needed to

maintain a competitive edge in the marketplace. The evolution of the global business

organization was fostered by business managers constantly in pursuit of management techniques

that would propel their organizations farther. Managers have found that sustaining competitive

edge yields greater revenue, organizational growth, and industry leadership over their

contenders.

But staying competitive in the marketplace did not prove to be an easy undertaking. Thus,

managers from organizations around the world devised systems that have become known

universally as strategic management. Strategic management offers an organization a multitude

of benefits, and many researchers have theorized the goals of strategic management in their

literature. Furthermore, an examination of the most common strategic management tools aids

the awareness of how these instruments, when applied within a business organization, lead to

competitive advantage, growth, and greater business revenue. This research paper seeks to share

leading researcher’s views of the goals of strategic management and illustrate the most common

strategic management tools: Porter’s Five Forces, SWOT, BCG growth matrix, value chain
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analysis, competitor analysis and BSC along with their comparisons and contrasts when used

within the business environment.

Strategic Management

Since the inception of business itself, management, or the administration of

responsibilities that govern an entity, has existed. Through the coordination of activities to get

the necessary work accomplished that produces a product or delivers a service, management has

experienced challenge. These challenges have ranged from employee supervision, to customer

satisfaction, to business growth. When the founder of strategic management, Alfred Chandler

(1991) began investigating organizational growth, his interest was drawn largely due to the

intense crises endured by businesses such as Du Pont, General Motors, and Sears Roebuck.

Chandler deliberated the challenges noticing that when Sears Roebuck was forced to choose

survival or downfall, the business made tactical steps to move its mail order business to chain

stores situated mostly in urban areas. The concept of strategy in business was fashioned and a

few years later, Chandler released his book Strategy and Structure (1962), which is still

considered a significant historical work in the world of business.

In this work, Chandler theorizes the unprecedented value of implementing an

organizational strategy before carrying out the structural procedures of day-to-day business.

This new idea proposed that when management employed strategies for long-term growth, they

reduced overwork at the top and opened up the capability to move into new product markets and

even shift into new geographic areas. Chandler’s work has been touted “a theoretical

masterpiece” ("Alfred Chandler, Strategy and Structure, 1962," 2003, para. 2) in the business

industry, and strategic management has evolved to look not only at a broad organizational

strategy, but now comprises the detail of identifying and evaluation the statistics in an
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organization important to strategy planning, delineating the external and internal environment of

the organization, and employing a variety of analytical methods to improve organization

efficiency and effectiveness (Downey, 2007).

Strategic Management Analysis Tools

When a business chooses to incorporate Chandler’s theory into their organization, its

managers must recognize that strategic management is a continual and collaborative process

(Lana, 2008, para. 9). This constant process drove researchers, businessmen, and scholars to

devise tools to help businesses implement Chandler’s strategic management theory. Strategic

management can be a broad concept that may overwhelm administrators when trying to apply it

to an organization. So, instead of attempting strategic management broadly throughout an

organization, strategic management analysis tools help managers divide their goals into

manageable parts and examine the use of the organization’s resources to create cost savings,

revenue growth, business growth through efficiency, value, and effectiveness, and customer

satisfaction. These tools are also useful for evaluating weaknesses, competitor strengths,

environmental and societal demands that could jeopardize organizational growth. Some of the

most common strategic management analysis tools are Porter’s Five Forces, SWOT (strengths,

weaknesses, opportunities, and threats) analysis, BCG (Boston Consulting Group) growth

matrix, value chain analysis, competitor analysis, and BSC (balanced scorecard) analysis. The

application of one tool over another relies heavily on the goals of the tool and the objectives of

the organization.

