Strategy formulation is particularly vital in an era when technology has introduced rapid change in many industries. You can’t afford to rely on thinking that worked yesterday or even last week. You must consider the future, and how new technologies and customer expectations will affect your business.
But with the speed of technological change, it’s hard to know what to expect. You have to make assumptions about where the market is headed, but it’s not possible to know for sure whether those assumptions are correct. And you won’t find out if you’re wrong until too late, because the world around you has already changed. The question is, how do you deal with uncertainty?
The answer is that you can’t afford to ignore it. It’s one thing to have a plan, and another to act on it. You may think you’ve made the right moves based on your plan, but the world could have changed so much that you are no longer making the right moves.
The same goes for strategy. If your strategy is built around a set of assumptions, and those assumptions are not met, then you will have failed. You have to be willing to abandon your strategy, if need be, and act differently.
So how do you get to the point of making good strategic decisions in the first place? How can you develop an effective strategy that will help you survive in an uncertain environment?
The answer is by building your strategy around the following three questions:
What business are we in?
What are the forces that drive our business forward?
How do we position ourselves within the context of our business?
These questions are all about understanding the context of your business and industry. They help you to focus on the key forces that affect your business, and how those forces interact with each other.
Let’s look at each question in turn.
1. What business are we in?
The first question you ask when you formulate strategy is: ‘What business are we in?’
When we talk about this question, we are not referring to the business in which your organisation operates. We are asking about the business of your business. The business of your business is the set of activities your company is engaged in, which create value for customers.
If you want to develop a strategy that will help you grow in a complex environment, you need to understand this business. Only then can you understand the key drivers of growth, and the key threats and opportunities in your business environment.
Of course, it’s not easy to understand the business of your business. It’s not like a machine that you can open up and look inside. It is more like a complex system, with many moving parts, and connections between them, that can only be understood as a whole.
To gain a deep understanding of your business, it’s important to use both a top-down and a bottom-up approach. First, ask: What does our strategy say? Then, ask: What do our actual strategies and practices tell us about the nature of our business?
You need to combine these two approaches, because there are some aspects of your business that are easier to see from the top down.
You can identify the strategic priorities of your organisation from the top down: the vision and mission, as well as your organisation’s strategies and plans. At the same time, there are aspects of your business that are better understood from the bottom up. The way you run your business—the systems, processes, and interactions among employees, partners and customers—can only be understood by looking at them from the bottom up.
For example, let’s say you are a shoe manufacturer. Let’s also say that you have decided that one of the ways you will grow is by launching a new line of running shoes. To start with, ask your CEO and board of directors to tell you what your strategy is. Then, ask your managers to explain the specifics of their strategy, how they intend to execute that strategy, and how they will measure their performance against it. Finally, ask your suppliers to tell you what they intend to do to support this strategy, and how they will measure their performance.
In this way, you should be able to gain a comprehensive picture of how your organisation sees itself in relation to its overall strategy. This is particularly important in situations where you may be operating in a different market segment to the one you are familiar with. You might be tempted to assume that your market segments are similar—because they are in the same industry—but they may not be. They may be different, or even completely different.
You can get a sense of how different they are by asking your managers to give you an example of a competitor that they are most worried about. You can then ask them why they are worried about that competitor. Then ask them what makes their strategy different from yours. And finally, ask them what their strategy will mean for them in the future.
By combining these perspectives, you’ll gain a clear picture of how your organisation views the world, and where it intends to go next. This will give you a good foundation for understanding the forces that drive your business forward, as well as where you need to be positioned within this environment.
2. What are the forces that drive our business forward?
The second question you need to ask when developing a strategy is: ‘What forces drive our business forward?’
In other words, ‘What are the things that influence our business?’
To answer this question, you need to understand how different factors influence your business in different ways. This will help you understand the range of potential forces that impact your business. You need to think about what’s going on in your market, your industry, and the wider economy, as well as any new technologies and business models that may affect your business. You also need to understand the relationships between all these factors, as well as their relative strengths and weaknesses.
