The Strategic Analysis Cycle

In projects in the field of strategic analysis there is a simple role play, similar to the role play in any other project. For this reason, I will not use many words to discuss generics on project management. I will try to focus on the specifics that deserve attention in relation to running strategic analysis projects.

In such projects, there is normally a principal who assigns the project to a strategic analysis function, and an analyst who executes the project, given certain boundary conditions. These conditions typically include:

All good projects start with a brief. The principal normally is the source for the ‘project brief’. The principal paradoxically rarely is the author of such a brief. Rather the principal usually provides the analyst with some broad questions to be answered. These answers still need to be turned into a project brief. The project brief is the source required to define the actual ‘project plan’. In my experience, the principal sketches his analysis request and the analyst patiently listens, aiming to turn what he hears into the project brief. The principal’s sketch, for the sake of giving it a differentiating name, I would like to call the ‘management brief’. Turning vague questions into a well-defined project plan for a strategic analysis is an art in itself. In running strategic analyses, it is not the only an art that needs to be mastered, when it comes to turning questions (i.e., management briefs) into project plans that result in project deliverables. In addition, an analyst is to in advance properly assess how that project deliverables will be used in future decision-making and by whom .

All too often the principal is too high up in the organization to be the user of the (detailed) output of the project. Only an aide may be the actual reader of the full report. After a project has been completed, when a principal reads the summary of the project report and acts upon it, that is when the analyst has basically achieved the fundamental aim of a strategic analysis function: generating outputs that are being acted upon. However, it still may be that the action consists of a well-substantiated choice to do nothing. Normally, however, prior to making decisions the principal will tend to check with the aide for their opinion as well. To the analyst, the aide is not a lowly subordinate, but someone who may well prove to be a key stakeholder! This implies that already when making the project brief, the user needs first to be understood and second to be put at centre stage.

This chapter focuses on the processes of first turning possibly ambiguous and broad questions from a principal (the management brief) into a project brief. Secondly, I will discuss how to design the right project brief for creating a deliverable that has a fair chance of being acted upon. Then, I will go on to give a more detailed working process for the management brief phase. In this chapter, we will discuss:

We will conclude first with some final checks that a strategic analysis function be well-advised by its management prior to getting started, and finally with a hopefully useful checklist for the project brief. Based on such a project brief, the analyst can work out a project plan. This step, as mentioned before, is generic and therefore not covered in this book.

The execution of strategic analysis projects all too often is triggered by the identification of threats, and or opportunities for a business. The trigger may also be called an event. An event in the broadest sense is something happening outside the control of the management team that affects the business. An example of an event is the announcement of a competitor building a new factory. There is also, beyond business, an uneasy relation between decision-makers and events. Once former British Prime Minister Harold MacMillan was asked by a journalist what he feared would most affect the stability of his government. Although the quote has been disputed, he has been said to have uttered:

To stay in tune with the vocabulary used in this book, we will refer to an event, whether it is an opportunity or a threat, as ‘new data’. New data thus often triggers the start of a project. A good start to any new project is to remember the first lines of a short poem (Kipling, 1980).

“I keep six honest service men
They taught me all I knew
Their names are what and how and when
And where and why and who.”

As I said above, I distinguish between two briefs. The first brief is called the ‘management brief’. The management brief should at least consist of the answers to three of Kipling’s service men: why, what and when. With the answers to the questions why, what and when the function has what it needs.

To a principal, the strategic analysis function tends to be included in the ‘other people’ bucket. The function is populated with those that are there to get things done. Analysis functions allow management to focus on the directing of what things need to be done. After all, focusing on what, when and why actually is a convenience to the principal – it saves time.

The question ‘why’ is often the most difficult question for the strategic analysis function to find answers for. When asked, some managers may not immediately (or not at all) feel the need to inform the function why they want to know the answers to the what questions they ask the function to work on. Even worse, they may give plausible but incorrect reasons, as they don’t want to share the real reasons. Sometimes such secrecy is inevitable. This may be the case for example when the work supports merger and acquisition projects. Absent good reasons for secrecy, the function should better persist in getting to the ‘why’ before getting started with real work.

My empirical personal experience has taught me that the better the function understands the underlying reasons for the management questions, the more actionable the resulting deliverable of the function will be.