Porter’s Five Forces

Michael E. Porter, a Harvard graduate and professor, produced the five-forces model in

his book Competitive Advantage: Techniques for Analyzing Industries and Competitors released
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in 1980 (Childress & Kirkwood, 2006). In this model, Porter rationalizes that in order to manage

an organization strategically, management must start with analyzing the competition. Based on

this analysis, managers can then examine the threat of new entrants, recognize the bargaining

power of suppliers, identify the bargaining power of buyers, be aware of the threat of substitutes,

and acknowledge the rivalry among existing competitors (Lee, Kim, & Park, 2012). These five

components comprise the five forces facing an organization that must be strategically planned

and administrated by organizational management to gain or sustain a competitive edge in the

marketplace.

Threat of new entrants.

The threat of new entrants identifies the challenges facing new businesses that desire to

penetrate the marketplace. This information is vital for an organization to examine because

threats to entry into the marketplace can impede goals to expand the organization nationally or

internationally. For example, there may be some markets where entry into the industry is

threatened by high investment rates, solid commitment to industry trademarks, or delivery paths

that are run by industry contenders (Evans & Neu, 2008). Organizational leaders must recognize

that not only customers but suppliers as well can impact businesses in an industry through the

use of demands on the prices, value, or quantity of a product or service.

Bargaining power of suppliers.

The bargaining power of suppliers refers to “the ability of suppliers to raise prices or

reduce quality of inputs” (Lee, Kim, & Park, 2012, p.1784). From an organizational perspective,

when suppliers attempt to control the market through by escalating prices or decreasing the

quality of inputs this causes suppliers to become a danger to the growth of a business. Suppliers

with this type of power can be identified if they are small and concentrated in the same area, if
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costs are high when moving to another supplier, if the services and products offered by the

supplier are unique, and if the market is not of interest to the suppliers (Lee, Kim, & Park, 2012).

Bargaining power of buyers.

Similar to the bargaining power of suppliers, buyers can choose to control the industry by

requiring lower prices or demanding a higher price but only with a higher quality of the service

or product. Buyers increase their power by buying in bulk volume or by utilizing a majority

share of the services in an industry (Evans & Neu, 2008). .

Threats of substitutes.

Within an industry, the service and product offerings produced by industry contenders

increases market share. When substitutes enter the market, the opportunity for buyers and

suppliers to get their needs fulfilled by other businesses or other industries also presents itself

(Lee, Kim, & Park, 2012). Organizations must be aware of the substitutes that may be a threat to

their business’ market so that they are poised to reduce the number of substitutes that can steal

valuable buyers and suppliers.

Rivalry among existing competitors.

While competition aids in the strengthening of businesses to innovate, improve customer

satisfaction, and product quality, intense rivalry among existing competitors can be unproductive

for all businesses. Lee, Kim & Park (2012) advise that extreme rivalry has been known to

significantly impact business revenue. The strength of the rivalry among competitors is typically

related to the industry’s structure, demand and the ability to meet that demand by the market, the

diversity of the organizations involved, and the height of barriers that allow organizations to exit

the market.

SWOT (Strengths, weaknesses, opportunities, and threats) Analysis

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Stanford University professor, Alfred Humphrey, is credited with the origination of the

SWOT analysis though the name SWOT and its source are unknown (Helms & Nixon, 2010).

Several other researchers took the development of SWOT further defining the strategic

management analysis tool as “a systematic procedure for identifying a firm’s critical success

factors: its internal strengths and weaknesses and its external opportunities and threats”

(Blocher, 2010). SWOT has been touted as a chief instrument for tackling complicated strategic

conditions because it is simple, easy to follow and it minimizes the amount of data to aid in

strategic management. The SWOT analysis gives organizational managers the structure needed

to handle issues, improve strengths, seize opportunities, avoid threats, and decrease weaknesses

(Helms & Nixon, 2010).

Strengths.

One of the most fundamental components for an organization in the strategic

management process is to identify its strengths. An organization’s strengths are an internal

examination of the features, services, products, or procedures that the organization accomplishes

well. These strengths can reside in a multitude of areas, from the organization’s service,

specialization, or even its location. Once recognized, the organization would place these

characteristics in the top-left quadrant of the SWOT diagram (see Fig. 1).

