The Strategy Development Process

In this article, I’m going to outline the process for developing strategy. Many approaches to developing strategy exist but most can be reduced to:

strategic analysis - where are we now and how do we see the world changing
strategic choice - on the basis of our analysis, how can we gain sustainable competitive advantage
strategic implementation - how do we ensure systems, culture, structure, skills etc support our chosen strategy

In future articles, I will consider each of these stages (though in reality the process is iterative) in turn. For now, here is an overview.

Strategic Analysis

Here is a slide I use during my strategy training courses. I call it the onion-skin approach. We begin the analysis in the macro-environment. Even governments can exercise little influence in this ring. We are concerned with factors such as Politics, Economics, Socio-cultural,Technological, Legal and Environmental - or PESTLE (sometimes shortened to a "PEST analysis", which is perhaps looking at it a little negatively as this is also where we uncover opportunities).

I am not going into too much detail here, suffice to say, that during the analysis phase we will progressively move in closer to the organisation. So next we look at the Industry Analysis, using tools such as Porter’s Five Forces. Porter’s contention here is that it is the structure of the industry that determines profitability - understanding the five forces is absolutely fundamental.

The next ring is markets. In my strategy courses, I focus on how to identify attractive market segments using tools such as weighted matrices and the GE Matrix, combined with analysis of fit and risk. I touch on the Boston Matrix, but only to show it maximum disrespect - I find this a very dangerous tool (the only reason I cover it is because if one of my participants expresses ignorance of it after the course, colleagues and potential future customers will say "That doesn’t sound like a very good strategy course if you didn’t even do the BCG Matrix". Sad but true. Actually, it does serve another purpose - it generally sparks a healthy debate, and as I mentioned in an earlier post, effective strategy development depends on healthy debate.

And finally in the onion ring, we consider the organisation itself. This is the strengths and weaknesses section, though we need to be much more sophisticated then simply drawing a line down the centre of a page and putting S and W on each side. Everything is relative - a strength against competitor A may be a weakness against competitor B. We also need to be "aware" of the organisation - its culture, assets, processes, skills etc - in other words its resources. What is the best way that these can be leveraged - and how much investment may we need to make. I find the Value Chain Analysis of Porter can be valuable at this point, particularly in reinforcing the need for staff functions to support the primary activities in the organisation.

Since strategy is about the long-term, I believe that the Core Competencies approach of Hamel and Prahalad needs to be combined with a traditional product / market perspective. More on this in a later article.

Strategic Scenarios

At this point your head is likely to be exploding with information and ideas. Scenarios are a way of trying to bring together many factors and let them "play out". In other words, if X,Y and Z happen, what do we think the world will look like in 5-10 years’ time - and what place will we occupy in it. Scenarios are a great way to encourage creative thinking and they also serve the purpose of stimulating the Reticular Activating System. If you followed the link from an earlier post, you may already know what this is, if not and you’d like to know more about this, have a look at this article linking gorillas and competitive advantage.

Strategic Choice

Strategic choice is about the position we take in the market. The starting point, as for many things strategic, is Michael Porter. From a simple 3-choice option - lowest cost, differentiation, focus - we can generate many interesting discussions. In my strategy workshops, I focus much of this discussion on the importance of brand and culture. Why? Because there are the true foundations of sustainable competitive advantage - with emphasis on the sustainable. More in later articles.

Strategic Implementation

Notice how short the section on strategic choice was? This may be slightly misleading. As I mentioned at the beginning the whole process is iterative - as we analyze the current environment we will be developing thoughts about how we can win in the market place. And this in turn will shape our future analysis, which leads us to different ideas ….

And the same is true even during implementation. There is no beginning and no end. Our strategy needs to be flexible; the world changes. As the mathematician James Yorke said:

“The most successful people are those who are good at plan B.”

My focus in this session is on tools such as the Balanced Scorecard. Strategy needs to be:

prioritised - ie what’s really important
measured
communicated
focused on financial returns (whilst adhering to the organisation’s values)
customer-oriented
supported by processes - from operations through to HR
underpinned by people - culture, skills, morale

Research shows that happy employees = happy customers = happy shareholders. Leadership is still the critical skill!

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Tagged as: core competencies, five forces, onion-skin, Porter