/ 6 Steps for formulating business strategy

Knowledge Base Article
Article Type: Blog
Author: Bibi M

6 Steps for formulating business strategy

 

The 6 steps described here will guide you in formulating a strategy; they involve looking outside and inside your organisation, thinking about how you will deal with threats and opportunities as they present themselves, building a good fit with strategy supporting activities, aligning resources with goals and organising for execution.

1 Look outside to identify threats and opportunities.

There are always threats in the external environment: new entrants, pressures from suppliers e.g. single point of failure, substitute products your customers are drawn to, your customers purchasing power etc. The external world also presents opportunities: new technology, unexploited market and so forth. So ask yourself these questions:

  • What is the economic environment in which we must operate and how is it changing?
  • What opportunities for profit lie before us?
  • What are the risks associated with various opportunities?

2 Look inside, at your resources, capabilities and practices.

Resources and internal capabilities can be a constraint on your choice of strategy, especially if you are start-up with few employees and fixed-assets. A strategy can succeed only if it has the backing of the right set of people and other resources. So ask yourself these questions:

  • What are our competencies? How do these give us an advantage over the competition?
  • What resources constrain or support our actions?

3 Consider strategies for addressing threats and opportunities.

  • Create many alternatives. There is always more than one way of doing things.
  • Check all facts, and question all assumptions.
  • Assess what key information you are missing to better assess a particular strategy, and then get the information.
  • Vet the leading strategy choices among the wisest heads you know (this does not need to be your team).

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4 Build a good fit among strategy-supporting activities.

Strategy is more than just winning customer; it is also about combining activities into a chain whose links are mutually supporting and effective in locking out your competitors. Your competitive advantage comes from the way the activities fit and reinforce one another.

For example, if you are an airline company and your strategy is based on a rapid gate turnaround, so you can make frequent departures and better utilise your aircraft assets, this will support the low-cost, high convenience proposition you offer to customers. Each of these activities supports the others and the higher goal.

5 Create alignment

Developing strategy is half the job. The other half is creating alignment between the strategy and the people and activities of the company. In other words every employee at every level must 1) understand the strategy and 2) understand his or her role in making the strategy work.

Alignment also involves other resources: marketing must be focused on the right customers, bonuses must be aligned with behaviours and performance that advance the strategy, and physical assets must be deployed – aligned with the highest goals of the organisation.

6 Be prepared to implement

After you have a strategy you have a free hand in organising around it: hiring people with the necessary competencies, acquiring the right equipment, structuring resources, and so forth. As UCLA’s Alfred E.Osborne Jr has put it, “I think of the 4 S’s: structure follows strategy, and staffing follows structure, and you hold the strategy together with systems.”

If your strategy is disappointing you must be willing to 1) recognise the bad news and 2) respond quickly with a revised strategy. A start-up business should be viewed as an experiment. If the experiment fails to produce the desired results, be prepared to change – and quickly.

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Post originally published via ICAEW Business Advice Service – click here

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