Business Strategy Components – Many leaders I work with struggle with strategy. They know that it is important to have strategies to adapt their business decision. They understand that they cannot protect and control everything in their organizations (most of them would like to). They really want to develop good strategies and get […]
Many leaders I work with struggle with strategy. They know that it is important to have strategies to adapt their business decision. They understand that they cannot protect and control everything in their organizations (most of them would like to). They really want to develop good strategies and get the vision. But when it comes to creating strategy, they quickly fall short.
Business Strategy Components
This is unfortunate, but not surprising. It’s a direct result of confusion about what “business strategy” is… and isn’t. Here’s my definition: A business strategy is a set of guiding principles that, when communicated and agreed upon by an organization, produce the desired pattern of decision-making. Therefore, strategy is about how people in the organization should make decisions and allocate resources to achieve important goals. A good strategy provides a clear map, consisting of guiding principles or rules, that define the actions that people in the business should take (and not take) and the things they should prioritize (and not prioritize) to achieve the desired goals.
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As such, strategy is part of the overall strategic direction that leaders must define for their organizations. The strategy is
Mission, which is what the organization’s leaders want to accomplish; the activity is further detailed with specific goals and performance measures. Strategy is too
Value network – the network of relationships between suppliers, customers, employees and investors within which a company jointly creates and captures economic value. Finally, there is strategy
Vision, which is an inspiring picture of what it will look like and how they would like to pursue and achieve the organization’s goals and objectives. Vision is part (along with motivation) of what leaders do to motivate people in the organization to engage in above-average effort.
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Briefly, as shown below, the mission is about what will be achieved; the value network is about who the value should be created and captured; Strategy is about how resources are allocated to achieve goals within the framework of the value network; and vision and motivation are about why people in the organization should feel motivated to perform at a high level. Together, the mission, network, strategy and vision define the strategic direction of the business. They provide the what, who, how and why required to dynamically adapt the performance of complex organizations.
A direct implication is that you cannot develop your business strategy without first thinking about your mission and goals. Nor can you develop a coherent strategy and commit to decisions regarding the network of partners that the business will make and evaluate. By focusing on all four elements, and sequencing them correctly, the process of creating a strategy can be eliminated.
Do you agree with my definition of business strategy and other elements of strategic direction? Have you seen people get confused about mission strategies, goals, networks or visions? Do you have advice on how leaders can best set the strategic direction for their organizations?
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Diversity of Topics Development Video Database Big Data Concepts & Scenarios Case Study Selection Strategic planning is a process that helps an organization allocate its resources to take advantage of market opportunities. Usually it is a long process. The strategic planning process includes conducting a situation analysis and developing an organization’s mission statement, goals, value proposition, and strategies. Figure 2.2 “Strategic planning process” shows the components of the strategic planning process. Now let’s look at each of these categories.
As part of the strategic planning process, the situation must be analyzed before the company decides on specific actions. Situation analysis involves analyzing both the external (macro and micro factors outside the organization) and the internal (company) environment. Figure 2.2 “Strategic Planning Process” and Figure 2.3 “SWOT Analysis Tool” show examples of internal and external SWOT analysis. The company’s internal environment—such as its financial resources, technical resources, and the capabilities and performance of its employees—needs to be examined. It is also important to examine the macro and micro environment the company faces, such as the economy and competitors. The external environment greatly influences the decisions a company makes, and must therefore be constantly evaluated. For example, during the 2008-2009 recession, companies discovered that many competitors had drastically reduced the prices of their products. Other companies have reduced the size of the packaging or the amount of packaging material. Companies also offered customers incentives (free search, free gift cards with purchase, cashbacks, etc.) to purchase their products and services online, which allowed companies to reduce labor requirements. to run their own physical stores. Although companies cannot control things like the economy, demographic changes, or what competitors are doing, they must decide what actions to take to remain competitive—actions that depend in part on their internal environment.
Based on the analysis of the situation, organizations analyze their strengths, weaknesses, opportunities and threats, or conduct what is called a SWOT analysis. Strengths and weaknesses are internal factors that can be somewhat controlled. For example, an organization’s strengths may include a brand name, an effective distribution network, a good service reputation, and a strong financial position. Weaknesses of the company may include lack of awareness of its products in the market, lack of quality of human resources and poor location. Opportunities and threats are factors outside the company and often cannot be controlled. Opportunities can result in global demand for the type of products a company makes, fewer competitors, and better social practices such as longer lifespans. The threats can be a poor economy, high interest rates that increase a company’s borrowing costs, and an aging population that makes it difficult for companies to find workers.
You can do a SWOT analysis on yourself to help you determine your competitive advantage. Perhaps your strengths include strong leadership and communication skills, while your weaknesses include a lack of organization. Opportunities for you may exist in certain professions and industries; however, the economy and other people competing for the same position can be dangerous. Also, what is one person’s strength (say, strong math skills) may be another person’s weakness (poor math skills). The same applies to companies. See Figure 2.3 “Elements of a SWOT Analysis” for an example of some of the factors examined in a SWOT analysis.
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The easiest way to determine if the problem is external or internal is to take it from the company, organization or individual and see if the problem persists. Internal factors such as strengths and weaknesses are specific to a company or individual, while external factors such as opportunities and threats affect many individuals and organizations in the market. For example, if you do an analysis of PepsiCo’s situation and look at the weak economy, take PepsiCo out of the picture and see what’s left. If the factor – the weak economy – is still there, it is an external factor. Although PepsiCo was not there in 2008-2009, the weak economy reduced consumer spending and affected many companies.
As we have pointed out, when an organization evaluates its strengths and weaknesses, it evaluates its environment. When companies determine their strengths, they can use those strengths to take advantage of opportunities and improve their competitive advantage. For example, PepsiCo’s strengths are so-called “mega,” or brands that individually generate more than $1 billion in sales.
PepsiCo’s brand awareness, profitability and strong presence in international markets are also strengths. Especially in foreign markets, the loyalty of the company’s employees can be a great strength, which can give you a competitive advantage. Loyal and knowledgeable employees are easy to train and tend to develop good relationships with customers. This helps organizations find more opportunities.
Although the brand awareness of PepsiCo products is strong, small businesses often struggle with weaknesses such as low brand awareness, low financial resources, and poor locations. When organizations evaluate their internal environment, they must look at factors such as performance and cost, as well as brand awareness and location. Managers must examine the company’s past and present strategies and determine which strategies have succeeded and which have failed. This helps the company plan its future actions and improves its chances of success. For example, the company can look at the packaging that worked well for the product and use