In my opinion it should start with the function being able to truly understand its own firm’s strategy. This should not be limited to the headlines. It should also include the way that the strategy is planned to be executed. Understanding the firm’s strategy generally is conducive to understanding the ‘why’ behind the ‘what’ question.

There is, however, sometimes more to know, beyond the firm’s strategy, to identify the drivers behind the ‘what’ question. For a strategic analysis function, it is essential to be able to look from the customer’s perspective. To achieve this the function needs to at times understand the customer as a person rather than only as an executive.

No matter how much (most) businesses aim for rational targets to be achieved in a meritocratic culture, managers remain human beings. Humans have functional but also emotional needs that drive their behaviour. Understanding all the factors that drive managers to ask the ‘what’ question helps strategic analysis functions tailor their work in such a way that it increases the chance of their deliverable being used. Below some questions are provided which may help to indirectly identify the ‘why’ behind the ‘what’ questions. The list is not exhaustive but I use it as a checklist in getting a project started.

Consider two possible principals. One is a laboratory analyst, the other is a sales director. Both may approach the function with the same question. However, even though the question sounds the same, each principal may require a different answer. The same question from both of them could for example be: ‘What will change when firm ABC upgrades or re-launches its product XYZ?’ The laboratory analyst’s real information need may well be ‘what functional properties will change with the upgrade?’ because the analyst uses the current product in some experiments and may, for instance, save time when some product characteristics are improved. The sales director, however, may have another information need: ‘what will be the sales price of the upgraded product?’ because that is the product she competes with in the marketplace. A question that at first sight may look well-defined actually may not be specific enough once we realize that different users may have different underlying real needs.

Another element of the ‘who is the principal’ question is the assessment of the competencies of the principal. When the principal is a specialist in a particular area and the question concerns that area, don’t worry: the principal will understand every detail.

When, however, the function is more specialized than the principal in a subject matter, always ensure the deliverable is fully comprehensible to the principal. In short: know the principal and his real needs prior to starting a project.

The saying is ‘Tell me your friends and I will tell you who you are.’ In business, I suggest adding a second line to this old wisdom: ‘Tell me your (bonus) incentives and I will tell you what you do.’ Managers work to further a firm’s goals. To stimulate them to achieve success, they get personal targets. These targets, when they are met, directly link to personal rewards. In most companies, such targets are confidential. They will usually not be known by the strategic analysis function.

The budget targets set for an Operating Company, or OpCo, within a larger firm, however, are often known to a large(r) number of staff: those with access to the corporate budget. The personal targets of the management of an OpCo will in any well-managed firm relate to those of the OpCo. When the OpCo targets are known, it means the function knows what management in that OpCo will be incentivized to achieve. If the OpCo targets are to grow the business by acquisitions, quite likely the personal target of the top team will be to realize an acquisition.

Any market data that assists management in realizing an acquisition will be welcome. So, a function that understands the needs and the (bonus) targets of the principal will find it easier to deliver outputs that are being used.

Training company AchieveGlobal distinguishes six principal emotional needs (AchieveGlobal, 2010):

Different managers have different personal needs. The human need for power is for example quite common (Berle, 1969b):

“Of the infinite desires of man, the chief are the desires for power and glory.”

There is a danger in generalization. Some managers are self-sufficient in satisfying their need for glory; others thrive on recognition by others. Some want to be firmly in control and thus want to know the smallest details; others prefer to stay at helicopter height. The needs of different project principals have profound implications on what a function needs to do in order to deliver. This indeed already starts in the briefing phase. The better the strategic analyst knows the principal and her emotional needs/character traits, the more effectively and efficiently strategic analysis projects can be executed.

Let me give an example to elucidate this point. A strategic analysis function can work 24/7 all year when the principal customer of the function has a high safety need. The principal will see threats for his business around every corner. He will expect the function to explore each of these threats into sufficient detail.

Why does this impact a brief for an analysis project? The function should in this case aim to provide safety to the principal. Wherever possible, the function, in accepting a brief, should search between lines for the (sometimes hidden) emotional needs of the principal. This is not to say that the personality of the principal changes the facts being explored and the analysis thereof. The latter, of course, remains the core of the work. However, knowing the emotional needs of the principal allows the function to tune the message in the right way to the person of the principal. A modest change in tone of voice and tone of delivery, regardless of the content of the message, may make the difference between output being and not being used.

