Mastering strategic analysis of scenarios + 3 essential tools


strategic analysis of scenarios


It is no secret that we live in an increasingly fast-paced and intense world, demanding strategic analysis of the competitive scenarios. This impacts businesses and the economic-financial landscape.

Companies must be attentive to changes, whether in consumer behavior, economic, governmental or competitive factors.

Detailed analysis of their position in the economic landscape is essential, predicting and preventing negative influences for effective strategic analysis.

By identifying strengths and adapting strategies, organizations can thrive in this dynamic environment.

This post delves into scenario analysis in strategic planning, exploring internal and external tools, examples, and practical use in evaluating a company’s strategy.

What is scenario analysis in strategic planning?

Scenario analysis is a widely adopted concept in management studies and consulting, used as a valuable tool for strategic planning. This methodology involves using a set of tools to envision potential future scenarios, allowing companies to develop strategies for various situations.

Although extensively used in businesses today, scenario analysis originated in the military sector. Strategists in warfare visualized potential attacks to develop defense and counterattack plans.

The first step for effective strategic scenario analysis includes identifying factors that can drive business growth, recognizing strengths and weaknesses, and fostering options for future improvement.

It serves as the foundation for the company’s strategies, making it a crucial part of the overall strategic planning process, analyzing both internal and external contexts.

The second step involves researching, analyzing, mapping, and identifying potential future factors, providing a clearer view of the current scenario and enabling well founded and precise decision making.

It is important to note that the primary purpose of scenario building in strategic planning is not to predict the future but to identify factors that may become significant in the long term. This allows the company to create contingency plans tailored to different contexts.

Tips for an effective strategic scenario analysis

Competitor appraisal and strategic planning play a crucial role when conducting strategic scenario analysis for a business plan.

These factors enable an accurate projection of potential circumstances. Here are some essential actions with strategic objectives that every company needs to consistently map:

1. Strategic Thinking

Taking action where others are not, envisioning innovations, and pursuing solutions in challenging situations are just a few advantages of fostering strategic thinking within the organization. 

To embrace this mindset, it is essential for the company to map tools, products or services that can assist in strategic planning.

2. Benchmarking

Gaining a comprehensive understanding of your opponents through a competitive environment analysis is crucial. 

It involves identifying their strengths, recognizing areas where you excel, and being aware of potential threats where they might surpass you. This enables you to maintain a competitive edge in the market.

3. Unbiased opinion

Despite all the efforts you may put into conducting the analysis of your organization’s internal and external environment, it is not possible to be completely impartial. 

Therefore, ask people who know your business and are familiar with the method to review your scenario analysis and provide input on any aspects you might have overlooked. This external perspective can offer valuable insights and ensure a more well rounded and accurate analysis.

4. Use of tools

There are some robust tools designed to streamline the analysis of your company’s internal and external environment. Utilize these renowned tools and methodologies employed by leading industry players. Leverage these tried and tested approaches to effectively apply the technique.

Check out the difference between sensitibity analysis and strategic analysis of scenarios:

Sensitivity Analysis vs Scenario Analysis Mastering strategic analysis of scenarios + 3 essential tools
Source: FinMark

Utilizing strategic analysis and scenario building in planning

Strategic scenario analysis is a straightforward process, making it accessible to companies of all sizes and industries as a key component of their strategic planning.

Developing strategic scenarios encompasses shared factors that apply generally, while individual companies analyze their internal and external environment, including competitors.

Organizational scenario analysis enhances the accuracy of strategic planning by deeply examining the corporate landscape.

This leads to the creation or adaptation of new strategies or action plans, minimizing risks and maximizing opportunities for the company’s success.

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Strategic planning examples for use in business for each step of the process

Main tools for scenario analysis in strategic planning

To conduct a scenario study, various factors must be taken into account, including the concept of economic landscapes, competitive environment, and the use of tools for internal and external scenario assessment. Without these, creating a comprehensive strategic and critical analysis of a company becomes challenging.

In this context, we have selected some tools that will greatly assist in organizational scenario planning:

  • competitive analysis;
  • internal and external environment analysis.

Let’s explore these strategic planning tools for projecting organizational scenarios.

Porter: Competitive Analysis

Studying competitors during strategic planning is essential.

This tool, devised by professor Michael Porter from Harvard, is one of the most renowned when conducting a company’s strategic analysis.

It encompasses the renown 5 competitive forces:

1- Rivalry among competitors

Understanding other companies in your segment is crucial. Rivalry among competitors tends to be higher when more companies are present in the market and when the differentiation of their offerings is lower.

Uncover the strengths and weaknesses, positive and negative aspects of each company, understand the target audience and discover how to meet their needs better than competitors.

2- Supplier bargaining power

The more suppliers you have, the lower the possibility of them dictating prices and delivery times. Remember, they also supply your competitors, who may try to dominate some of them with exclusive contracts.