By looking at your business from this perspective, you’ll begin to see how each force impacts your business in different ways, and how those impacts differ from one another. You will then be able to understand how each force will affect your business over time, as well as how it may interact with other forces in different scenarios.
Understanding Strategy Formulation
According to Prof. MarkAnthony Nze, the academic director of New York Learning Hub, ‘Strategy formulation is essential to the success of any business, so understanding how to do it well is equally essential. The key is to understand that strategy formulation isn’t a one-time event. It’s an ongoing process that requires regular review.
A good strategy will help you formulate goals and objectives that you can use to guide your organisation’s day-to-day activities. A solid strategy will help your organisation focus on its strengths while working on areas where improvement is needed. The best strategies are flexible and adaptable, able to change as needed. The best ones also require an understanding of the long term—of how a strategy must evolve over time to be successful.’
So what are the components of a good strategy?
Prof. MarkAnthony Nze further explains, ‘A good strategy has the following components:
• Goals and objectives: Goals are broad, high-level statements that give direction to an organisation’s strategy. For example, the goal “Increase market share in the retail sector” is more of a direction than a specific target. Objectives provide direction on how to achieve those goals.
• Measures of success: An objective can be used as a measure of success if there are clear and concrete measures that can be used to gauge whether the organisation is achieving the goal. If a company’s goal is to increase market share in the retail sector, for example, it would need to have concrete ways to measure this goal.
• Key initiatives: Key initiatives are the activities that organisations need to carry out in order to accomplish their goals. For example, one key initiative that could be part of a retail strategy would be the purchase of new retail stores.
• Resources required to achieve goals: Successful companies will take steps to ensure they have the right people, technology and other resources in place to accomplish their objectives.
• Timelines: How much time do you have before you need to start implementing the strategy? How long should you expect it to take to achieve your goals?
• Barriers: How will your strategy address barriers? These barriers could be external, such as a competitor introducing a new product or service, or internal, such as an inability to find skilled workers.
• Challenges: What challenges do you expect to face in achieving your strategy?
• Success factors: What factors are important to consider in achieving your strategy?
• Responsibilities for each area: Who will be responsible for achieving these key initiatives?
• Key success factors: What key success factors will be necessary for the success of the strategy?
• Risks: What risks are you willing to take in order to achieve your strategy?
• Limitations: What are the limitations of the strategy? For example, a limitation could be that you aren’t sure how your customers will react to your new products.
A good strategy doesn’t have to be complicated. You don’t have to use a lot of big words, and it doesn’t have to be written in fancy font. All you have to do is make sure you understand the components of a good strategy and that you have a good idea of how they fit together.’
The process of strategy formulation is important because it provides the foundation for organisational action. Strategy formulation is not just a document, but rather a series of choices and actions that must be made to achieve organisational goals. For example, if you want your company’s sales to increase by 20% this year, you will need to make many decisions during the strategy formulation process in order to achieve that goal.
The strategy formulation process itself is comprised of three parts:
1. Determining the context and objectives for the strategy
2. Formulating the strategy
3. Implementing the strategy
The process begins by determining what the current situation is and what you hope to accomplish. In most organisations, this means creating a SWOT analysis and identifying where the organisation is now and where you would like to be in the future. This will provide the basis for your strategic choices.
The next step in strategy formulation is to create a strategy. This involves making choices between alternatives. You must consider not only what the best choice is, but also the best way to implement it. For example, if you want to increase sales this year by 20%, you might have three choices: increase advertising expenditures; improve customer service; and offer a new product. You would then need to decide how best to implement those alternatives. For example, advertising expenditures might be a good choice, but if you do not have the budget to do so, you need to look at other options.
Once you have created your strategy, the final step in strategy formulation is to implement it. In most cases, you will need to implement several of the strategies you have identified as a part of your strategy. For example, if you want to increase sales, you will need to implement all of your chosen strategies, such as advertising expenditures, customer service improvements, and offering a new product.
