Chapter 7: Developing a Business Strategy

Business Strategy, Assessing Strategies, Planning Process, Strategy Challenges

The Concept of Business Strategy

In order for business growth & profitability, senior management must:

• Define & create a strategic direction and market position for the organization – Strategic Plan!
• Execute the core tactical initiatives within the plan in a manner that ensures success – Execute!

^{1: Strategy Made Simple}

What are the 6 Core Elements for Assessing Business Strategy?

Managers must determine direction in these 6 key areas:

• Purpose: Mission of organization & vision of managers.
• Mission statement is organization’s reason for existing.
• Vision statement is what managers want their organization to become.
• Markets: Market business is in.
• Measure success in existing markets & decide if they’re worth competing in.
• Look for new potential markets.
• Harvesting strategies is a decrease in commitment to a market due to its perceived weak profitability.
• Products & Services: Current products & services offered by the organization.
• Reviewing current products/services to see which need to stay or which need research & development.
• Looking at potentially new products/services.
• Seeing changes in demand & supply (due to change in tech, consumer needs/tastes, or new substitutes)
• Ex: Whether customers should be offered payment terms/financing options.
• Resources: Allocation of resources.
• Allocate resources in a way that accommodates for capacity limitations, competency limitations, and technological limitations.
• Business System Configuration: Modifying the organization infrastructure & business process.
• Making changes to distribution outlets, warehousing, product delivery, plants & facilities, manufacturing or assembly processes, marketing campaign, etc.
• Ex: Addition of an ecommerce website.
• Responsibility & Accountability: Identifying who is responsible for each aspect of the plan.
• Who will be responsible for key objectives and what is measuring their success?
• Create an accountability system using SMAC (specific, measurable, actionable & controllable) or SMART (specific, measurable, actionable, realistic & time sensitive). Also detail budget, which customer to target, how staff will be rewarded.

The Strategic Planning Process

This is the process of building a strategic plan or “road map” for an organization’s success.

What are the 5 Steps to Developing a Strategic Plan?

• Revisit Our Purpose: Who are we & where do we want to go? (Mission & Vision statements)
• Do An Internal/External Analysis: What changes threaten us or provide us opportunities?
• Assess Our World View: Based on what we know, what are our choices?
• Choose Direction: Given capabilities, competencies, capacity, competitive advantage & resources, which strategy is the best (where will we play)? What threats must we respond to?
• Implement Strategy: How do we develop strategic thrusts & tactics to successfully execute plan? How do we monitor performance?

What is I/E (Internal/External) Analysis?

This analysis is all about assessing business risk & change in 4 key areas:

• Macroeconomic: PESTEL (Political, Economic, Social, Technological, Environmental, Legal).
• Industry: Porter’s 5 Forces assists us in identifying fundamental changes in the industry.
• Rivalry among existing competitors
• Threat of new entrance (barrier of entry)
• Threat of substitute products or services
• Bargaining power of suppliers
• Bargaining power of buyers
• Competitor: SWOT analysis
• What are the competitor’s strengths?
• What are their weaknesses?
• What market opportunities will they seek to attack?
• What threat do they pose to your organization if they’re successful?
• Reviewing annual competitor reports, quarterly earnings, forward-looking assessments of the future, management comments are all excellent sources of information on competitor strategies & actions.
• Competitor: Types of Competition (Perfect Competition, Monopolistic, Oligopoly or Monopoly)
• Company: 3C Analysis (Competencies, Capabilities & Capacity) & SWOT Analysis
• Full internal analysis of resources, capacity, competencies, and human resources.
• Compare that to competitor 3Cs & SWOTs.
• Identify opportunities that exist for the company.
• Identify financial, operational, technological & market risks that would occur if pursuing an opportunity.
• Customer: Identify shifts taking place in customer base in terms of attitudes, behaviour & needs.
• Demographic changes, customer desires, impact of economic climate, customer expectations, etc.
• Customer analysis will also look for new customers in new markets or with new products/service.

How Can Competitive Advantage Be Identified?

