Define the strategy
Business strategy involves making decisions about what the company should do and how it should allocate resources. These decisions should take into account current competitive conditions and growth opportunities in the industry. Remember, good execution begins with good strategy.
The first stage in strategy formulation is to define the strategy. To develop a truly focused strategy, you must fully examine the business, its goals, and its environment. An effective and focused strategy is essential because it helps your company build a favorable competitive position. The process of defining the strategy has three steps:
- clarify the company’s mission, vision, and values,
- review the current situation with an emphasis on internal and external influences and the existing strategy, and
- create strategy direction statements.
Clarify the mission, vision, and values
The first step in defining the strategy is to clarify the mission, vision, and values. These three items form the basis of the company’s purpose, actions, and aspirations. Essentially, they clarify why the company is in business. The executive team should return regularly to the mission, vision, and values statements, as they tend to remain stable over time.
The mission statement is typically a one- or two-sentence statement that explains your company’s purpose. It should also describe what your company provides to customers or clients. Finally, it should define the overall goal that employees and executives are pursuing.
The vision statement outlines the company’s mid- to long-term goals. This generally encompasses a three- to ten-year period. This statement is focused on the market and describes how the company wants to be perceived by the world. The vision statement usually contains ambitious goals and a time frame for achieving them, as well as a clear measure of success.
The values statement reflects the company’s core values. These are the ways the company defines its attitudes, character, and behavior.
Before they can define strategy, leaders and managers need to agree on the mission, values, and vision statements. The mission and values statements don’t tend to vary from year to year. The vision statement isn’t as stable, but typically remains constant during a company’s three- to five-year strategic plan.
Review the current situation
Once you’ve clarified the mission, vision, and values, it’s time to review your company’s current situation — the second step in defining the strategy. To do this, you examine three things:
- external influences — External influences are the macro- and industry-level trends that have an impact on the company’s strategy and operations. You need to assess what’s going on in the outside world. This assessment includes the state of the economy, industry growth, prices, regulations, and a general idea of what consumers expect from the company. The external analysis isn’t complete without an assessment of competitors as well
- internal influences — When you examine internal influences, you consider your own company’s performance and capabilities. To do this, you might use a balanced scorecard or rely on financial information to do the assessment. Another common method for assessing internal influences is to identify the processes required to deliver products and services to customers. The company’s goal should be to identify the processes that it can do better or differently to differentiate itself from competitors.
- the existing strategy — Examining the existing strategy means identifying the company’s existing strengths and weaknesses. Then you summarize the conditions that aren’t currently being addressed. These conditions must be addressed when developing the strategy. Figuring out what a company’s strengths and weaknesses are can give it a clear indication of its current situation. A thorough examination of external and internal influences can uncover a lot of information — categorizing it as strengths or weaknesses can help the management team identify the key issues that need to be addressed.
Create strategy direction statements
You’ve clarified your mission, vision, and values. You have a good idea of your company’s current situation. Now you can use that information to create strategy direction statements. This is the third, and final, step in defining your strategy. The information you gleaned during the first two steps is used now to set targets for how the organization intends to create value in the future.
During this step, executives must decide how best to be competitive, and create their strategy based on these decisions. Executives have to determine exactly which areas the company will compete in and the direction it will take, what will make the company stand out from competitors, and what tasks and processes are needed to accomplish this.
Executives should also determine what technology and human capital will be required to execute the strategy. Strategy formulation usually focuses on customers. However, there are many analysis techniques that are commonly used, and there is no right answer as to which is best to use in different circumstances.
But no matter which technique is used, the most successful companies create strategies based on the market niches they have expertise in. In such niches, they have a solid understanding of customer preferences. Successful companies also know that the key is to set themselves apart from what their competitors are offering. The ultimate goal is to create a sustainable competitive advantage.
The strategy direction statement is what helps executives use all this information to define an executable strategy. To create the direction statement, you must first define the competitive issue, then define the direction statement itself.
Defining the competitive issue is all about figuring out where your company stands in terms of competition. Many companies differentiate themselves from competitors by offering something extra. Perhaps you’ll focus on providing exceptional customer service or offering products no one else has.
To define the competitive issue, you must also determine whether your company is, in fact, going to compete with others. Most companies operate in the same market as other companies, but some offer a niche service or product not offered by anyone else.
Once you’ve defined the competitive issue, it’s time to define the direction statement itself. Each direction statement is like a mini vision statement for each strategic issue and helps to outline what the goals are: the strategic objectives. It also clarifies the actions the company will have to take to execute the strategy and the measures it will use to monitor the strategy. The direction statements help to create a detailed strategic plan.
Business strategy involves making decisions about what a company should do and how it should allocate resources. You can execute the strategy once it’s in place, but without a good strategy, execution won’t happen smoothly. To create a strategy that executes, you first need to define the strategy by fully examining the business, its goals, and its environment.
Defining the strategy involves performing three steps — clarifying the mission, vision, and values; reviewing the current situation; and creating strategy direction statements. The mission, vision, and values statements form the basis of the company’s purpose, actions, and aspirations, and clarify why the company is in business.
To review the current situation, you examine external influences, internal influences, and the existing strategy. In the final step, you use the information gathered during the first two steps to set targets for how the organization intends to create value in the future.