Let's go outside: 3 frameworks for external analysis

This is the first article in a short series mapping out useful frameworks for common business activities.

There are literally hundreds of strategy frameworks, approaches, models and philosophies. Perhaps even religions could be a term used, given the passion and extremism that surrounds some of them.

Whilst one person will tell you that the pathway to success is a 5 step process, another will chant "OKR, OKR" at you, another will be telling you to look up OGSM, and yet another will produce the latest business canvas for you to use.

These are all good choices and that is the problem. The person shouting OKR might be no more right or wrong than the person telling you the latest business canvas is the best thing since sliced bread.

As an aside, what was the best thing before sliced bread? Which invention was ousted from the top spot, the standard by which all other things are judged, by sliced bread?

I was discussing this topic with a student recently – strategy, not bread – and how the whole area is nebulous and difficult to tie down. The problem being the vast amount of choice.

I thought I'd put together a short series of articles listing a few frameworks I like, for nothing more than a reference point and perhaps some help to those looking for thoughts.

A lot of choice can be confusing...

It is certainly the case that when there are so many options it can be confusing and off-putting as to what to select to help you. As a result, strategy is often met by team members with an eye-roll, a sigh, and a vision of some off-site with low quality sandwiches and team building games involving spaghetti.

What is a framework anyhow?

For me, a framework, approach, model or steps are simply a way of mapping one’s thoughts down and providing a methodology to make decisions.

Ultimately that is it… a framework does not tell you the answer, but it may provide you a structure to make a decision.

So, how does that help us select the best one for you?

The answer is probably always a combination of models. You pick and choose them based on what information you want to structure, much like ingredients in a recipe.

These approaches are, after all, about structuring data. That part really appeals to me.

At Lucidity I’ve been lucky enough to see a lot of strategic plans and frameworks. I'll be listing out some of the ones that resonated with me grouped by topic.

External Analysis

The first list we'll look at is external analysis. These are frameworks or models designed to help you understand the environment you operate within in order for you to make the best decisions about how to be successful going forward.

There are other areas just as important such as internal analysis, how you execute your strategy and how you communicate it, but we'll come to those in later posts. For now, the focus will be firmly on external analysis.

Good planning factors in events outside the business

There’s a quote from Mike Tyson that gets rolled out a lot regarding planning: “Everyone has a plan until they get punched in the mouth”. I’m not going to disagree with Mike Tyson, I wouldn’t want him to unfriend me on LinkedIn after all, but I will say that most plans should be able to adapt and survive some external punches.

Indeed the purpose of external analysis is to spot when the punches may land and when there may be an opening for you to throw a punch back, if we are to stretch this boxing analogy further.

In my experience there are three frameworks that always provide a great foundation for external analysis activities. They are:

• PESTLE to map out environmental factors that may impact you
• Five Forces to map out the different forces at play within your marketplace
• Four Corners to really understand and make educated predictions around your competitors

Sound good? Here's a brief look at each of these...

Discover the external factors that may impact you with PESTLE Analysis:

PESTLE is a well known simple 3x3 matrix that asks you to list out all the external factors that may impact your business. When you look outside your business you're considering everything from global pandemic through to interest rates... that's a lot to take in! PESTLE breaks it down into bitesize chunks, looking at Political, Economic, Social, Technical, Legal and Environmental categories.

There are many variations and spelling of PESTLE (DESTEP, LoNGPESTLE, PEST, etc) but it essentially is the most common and well known approach to mapping out the environment.

In many ways it's a super simple approach but it can and should lead to in-depth discussions. Each item in a PESTLE is ultimately a risk or opportunity to your business, so warrants a discussion on how you handle it moving forward.

List the market forces that can impact your price and performance with Porter’s Five Forces:

This framework specifically looks at what is going on within your market and helps the user break down the areas that need discussion. It's a 5 box structure that looks at the power your buyers have, the power your suppliers have, the threat of substitution, the threat of new entry, and overall competitive rivalry.

Each of these forces have a high/medium/low categorisation. If you're all high then you have limited options in this market and if you're all low you're in good shape. The reality is likely somewhere in the middle...

Map out a competitor activity with Four Corner Analysis:

This one is more like a game. The model asks you to list the motivations, drivers, assumptions and capabilities of your competition before then taking a step back and having an educated guess at their future strategy.

It’s the closest you get to being a spy in the strategy world. For bonus points take a look at perception maps when using this framework, a great way to summarise a market in a 2x2, albeit at a very high level.

Further Reading

You can find out more on the above frameworks in the articles we've put together at Lucidity:

• Guide to PESTLE
• Guide to Five Forces
• Guide to Four Corner Analysis

Of course, there are many more great frameworks out there that focus on external analysis, but in my experience these three give an excellent foundation.

Next Time

In the articles coming up I'll look at some good approaches for deciding your strategic options, internal analysis and execution of strategy.