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SWOT, PESTLE and Waterfall Analysis

The Management Pocketbooks Pocket Correspondence Course

This is part of an extended management course. You can dip into it, or follow the course from the start. If you do that, you may want a course notebook, for the exercises and any notes you want to make.


I used to be a director in a business where, like many businesses, once a year we would have a ‘strategy meeting’ to look at our strategy for the next year. How could we understand the market and what could we do to improve our competitive position. In the next blog, we will look at some of the more sophisticated strategy planning tools available to you. Here, I want to focus on three that have the overwhelming merit of simplicity.

Every year we would follow the same process… until, that is, until I got heartily sick of it and introduced another. But let’s start with the two tools that made up that much used process, before I offer you a powerful alternative that is guaranteed to give you insights into how your business can make more money.

SWOT Analysis

Perhaps the best known strategic analysis tool is SWOT Analysis – a structured review of your organisation’s Strengths, Weaknesses, Opportunities and Threats – often presented as a grid like this:

SWOT Analysis

The secret to making SWOT Analysis work is frankness and a determination to be really objective about how your organisation measures up to the market. Being good at something is not a competitive strength if your competitors are also good at it – or even better.

The hardest part is to understand what is coming over the horizon by way of threats and opportunities. Because it is when you pair up the top of the chart with the bottom that you start to see what strategic changes you need to make. So, how do you spot opportunities and threats?

PESTLE Analysis

Of all the tools for horizon scanning, PESTLE analysis is the simplest. We just take stock of all of the changes we can foresee under a range of headings:

 

PESTLE Analysis

Waterfall Analysis

When you get bored with these, focus on revenue. Waterfall Analysis splits your entire market into your market share and the market share you leak to your competitors. It further subdivides these to give five components and hence five parts to your strategy. It will not give you the answers, but it will focus your thinking. People who have used this for a first time often find it leads to revelatory ‘aha moments’; so why not give it a try?

Click on the figure to enlarge it

Waterfall Analysis

Further Reading 

From the Management Pocketbooks series:

  1. The Strategy Pocketbook
  2. Business Planning Pocketbook

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Time to Plan

Whatever business you are in, and whatever level you occupy, now is the time to be planning for your next financial year.

Start with a Strategy

Every business needs to know where it is heading, and if you don’t choose that direction, it will be chosen for you by circumstances: your market, your competitors, and events.  You can better generate sustainable profits when you choose your market.

On the 24th January 1848, while building a sawmill for wealthy landowner John Sutter, John Marshall bent down and picked up a shining object from the river. It was gold! Then he found another, and then another.

Stories of the gold soon got round but there was no gold rush. Nobody believed the stories. So an enterprising San Francisco merchant, Sam Brannan, decided to capitalise on the find by spreading the word.  Consequently, the Gold Rush made Sam Brannan the richest man in California.

What was Sam Brennan’s strategy for getting so rich?
He sold shovels and pick-axes!

1903776139The Strategy Pocketbook gives you a wealth of tools to understand your business and its marketplace.

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Next, you need a plan

By this time of the year, most businesses with a 31 March year end are well into their business planning.  One aspect of the process many of us forget – or feel more comfortable putting to one side – is disaster planning.  Whether you are a sole trader, an SME, or a global player, two things are true:

  1. You are not immune to disaster
  2. You won’t know how well prepared you are until you test your plans.  Don’t wait for nature to set up the test!

The start of your disaster planning process is to identify the threats to your business.  The new edition of the Business Planning Pocketbook offers you three broad categories of disaster to consider, when identifying your risks:

BusinessPlanning

  1. Manmade Disasters
  2. Technological Disasters
  3. Natural Disasters

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If you are fortunate enough to own both Strategy and Business Planning Pocketbooks, you can find some nice overlaps.  For example, you could apply PESTLE analysis (in the Strategy Pocketbook) to your disaster identification, to give you not three, but six categories of disaster:

  1. Political
    Okay, so calling the outcome of the next election a ‘disaster’ may be a bit much, but it could have significant implications for your business.
  2. Economic
    Arguably, we are on the way out of this economic disaster, but who knows?  Double-dip anyone?
  3. Social/Cultural
    Demographic trends and changes in the way people buy can destroy businesses – just ask the folk at Readers’ Digest.
  4. Technological
    Thankfully, the new models of computers and software never go wron&.  Bu£ let”s 7u$t t@ke a lo0k a! Toyota.
  5. Legislative
    How can changes in regulation and legislation affect your business?  Large additional costs can be de-stabilising.
  6. Environmental
    Mother nature has a way of hitting us back when we least expect it – and it is frequently below the belt!

So here’s the deal

Start planning for disasters today.  If you have a plan then test it – tomorrow.  And set aside time at least twice a year to get a range of people from within and outside your organisation around a table, to peer round the next bend to spot more possible futures.

Other Management Pocketbooks you may enjoy

Figuring your way through the planning process …

And when it comes to implementation …

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