The better the quality of insight the analyst is given into the items that are on the principal’s agenda, the easier it will be to produce immediately actionable deliverables. Analysis departments that are privy to the decisions that top management really need to substantiate will generate the highest return on cost. Before management will share their confidential agenda, trust will have to be built between management and the function. Trust needs to be earned. It will, as always, come on foot, but may, when lost, leave on horseback. In contrast to the answers on the questions ‘what’ and ‘when’, the answers to the questions above, as a rule, are not part of the formal written management brief. Yet, the answer(s) to the question ‘why’ are an essential but unspoken element in the process of coming from new data to a management brief. Time spent on getting behind the formal questions is time well-spent.

The question ‘when’ is the easiest to answer for management. Management generally wants answers to their questions when they ask their questions. Had they identified the need for the answers yesterday, chances are that they would have asked for them yesterday. Management tends to be focused on today’s issues and on this quarter’s results. This may sound cynical. Ridiculing management, however, is absolutely not the objective here. The objective is for the strategic analysis function to constantly look from the customer perspective. Management needs to be focused on the day-to-day running of a business. Management that only dreams of remote future cash flows forms a serious risk to immediate business continuity. Management that identifies ‘new data’ for today generally wants an immediate, or at least a fast, answer from the function on the question(s) these new data trigger.

Timing is of the essence. A competitive move that is pre-empted by adequate and timely countermeasures is the textbook response to high-grade analysis. A nasty surprise that a competitor delivers to us is better framed as a failure to provide a timely warning. The critical importance of the timeliness of deliverables is not only valid in the case of threats but also in the case of opportunities. An opportunity loss is just as well a loss indeed.

In an interview called “Timeliness Trumps Perfection” (Kirkland, 2010), the former CEO of Xerox Corporation, Anne Mulcahy, said the following, and her quote speaks for itself:

“If you’re creating a category of bad decisions you made, you need to include with it all the decisions you didn’t get to make because you missed the window of time that existed to take advantage of an opportunity.”

Vodafone CEO Sir Christopher Gent is not afraid about being too early but admits having been too often, too late, too often (Zook, 2012b):

“I’m not sure of a decision that we took too soon. Unfortunately, there is a longer list of decisions that we took too late.”

Clearly, missing the window of time may not only be due to the absence of timely intelligence on the opportunity. It may also be due to slow decision-making upon the intelligence. The opposite made the difference in IBM’s turnaround in the 1990s.¹

What is true in business, is just as true in the military. Admiral John Godfrey, Director of Naval Intelligence of Britain’s Royal Navy during the Second World War, emphasizes the need for timeliness just as vividly with another metaphor (Macintyre, 2010i):

“Intelligence, like food, soon gets stale, smelly, cold, soggy and indigestible, and when it has gone bad does more harm than good. If it ever gets into one of these revolting conditions, do not try to warm it up. Withdraw the offending morsel and start again” .

In summary, slow decision-making can turn high-grade intelligence sour. When, however, the deliverable is too late, fast decision-making will not be able to make up for it. The strategic analysis function should therefore try to answer (urgent) questions timely. This usually means: as fast as possible, but no faster than that.

The question ‘what’ is focusing on the work to be done itself. I have split this section into two parts. The first part focuses on the content. It covers the objective of the project. The second part covers answers to the ‘what’ questions, answers that do not relate to the content but are equally relevant for a successful completion of the project.

The principal of a strategic analysis project should make crystal clear what she sees as the objective of her project. A helpful way to come to an objective of a project that both serves the principal as well as enables efficient project execution is to look for the decision that a principal is planning to take. What particular indicator (fact) would compel a principal to take decision A or decision B?

Consider this example. In many businesses, the quest for growth is the name of the game. When a business executive aims to expand the geo-scope of his business, he may ask the strategic analysis function ‘to identify and map attractive future export markets (i.e. countries)’. The function can work on this for ages, finding all imaginable details on the various countries and delivering over 100 slide deliverables by country for over 150 countries – a great way to waste time. For an analyst to get to a much sharper management brief they should ask for three indicators that the principals consider ‘must see’ to make a first sifting of possibly attractive and possibly unattractive markets. Think of indicators such as the market growth rate of the product category, or the population size, or the applicable import duties of the target market. When import duties are high in a country, exports to the related market will probably be unduly expensive compared to locally produced goods, so the market is probably not attractive. When the population is too small, the market will rarely be attractive either. Finally, when the market growth is negative, why bother to fight for a share in a shrinking market that we are not yet active in? These criteria of course are not universally applicable to any business; the criteria to choose should emerge from understanding your own business. Analysing 100 countries on these three criteria is achievable and based on these the principal may move to step two, asking for in-depth analysis of the top five candidate export markets. The three criteria act as indicators enabling a first rough decision on whether or not to make a deep-dive on a country as candidate export market with priority. More important decisions may be based on the outcome of the in-depth analyses of the priority countries. Principals seldom disagree on these sorts of phased project objectives: phase I enables a rough sifting; phase II dives deeper and decides whether to commit heavy resources to an idea.