Figure 1. SWOT Diagram

Strengths Weaknesses

• Strength #1 • Weakness #1
• Strength #2 • Weakness #2
• Strength #3 • Weakness #3
Opportunities Threats

• Opportunity #1 • Threat #1
• Opportunity #2 • Threat #2
• Opportunity #3 • Threat #3
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Weaknesses.

Weaknesses also represent an internal analysis of the organization, but these are areas

that inhibit progress, where competitors have the opportunity to win potential customers or

components of the organization’s processes that constantly draw on its resources (DeSilets,

2008). Organizations may not always be able to recognize clearly weaknesses with processes

and procedures, thus it is helpful to identify areas where inefficiency, waste, and high cost

expenditures persist. Once recognized, these weaknesses are placed in the top-right quadrant of

the SWOT diagram (see Fig. 1).

Opportunities.

DeSilets (2008) states that an opportunity is an external element that “is a combination of

circumstances, times, and places that, if accompanied by a certain course of action, is likely to

result in significant positive benefits” (p. 197). Opportunities represent potential areas that the

organization can use to gain or sustain competitive edge in their industry. An organization can

accurately identify opportunities by considering the activities, places, or processes they would

like to be involved with in the coming years. Opportunities are placed in the bottom-left

quadrant of the SWOT diagram (see Fig. 1).

Threats.

Threats are another external factor that an organization must consider in order to position

themselves to survive in the world marketplace. Threats can come from buyers, suppliers,

economic, societal, and governmental pressures and if imposed can result in significant

consequences for the organization. Bolcher (2008) notes that threat are easily identifiable by

simply examining the industry and the organization’s competitors.

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BCG (Boston Consulting Group) Growth Matrix

The BCG growth matrix, sometimes called the growth-share matrix, was developed by

the Boston Consulting Group in the 1970s and unlike the previous strategic management analysis

tools “helps marketers to identify high and low potential business units or products” (McDonald

& Roberts, 1992, p. 55). When the growth matrix was in development, strategic managers of the

Boston Consulting Group sought to understand how to take diversified businesses offering not

only multiple products, but sometimes even an organization involved in multiple businesses and

perpetuate growth (Deshpande & Parasuraman, 1996). The BCG growth matrix was born and

has been considered to be more of a business portfolio analysis that uses a grid to analyze all

business lines according to four dominant product types: star products, problem child products,

cash cow products, and dog products.

Star products.

Star products symbolize sizeable growth and share and substantial return on investment

(Morrison & Wensley, 1991). These products are arranged on a 2x2 grid ( see Fig. 2) with

products identified by circles on the matrix. The axes for the grid measure relative growth

against market growth, and star products are located in the top-left quadrant of the grid

signifying high relative growth and high market growth. These products produce sizeable

revenue for the organization and the products are in markets that are growing rapidly.

Cash cow products.

Cash cows are products that indicate industry leadership with high relative growth, but

are in markets that have stopped growing (Deshpande & Parasuraman, 1996). So products in

this category produce a substantial amount of revenue for the organization, but their future
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growth is restricted due to decline. These products are located in the bottom-left quadrant of the

growth matrix (see Fig. 2).

Figure 2. BCG Growth Matrix

Question mark products.

Products in the question mark category are in growing markets, but require investment as

they do not bring in notable revenue. Deshpande & Parasuraman (1996) share that organizations

cannot support too many question mark products because of the investment and low initial

return. These products are located in the top-right quadrant of the growth matrix (see. Fig. 2).

Dog products.

Dog products, or pet products as some researchers identify them, are products in an

organization that represent a constant draw on business revenue and are not in growth markets.

While these products may be pleasing, strategically, they do not offer growth potential to the

organization. Morrison & Wensley (1991) report that BCG’s growth matrix strategy encourages

organizations to “divest and cut the losses” (p. 110) of products or businesses such as these. Dog

products are located in the bottom-right quadrant of the BDG growth matrix (see. Fig. 2).
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When compiled on a grid, these products allow an organization to strategically plan

which products or businesses within their multidimensional organizations to focus growth and

pour revenue into for overall organization growth and future competitive advantage.