3- Threat of substitute products

These are products that do not belong to the same category as yours but meet the same needs as your customers. A famous example is the case of butter and margarine. Discover the characteristics and benefits of your products that differentiate them positively from substitutes.

4- Threat of new entrants

What are the entry barriers that can prevent the emergence of new competitors in your market? High installation investments, patents, government regulations, established brands and complex technologies usually inhibit new competitors’ entry.

5- Customer bargaining power

Ultimately, customers define the characteristics, positioning and price of your products. The more competitors and product similarity, the greater their bargaining power. Differentiation is the way to try to control this scenario.

Read also: Understand your market by doing Porter’s Five Forces analysis!

PESTEL risk analysis

PESTEL analysis is used for scenario study and focuses entirely on the external environment.

PESTEL’s name comes from the initials of different types of scenarios that strategic planning requires to be analyzed.

Strategic scenarios in PESTEL analysis:

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

For each of these points, a scenario analysis must be conducted for the business plan, defining opportunities and threats (which are also used in SWOT analysis).

For example, when examining economic scenarios, could list factors such as:

  • Opportunity: Lower interest rates and a decrease in the dollar will ease financing and importing production inputs.
  • Threat: An increase in a specific tax rate will lead to a significant rise in production expenses.

Check out an example of scenario analysis for a company, based on the PESTEL model:

Topics for studying organizational scenarios
  • Strong changes: in government or ministerial resignations, wars, reforms and new laws.
  • Greater uncertainties: inflation, deflation, higher unemployment, decrease or increase in consumption, rise or fall in interest rates, strikes, exchange rate fluctuations.
  • Major ambiguities: high unemployment and increased consumption due to low savings interest rates or stockpiling.
  • Optimal statistical data: considered optimal because of the credibility of the information source.
  • Questionable statistical data: not suitable for strategic planning decisions due to the low credibility of the source.
  • Serious cost increase: import or export fees, scarcity because of high demand, challenging labor market.
  • Severe raw material shortages: crop failure, scarcity caused by ecological or production reasons, restricted imports due to regulations.
  • Strong state interventions: new fiscal or tax laws, bans on sales or production.
  • Strong social interventions: strikes, pressures from ethical, religious, labor, and environmental protection groups.
  • Serious technological deficiencies: technology still unknown, very expensive or not available in the country. Need to hire foreigners.
  • Significant changes in consumption levels: as a result of trends, consumption will decrease or increase.

One fundamental point that cannot be overlooked in scenario building for strategic planning is the social and behavioral impacts that the advent of new technologies, such as the internet and cloud computing is causing.

The study of the so-called generations X, Y (Millennials), and Z is a mandatory part of any scenario analysis and risk identification.

SWOT: Internal and External Scenario Analysis Tool

Analyzing the internal and external environment of organizations is commonly done using the SWOT matrix. In fact, this is the most renowned and also one of the most fundamental tools for strategic evaluation of a company.

The use of SWOT in strategic planning aims to identify a company’s strengths and weaknesses (internal environment) and opportunities and threats (external environment).

Let’s dive deeper into the purpose of SWOT analysis when defining these two environments

Internal environment: strengths and weaknesses

Everything you can control within your company makes up the strengths and weaknesses of your internal environment.

For instance, a company with a strong market reputation, innovation, state-of-the-art facilities and highly engaged employees can list these characteristics as strengths.

Conversely, a company facing distribution challenges, low market share, high financial resource costs and limited economies of scale would identify these points as weaknesses that need to be addressed.

External environment: opportunities and threats

Natural forces, economic policies, social and behavioral changes are among some of the external factors your company has no control over. These factors can represent opportunities or threats to your business and serve as an excellent starting point for your scenario analysis.

As we previously discussed, one of the most comprehensive and systematic ways to conduct an external scenario planning is by using the PESTEL analysis, which can be expanded with other specific factors relevant to your industry.

Integrating Strengths and Weaknesses with Opportunities and Threats:

This is where the SWOT analysis in strategic planning comes into play.

Using it, you must determine:

  • Which strengths can leverage opportunities?
  • Which strengths can defend you from threats?
  • Which weaknesses can exacerbate threats?
  • Which weaknesses can hinder opportunities?

Based on these strategic scenarios, you should define action plans to strengthen your weaknesses or use your strengths effectively to make the most of opportunities and defend against threats adequately.

Learn more: Strategic Management in companies and its relevance

Next steps

After considering all these explanations, strategic planning tools, and scenario construction definitions, you may find this activity clearer now.

If you want to make this task even easier and more efficient, use a strategic planning software like STRATWs One, and do all of this with the help of technology, based on real data and with ease of collaboration among teams.

This system transforms your management methodology into processes. This way, it becomes easier to establish and monitor KPIs to analyze the performance of your strategy, ensuring better results for your company.

Another advantage of this software is the simplicity it brings to management. Instead of having a bunch of spreadsheets and charts, you can concentrate everything in one place, making it easier to access and gain insights to improve your strategy.

demon Mastering strategic analysis of scenarios + 3 essential tools