In addition to the three steps involved in strategy formulation, there are five stages to the process.
1. Strategic Situation Determination
2. Strategy Formulation
3. Strategy Implementation
4. Management Control
5. Strategic Situation Reevaluation
These stages are interrelated and are continuous, so it is not unusual for the steps to overlap. However, you should have a clear idea of what you hope to achieve before you start formulating your strategy.
A good strategy can help with many things, including improving sales and raising competitiveness, and ultimately increasing profits. When you’re developing a strategy that could potentially make the company more profitable, it’s important to consider all aspects of your business—from marketing to operations—and how they will be affected by the decisions made in the future.
The same goes for the overall organisation. An organisation that can embrace a new strategy is likely to see an increase in performance, whereas one that remains rigid and unable to change may see a decrease in overall performance. A flexible organisation will be able to adapt to new information and be better able to respond to changes.
If a business is inflexible, it will be much harder to move forward when faced with an obstacle or challenge. It can be very easy for a business to get bogged down in a situation and begin making excuses as to why it won’t work, but it can be very difficult for an organisation to learn from a mistake and improve its situation. A flexible organisation is one that will be able to identify opportunities and challenges and turn them into learning experiences for the organisation, rather than problems to be avoided.
So if your goal is to increase the overall performance of your company, then being flexible will be your best bet. If you want to have the highest possible profits, being inflexible will hurt you.
The issue of inflexibility is an important one for businesses to keep in mind. As long as we live in a world with many unknowns and surprises, it is only a matter of time before you are faced with situations that you can’t anticipate. Even if you try to prepare as much as you can ahead of time, you will still face unforeseen challenges. The more you try to prevent issues from arising, the more you will limit yourself. You can’t do everything on your own.
That’s why it’s so important to be flexible. Be open-minded, accept that there is much you do not know, and you will find that your company will become stronger.
A flexible organisation has the ability to recognise opportunities for growth. An organisation that has been successful in the past may believe that it will continue to be successful in the future, but if the environment changes, then that belief may not be accurate. A flexible organisation will be able to identify new opportunities and will be prepared to act on them quickly. A flexible organisation will also be able to identify any obstacles that could stand in its way, and come up with solutions.
For example, if a certain industry has seen a decline in sales for a number of years, a flexible organisation will be able to look at this situation and decide that this is an opportunity. It would then attempt to find ways to use technology or other tactics to solve the problem and turn it into a new opportunity. If there are no new opportunities available, then a flexible organisation would be able to take advantage of what is currently available and create a new strategy to create value.
The key here is to understand that change is constant and that you must be flexible in order to stay ahead of it.
If you think about it, you’ll find that most of the biggest companies in the world today are quite flexible. Amazon, for example, was able to invent a completely new business model by starting with just one bookstore in Seattle, and they’ve now become the world’s largest online store. The reason for their success was their willingness to think differently.
You’ll also find that these flexible organisations are often quite profitable, which is probably not a coincidence. So if you’re looking for a way to increase your company’s profitability, then becoming more flexible may be a good place to start.
In the short term, flexibility may lead to losses. For example, you may have a new strategy in place for a particular project, but your team members might not have the experience or skills necessary to implement it. In that case, you would have to spend some time and money training your staff to do what they need to do.
However, over the long term, this approach will likely lead to higher profits. It may take some time, but the people you train will eventually become experts in their field, and you’ll have much lower turnover costs because your employees will already know how to do their jobs.
Flexibility will also allow you to adjust your prices. For example, if you offer a product or service at a certain price, but you find out that the market isn’t willing to pay that price, you could lower it until the market demands it. If you’re flexible, you’ll be able to make these changes without hurting your company’s profits.
An important part of being flexible is having a good understanding of your company’s strengths and weaknesses, as well as those of your competitors. It’s easy to be overly focused on your weaknesses and assume that there is no point in trying to fix them. However, this approach can be very dangerous because it makes your business less flexible and could cause problems later on down the road.