The Secrets of Strategy - Part 1 of 2
by Paul Lember
Published on this site: April 6th, 2006 - See
more articles from this month
A step-by-step guide to creating a growth strategy based on
your current situation and future possibilities.
I'll bet you think you already have a strategy.
And well you may, but strategy as a concept is just like love:
much used and little understood. Many businesses (and that
includes small entrepreneurs, large corporations, non-profits,
community organizations, governments, NGOs...the works) neither
know what strategy really is, nor how to get one.
And even if you do, in fact, have a strategy - is it the right
one? The best one? This is so important - marketing guru Jay
Abraham says - and I agree - a superior strategy badly executed
will beat a bad strategy well executed, any day.
It's easy to say, "This is big company stuff. We know
what we need - why should we do all the extra work."
While a "strategy-less" group of marketing tactics
may work well and produce good results, is it taking your
business in the best direction? You may be making money,
but
are you making the most money possible? Could another suite
of tactics implementing a superior strategy produce far better
results?
Which brings me to the point of this two-part article:
how to formulate strategy. In the next 1500 words, I'm going
to present the first half of a basic system for identifying
high-impact strategies in your business. (Just the first half?
Yes. While I strive to make this as simple as possible, it
still takes a bit of explaining, and editors and readers alike
detest long articles!) So Part 2 will finish the outline,
and in future articles, I will discuss each system component
in finer detail.
Let's begin with a working definition of strategy.
Strategy is the guiding principle on which are based a series
of interlinked decisions regarding the selection and deployment
of resources and tactics, whose purpose is realizing a vision
and achieving decisive objectives in a competitive and changing
environment.
This definition tells us a few things:
- The purpose of all strategic decisions is achieving your
vision and "decisive" or critical-to-purpose objectives.
- Strategy is about selecting specific resources and tactics
to get the desired result.
- Strategy is not static; it is decisions in a series,
and evolves continuously over time.
- Strategy is broad and all-encompassing. With that in
mind, here are the 8 steps in formulating strategy:
Set your vision
Gather environmental and competitive intelligence
Take stock of your organization's strengths and weaknesses
Select your "grand strategy"
Establish decisive objectives
Rate and rank your "SWOTs"
Match your internal and external factors to identify strategic
alternatives
Select specific strategies for implementation
Of course, there is one last step: turning your strategy
into tactics and game plans, and execute. We won't get into
that in this article.
- Step - Establish your vision.
People complicate the idea of vision. A vision is simply
a story describing how you want things to be in the future.
Some people can tell these stories easily - they know exactly
where they want to be and what it will "look"
like.
Others need help. The best approach is to answer a series
of questions regarding what your organization does, who
are it's clients or beneficiaries, what its impact is, how
big it is, where it is, how it operates, when all these
things will occur, and so on. As a result of answering these
questions, your vision will emerge.
Of course, you may already have a vision. If so, now is
the time to insure that it is relevant and powerful.
The test of a good vision is if it inspires; not only you
and your management team, but all of your stakeholders:
your partners, employees, clients, investors, vendors, lenders,
your community, your government-and perhaps the public at
large. A great vision inspires, and it also provides direction.
Every action you take should further your vision. If it
doesn't, don't do it.
- Step - Gather environmental and competitive intelligence.
To develop the best strategies you must understand the world
outside your organization. Quantify and qualify, not just
absolutes, but trends. And importantly-identify changes
in the status quo. Key areas for focus include competitors,
technology, market size and trends, your clients' industry
health, macroeconomic trends, availability of key resources
(people and materials) government regulations and other
political considerations, and changes in demographics and
psychographics - like customer taste.
Devise relevant measures for each of these key external
areas. For instance, examine your competitors for revenue,
profit and market share growth (or decline), product and
service changes, shifts in marketing and sales strategy,
changes in geographic distribution, strategic alliances,
and major customer announcements.
Macroeconomic factors include the obvious such as interest
and employment rates and trends, production and consumption
statistics, along with finer grained-industry issues such
as new home buying-which impacts a wide variety of businesses,
or defense spending-which impacts a completely different
set of sectors.
- Step - Take stock of your organization's strengths
and weaknesses.
Now it is time to shine the light on your organization.
Examine each functional area looking for strengths and weaknesses.
Identify strengths that will help the company realize its
vision, and weaknesses that will impede its goals.
The following is a starter list of focus areas:
- Ability to get new prospects (Marketing)
- Ability to get new clients (Sales)
- Products and services, both existing and those in R&D
- Finance or Money, including cash flow, access to capital,
revenues, profits, ROI
- Leadership, including values and vision alignment, decisive
objectives
- People, including skills inventory, staffing levels,
employee loyalty, compensation
Other areas to examine include:
- Client satisfaction
- Client services
- Logistics
- Competitive positioning
- Unique Client Proposition
- Management team
- Administration
- Step - Select your Grand Strategies.
