Let’s start with an example that each of us can relate to easily.
In life, we always aim to keep moving forward. When a kid starts school, it is with the objective of passing out ten years later with flying colors. Similarly, when we start our career, it is with the objective of climbing the corporate ladder till we reach the top. That is our objective. Now, how we reach there, what we do to reach there, what is the path that we take, forms our strategy – an elaborate plan that describes each step of the process in detail.
Simply put, a business strategy formulation is a road-map that an organization follows to move from a current state to a desired state in the future. Other than acting as a guide for conducting its day to day operations, it also serves as a tool to construct the long range objectives, and the guiding posts that will keep them on track to reach those goals.
Furthermore, a business strategy helps to position the organization effectively in its eco-system so that it can reach its maximum potential, while monitoring the environment consistently for any change that it may inculcate and adapt into its business strategy.
In short, an effective business strategy will define where you are, where you are going, and how you are going to get there.
The history and rationale for business strategy formulation:
As early as in 1920s, Harvard Business School developed the Harvard Policy Model, which is considered as one of the first model of strategic planning for private businesses. The model has defined “strategy” as a pattern of purposes and policies that work as a common thread or logic and holds a business together. Since then the process models of strategic planning have been evolved over the years with new concepts/tools and techniques making it more robust and multi-dimensional.
However in spite of this wealth of knowledge, it has been noted that a majority of companies still operate without a well-defined strategic planning process. Resultantly most organizational growth plans are poorly conceived, based on unrealistic assumptions, lack of linkage to external business environment and little or no buy-in from employees. Such plans usually do not get executed, create frustrations and then gather dust instead of adding value to the company and driving growth.
Fortunately now we have strategic planning models that integrate complex concepts, methodologies into an easy to implement strategic planning process especially suitable for mid-size, smaller and start up organizations. As a result of which, it has become easier for even small organizations implement strategic planning with the help of experts who know the process.
Strategic Planning – Generic Process Steps:
The process steps for strategy formulation may slightly differ based on the stage of organizational life stage, size, nature of business and specific growth/sustainability challenges etc. However broadly the process steps cover the following.
The first step is Vision/Mission formulation/redefining or revamping: Vision of an organization is a choice of direction beyond the horizons into an unknown, which inspires and mobilizes people to do better than best. This is the foundation on which entire edifice of organizational strategy rests. It specifically identifies where the company wants to be at some time in the future. The envisioned future involves a conception of the organization at a future date, inclusive of its ambitions and aspirations to contribute to the universe at large.
As vision sets a canvas for future, mission defines the purpose of business and how the organization plans to realize its vision. An explicit mission statement ensures the unanimity of purpose, focuses on resource allocation, sets boundaries of accountability and priorities for cost, time and performance. It specifies the six elements like product or service, employee orientation, primary markets, customer orientation, principle technology and quality standards.
Setting organizational vision and mission provides context and foundation to evaluate organization’s readiness and potency to realize its vision/accomplish its mission. This next process step is termed as Organizational Analysis or Diagnosis.
The second step – Organizational Analysis or Diagnosis All companies have their set of values, unique culture, strengths and weaknesses. At this stage we analyze the present status of organization in context to the defined Vision/Mission. The key parameters reviewed in this analysis include the organization’s current status on factors such as leadership, direction, culture, accountability, capabilities, innovation to mention a few. This is done to ensure that the strategic plan integrates the key strengths of organization, addresses the key performance issues and integrates the critical change themes in its strategy design well in advance.
The third step – PESTLE Analysis
PESTLE analysis consists of six interdependent components that influence the business environment and helps you understand the “big picture” forces of change that your business is exposed to. Each letter in the acronym symbolizes a set of factors that directly or indirectly affect every industry. The letters denote the following: P-Political, E-Economy, S-Social, T-Technological, L-Legal, E-Environmental. These six factors of external environment continually keep on creating opportunities and threats for your business. A robust strategic plan integrates specific goals to control risks and make best of opportunities emerging from the dynamic changes in these external factors.
The forth step – SWOT and Gap Analysis
The purpose of SWOT analysis (Strengths, Weaknesses, Opportunities and Threats) is to identify the status of Internal Factors– Strength and Weaknesses (Identified through Organizational Analysis (step second) and External Factors– Opportunities and Threat Factors (Identified through PESTLE analysis – step third). In other words, it is a foundation for evaluating the internal potential and limitations and the probable opportunities and threats from the external environment. SWOT provides a good all-around view of the company’s current, forward-looking situation along with strategies to distinguish yourself from your competitors and to accomplish the successive goals.
Gap analysis: Closing the identified performance gap(s) is what the planning team does by taking a close look at the current state of affairs and the future desired state.
The fifth step is Strategy Design, which involves four elements: identification of major lines of business, (LOB’s), critical success indicators (CSI’s), identification of strategic thrusts to pursue, and the determination of the necessary culture. A line of business is the product or service the company is offering. In case of a new line of business, it is based on the core competencies of the company, its scope for growth and whether it (LOB) adheres to its value system or not. The critical success indicator is an element that measures the progress towards achieving the company’s objectives. Then comes the strategic thrusts which are guides to focus on its core products or services, product development, concentration on innovation, vertical or horizontal integration, development of JVs, diversification, liquidation, retrenchment etc. Next is designing strategy, which determines the culture with which to support the success of the line of business, critical success indicators and strategy thrusts.
Action Plan development: This phase of planning ties everything together. An action plan is first developed for each line of business, both existing and proposed. Goals and objectives are also developed during this phase.
Contingency Planning: Establishing a reactionary plan for unexpected high impact events is the task here by either establishing a higher level of monitoring or immediate action.
Implementation of the plan: Outcome of Strategic Plan is a detailed Execution Plan document with specific actions, targets, measures and timelines with clear-cut accountabilities and review mechanism. It is necessary to involve the key officials and stakeholders in the strategic planning process to integrate their suggestions, views, address their concerns and obtain their wholehearted commitment to strategic goals. The business leaders must drive from front to ensure a positive reception and implementation of the action plans balancing both operational and strategic priorities.
Review Mechanism- No strategic planning can be completed unless there is a minutely planned, rigorously defined and devotedly implemented review and alignment mechanism. Setting periodic business review meetings helps in taking stock of the situation, introduce mid-course correction and keep strategy agile to align with ever evolving business scenarios.
Formulating a business strategy that ensures faster, sustained and profitable growth is the first step towards setting your organization for success. You will certainly benefit from our expertise, knowledge and experience while we facilitate you to define winning strategies for your business.