The logic of the above example resembles the binary judgment in court: a suspect is guilty or not guilty. For the suspect or his lawyer, one single piece of irrefutable evidence can be enough for an acquittal. This single piece of evidence needs to form a watertight proof that the suspect cannot have committed the act that he is suspected to have committed. The sharper the decision to be taken has been worded, the better the function’s search can be focused. Find the evidence – no more but also no less what is needed to base the decision upon. In the age of information overload, defining selectively what really needs to be known can save exceptional amounts of time and effort in executing your projects.

The questions below are ‘what’ questions that do not concern ‘content’ but that still need to be answered prior to starting a project. Preferably, the questions are answered by or in consultation with the principal. When the function knows both context of the overall question and the person of the principal well, some questions can be answered by the function because the risk of misunderstandings is deemed small. In case of doubt, however, an analyst should not start regardless. It is indeed recommended that he should bother the principal to get his answers rather than to think in his shoes, make mistakes, waste resources and create an unhappy customer.

The most common ‘action standard’ in analysis is the required accuracy of the result. As a rule of thumb the required accuracy should be proportional to the potential business upside or risk involved.

In military intelligence accuracies are usually expressed as a percentage of the likelihood of some event occurring in a defined future period. On 1 August, 1990, the CIA issued a warning with a 70% probability that Iraq would invade Kuwait. Iraq indeed invaded Kuwait on 2 August, 1990 (Gordon, 1995c). I have not seen such probability percentages being used often in business strategic analysis.

Sometimes it is hard to indicate the required accuracy of the deliverable to be produced. In such cases the analyst should assess the justifiable amount of resources dedicated to an assignment. When I face this issue, on the one hand I mentally consider how much effort is required to check all usual sources in sufficient depth. On the other hand, I consider the potential business impact. High impact, low effort: go. For the opposite scenario, double-check with the principal. Medium impact, medium effort: see whether analyzing a single or a few indicators in phase I of a multi-stage approach may cut resource needs. What this section most of all shows is that strategic analysis management is a pragmatic activity. It is a craft. It is by no means a formal science, where rules of nature determine the game.

Especially when a lot of information is available or easy to collect, the temptation for a function is to proudly show off to the project principal all the data and analysis that is available. Look, boss, this is how good your function is. This is all that is known. This is understandable and charming, I have seen it happening (here is the new business bible, look at this…) but unfortunately this is wrong. Like in the case of the action standards, the level of detail to be worked out back-office, i.e., in the analysis function, is determined by the potential business upside or risk involved.

Additionally, the chance that the decision-maker will actually use the deliverable increases significantly when the conclusions are unambiguously presented whilst taking a minimum of time to digest. What decisions are based on 200-page reports that do not have a two-page summary? How much more than those two pages do you really need for good decision-making and how much do you need only for your own record? There may be very good reasons to produce 300-page reports. Although, in business there are few instances when the principal needs a report of this level of detail.

In any large international firm the answer to this question should be English or Chinese unless otherwise stated. The ‘unless’ may apply when either for secrecy reasons or because of the language abilities of the principal another language is favoured. Good results have been obtained by offering principals a (short) deliverable in their mother tongue when they are not fluent in English. If it increases the chances of intelligence being used, hiring a translator to translate any non-English language text may be a good investment.

Agreeing in advance with the principal on the format of the deliverable is a key factor in ensuring analysis outputs are being used. This is understood extremely well by the best management consultancy firms, and part of their work essentially boils down to turning data their customer already possesses into graphs or images that radiate a persuasive clarity. This persuasiveness turns management uncertainty into confidence. The result is that the intelligence is being used to support decision-making. This is exactly the aim.

