We are all familiar with SWOT and PEST as strategic analysis tools. Many will be less familiar with the Strategic Position & ACtion Evaluation matrix, frequently referred to as SPACE Matrix tool.
The SWOT and PEST tools are both environment (internal and external) analysis tools.
PEST takes us through a process that scrutinizes the external environment within which the organization has got to plan and operate.The four factors Political, Economic, Social and Technical will all to a greater or lesser extent impact the organization. The PEST analysis helps to get clarity around these factors that will impact the planning horizon and get consensus among the members of the planning team.
SWOT analysis focuses on Strengths, Weaknesses, Opportunities and Threats. It helps to identify and clarify the strengths and weaknesses of the organizations as it seeks to develop a strategy and plan that can pursue and exploit the identified Opportunities while taking due cognizance of identified Threats, all within the external environment identified by the PEST analysis.
Our Strategic Planning Workbook can be used to facilitate and record the PEST and SWOT analysis outcomes.
The SPACE Matrix
The SPACE matrix takes a slightly different approach to the analysis.
It is used to determine what type of strategy a company should undertake. It focuses on strategy formulation especially as related to the competitive position of an organization.
The matrix is broken down to four quadrants where each quadrant suggests a different strategy:
The outcome of the analysis is plotted and the result depicted in one of the four quadrants to suggest the appropriate strategy.
The SPACE Matrix Analysis
The SPACE Matrix uses two internal and two external strategic dimensions in order to determine the organization's strategic posture in the industry. The four areas of analysis are:
Internal strategic dimensions:
- Financial strength (FS)
- Competitive advantage (CA)
External strategic dimensions:
- Environmental stability (ES)
- Industry strength (IS)
Financial Strength (FS): This internal dimension can include return on investment, leverage, liquidity, capital, risk involved in business etc. as key factors.
Competitive Advantage (CA): This internal dimension can include market share, product quality, product life cycles etc. as key factors.
Industry Strength (IS): This external dimension can include growth and profit potential, financial stability, technological know-how etc. as key factors.
Environmental Stability (ES): This external dimension can include technological change, rate of inflation, demand variability, price range of competing products etc. as key factors.
Which Analysis Should Use?
The SPACE matrix can be a useful initial analysis to identify a generic strategy. It can also be useful in assessing strategic alternatives suggested by the PEST or SWOT analysis.
We set ourselves the highest standards in customer service and go the extra mile when necessary to ensure we have a satisfied customer. So it is really pleasing when we get a thank you message and genuine appreciation from our customers.
We recently received message on Friday night at 10.00 PM (our time) from “Tom” who had placed an order earlier in the week for MS-Word and MS-Excel General Electric GE McKinsey Matrix Templates. Tom had “ a meeting on Monday morning where I need to make use of the MS-Word and MS-Excel General Electric GE McKinsey Matrix Templates and hope that I will be able to obtain them sometime early this weekend so I'll have the time to work with them.”
He couldn’t find our email with the download link. As it was out of hours we picked the message up on a cell phone while having dinner with friends.
On checked back we confirmed that the order had been received early in the week and an automatic email with the appropriate download link had been generated and sent to Tom. The most appropriate action was to generate the email again and to suggest to Tom that if he didn’t receive it to check his SPAM folder or other possible locations where it might be hiding. Despite exhaustive searches he couldn’t find it, so time for plan B; we downloaded the files and user guide and sent them as an email attachment.
We were delighted to receive an message from Tom shortly afterwards that confirmed that he had received them and the following comment “Please allow me to say that in handling this matter, you displayed a level of support and customer service that is rare these days and that which I've not seen in a long, long time. You went above and beyond making sure I received the files in time for me to make use of them. Your diligence in doing whatever it took to get these files to me is highly commendable and greatly appreciated.”
Thank you Tom and we happily when back to our dinner friends in time for coffee and all before 11.00 PM
3D Analysis in Excel
Excel has always been a very popular and powerful business tool.
One of the features of Excel that is easy to use and is frequently under-utilized is the Excel Bubble chart.
The power of the Bubble chart is that it allows us to present data analysis in three dimensions and can be significantly more informative than visually trying to aggregate multiple two-dimensional charts in the mind’s eye.
By way of example, we are all familiar with customer surveys where we ask our customers to rate our performance under a number of headings such as quality, customer service, etc. The results are usually informative and useful.