Competitive Advantage can be described as ‘How does this company add more value to the product/service they’re offer? Why would a customer choose them over another?’

^{2: Potential Areas Where Competitive Advantage Can Be Identified}

What are the 2 Types of Competitive Advantages?

• Strategic: “First Mover” actions; changing the game/expectations/norms of a marketplace.
• Operational: Executing daily tasks in a superior manner than competitors, in delivery, customer service, quality, market change flexibility, efficiency, product enhancements/upgrades faster, etc.

Strategy Development

After I/E Analysis, management needs to make decisions about which opportunities to pursue & how resources will be allocated to achieve them. These decisions are then formulated into the organization’s strategic plan which has 3 parts:

• Corporate-Level Strategy: What to accomplish & where to compete (which markets).
• Which businesses to compete in, which new businesses to add, which business areas to exit.
• Where the business emphasis should be placed. The Big Picture.
• Business-Level Strategy: How to accomplish & How to compete. Identify objectives.
• Operating Plan: Detailed, immediate-term set of objectives & tactics designed to achieve a specific business initiative.

Fundamentals to Operating Plan Formation

The strategic plan should identify where & how to compete, what competitive advantage to leverage, and define the marketing/operational plans required to execute the plan!

5 Critical Questions to Review When Developing Strategy

1. Does the proposed strategy leverage your organization’s resources & capabilities?
2. Does the proposed strategy fit with current & future industry/market conditions?
3. Are the competencies that will be leveraged suitable for the required period?
4. Are the key drivers of the proposed strategy consistent with strategic objective & position?
5. Are you able to implement the proposed strategy?

4 Things to Check When Reviewing a Strategic Plan

1. The operational activities are properly aligned to achieve the plan’s objectives.
2. The budget, and forecast of revenue, is realistic.
3. The resources needed for the plan are available or acquirable.
4. Benchmarks & performance indicators are established to monitor the plan’s progress.

What is Directional Lock-In?

The level of financial & operational commitment an organization incurs to begin implementing its strategies. Once these commitments are made, the organization is basically “locked in”. These commitments can include spending capital resources on new/upgraded buildings/warehouses/etc, new/upgraded equipment, research & development for new/current products, marketing, distribution, hiring staff, etc.

Strategy Execution

In order to successfully implement a plan, operations must be efficient, marketing must be effective, staff must be trained, & any issues that arise need to be dealt with properly.

Once the execution phase has started, managers must monitor performance & take corrective action when necessary. They must look at competitor actions & external responses to the plan.

Strategy Challenges in Small/Medium Enterprises (SMEs)

SME managers & owners find themselves acting as the marketing, human resource, operations & financial managers simultaneously. They often don’t have time & resources to effectively plan. But, even for SMEs, it’s crucial to strategize.

Strategic Planning for Not-For-Profit Sector

Not-For-Profit organizations (social organizations) must also strategize. The challenge is balancing the effectiveness of their economic activities (if they provide goods/services for a fee) & their social mission statement. They don’t have shareholders or owners, they have an organized collective (membership base, government entity or community board). Financing comes from philanthropic donations, government allowances/grants, private grants, sales of products, etc.

5 Things That NFPs’ Actions & Economic Activity Must Follow

1. Mission Balance: Maintain the balance between effective financing & social mission/goals.
2. Vitality: Enhance vitality (ability to grow & sustain its membership/donor base) through maintenance & growth.
3. Collective Entrepreneurship: Maintain an atmosphere of collective entrepreneurship (the community & population where the organization is located are involved in the formulation/implementation of the strategy).
4. Rootedness: Enhance rootedness by strengthening partnerships & networks that support the mission statement. Interweave the NFP with the surrounding community, organizations, businesses & citizens.
5. Operational Effectiveness: Operate effectively to ensure affordability of products to targeted social audience and provide mechanisms for those who are in need but can’t pay.

In Summary, What Makes a Strategy Successful?

A successful strategy:

• Assesses the external environment.
• Defines the changes & opportunities within the market segment the organization can serve.
• Effectively allocates resources & maximizes capabilities to support the production
• Identifies competitive advantages the organization has & leverages them