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What Is Business Analysis And Why Is It Important In Today's Market?
Companies face an ever-evolving set of challenges such as new competitors, market changes and new regulations. Those who can identify these problems early and implement solutions are better positioned to remain successful in the long term.
Owners and managers can do this by conducting a business analysis. This article discusses some of the techniques people can use in evaluating their business.
What a business analysis is and why it is used
A business analysis ensures that a company is equipped to achieve optimal potential. It helps those responsible to find problems and then create strategies or processes to solve the problems. A good business analysis process results in an actionable plan that the company can implement.
All companies can benefit from business analysis as organizations large and small always have areas in which they can improve. Companies that tackle their problems directly are most likely to be successful in the long term. The
Business analysis usually works like this
- Those responsible define the company's goals and needs.
- They then look for the obstacles that prevent them from achieving those goals.
- The next step is to find ways to solve these problems.
- The company implements solutions.
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Overview of standard analysis techniques
There are many different business analysis techniques available to help with a wide variety of problems Managers should choose the right technique for their situation. Here you will find an overview of the usual methods of business analysis.
SWOT is a common technique that aims to provide an overview of the internal and external strengths and weaknesses of a company. SWOT is an acronym for-
- Strength The benefits of the company and what it's good at
- Weaknesses The business drawbacks and weaknesses
- Opportunities Areas in which the company could grow
- Threats External factors that threaten the business
MOST is a form of analysis that helps companies understand what they are trying to achieve and then define and implement strategies to help. MOST stands for-
- Mission The overall goal of the company's goal
- The subordinate goals that will help the company achieve its mission strategy
- . The overall plan for how a company will achieve its goals and mission
- Tactic actions that companies take to implement the marketing strategy
MoSCOW prioritization is a form of business analysis that helps companies define where to focus their resources. MoSW stands for-
- Must haves- things that are non-negotiable. Businesses need resources to address these problems
- Should steer- These are not as important as must-haves, but still have considerable value
- could have- These have a positive effect, but they are not critical to the success of a company or project
- Will not (or want to) have- These are currently not important. With everything else taken care of, the company can focus resources on these issues
PEST (PESTLE) analysis
PEST (or PESTLE) is used to assist companies in assessing external factors that could affect their ability to operate successfully. PEST (LE) stands for-
- Political minimum wages, tariffs, industry regulations, taxes, etc.
- Economic growth rate, recessions, inflation, interest rates, etc.
- Social change in social attitudes towards your product or your industry
- Technological advances that could affect your business
- Statutory new regulations or changes in the legal environment
- Environmental regulations regarding contamination, waste, pollution, recycling, etc.
PEST can be used alongside the Threats and Opportunities section of a SWOT analysis.
Cost-benefit analysis is a technique that helps a company make the most effective decisions by measuring the potential financial costs and opportunities of the decision. The company can then decide whether it is worth pursuing the project.
Imagine a restaurant that wants to increase its sales. It could choose to expand its current location, move to a new property with greater capacity, or open a second location. Each of these decisions will have different costs and benefits that owners must understand in order to make an informed decision.
Businesses can use a fish-bone chart to determine the causes of problems in the business. The chart gets its name because it looks like a fish skeleton, with the problem at the top of the chart and the reasons that make up the fish's spine.
The problems are usually grouped into major categories or root causes. Organizations can either start with root causes or identify problems and work backwards to identify common causes.
The main advantage of fishbone diagrams is that the causes of problems allow managers to take necessary steps to resolve them.
Five Whys Approach
Five Whys is a problem-solving technique that aims to find the source of a problem. It's a simple method of starting with the problem and asking why, until those doing the analysis discover the main problem. You can then suggest solutions to the problem.
While the technique is called Five Whys, you can get to the cause after more or less time asking the question.
Here is an example of Five Whys in action.
Problem- A restaurant continues to run on an essential ingredient so it is unable to fulfill orders.
- Why are we running out of ingredient? We don't order enough of them.
- Why aren't we ordering enough? We don't know how much we need.
- Why do we have no way of precisely estimating the demand? We do not track sales.
- Why don't we track sales? We don't have a system for it.
- Why don't we have a system? We didn't have time to implement one.
The method works because, instead of creating solutions that solve the surface problem, managers can solve the root of the problem.
In the example above, if the business stopped after the first why. It would just order more of the ingredient. This would not solve the problem that the restaurant does not have an effective process for estimating demand, and the problem would persist.
CATWOE Analysis helps organizations look at all of the parties involved in a problem. It ensures that every solution takes into account the perspectives of everyone involved. CATWOE stands for-
- Customers - Who are the organization's customers and how does the change affect them.
- Actors - The group that will implement the changes. These are usually employees.
- Transformation- These are the systems or processes that are affected by the change.
- Worldview- See the broader implications of the problem and the solution.
- Owner- These are the people with the power to implement the solution.
- Environment - Are there any external factors that may limit the solution. For example, regulations or your budget.
The goal of business analysis
The goal of business analysis is to help companies discover problems and then find solutions to those problems.
The specific places of business analysis helps depends on the exact needs of the organization in question. It is therefore important to carry out a needs assessment before starting. Business analysis often focuses on the following three objectives.
1. Reduction of waste resources
All companies have access to resources. These usually fall into the categories of physical resources, human resources, intellectual resources, and financial resources. Companies that can use resources efficiently can do more without increasing spending.
2. Improve project efficiency
Ensuring Tasks Are Performed Optimally Can Help Organizations Streamline Operations Think of the difference between a restaurant using software to process reservations rather than simply jotting down bookings in a notepad and hoping someone will during the next shift.
Business reviews can help companies by discovering processes that are not working as they should. Those responsible can then find more efficient ways of working.
3. Increase in sales
A more efficient process and better use of resources can lead to a higher output, which can ultimately bring more sales than before the changes. If the company can combine this with cutting costs, it can also become more profitable.
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The role of technology in business analysis
The Harvard Business Review highlights several ways in which well-known companies such as Jaguar Land Rover, SABMiller and Nike are using data to drive business analysis.
This article explains how organizations create an infrastructure that gives people access to data across organizations. The easy handling of the tools enabled employees to make data-driven decisions without the need for strong technical know-how.
While these are all big companies, technology has made it easier than ever for smaller companies to access the information they need to improve their practices.
SMBs can use inexpensive reporting tools to automate data collection and display it in a way that makes it easy to get insights. That means anyone can use the information to make smarter, more data-driven business decisions.
As an example of how this could work in practice, imagine a company struggling with the amount it spends on work. A reporting tool that consolidates information about hours worked would highlight problem areas where the company is spending more than necessary.
With this information, the company could implement better planning processes that ensure shifts are not overstaffed, thereby reducing costs.
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