Testing your Strategy & Business Planning Process, the 10 most critical factors
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How does your business strategy and business plan stack up against the ten most critical factors of success.
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Testing your Strategy & Business Planning Process, the 10 most critical factors
- 1. 1© Grant Thornton International. All rights reserved. 10 timeless strategy tests
- 2. 2© Grant Thornton International. All rights reserved. The problem with strategy …our strategy will lead us to success Our strategy defines our differentiation… We have clear capabilities… …that fully support our strategy Source: Booz&Co % % % %
- 3. 3© Grant Thornton International. All rights reserved. 10 tests: separating the wheat from the chaff Have you translated your strategy into an action plan? Is there conviction to act on your strategy? Is your strategy contaminated by bias? Does your strategy balance commitment and flexibility? Does your strategy embrace uncertainty? Does your strategy rest on privileged insights? Does your strategy put you ahead of the trends? Is your strategy granular about where to compete? Does your strategy tap a true source of advantage? Will your strategy beat the market?
- 4. 4© Grant Thornton International. All rights reserved. Will your strategy beat the market?
- 5. 5© Grant Thornton International. All rights reserved. Will your strategy beat the market Porters 5 Forces What is it? • Analyses the level of competitive rivalry within an industry at the business unit or divisional level, not for the whole organisation • Examines the bargaining power of customers and suppliers and the threat of new entrants and substitutes How do you use it? • Determine the overall level of each factor (High, Medium, Low) and then determine the overall level of competitive rivalry • Five forces are not independent of each other, one can trigger effects into another • Competitive strategy may be concerned with disrupting these forces rather than just accommodating to them When do you use it? • When there is a need to have a clear understanding of the level of competitive rivalry within the industry that the business unit is competing in. CompCOMPETITIVE RIVALRY Potential Entrants Suppliers Buyers Substitutes Bargaining Power Threat of substitutes Bargaining Power Threat of entrants
- 6. 6© Grant Thornton International. All rights reserved. Will your strategy beat the market SWOT Analysis What is it? • Assessment of business' strengths, weakness, opportunities and threats • Strengths and Weaknesses are factors internal to the organisation • Opportunities and Threats are factors external to the organisation How do you use it? • Management interviews/questionnaires to determine strengths and weaknesses • Industry research to determine opportunities and threats • Key is to leverage strengths to exploit opportunities, defend against threats, protect weaknesses from threats and opportunities available to competitors, When do you use it? • Simple useful tool for any review • Quick way to determine how to leverage strengths and defend from threats STRENGTHS WEAKNESSES OPPORTUNITIES THREATS
- 7. 7© Grant Thornton International. All rights reserved. Will your strategy beat the market Competitive Positioning What is it? Tool which identifies the market the business is targeting or potentially should be targeting based on price (compared to competitors) and perceived value from customer How do you use it? Use management interviews/questionnaires and industry/market research reports to determine: • Price compared to competitors • What customers value and segment them appropriately Determine based on SWOT analysis where the organisation should be positioned When do you use it? for a business that has declining sales for a business that has no clear sales strategy P E R C E I V E D A D D E D V A L U E Low High PRICE Unsustainable Strategies Hybrid Low price No Frills Differentiation Focused Differentiation
- 8. 8© Grant Thornton International. All rights reserved. COMPANY PROFILE STRENGT HS WEAKNES SES OPPORTU NITY THREAT COMPEDIT IVE POSITIONI NG Competitors Customers Suppliers New Entrants Product Substitutes Economic Political Social Environmental Legal Technological SWOT Porters PESTLE
- 9. 9© Grant Thornton International. All rights reserved. Does your strategy tap a true source of advantage?
- 10. 10© Grant Thornton International. All rights reserved. Positional and Capability Advantages Positional Advantages • Market Dominance Capability Advantages • Access to unique resources – Saudi Aramco • Innovation and R&D – Google • People (?) Source: The Australian
- 11. 11© Grant Thornton International. All rights reserved. Is your strategy granular about where to compete?
- 12. 12© Grant Thornton International. All rights reserved. Does your strategy put you ahead of the trends?
- 13. 13© Grant Thornton International. All rights reserved. Does your strategy rest on privileged insights?
- 14. 14© Grant Thornton International. All rights reserved. Insight comes from many different sources. Whence comes insight? • Board • Staff • Customers • Commissioned research – Internal data – External data • External experts or provocateurs • Problem analysis TOPDOWNBOTTOMUP
- 15. 15© Grant Thornton International. All rights reserved. Does your strategy embrace uncertainty?
- 16. 16© Grant Thornton International. All rights reserved. Scenario Planning Forecasts are not predictions Scenario planning is a useful tool for discussing possibilities in an uncertain future Supply Demand High HighLow Low Professional Services Land of the giants Niche markets Boom times Bread crumbs
- 17. 17© Grant Thornton International. All rights reserved. Does your strategy balance commitment and flexibility?
- 18. 18© Grant Thornton International. All rights reserved. A few big decisions Timing is critical Many smaller decisions Delay where possible Flexibility Commitment There is unavoidable tension between flexibility and commitment.
- 19. 19© Grant Thornton International. All rights reserved. Is your strategy contaminated by bias?
- 20. 20© Grant Thornton International. All rights reserved. Is there conviction to act on your strategy?