A strategic analysis function that has got appropriate management answers for the questions ‘when’, ‘what’ and even, perhaps the unspoken, ‘why’ will not automatically complete a project. The checks below should be passed before the analyst proceeds from brief to action.

Sometimes strategic analysis functions do not obtain sufficiently defined answers on the above three questions but a project is started anyway. Often, in these cases, the brief was delivered orally by a member of top management who was in a rush. The high rank of the principal, and/or the persuasive style with which the brief was delivered, intimidated the analyst into submissiveness rather than asking all the right questions needed to get a clear direction for the function’s project.

After the project was finished and the deliverable was handed over to management, the management was unhappy. The result did not match their real needs. A frustrated analyst has the reflex to blame management for not giving complete questions. That is understandable but pathetic. The fault really is with the analyst. Rather than being intimidated, the analyst had to ensure he got complete input from management to do useful work in the first place.

Clarity is not always evident. In the dairy industry the question ‘Find me the annual report of Westland company,’ is less clear than it looks. In the Netherlands, there is a Westland Kaas company, in Germany, a Westland Milch GmbH exists, whereas in New Zealand there is a Westland Milk Products Cooperative. These companies have no connection whatsoever.

Questions may not always be accurate. A question like ‘Find me the WACC for France’ is an example. The abbreviation WACC stands for ‘Weighted Average Cost of Capital’. This metric is used in valuation calculations. Unfortunately, there is no such thing as a WACC for a country. A WACC is linked to a stock-listed firm and related to the share price volatility.

Asking for a ‘WACC for France’ can mean two things: the WACC that your company would apply when you would invest in France; or the WACC that should be used in calculations for a (stock-listed) French company for their investment in France.

To minimize confusion and maximize results, ensure that you have accurate questions before starting your work.

Because of either carelessness or a lack of critical thinking – or worse because management is internally divided – questions may not always arrive unambiguously at the strategic analysis function.² Ambiguous questions lack clarity. Take for example the question: ‘Provide me with some information on the cheese market in the UK’. How would you define ‘some’? Does the principal ask for volumes or values of the market? Or the volume and value by sales channel? Or the different cheese types sold by channel (volume/value)? Or which different players are active in the market? Without getting such clarity, starting up the collection phase should be strictly avoided.

Getting clarity is critical. It is the sole responsibility of the strategic analysis function to get a sufficiently defined management brief prior to starting a project. The analyst should keep asking questions for clarification to management up to the point that the ‘when’, ‘what’ – and where possible and needed the ‘why’ of the project – are defined in such a way that misunderstandings between management and the analyst are all but excluded. Once these answers are available, completing the management brief to a project brief is feasible. A checklist for a project brief is the topic of the next section.

In table 2.1 I provide a simple checklist for a project brief. The three questions what, when and why are covered in table 2.1 and may be answered differently for different strategic analysis projects.

Sometimes there is merit for a strategic analysis function to outsource a project to a third party. In this book, I focus on the ‘in-house’ strategic analysis function (see chapter 20 ), so I will ignore the considerations of when and how to outsource intelligence work.

The ‘how’ question concerns the methodology of the actual project. Methodology is the topic of chapters 3 -8 for data collection, chapters 9 -14 for data analysis, chapter 15 for reporting and chapter 19 for filing.

Finally, the ‘where’ question considers the relevance of doing in-field research versus desk research. This topic mainly concerns collection work and is covered in the collection-related chapters.

Now that we have a project brief, we can continue our journey into data collection.

WHEN	Timing of the deliverable
WHAT	Define objectives and hypotheses to be validated Check balance between business’ sizing of the price vs, budget (requirements) Define non-content attributes: - action standards of accuracy of the result - required level of detail - language - format Check ‘what’ question for: - completeness - accuracy - ambiguity - factual clarity
WHY	Define ‘real’ reason behind the project, taking into account: - upcoming business decisions - current business strategies - current business targets Implicitly: consider emotional needs and competencies of the principal
WHO	Choose between (partial) internal or (partial) external execution Define organization (principal, project leader, staff, stakeholders) When external, consider budget-implications when choosing: - external supplier - between syndicate or tailored work
WHERE	Desk research or field work When field work, consider budget implications
HOW	Choose collection methods and sources, analysis (tools), reporting media Define clearance level and choose team with full clearance Choose project name Ensure compliance with all applicable law (especially in collection)

TABLE 2.1 FULL PROJECT BRIEF CHECKLIST