Essential Strategic Frameworks for Business Analysis

Posted on Oct 20, 2025 in Business Administration and Management (BAM)

Gap Analysis: Assessing Strategic Capabilities

Gap Analysis is a useful tool for assessing strategic capabilities. It describes the process involved in deciding what course of action should be taken to remove any potential profit, sales, or risk gap. It is used to identify the extent to which existing strategies may fail to meet future performance objectives (Kachru, 2006).

Four Possible Gaps Identified by Gap Analysis

  • Profit Gap: The difference between profit for the past few years and the profit projection based on freehand projection, linear regression coefficient, or exponential smoothing.
  • Sales Gap: The difference between planned and actual sales.
  • Product Gap: The difference between what a firm offers in terms of product items and what the industry provides in terms of product line.
  • Risk Gap: The difference between anticipated risk associated with a strategic decision and the actual outcome.

SWOT Analysis: Strengths, Weaknesses, Opportunities, Threats

SWOT Analysis is a simple but widely used tool that helps in understanding the Strengths, Weaknesses, Opportunities, and Threats involved in a project or business activity. It was invented in the 1960s by management consultant Albert Humphrey at the Stanford Research Institute.

Key Uses of SWOT Analysis

  • Creating, or helping create, a strategic plan or an action plan when launching a project or initiative. This is perhaps the most common application of SWOT.
  • It is a widely used tool in strategic planning and selection.
  • Converting weaknesses into strengths.
  • Eliminating or minimizing weaknesses.
  • Analyzing strengths to take advantage of opportunities in the marketplace.
  • Reviewing positioning on an ongoing project or initiative, identifying needed changes in approach or methods, and making adjustments.

PESTEL Analysis: Understanding the External Context

PESTEL, a complementary tool to SWOT, expands on the analysis of the external context by looking in detail at specific types of issues that frequently impact the implementation of projects or initiatives. The term ‘PESTEL’ refers to the six domains it considers:

  • Political
  • Economic
  • Social
  • Technological
  • Environmental
  • Legal

PESTEL involves identifying the relevant factors and trends in each of these six domains for the project being considered. This focus on trends is helpful for thinking proactively and anticipating change, rather than being overtaken by it. The more complex your operating environment, the more value PESTEL can offer by identifying factors that might be missed by SWOT alone.

Usefulness of PESTEL Analysis

  1. By making effective use of PESTEL analysis, a firm can identify the forces of change affecting its working environment, allowing it to take advantage of changes in its favor.
  2. PESTEL analysis helps strategists avoid taking actions that are likely to lead to failure for reasons beyond the firm’s control.
  3. PESTEL is particularly useful when launching a new product or service.

McKinsey 7-S Framework for Organizational Excellence

Waterman, Peters, and Phillips (1980) suggested a model for organizational excellence popularly known as the 7-S framework. They found that the success of an organization depends on a number of supporting variables besides structure and strategy. The framework highlights the importance of organizational interconnections and their role in effecting change. Better alignment among all the 7 S’s leads to better results and helps bring about the needed strategic shift.

The Seven Elements of the 7-S Framework

Strategy

Strategy provides a broad framework for the allocation of a firm’s scarce resources in order to achieve the desired goals.

Structure

Structure prescribes formal relationships, communication channels, roles, and rules/procedures to manage operations. Structure has three important functions:

  • Reduction of external uncertainty.
  • Reduction in internal uncertainty due to variable, unpredictable, and random human behavior.
  • Coordination among the activities within the organization to enable it to have a strategic focus.

System

System refers to the procedures, rules, and regulations that characterize how important work is to be done.

Style

The style of an organization becomes evident through the patterns of actions undertaken by top management over a period of time. These decisions influence people at lower levels of the organization.

Staff

Proper staffing ensures high-order human resource potential, which contributes to the achievement of organizational goals. Two aspects are distinctly recognized in staffing:

  1. Selection of the right people for specific organizational positions.
  2. Developing abilities and skills in them so that they can effectively execute their present and future assignments.