- 21. 21© Grant Thornton International. All rights reserved. Have you translated your strategy into an action plan?
- 22. © 2011 Grant Thornton Australia Ltd | February 2012 The Roadmap Finance Customer Market Internal Growth & Development Set next year’s budget Restructure Board of Directors (Phase 1) Reintroduce Remuneration Committee 0 – 3 Months 3 – 6 Months 6 – 12 Months Appoint Sales team Create website Introduce Sales team into client conversation Polish shop review Outsource internal operations (e.g. IT) Find sub- contractor installation teams IT review Upgrade & review employment contracts Update & implement organisational chart Review job description in all 5 areas Appoint Senior Leadership Team HR development & training for individuals Appoint company mentor Appoint Executive Assistant (EA) to Managing Director Review Management Reporting (M1) Restructure Board of Directors (Phase 2) Review Shareholdings Establish clients Sales strategy Procurement strategy Sponsorship & community involvement effort Environmental review Set next year’s budget Update business plan Company director training Review/refresh manuals Storage review Review IJF Mayco Review outsourcing components for assembly Risk review on products & suppliers Construction strategy (ECH Expansion Health & Aged Care) Establish competitors Manufacturing outsourcing – local (painting, etc) FF&E market Establish procurement based on product (e.g. China, India, Vietnam) Establish product core Review showroom location (with product library included) 22 Strategic Direction
- 23. 23© Grant Thornton International. All rights reserved. The results: 65% (3 or fewer) 25% (4 – 6) 10% (7 – 10)
- 24. 24© Grant Thornton International. All rights reserved. Strategy • Takes time • Requires effort • Builds on capability • Needs commitment
Editor's Notes
- This is the comprehensive test. To capture and retain economic surplus you need a competitive advantage. Good strategies emphasize difference versus direct competitors, potential substitutes and potential entrants. Advantages have to be robust and responsive in the face of onrushing market forces (divergent strategy).
- Advantage comes from 2 sources of scarcity: positional advantages and special capabilities.Positional advantage: gained by understanding the relationship among structure, conduct and performance.Special capabilities: tradeable and non-tradeable.If you bundle the activities that create the advantage then it is difficult for competitors to identify and replicate the source. Must be dynamic.
- The degree to which you segment the market significantly influences resource allocation and thus the likelihood of success.Push within reason for the finest possible objective segmentation: think 30 to 50 segments rather than 5 or so. Focus on location and demographics.Reallocate resources as opportunities shift within and between segments.
- Many strategies continue with the status quo because they extrapolate from data relating only to the past 3-5 years. This period is too brief to capture the true violence of market forces.It is vital to take trend analysis seriously: watch how the early adopters are acting, work through the possible affects of outside forces to their conclusion (down to P&L). How does this result line up with today's investment position?HowAnalysisOther markets (i.e. OS)Other industriesPersonal insightCustomer behaviourExamplesNDIS:Cloud – but do you remember ASPs?
- Data today is cheap, accessible and easy to assemble in a way to comfort executive decision-makers. Mostly it's just noise.Developing insight that your company has that others do not is not easy. Instead of relying on industry reports, search for problems in your strategy, including assumptions (implicit and explicit) behind the business model to see if it still fits with the current environment.Elect primary over secondary research. Put yourself in your customers' shoes.
- Have to make decisions now when we don't know the future. A critical step to embracing uncertainty is to characterize what variety of it you face. 4 levels of uncertainty: 1. reasonably clear view of the future with a range of outcomes tight enough to support a firm decision, 2. a number of identifiable outcomes for which a company should prepare, 3. possible outcomes represented by a range that can be understood as a probability distribution, 4. total ambiguity. List variables that would influence a strategic decision and prioritize them according to impact. Focus early analysis on removing uncertainty then apply tools such as scenario analysis.
- This inverse tension is a core problem of strategy.Only those decisions that involve commitment through hard-to-reverse investments in long-lasting company-specific assets are truly strategic. Strategy is not only about where and how to compete but also when. This is where flexibility is important – allows companies to make commitments when the risk/return trade-off is advantageous.A market beating strategy will focus on just a few crucial, high commitment choices to be made now, while leaving flexibility for other choices to be made over time.
- The behavioural economics view. Overoptimism, anchoring, confirmation bias, loss aversion, herding, champion bias.Strategy is particularly prone to faulty logic because it relies on extrapolating ways to win in the future from a complex set of factors observed today. 2 big inference problems: attribution error and survivorship bias.Ways to de-bias: developing multiple hypotheses and potential solutions, bring fresh eyes to issues and retain a culture of challenge, specify objective criteria in advance and examine the possibility of being wrong, premortem assessment.
- This regards the investment made to implementing your strategy. You need a process that openly questions the old assumptions and allows managers to develop a new set of beliefs in tune with the new situation. Group formation, Building shared meaning, Exposing and reconciling differences, Aligning and accepting accountability.To ensure you have employee "buy-in" need to take decision-makers on a journey of discovery that will make them understand the problems with the current strategy. Videos, customer visits etc can help with this. w
- Imperative to clearly define what you are moving from and to with regards to business model, organisation and capabilities. Need to develop a clear view of shifts required and make sure you have process and mechanisms (with who is responsible) to carry out the change. Ensure resource allocation/ budgets are aligned to the strategy.