In this short article, we will see the phases of the strategic process and some useful tools to apply it. If you are a manager, perhaps many of the theoretical aspects discussed here will already be known to you. We hope, however, that he will still be able to find useful insights and reflection, if not even some small news that could be useful to make your strategies more effective.
A strategic process is usually identified by 5 main phases: definition of the direction, situational analysis, decision-making process, implementation, and control.
1. Definition of the orientation/direction that the company wants to take
At this level, we define the Vision, the Mission, and the Goals, but also the Business Perimeter. In this initial phase of building a business, the boundaries of the strategic business area are defined: what is the target market to which one refers, the needs that the new business will solve and the tools.
A useful tool to define the strategic business area is the Abell Model (or Abell’s Cube), which provides a three-dimensional view of the business based on three key factors:
- The functions of use: the needs that the business wants to satisfy
- Customers: the target market, with those needs, that we want to achieve
- Technologies: the technical methods that the company wants to use to provide functions (1) to customers (2) to satisfy customers through different products and services.
2. Situational analysis (external and internal)
The objective of this phase is to thoroughly investigate the context and the environment in which the company operates (internal-external and competitors), and which could influence:
- the possibility of achieving strategic objectives;
- commercial strategies to achieve these goals;
- the possibilities to create and sustain a competitive advantage.
Analysis and diagnosis are the results of combining two complementary perspectives (SWOT Analysis):
- external perspective (external analysis) that aims to determine the attractiveness of the market. Consider the external environment in which the company operates, ie the business area in which it operates and investigates the general trends and phenomena that can create opportunities (Opportunities) or, vice versa, threats (Threats) for all competitors that operate in the field;
- internal perspective (internal analysis) to identify the characteristics of the business with respect to competitors, in order to define the strengths (Strengths) and weaknesses (Weaknesses) with respect to the competition.
Unfortunately, there are many cases in which accurate SWOT analyses are carried out, identifying them with a photograph of the business strategy. In reality, the weighted combination of an external perspective with an internal perspective reveals aspects that must feed and support subsequent phases for the formulation of the strategy.
3. Decision-making process
The decision-making process, ie deciding which strategic alternative to implementing, consists of two moments: the generation of strategic alternatives and the evaluation and selection of alternatives.
Generation of strategic alternatives
The SWOT analysis allows the company to formulate a series of possible strategic alternatives. That is a set of possible strategic decisions aimed at achieving the company’s objectives: value creation through competitive advantage.
Evaluation of strategic alternatives and final choice
Evaluating the situational analysis, economic and financial forecasts and sustainability analysis of the various alternatives, the business strategy to be adopted is chosen.
4. Implementation
The strategy is then performed through a series of tactical choices that together must lead the company to the achievement of strategic objectives.
5. Control
Finally, the application of the strategy must be constantly monitored to check its efficiency. The analysis of budget variance is often used as a control tool: the measurement of the delta between expected and achieved performance and the analysis of the causes that lead this variance to be positive or negative. Usually, this type of analysis is performed annually, to confirm the strategy, but also to assess business objectives. On the other hand, a very useful tool to monitor strategic trends is Sales Forcast, which can be used to monitor revenues and expenses on the basis of previously assumed performance forecasts.
Conclusion
There are winning strategies that make the success of a company and others that fail, leading to the revision of the entire process and in the most serious cases even to the failure of the company. To limit the damage and try to build strategies that we have greater chances of success, Stephen Bungay, in his article “5 Myths About Strategy” published in Harvard Business Review, warns managers against false myths about strategy. Those misconceptions, usually based on half-truths, which lead managers to devise and implement bankruptcy strategies. We, therefore, conclude our entrepreneurial strategy pill by suggesting you beware of the false myths of strategy cited by Bungay:
- the strategy is long-term: strategy is something you do now to change the future to your digging and achieve your goals (they are long-term goals, not a long-term strategy! :-));
- disruptors continually change strategy: disruptors often adopt common strategies (“price reduction and capacity growth”) and use them in new ways that make sense for their blitzscaling activity (grow fast!);
- the competitive advantage is over: there can be more competitive advantages instead of just one! Don’t commit all your resources to build a single great competitive advantage, instead think of building more, smaller ones;
- you don’t need a strategy, you just need to be agile: being agile is not a strategy, it’s a skill. You need to build the right strategy that allows you to understand when to be agile to get more value;
- you need a digital strategy: you don’t need a specific strategy for digital, IT, or anything else, but just a business strategy. It’s the business strategy that drives all the others!
See you at the next pill!