I’m often asked about how to create a business strategy. There are so many business and management books written on the subject that it can be difficult to know where to start, so in the spirit of trying to keep things simple, here are some of the elements. Let’s start with some fundamentals. What is a business strategy?
The easiest way to think about strategy is that it’s really just the answer to two key questions: a) What are we going to do? And b) What are we not going to do?
All businesses have finite resources, so strategy is concerned with how to allocate those resources – financial, human, and other – in a way that provides the best outcome for the business. Deciding what we’re not going to do is in some ways more important that deciding what we are going to do. If we aren’t clear about what we’re not going to do we risk diluting our offerings, stretching key people too thinly, and spending a lot of time chasing shiny mirages, rather than doing solid, valuable business that provides the goods and services our customers want and brings valuable returns to our business.
At its heart, our strategy should determine where we play, how we play, and what we play with. So, having got the absolute fundamentals out of the way, here are 4 elements that I think should be in every business strategy:
- Purpose: It’s important to understand the point of your business. Why does it exist? What is its purpose in the world? Put another way, if it didn’t exist how would the world be different? I know it sounds a bit grand, but it’s a good place to start. By the way, “to make me rich” isn’t the answer!
- Competitiveness: At the same time as evaluating the purpose of your business you need to think about how you compete. If you want an equation to define it I like this one: Competiveness = Assets x Capabilities. Your assets are those things you have, your capabilities are those things you can do. Your ability to exploit both will determine how successfully you compete. Some businesses have extraordinarily valuable assets (such as utility companies), others have practically no assets (such as plumbing firms) but compete purely on the basis of their capabilities, still others have a combination of the two. Do you have any scarce and valuable assets? Do you have scarce and valuable capabilities? If you do, build your competitive strategies on those. By the same token, don’t build a strategy that exposes your weaknesses.
- Segmentation: Segmentation is about how you group potential customers in order to target your proposition to them. We all know It’s vital to know our target market but there are usually many sub-divisions (segments) within it. Many B2B businesses segment by industry and geography as a way of grouping customers, many B2C businesses by gender, age, socio-economic groupings etc . This all helps, but I prefer to segment by customer needs if possible. When you find a group of potential customers who have similar needs you can adapt your proposition and messaging to target them as a distinct group or segment. What’s even more interesting is to segment customers by anticipated need. This is something that the legendary Steve Jobs had an uncanny knack of getting right. It has been said that he knew what we wanted before we did! When you can do that effectively you gain first-mover advantage in your industry and can even disrupt an entire sector
- SMART Goals: When you lay out your strategy, you might find using SMART goals a useful framework. SMART has been around a long time, but it has lasted because it works. All too often things that are woolly and undefined are called “strategic”. If a strategy doesn’t have goals attached then it’s not executable and is therefore completely useless. For those of you who haven’t heard of SMART, it’s an acronym:
- Specific – Clear with no room for doubt
- Measurable – So that you can track your progress
- Achievable – Realistic and attainable
- Relevant – Matters to the business and also aligns with other relevant goals
- Time Bound – Every goal needs a target date for completion
As I said earlier, there are many components of a good strategy and many tools and techniques that you can deploy to organise your thoughts. Ultimately though, it’s up to you. Be clear about your purpose, understand your assets and capabilities and deploy them competitively, segment thoughtfully, and set smart goals. If you do all of that, you have the basis of a winning strategy. From that you can build your plan.
Then comes the hard part. Execution.
If you’re interested in attending a Strategy Fundamentals master-class at Alwalton Hall, please let me know at [email protected] and I’ll make sure you get details of the next event.