We can add a second dimension by asking to customer to also rate the factors in terms of their importance to him/her. By plotting the data in two dimensions we can now see how our performance is rated for the factors that are most important, are therefore most significant, to the customer.
However, customers’ approach to rating can vary from those who give everybody a 5 out of 5 to those who are much conservative and only rate above 3 out of 5 in exceptional circumstances. “If I gave somebody a 5 there would be no room for improvement”
Asking the customer to rate you on how you compare to competitors and other suppliers provides an additional insight into how to interpret the ratings he/she had given you.
For most of us the goal would be to be rated very highly for those factors that are most important to the customer and to be perceived to be much better than our competitors.
An Excel Bubble chart allows you to analyse the results in 3D; the X-axis being used for the rating you receive for the factor, Y-axis for the rating of the importance of the factor and the size of the Bubble indicating how you compare with the competition.
A low X value, a high Y value and a small Bubble spells trouble and indicates that you have a lot of work to do on this factor as you are rating as being poor for a factor that the customer considers important and you are perceived to be much worse that your competitors.
A “picture being worth a 1,000 words” the chart allows us to quickly hone in on the factors where we need to make improvement most urgently.
There are many other examples where a Bubble chart can prove useful.
In the case of a SWOT analysis the X-axis might indicate the size of the SWOT factor (Strength, Weakness, etc.) the Y-axis indicating the immediate or short-term importance/impact of the factor and the Bubble size indicating the more long-term strategic importance/impact of the factor.
Sales revenue is the lifeblood of all commercial organisations.
On an annual basis, long debates and negotiations take place before the annual sales revenue budget is finalised.
Once the revenue number is finalised and signed-off it is over to the Sales Management to make it happen. Sales management need to dissect the revenue monthly numbers and translate the revenue targets into numbers and value of sales that need to be closed each month.
Many organisations have contracted recurring revenue, e.g. monthly maintenance fees. This should be subtracted from the monthly revenue target to identify the net new sales revenue which the sales organisation needs to close each month.
As all sales organisations will tell you, sales do not just happen and close on their own. The prospect goes through a buying process, particularly in the Business-to-Business (B2B) environment, that involves a number of steps or stages from need identification, through to brand/supplier awareness, consideration and preference to purchase intention and actual purchase.
The sales pipeline or funnel is characterised by having a series of stages or steps in the sales process that seeks to match and respond to the needs at each stage of the buying process and can include initial lead qualification, need identification and assessment, proposal development, negotiation and closure. Typically the stages are characterised by the numbers in the pipeline being reduced as it goes through each stage (pipeline stage leakage) and hence the funnel shape.
In order to scope the work to be done to achieve the monthly sales revenue plan, sales management must work back through the pipeline stages to identify how many leads, prospects, proposals etc. must be achieved each month if the sales revenue numbers are to be achieved in subsequent months.
The elapsed time that the buying process taken and hence the time it takes to process a sale through the pipeline sages varies by industry and in some cases can be in excess of six or twelve months. In the case of a six month pipeline duration the outcome in month six is limited by the number of new leads entering the pipeline in the first month.
A tool such as the Excel-based Sales Pipeline Planner and Calculator available from the Business Tools Store takes care of the calculations for each stage of the pipeline for each month and identifies the numbers required at each stage to achieve the sales revenue budget in subsequent months.
Having identified the number of new leads required each month to support the sales revenue plan it is now the turn of Marketing to provide Sales with a steady stream of the required number of leads.
Increasingly Marketing is becoming required to justify budgets and demonstrate ROI and the expenditure should be tied to the specific target number of leads to be generated.
There are many options/channels that Marketing can choose when developing a lead generation program from traditional advertising, tradeshows and telemarketing to more recent options such as email and web marketing, webinars and social media.
A lead generation budget/plan should be drawn up that assigns a budget to each channel to be used and identifies the number of leads to be generated as a result. This allows the cost per lead to be calculated and compared across the different channels.
This approach can be taken to a more granular level by assigning budgets and number of leads to be generated to individual programs/campaigns within each channel, i.e. if one is using email marketing or telemarketing assigning a budget and leads target to individual campaigns or similarly breaking the tradeshow budget and target number of leads down to individual tradeshows.