Value Chain Analysis

When Harvard business professor, Michael Porter presented the strategic management

analysis tool, the value stream, Competitive Advantage: Creating and Sustaining Superior

Performance (Value Chain, 2010) in 1985, the concept of creating value took the business world

by storm. Porter reasoned that all services or products within an organization travel through a

chain of processes or procedures from their beginning to delivery. Within each phase of the

chain, the service or the product has the ability to develop value. Consequently, the value-chain

tool made known to the business world and strategic management researchers that the method of

creating value within an organization is where the competitive edge in an industry is created. In

value-chain analysis, every business has the ability to grow and maintain a competitive edge over

rivals in their industry by fostering value-added strategies at every stage in the process. As a

result, value-chain analysis has grown from Porter’s value stream to “an analysis tool

organizations use to identify the specific steps required to provide a competitive product or

service to the customer” (Blocher, 2010, p. 10). At the time that Porter’s concept of value-chain

analysis was imagined, its general design was to provide businesses with a map to chart the

process of flows that could differentiate and separate value-creating activities (Value Chain,

2010) so that organizations could focus on one activity or process at a time. Initially, the design

planned to provide three principal phases: an upstream phase that concentrated on product or

service development; an operations phase, which incorporated the processes required in

providing the service or product; and a downstream phase, which focused on the distribution of
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the service or the product to buyers (Blocher, 2010). The central components of this strategic

management analysis tool are the identification of value-added activities that are executed by

managers within the organization and the creation of competitive advantage by implementing

strategies that reduce cost or adding value to the organization. Value chain analysis has

expanded into a internationally recognized strategic management analysis tool due to its potential

to create to organizations a competitive edge in their industry.

Employing value chain analysis into an organization benefits the business in three ways.

The business can offer quality and value to its customers by increasing efficiency and

effectiveness throughout the service and products lines (Noke & Hughes, 2010). Effectiveness

permits the product or service to be offered in a useful manner and encourages the

accomplishment of goals established by the customer. Efficiency lets the product or service

provide a combination of expertise and timeliness. Value chain analysis also produces

innovation in the composition and distribution of the product or service (Noke & Hughes, 2010).

Innovation has the capability of producing greater volume or larger business revenue, whereas

the manufacture of the product still remains low. This brings about higher revenue for the

overall business. Lastly, employing value chain analysis helps managers acquire a vital shift in

their perspective of the product or services that are offered. With business growth, managers are

able to deliberate on how the products and services offered by the organization are able to

generate value in new ways than ever before (Noke & Hughes, 2010).

Competitive Analysis

In competitive analysis, organizations are able to take several techniques from other

strategic management tools to analyze its current products and services against the products and

services offered by competitors in the same industry (Swamidass, 2004). As the business
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environment changes rapidly, organizations are faced with globalization and new markets

surfacing that threaten business growth. Thus a strategic plan to analyze a rival’s strengths and

weaknesses is essential but not easy (Ho & Lee, 2008). Competitive analysis uses segments of

Porter’s five-forces tool, SWOT, along with Henry Mintzberg’s strategy concept: the five p’s for

strategy, but this analysis focuses on components related to strengths and weaknesses of the

competitor against an organization and does not examine in detail market growth of an

organization’s products or services.

Competitive analysis centers on five major steps: determining the size of the industry

and discovering main competitors, outlining what is of value in the target industry, gathering

business intelligence on the competitor and describing the competitor’s structure, illustrating the

competitor’s behavior in light of their organization’s structure, and evaluating the competitor’s

reaction to the investigating firm’s strategic options (Ho & Lee, 2008). The competitive analysis

gathered by an organization can be different as the tool does not have a grid, map, or structure as

some other strategic management tools. For example, Brock (1984) highlights that when

performing a competitive analysis, analysts should evaluate the relative perceptions of the

organization against its competitor from the aspect of value provided to customers and the cost

