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Strategy formulation
1. StrategyFormulation:Developthe BasicsforaSuccessful Strategy
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The strategyformulationprocesssetsthe foundationforthe company'sfuture.Discoverhow tolead
thisprocessaccordingto best practicesand designasolidstrategythatwill take yourcompanyto
newheights.
StrategyFormulation:Developthe BasicsforaSuccessful StrategyWhilemosttheoretical workon
strategyexecutionassumesorganizationshave astrategyinplace tobeginwith,experience shows
thisisoftennot the case.Strategydevelopmentisnota“black box”that producesa strategyready
to be implementedbythe organization,butaveryimportantprocessthatshouldbe analyzed
carefully.
Accordingto a 2006 surveymade byMcKinsey,mostcompanieshave aformal strategicplanning
processand believe the processplaysasignificantrole inhelpingdevelopcorporate strategy.
As itis,most successful companiesfollow asystematicstrategydevelopmentprocessthatstarts by
formulatingthe mission,visionandcore values,continuesbyidentifyingstrategicgoals,performsa
strategicanalysis,andculminatesinthe formulationof astrategyfor the organization.Kaplanand
Nortonstate that the four strategydevelopmentstepsaddresseachof fourrelevantstrategic
questions:
1. What businessare we inand why?(Mission,vision,andvalues)
2. Where are we going?(Strategicgoals)
3. What are the keyissuesthatour strategymustaddress?(Strategicanalysis)
4. How can we bestcompete?(Strategyformulation)
Step1. CraftingMission,VisionandValue Statements
2. The firststepin formulatingastrategyforyour organizationisthe mission.Itshouldbe abrief
statementthatdefinesthe fundamental purposeof the organizationanditsoverall goal.Kaplanand
Nortonquote Google’sasan example of anexcellentmissionstatement:“Toorganize the world’s
informationandmake ituniversallyaccessibleanduseful.”
The nextstepisthe values:the waya companyprescribesitsdesiredbehavior,character,and
culture.Anorganization’score valuesdealwiththe general appearance andbehaviorithasbefore
the world.
Afterwards,the firmshoulddefine itsvision,aconcise statementthatdefinesthe mid- tolong-term
goalsof an organization.Itisexternal andexpressesthe role the companywantstohave inthe
marketor the world.The visionisone of the mostimportantpartsof the strategydevelopment
processand itsdefinitionwill have adirect effectonthe whole strategy-definingprocess.
Somethingimportanttoconsiderwhencraftingavisionstatementisthatitismeantto guide
strategydevelopmentandtherefore mustbe measurable.Itshouldguide the strategyformulation.
It shouldhave three essential components:
- A quantifiedsuccessindicator,
- A definitionof niche and
- A timelineforexecution.
An example of asuccessful visionstatementisJohnF.Kennedy’sforthe U.S.space program in1961:
“To landa man onthe moonand returnhimsafelytoEarth before the endof the decade.”Thisisa
visionstatementthatsetsan ambitioustargetforthe strategyat the highestorganizational level
while providingthe three essential components:travellingtothe moon (definitionof niche),landing
a man there and returninghimsafely(quantifiedsuccessindicator),anddoingsobefore the endof
the decade (timeline forexecution).
The missionandcore valuesremainrelativelystable overtime,while the visionclarifiesdirection
overthree to tenyears.Evenif these three don’tchange often,itisadvisable toreevaluate,review,
and reaffirmthe three of thematthe start of everyyearto see thattheystay relevantand
appropriate tothe organization.
Whencreatinga visionforan organization,the managementteamshouldseekanenhancedvision:
not onlya simple outcome,butamore comprehensive pictureof the enablingfactorswithwhichto
3. achieve the vision,includingkeyprocessesandintangibleassets.Anenhancedvisionbridgesvision
and strategybydescribingcritical goals.
The critical goalsare typicallyfourpointsthatdeal withhow yourorganizationwantstoprogress
towardsitsmissionandvisionwhileusingitscore valuesasthe foundationsforprogress.Infuture
stepsof the strategy-definingprocess,eachof these critical goalswillbe the base of the strategy
map’sstrategicthemes.