Once the leads begin to flow a crucial step in a joined up process is to manage the leads and nurture them through the different pipeline stages to a successful conversion into orders and ultimately sales revenue.
Typically in the initial stages of the selling process very limited information is available of their precise requirements and there is a low probability of successfully converting the lead into a sale; perhaps only as few as one in ten of initial leads identified are successfully converted. As the prospect goes through the buying process this probability increases.
The sales pipeline should match the buying process and each stage should be focused on moving the prospect successfully through the corresponding buying stage. By using the probabilities assigned to each stage a net pipeline value can be calculated for sales forecasting purposes.
A sales pipeline management system should track the status of all active leads and should also provide lead source analysis so that the most successful sources in terms of generating leads, conversions and revenue can be identified
There are many tools available to manage prospects through the sales pipeline, including sophisticated CRM and sales automation systems.
For organisations for which such systems are not appropriate, simpler Excel-based tools that are easy to deploy and use are available.
Online sales continue to account for a growing proportion of total sales.
Even the smallest business can no longer ignore the online channel.
The online channel offers opportunities for every type of business and with ecommerce platforms like Big Commerce** it was never easier or more affordable to open an online store.
Once you have an online sales presence, channel revenue maximisation becomes a key objective.
Three key variables impact the total revenue from the channel.
These are: (1) total number of site visitors
(2) the conversion rate of visitors to customers and
(3) average order value.
Should you focus on increasing the total number of visitors or seek to increase the conversion rate, say, by 20% or increase the average order value by,say, 10%?
Each requires a different strategy and results in a different revenue outcome.
Our Ecommerce Revenue Business Model Calculator lets you do “what-if” revenue analysis on these key variables for each of four periods.
Revenue, traffic and conversion rate projections are calculated and displayed in tabular format and in a graphic dashboard.
** Big Commerce is used by over 39,000 small business online store worldwide and costs as little as $25 per month.
Google has quietly released major changes in the way which search data is reported which is likely to have a significant impact on the way SEO is practiced.
So what is the big game changer?
In October 2011 Google announced that it was encrypting the data arising from organic search for those users who were signed in to their Google account, in the interest of protecting personal privacy and security. The result was that when one used Google analytics organic search sources to see what keywords were sending traffic to your site this encrypted data was reported as “not provided”.
While this was an inconvenience, Google said at the time that it would not exceed 10%, one could infer from the not encrypted searches what keywords the page was ranking/not ranking for and carry out on-page SEO to improve the ranking and resultant traffic and conversions.
The big change in the recent Google announcement is that Google will now encrypt 100% of the data. As a result you will be able to see search traffic results for each page but have no idea what search words were used to generate that traffic.
How can you help users to find what they are looking for if you have no idea what search terms they are using? It is akin to driving your car by looking out the rear window.
You can now guess what keywords might be relevant, carry out your on-page SEO and check for changes in traffic in the following few weeks, i.e. while driving guess if you should turn left or right and check for the resultant impact.
Why is Google Doing This?
Google is doing this “in the interest of protecting personal privacy and security” so that third parties cannot spy on your search activities.
This sounds reasonable. However, suspicion as to the motive has been raised when this same keyword data is available for Adwords account holders.
Ad search traffic is not encrypted, so that when someone arrives on your site after searching Google and clicking on an Ad, the search data is available. A small detail is that you pay a click fee for each visitor that arrives via this route.
What can you do?
Microsoft Bing search data is still available. The data will represent only a very small percentage of all searches carried out – Bing is typically 17% versus Goggle’s 66%.
Perhaps you can make the assumption that Bing users are a representative sample of all search users.
Google Webmaster tools, still provides search data estimates for the previous 90 days.
However, it is worth noting that the figures are only estimates and only the data for the most recent 90 days are available. To build up a history, once should download the data on a regular basis.
Use one of a number of independent providers, who have access to other sources of search data, and offer commercial alternatives.
Wordtracker one such vendor who claims to have a database of 3.5 billion searches per month. Wordtracker also have a limited functionality free alternative.
Introverted strategic planning that focuses exclusively on the organisation itself is doomed to failure.
All organisations, irrespective of size, operate within a macro-environment over which they have little control.
PEST analysis (Political, Economic, Social and Technological analysis) provides a useful framework of macro-environmental factors used in the environmental analysis component of strategic planning.