differences of suppliers in the industry. Wilson’s (1994) evaluation of competitive analysis, on

the other hand, corresponds more with Ho & Lee (2008) highlighting the need to recognize key

competitors, understand the competitor’s objectives, examine the success rate of the strategies

used by competitors, identify the competitor’s strengths and weaknesses, and evaluate how a

competitor responds to an offensive move by a rival in the industry. All components are

gathered and organizations are able to use the information to help their business build more

effective strategies, plan attacks on the competition with more precision, establish the necessary
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defenses to ward off threats from the competition, and perhaps recognize the buying behavior of

customers, groups, or classes within the industry (Wilson, 1994).

Balanced Scorecard (BSC)

To round out the discussion of strategic management analysis tools, an examination of

another highly used technique is necessary. This analysis tool is the balanced scorecard (BSC).

The BSC is one of the latest strategic management analysis tools and developed in the 1990s by

Harvard professor, Robert Kaplan and David Norton, a management consultant (Balanced

Scorecard, 2009). Kaplan and Norton argued that when an organization relies heavily on

financial performance as a performance indicator of the organization’s health, their views tend to

be myopic and could lead to organizational inefficiency and ineffectiveness Soderberg,

Kalagnanam, Sheehan, & Vaidyanathan, 2011). To underscore the importance of using both

financial and nonfinancial information and to strategically assess an organization in its entirety,

Kaplan and Norton devised the balanced scorecard (BSC) which reports a firm’s critical success

factors in four areas: financial performance, customer satisfaction, internal processes, and

learning and growth (Blocher, 2010).

Financial performance.

Financial performance has been recognized as the best way to assess an organization’s

strength for decades. The financial successes and losses by earnings, earnings per share, returns

on investments, and earnings growth are all indicators of the financial performance of an

organization (Werner & Xu, 2012).

Customer satisfaction.

All organizations are interested in how their business is identified by its customers. In

the BSC, customer satisfaction allows an organization to gauge quality, service, and affordability
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among other benefits that it provides and determine how well it satisfies its customers in these

areas (Blocher, 2010).

Internal processes.

The internal processes within an organization are the daily operations that the

organization performs to get products manufactured or services offered. The internal processes

would “measure efficiency and effectiveness with which the firm produces a product or service”

(Blocher, 2010, p.11). Outages, delays, and upgrades all significantly impact the internal

processes of an organization.

Learning and growth.

Probably the most vital of all the components of the BSC is learning and growth (Werner

& Xu, 2012). Learning and growth focuses on the future of the organization and corresponds to

employees and the expertise that employees have to move the organization forward. Evaluating

learning and growth within an organization is also recognized as a useful way to motivate

employees and determine the ability to improve and employ human resources to achieve

strategic goals (Blocher, 2010).

Synthesis

Overall, organizations can benefit greatly from implementing strategic management

analysis tools into their organizations, but determining which tool to use can be complicated.

Therefore a synthesis of the tools will be examined to aid organizations in deciding which

strategic management analysis tool is best for their organization.

Five-Forces vs. SWOT

The major themes present in the five-forces analysis are threat of new entrants, the

bargaining power of suppliers, the bargaining power of buyers, the threat of substitutes, and the
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rivalry among existing competitors. All of the factors in the five-forces model focus on external

pressures perceived by the organization. Organizations use this model to position themselves ton

to be knowledgeable of these dangers, avoid the hazards, and thrive in the midst of potential

threats. This model is suitable for organizations that are small, penetrating a new industry, or

expanding its current organization to include additional business segments. On the contrary, the

SWOT model analyzes internal strengths and weaknesses and external opportunities and threats

to the organization. While SWOT identifies threats, similar to five-forces, it also provides the

organization with an analysis of its internal strengths and weaknesses. Considering the strengths

and weaknesses allows the organization to recognize vital areas that the organization can use to

defend against threats. SWOT also investigates opportunities external to the organization that

may provide the business with a competitive edge over industry competition.

