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The Art In Strategy Formulation

Managing a strategy into reality

17Nov

This is Part 2 of the series 'Managing a Strategy into Reality'. The objective of this series is to help organizations execute their strategies for success. It documents what I have learned from implementing and managing strategy management processes at international and national companies for over a decade, on three different continents. It focuses in particular on the 'soft side' – the 'Art' – of Strategy Management: how to engage an organization in strategy and induce it to support the change it entails. It is not intended as a summary of academic literature on the subject, therefore, but as a “practitioner’s guide” covering what I’ve seen work well and not so well.

The previous, Part 1 of the series, discussed the necessity of establishing a Strategy Management Team (SMT). The following Part 2 will focus on the Strategy Formulation phase of Strategy Management, discussing its objectives, who should be engaged during this phase and how they should be engaged by the SMT.

Strategy Formulation, the starting point of Strategy Management, is a look into the future in order to identify the big opportunities to pursue (markets, customers, needs, etc.) and the characteristics that would give the organization a sustainable advantage over competitors also pursuing these opportunities (e.g. lowest cost producer, or most innovative products). In other words, it is about deciding where to do business and how to do business there.

SMT task 1: Information gathering

Strategy Formulation should not be solely based on the organization’s past performance or competitor performance (benchmarking). In fact, organizations that base their strategy on nothing but performance information make the classic mistake of trying to copy the best performing competitor, although markets continuously change, meaning that the drivers of success in the future are most likely different from the drivers of success today or in the past.

In order to define the right strategy, an organization must first look forward into the future and develop an idea as to what this future will most likely look like. Once the organization understands what the future could look like, it can assess what the big opportunities of the future could be and what could capture these opportunities. Considering its own past performance and the performance of its competitors it can then decide which big opportunities it wants to pursue ('Where to do business?') and how it wants to pursue these ('How to do business there?').

Many organizations have a function dedicated to forecasting the future. The day-to-day activity of the specialists in this function is to develop and maintain the scenarios that explore what the future might look like, based on different assumptions regarding economic growth, technological, demographic and industry developments, as well as consumers’ preferences and needs. An organization’s senior- and middle-managers – Mid Management (MM) – as well as Subject Matter Experts (SMEs), who on a day-to-day basis manage operations and the interactions with stakeholders (employees, customers, suppliers), are good sources of information for scenario building as well. There is a role to play by the SMT in scenario building, therefore, in that it should coordinate between these parties to ensure the scenarios are a comprehensive view of the future, considering the insights and specialized knowledge of both the futurists, MM and SMEs.

In addition, the SMT should also gather input from MM and SMEs on what they believe the ideal positioning of the organization would be in each of the defined scenarios – 'In this future, where should we do business, how should we do business there, and why?'. This enables development of a comprehensive information package to support the C-suite in their strategic thinking and decision making, containing:

    1. Most likely scenarios for the future;

    2. Assumptions behind each of the future scenarios; 

    3. Possible strategies for each of the future scenarios;

    4. Assumptions behind each of the possible strategies for each of the future scenarios.

SMT task 2: Developing a corporate performance dashboard

During Strategy Formulation the SMT should translate the final decisions on 'where to do business' and 'how to do business there' into a corporate dashboard of Key Performance Indicators (KPIs). For example, if an organization decides it wants to sell mobile phones to the lower middle class in a fast growing Asian market, and believes that this requires it to be the lowest cost producer of 'dumbphones' and the provider of the best customer experience, then the dashboard for this strategy should (at least) consist of: 

1. A KPI measuring sales;

2. A KPI measuring market share in the defined country / demographic combination;

3. A KPI measuring total cost of business (manufacturing, marketing and sales); and 

4. A KPI measuring customer satisfaction.

Of course, each of these KPIs should be attributed specific targets in line with the strategy.

This translation of 'where to do business' and 'how to do business there' into KPIs with targets not only facilitates performance management during Strategy Execution, it also enables Strategic Planning since it supports communication of the strategy by clarifying what exactly the C-suite wants the organization to achieve and become.

SMT task 3: Developing function performance dashboards

In order for MM to fully appreciate what the strategy means, it must be clarified what it means for them. To achieve this clarity and transparency, during Strategy Formulation the SMT as 'guardian of the corporate dashboard' should also take the lead in an exercise to translate the corporate KPIs into a set of dashboards for the functions of the organization, such as a dashboard for the manufacturing manager, another for the marketing manager, and so on.

The SMT needs to determine what should be monitored on these MM dashboards through identifying the key drivers for the corporate KPIs. MM should be engaged in this exercise since it possesses the insights and specialized knowledge regarding the operations that is required to determine these key-drivers of performance, how they could be measured, and on which of the MM dashboards exactly they should feature (i.e. who should take responsibility for which key-driver).

All this effectively engages MM and SMEs in Strategy Formulation, enables the utilization of their insights for the development of an optimal strategy for the organization, and facilitates an early “sanity check” on this strategy (“Can we actually achieve this?”). It also prepares the organization for the next phase of Strategy Management, which is Strategic Planning to develop action plans to achieve the objectives.

The next article in the series, Part 3, will discuss in more detail the Strategic Planning phase of Strategy Management.

The 'Managing a Strategy into Reality' series

Part 1 discussed the necessity of establishing a Strategy Management Team (SMT).

Part 2 reviewed the Strategy Formulation phase of Strategy Management.

Part 3 will review the Strategic Planning phase of Strategy Management.

Part 4 will review the Strategy Execution phase of Strategy Management, focusing in the Strategic Performance Management process.

Part 5 will continue the review of the Strategy Execution phase of Strategy Management, focusing on the Strategic Risk Management process.

Part 6 will discuss the key competencies required for effective Strategy Management.

Part 7 will review the relationship between Strategy and Corporate Culture and explain how Corporate Culture can be managed to supporting the Strategy.

Part 8 will review whether Strategy Management remains relevant in today’s volatile, uncertain, complex, and ambiguous world.

If you have any kind of feedback, feel free to leave a comment or connect with me on LinkedIn.

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