Skills

Skills refer to the distinctive attributes or capabilities of an organization.

Shared Values

Shared values help members within the organization identify themselves as part of the whole journey. This is reflected in the values, attitudes, and philosophy of its members, building the foundation for the organizational culture based on their own ideals and beliefs.

Value Chain Analysis (VCA)

The term value chain describes the activities within and around an organization that together create a product or service. Value Chain Analysis (VCA) is helpful in understanding how value is created or lost throughout the entire chain. VCA aims to identify where low-cost advantages or disadvantages exist along the value chain, from raw material sourcing to customer service activities. The value chain comprises two major categories of activities:

1. Primary Activities

Primary activities are subdivided into five categories:

  1. Inbound Logistics: Activities concerned with receiving, storing, and distributing material, inventory control, warehousing, etc.
  2. Operations: Activities concerned with the transformation of inputs into the final product or service (e.g., machining, packing, assembly, testing).
  3. Outbound Logistics: Activities concerned with the collection, storage, and physical distribution of finished goods to consumers.
  4. Marketing and Sales: Activities concerned with advertising, selling, and administration of sales personnel.
  5. Service: Activities that enhance or maintain the value of a product or service, such as installation, repair, and training.

2. Support Activities

Support activities provide inputs and infrastructure for the primary activities of manufacturing and marketing. They are classified as follows:

  1. Material Management activities
  2. Research and Development activities
  3. Human Resources activities
  4. Information Systems activities
  5. Company Infrastructure activities

Core and Distinctive Competence

Resources are an organization’s assets and are the building blocks of the organization. They include:

  • Tangible assets (e.g., plant, equipment, finances, location).
  • Human assets (e.g., number of employees, their skills, and motivation).
  • Intangible assets (e.g., technology, patents, copyrights, culture, and reputation).

Capabilities refer to an organization’s ability to exploit its resources. For example, a company’s marketing capability is based on market understanding, effective distribution channels, and the efficient performance of its sales people. A capability is functionally based and resides in a particular function.

A competency is a cross-functional integration and coordination of capabilities. For instance, a competency in new product development may result from integrating MIS, marketing, R&D, and production capabilities within a division.

Core Competencies are activities or processes that critically underpin an organization’s competitive advantage (Johnson and Scholes, 2007).

Tests for Identifying a Core Competence

  • Leverage Test: Does it provide potential access to a wide variety of markets?
  • Value Enhancement Test: Does it make a significant contribution to the perceived customer benefits of the end product?
  • Imitability Test: Does it reduce the threat of imitation by competitors?

When core competencies are superior to those of the competition, they are called Distinctive Competencies.

Strategic Control vs. Operational Control

Point of Difference: Target
Strategic Control (SC): Proactive probe of the intended direction of strategy.
Operational Control (OC): Aimed at the allocation and use of organizational resources.
Point of Difference: Concern
SC: Concerned with the future of the company and the course being undertaken.
OC: Concerned with the control of designated activities.
Point of Difference: Concentration
SC: External environment.
OC: Internal functions and organization.
Point of Difference: Time Duration
SC: Long-term.
OC: Short-term.
Point of Difference: Control Tools
SC: Scanning of the environment, collection, collation, and review of information.
OC: Application of the Balanced Scorecard.

Limitations of the BCG Matrix

  1. It is simplistic, as it is based on only two propositions: market growth rate and relative market share.
  2. Growth rate is considered the major aspect of industry attractiveness, which is often inaccurate.
  3. Product lines or business units are considered only in relation to their market leader. Small competitors with fast-growing market shares are ignored in this context.
  4. Market share is considered the only aspect of overall competitive position.
  5. The logical progression of an investment is often assumed to be anti-clockwise, but this ideology differs depending upon the specific market scenario.