BCG (Boston Consulting Group) Growth Matrix vs. Value-Chain Analysis

The BCG growth matrix is a strategic business portfolio analysis that uses a grid to

analyze all business lines according to four dominant product types: It measures revenue growth

against the market growth of products or businesses within an organization. Organizations that

utilize the BCG growth matrix typically are multifaceted, comprising several business units or

producing several products that generate revenue using different business lines. The 2x2 grid

gives a simple, visual analysis of how products from the organization’s business lines impact the

revenue and market potential of the overall business. The BCG growth matrix does interpret

strengths and weaknesses of the organization, but only from a product line perspective.

Similarly, the growth matrix gives a product line interpretation of opportunities and threats, but

does not investigate external opportunities and threats to the organization. Only an analysis of

threats from the company’s product lines is examined.

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The value chain analysis, on a completely different scale, gives only interpretations of

revenue and market growth. The main components of value-chain analysis is locating value-

creating activities within organizational departments and focusing on promoting the value that

these activities offer to reduce cost for the organization or create additional value. Value-chain

analysis utilizes the phases of production, operation, and distribution to find value-creating

activities that provide efficiency, effectiveness, foster innovation, and encourage a value-driven

mindset in managers. These two strategic management analysis tools provide an organization

with very distinct offerings, thus the organization must conclude if its overall goal is to manage

the products lines with the business or introduce a forward-thinking perspective that offers future

potential based on the discovery of value within its organization.

Competitive Analysis vs. Balanced Scorecard (BSC)

The competitive analysis of an organization can take on several variations, but most

researchers use the competitive analysis tools to determine the size of the industry and

discovering main competitors, outline what is of value in the target industry, gather business

intelligence on the competitor by describing the competitor’s structure, illustrate the competitor’s

behavior in light of their organization’s structure, and evaluate the competitor’s reaction to the

investigating firm’s strategic options (Ho & Lee, 2008). These assessments give organization a

comprehensive indication of a competitor’s strengths and weaknesses information to help a

business develop better strategies, plan strategic moves in light of the competition with more

precision, establish critical defense mechanisms to ward off threats, and recognize the buying

behavior of customers. The competitive analysis exams only external components because it

focuses primarily on the competitor, but implementing a competitor analysis into an organization

helps the organization improve its strengths.

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The balanced scorecard (BSC), on the other hand, is an internal assessment of financial

performance, customer satisfaction, internal processes, learning and growth. The BSC examines

no external components, but focuses strategically on an organization’s development internally by

examining how all areas of the organization impact its growth. Organizations looking for

strengthen its resources internally would benefit from the BSC, while organizations that are

penetrating a new market or small business looking to expand benefit most from competitive

analysis.

Conclusion

The introduction of strategic management into the global marketplace changed the face of

the business industry. The Pulitzer Prize winning professor, Alfred Chandler, underestimated the

impact of his discovery sharing “my goal from the start had been to study the complex

interconnections in the modern industrial enterprise between structure and strategy, and an ever-

changing external environment” (Chandler, 1991, p. 36). But strategic management garnered so

much attention that researchers have spent over a half century devising tools to help

organizations implement strategic management into their businesses. Notable strategic

management analysis tools give organizations a comprehensive look into the pressures threats

facing their business, help the organizations examine their own strengths, weaknesses, and

opportunities, scrutinize product lines to determine if they generate revenue or stimulate market

growth, explore value-creating activities that may be hidden within an organization and can offer

competitive advantage, investigate competitor performance, objectives, and reactions, as well as

consider an overall approach that includes financial, customer satisfaction, internal process,

learning and growth within a company. These various tools benefit an organization in an

assortment of ways. Establishing the need relevant to an organization is best determined by

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organizational managers or strategic management consultants specialized in providing businesses

with tools to help them succeed and grow. As companies move forward in the twenty-first

century, gaining and sustaining competitive edge will be necessary to have a significant impact

on market share. Employing strategic management analysis tools are not only a good

investment, but provide forward-thinking perspectives to drive business onward as the world

marketplace continues to evolve.

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