Step2. Strategicgoals:Define andDecompose the Value Gap
Quantifyingthe visionmakesitpossible tointegratetargetsettingwiththe explorationof feasible
strategies.A strongleaderthenmustrallythe organizationaroundachievingastretchtarget
objective andchallenge the organizationtobecome muchbetter.Companiesshouldnotbe afraidto
setambitiousgoals:NortonandKaplanare quickto pointout that BHAGs(BigHairy Audacious
Goals) are a commoncomponentof visionarycompanies.
In quantifyingthe vision,companiesshouldidentifythe value gap:difference betweenthe desired
outcome andwhat couldbe achievedbymaintainingthe statusquowiththe existingstrategy.It
representsthe difference betweenaspirationandrealityandbecomesthe goal forthe new strategy
to fulfill.
Managementteamsshoulddetermine the valuegap,aswell aswhere andwhenimprovementscan
be made.Thisis necessarytodetermine how astrategycanclose the value gap andits degree of
feasibility.
Establishingthe visionandsettingstretchtargetsatthe frontendof the strategydevelopment
processestablishesthe frameworkforsubsequentstepsof strategydevelopment.
Step3. StrategicAnalysis
Once what the companymustachieve isclear,itmust performanexternal andinternal analysisthat
includesassessingthe impactof industrytrendsanditsown performance andpositioningrelative to
competitors,aswell asdevelopingadetailedunderstandingof how itpresentlydeliversvalue
througha SWOT analysis.
The external analysis:includesanindustry-level examinationof industryeconomicsusing
frameworkssuchasMichael Porter’sFive Forces(the bargainingpowerof buyers,the bargaining
powerof suppliers,the availabilityof substitutes,the threatof new entrants,andthe intensityof
4. industryrivalry).Itcentersonidentifyingforcesthatare shapingthe industry.Itshouldalsoincludea
comparisonbetweenthe performanceof the companyanditscompetitorsonmultiple financial
ratios.Animportantpart isthe competitorassessment:plotall competitorsonatwo-by-twotable,
withthe axesrepresentingsome combinationof keycompetitive dimensions.
The internal analysis:examinesanorganization’sownperformance andcapabilities.Itis
recommendedtouse the value chainanalysisbyMichael Porter,whichidentifiesthe sequence of
processesnecessarytodeliveracompany’sproductsandservicestocustomers.Ithelpsafirm
identifythose activitiesitneedstoperformdifferentlyorbetterthancompetitorstoestablish
sustainable competitiveadvantage.
The SWOT analysis:afterperformingthe external andinternalanalyses,aSWOTanalysisisthe next
step.It identifiesacompany’sexistingstrengthsandweaknessesaswell asemergingopportunities
and worrisome threats.Itsobjective istosummarize useful informationintoasuccinctlistthathelps
the executive teamunderstandthe keyissuesinstrategyformulation.EachSWOT dimensioncanbe
prioritizedtoreflectthe importance of everyelementforthe organization.
Once the company hasdevelopedacomprehensive understandingof where the companyis,where
it’sheadedandwhere itcompetes,itshoulddevelopastrategytoget the companyfrom pointA to
pointB.
Leadersshouldkeepinmindthat,while havingthe correctstrategyisimportant,itisnot sufficient.
As Jamie Dimon,CEOof JPMorgan Chase,said,“I’dratherhave a first-rate executionandsecond-
rate strategyanytime than a brilliantideaandmediocremanagement.”
How to beginyourstrategyformulationprocess?
Studiesshowthatonly45% of companiesare contentwiththeir strategicplanningprocess.Are you
a part of that 45%?
At TRISSA we helpourclientssuccessfullyformulateandexecute theirstrategiesthroughouttheir
organizations.We offeracomprehensivesetof consultingservices,executive educationand
software solutionstohelptohelporganizationsadoptthe bestpracticesinstrategymanagement
and achieve betterresults.
So go ahead,browse ourwebpage andgetto know usbetter:www.trissa.com.mx/en,orsendus an
e-mail;ourconsultantswouldbe delightedtoansweranyquestionsyoumayhave:
info@trissa.com.mx