The output from the PEST analysis provides a good background against which to proceed with a SWOT analysis to evaluate the Strengths, Weaknesses, Opportunities, and Threats of the organization.
The results of the PEST and SWOT analysis can inform later steps in planning to achieve objectives, which is covered in our Strategic Planning Workbook .
We are all familiar with SWOT and PEST analysis as techniques to use during the planning process.
Many are unsure how to use them effectively and how they fit together.
- Should I use SWOT or PEST or both?
- Once I have completed the analysis how do I most effectively incorporate the results into the overall planning process?
The Business Tools Store has produced a Strategic Planning Workbook that allows the novice and expert alike to use both PEST and SWOT in a complementary fashion and to use the results to identify appropriate strategies.
The workbook identifies relevant objectives, and defines action items to achieve the selected objectives.
It further assigns metrics, timelines and executive ownership to all actions, thus ensuring follow through from the PEST and SWOT analysis to “on the ground” implementation.
A PDF version is available FREE to download, while a fully editable Word version can be purchased.
PEST analysis is used to analyze the external macro-environment. PEST stands for Political, Economic, Social and Technological; the four categories under which the external environmental factors are classified.
SWOT analysis is used to analyze the external micro-environment and the internal environment. SWOT stands for Strengths, Weakness, Opportunities and Threats; the micro external environment being analyzed for threats and opportunities, while the internal environment is analyzed for strengths and weaknesses.
How does PEST Analysis and SWOT Analysis Compare?
PEST analysis is appropriate for the big picture external macro environment analysis within which SWOT analysis provides an analysis of the external micro and internal environment and as such it is usual to complete the PEST analysis initially and to use the results as a backdrop and framework within which the SWOT analysis is then carried out.
PEST analysis usually involves factors over which the organization has very little influence, e.g. inflation rate, trade restrictions, population growth projections.
On the other hand, SWOT analysis deals with factors over which the organization can have a measure of control and influence in developing and executing the strategic plan, e.g. further developing and exploiting the organization’s strengths and taking action to minimize the impact of external threats or take advantage of identified opportunities.
The techniques are most effective when the PEST analysis is completed first and the output of the PEST analysis provides an informed view of the external macro environment within which strengths, weakness, opportunities and threats are assessed.
Get an editable Business Planning Workbook FREE with SWOT & PEST templates use code “SPWFREE” at checkout http://businesstoolsstore.com
Continuing to expand our extensive portfolio of strategic planning tools we have recently added an Excel SPACE Matrix template.
To start using it to produce your SPACE Matrix just click on SPACE Matrix Excel template.
Is the SPACE matrix tool for you?
The Strategic Position & Action Evaluation matrix or SPACE matrix focuses on strategy formulation particularly from the competitive position
of an organization and helps companies to decide the appropriate type of strategy analysis the company should undertake.
The SPACE matrix analysis outcome can be used as a basis for other analyses, such as PEST analysis, SWOT analysis, Ansoff, BCG matrix or GE-McKinsey models, for which we have a comprehensive portfolio of Strategic Planning templates.
The SPACE matrix has four quadrants. Each quadrant suggests a different type of strategy and the SPACE analysis places the organisation in one of the quadrants indicating the type of strategy the company should undertake.
The different types of strategy suggested are:
SPACE Matrix Analysis
The SPACE Matrix analysis framework has four dimensions in order to determine the organization's strategic positioning in the industry.
- Financial strength (FS)
- Competitive advantage (CA)
- Environmental stability (ES)
- Industry strength (IS)
The CA score is added to the IS score to give the total X-axis score
The FS score is added to the ES score to give the total Y-axis score.
This point of intersection is then plotted on an SPACE matrix and the resulting quadrant location indicated the appropriate strategy.
Sales Funnel Graphic Image added to Sales Pipeline Funnel Template
The Sales Pipeline Funnel Calculator has been upgraded to include a graphic image that dynamically shows the shape of the funnel that results from the sales process pipeline being used.
The graphic shows how the number of active leads in the funnel decrease as they flow through the funnel.
This allows the user to quickly see the impact of any changes in the parameters defining the funnel, i.e. the number of leads entering the funnel, the number of stages in the sales process and the leakage in the funnnel as one goes from one stage to the next.
The new template is available to download from Sales-Funnel-Template | Sales-Pipeline-Template-Excel-Calculator.