This "grand strategy" approach is based upon industry/product
revenue growth rates. It is specific to a business unit
with one major industry and/or product focus. If your business
is more complex, you may repeat the process for each focus
sector.
First, consider your industry and product sector growth
rate. Is it growing or declining?
Second, consider your competitive strength within that sector.
For this analysis Competitive Strength has two components,
the size and trend of your market share, and your organization's
financial strength; specifically either cash flow from operations,
or access to capital.
To simplify: strong market share + strong finances
= strong competitive position. Either strong market share
or strong finances = average competitive position. Neither
strong market share nor strong finances = weak competitive
position.
This defines a two-by-three matrix of strategic choices
from which to select your grand strategy.
The exact choice you make will be dictated by the specifics
of your situation: sector strength and competitive strength,
along with your stated vision and purpose. Choose from the
list which best describes your business: Strong sector,
strong competitive position
This means that you are in a growing market, hold a commanding
market position, and have cash with which to maneuver. Your
strategic choices include:
- Market strategy to increase demand and sales for existing
products and services, in existing and new markets
- Marketing strategy to increase market penetration for
existing products and services and capture greater share
- Enhance or extend existing products and services; add-ons,
backends, strategic joint ventures
- Gain control over distribution - bring external sales
inside. Take sales from distributors
- Gain control over suppliers Acquisition, merger, or joint-ventures
with competitors
- Develop strategic partnerships to increase distribution,
or gain new products
- Develop related products and services for existing customer
base - backend strategies
Strong sector, average competitive position
Here you are in a growing market, but have either a commanding
position, but limited cash-or vice versa. The exact choice
available to you depends on your situation. You can:
- Seek underserved niches: move into small, defined and
profitable markets
- Marketing strategy to increase market penetration for
existing products and services and capture greater share
- Enhance or extend existing products and services; add-ons,
backends, strategic joint ventures
- Strategic partnerships - seek products/services for existing
customers
- Exploit assets via joint ventures and host-beneficiary
relationships
- Develop related products and services for existing customer
base - backend strategies
- Increased marketing penetration via distributors and
3rd parties
- Get more money: raise capital via debt or equity
Strong sector, weak competitive position
You are in a strong sector, but have relatively small market
share, and limited or no cash. Your choices include:
- Seek underserved niches: move into small, defined and
profitable markets
- Marketing strategy to increase market penetration for
existing products and services and capture greater share
- Strategic partnerships - seek products/services for existing
customers
- Develop products and services for existing customer base
- backend strategies
- Sell your client base to a competitor or cooperator;
or reposition your existing products to appeal to new customer
types
- Sell the product line and use cash to reposition remaining
assets
- Sell the company
Weak sector, strong competitive position
In this case, you dominate a weak market and have cash to
exploit your position. You should:
- Add related products and services for existing customer
base - backend strategies
- Add un-related products and services for existing customer
base - backend strategies
- Add new products and services for new customer base
- Create joint ventures in unrelated markets
Weak sector, average competitive position
You are in a mediocre position in a weak market. Depending
on your exact circumstances, you can retreat, use what's
left of your cash to buy your way out with new products,
or try to enroll a strong partner. Choices include:
- Reduce costs however you can
- Add related products and services for existing customer
base - backend strategies
- Add new products and services for new customer base
- Seek to dominate the smallest definition of your market
using low-cost / no-cost strategies
- Create strategic partnerships and joint ventures
Weak sector, weak competitive position
Sorry to say, you are in a bad place. In a word - retreat!
You can do this by:
- Reduce costs however you can
- Sell product line
- Sell company
If you don't want to liquidate, seek to expand your marketing
using low-cost / no-cost marketing strategies - but this
may be a losing proposition
Also, as above, attempt to create strategic partnerships
and joint ventures, but it may be difficult to attract partners
to a market with poor fundamentals. At this point you might
say, "...sell the customers? Sell the company? No way.
I'm holding on." That just isn't a strategic point
of view.
Strategy says you can make more money doing something else
- so you best start thinking about it.
In general, these choices are listed from most attractive
to least. Your organization's best choices will be based on
your particular circumstances.
By now you have formulated a vision, gathered analyzed your
external environment and organization, identified relevant
strengths, weaknesses, opportunities and threats, and begun
to zero in on a grand strategy. That should keep you busy
for a while.
In The Secrets of Strategy, Part II, we'll complete the process.
Remember-you don't need a strategy. But having one increases
your chances of generating the greatest profits from your
resources. After all, that is the whole point of strategy.
Business Coach http://paullemberg.com
and Strategist, Paul Lemberg is the President of Quantum
Growth Coaching, the world's only fully systemized business
coaching http://quantumgrowthcoaching.com
program designed to create More Profits and More LifeT for
entrepreneurs.
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