Why Context is Vitally Important to the Success of your Business Strategy
The extent which a future can be predicted or controlled should be a significant consideration in how you go about developing strategy. Different approaches to development can be tracked on a spectrum starting with “pure emergent” — which is strategy that’s continually developed as a response to the changing environment in which the future is hard to predict — and ending with “pure deliberate” — when strategy is formulated, fixed and implemented in response to a predicted future.
To whatever degree a strategy is emergent or deliberate, there are three interlinked dimensions to strategy formulation: context, process and content. Broadly, context is the circumstances, both internal and external, within which strategy is formulated. Process is a way to make sense of the context and develop strategic options. Whilst content is the capture and articulation of the strategy. All of these are of equal value when creating a strategy and are vital in its success.
Due to the sheer depth of this topic, I will be exploring these three interlinked dimensions in articles across the next few months, as a way to help you get a detailed understanding of the different values they propose, as well as the options available to you at each stage. This month the focus will be on strategy context.
As always, if you have any questions, please leave them in the comments below or contact me directly.
What is Strategy Context?
‘Context’ should guide your strategy and should be a pivot point to deciding the actions you will take. Context is an understanding of the environment that your business is operating in; and the pressures it exerts and scope it allows.
There are three clearly distinct types of context which I will explore here: organisational context, industry context and international context.
Organisational Context
Organisational context is understood from organisational self-reflection. Establishing context requires a clear understanding of values and culture, as well as the resources and capabilities you have available to undertake the key activities needed to create the services and products you supply. Understanding context allows you to answer questions such as: What resources do you need? What do you do well? How can you do it better? These questions provide an important context which should inform your strategy. Context should take in consideration your strengths and weaknesses, as a way of directing the actions you need to take to progress, develop and grow.
Understanding organisational context enables organisational dynamics to form part of a strategy. This is a continuous process of strengthening resources and enhancing employee performance as a result of a strategy built around measurable goals, sales and marketing activity, inventory control, revenue forecasting, and so on. It uses the vision, mission, values and culture of your organisation as a way of constructing a strategy that’s clearly connected with the business’ key activities and goals.
Industry Context
Industry context focuses on industry factors, exploring the actions and performance of competitors as well as market values. Developing a strategy based on industry context is first and foremost a way to pursue competitive advantage over organisations operating in the industry.
Organisations take two contrasting positions on this. The first is an industry leadership perspective, in which a company pays scant regard to the industry norms and dynamics, and instead forges a path that can change the industry conditions. This approach uses a review of the context of the industry to create a strategy that steers the organisation in a different or pioneering direction. The idea of ‘disruption’ in mature markets fits here.
The second is an industry dynamics perspective, where a company is compliant to industry conditions when formulating strategy. This is therefore based more directly with the specific industry and oriented to marketplace needs and expectations, as well as the capabilities and offering of competitors. This is more typical in highly dynamic marketplaces.
International Context
Briefly, international context is concerned with the specific issues that arise from operating outside of the firm’s domestic market. This could include exploring issues around different cultures which can give a valuable insight into a different way of operating for organisations looking to expand. It also incorporates the likes of economic and political impacts that can restrict or alter how a business can operate.
Business history is littered with examples of companies looking to drop their domestic operating model onto a new market and then having to retreat or adapt their approach. As a result, they often get it wrong when expanding. To avoid these common mistakes, I recommend reading this article on Havard Business Review: https://hbr.org/2015/09/the-most-common-mistakes-companies-make-with-global-marketing
PEST or PESTEL (political, economic, societal, technological, environmental / ethical and legal) analysis has a role to play in understanding domestic markets. However, its greatest value typically comes to organisations looking to expand internationally. Here, it provides a powerful framework with which to compare domestic norms with conditions in potential new markets.
The Need for Context Focus
So which aspects of context are most relevant to your strategy process and context? When looking at the various elements, think about their current and potential impact on the actions of your organisation, the industry and international factors. From here, you can start to understand the context that’s important for your organisation to focus on, and take steps to build a strategy based on this.
