Strategy is defined as the insights and plans devised and adapted by the top team to establish, maintain and build competitive advantage over others.
Strategies are different from tactics in that:
- They are proactive and not re-active.
- They are internal in source and the organisation has absolute control over their definition and application.
- Strategy can only be applied once – after that it is process of application with no unique element remaining.
- The outcome is normally a strategic plan which is used as guidance to define functional and divisional/departmental plans,Technology, Marketing, etc.
Strategic planning is the formal review and consideration of an organisation’s future course. Strategy is the servant of vision and mission and focuses on two key questions – how are we better/different than our competitors and what do we have to do to exploit those differences?
The Strategic Planning Process
To survive and thrive in the modern business world, an organisation must adopt a formal strategic planning process and a simplified view of the strategic planning process is shown below:
Step 1 – Mission and Vision Statements
These are the start-point for the strategic planning process – everything that follows is designed to achieve those goals and there is a MorenOE Info Guide on this subject on the website.
Guided by these statements, the leadership team can define measurable financial and strategic objectives. Financial objectives involve measures such as sales targets and earnings growth; strategic objectives are related to the organisation’s business position, and may include measures such as market share and reputation.
Step 2 – Environmental Scan
The environmental scan includes the following components:
- Internal analysis of the organisation (SWOT ANALYSIS)
- Analysis of the organisation’s industry (Porter’s 5 Forces)
- External macro-environment (PEST Analysis)
The internal analysis can identify the organisation’s strengths and weaknesses and the external analysis reveals opportunities and threats. This overall profile is often referred to as a SWOT analysis.
An industry analysis can be performed using a framework developed by Michael Porter known as Porter’s five forces. This framework evaluates entry barriers, suppliers, customers, substitute products and industry rivalry/competition.
A macro-environment analysis follows the well-known PEST framework – what current and future political, economic, social and technological factors impact on and create opportunities for our organisation. A more elaborate analysis tool is called PESTEL which stands for political, economic, social, technological, environmental and legal.
Step 3 – Strategy Formulation
Given the information from the environmental scan, the organisation should then match its strengths to the opportunities that it has identified, while addressing its weaknesses and external threats.
To attain superior profitability, the organisation seeks to develop a competitive advantage over its rivals. Michael Porter identified that competitive advantage can come from one of three sources – the organisation does something differently, it does something at a better price or it just focuses on one thing.
Step 4 – Strategy Implementation
The chosen strategy is implemented by means of programmes, budgets, and procedures. Implementation involves focusing of the organisation’s resources and motivating staff to achieve it.
The way in which the strategy is implemented can have a significant impact on whether it will be successful.
In a larger company, those who implement the strategy will probably be different people from those who formulated it. For this reason, care must be taken to communicate the strategy and the reasoning behind it. Otherwise, the implementation might not succeed if the strategy is misunderstood or if lower-level managers resist its implementation because they do not understand why the particular strategy was selected.
Step 5 – Evaluation & Control
The implementation of the strategy must be monitored and adjustments made as needed.
Evaluation and control consists of the following steps:
- Define parameters to be measured
- Define target values for those parameters
- Perform measurements
- Compare measured results to the pre-defined standard
- Make necessary changes
Does Strategy Change?
Not usually – in many organisations, strategic planning is viewed as a process for determining where an organisation is going and how it will get there over the next 3 to 5 years.
However, strategic planning itself cannot foretell exactly how the market will evolve and what issues will surface over the up-coming time period. Therefore, strategic innovation and regular review of the strategic plan have to be undertaken if the organisation is to survive the turbulent business climate.
Copyright: © Clive Weston, The Hartwell Consultancy, 2020
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