The term ‘business strategy’ has many definitions but my favourite is by Johnson and Scholes in Exploring Corporate Strategy. They said, “Strategy is the direction and scope of an organisation over the long term, which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations.”
According to this definition, business strategy is about:
Where is the business trying to get to in the long term? (direction)
What external, environmental factors affect the businesses’ ability to compete? (environment)
How can the business perform better than the competition in those markets? (advantage)
Which markets should a business compete in and what kind of activities is involved in such markets? (markets, scope)
What resources (skills, assets, finance, relationships, technical competence and facilities) are required in order to be able to compete? (resources)
What are the values and expectations of those who have power in and around the business? (stakeholders)
Entrepreneurs and business managers are often so preoccupied with immediate issues that they lose sight of their ultimate objectives. That’s why preparation of a strategic plan is a virtual necessity. This may not be a recipe for success, but without it, a business is much more likely to fail.
A sound plan should:
Assist benchmarking and performance monitoring.
Provide a basis for more detailed planning.
Serve as a framework for decisions or for securing support/approval.
Explain the business to others in order to inform, motivate and involve.
Stimulate change and become a building block for the next plan.
A satisfactory strategic plan must be realistic and attainable so as to allow managers and entrepreneurs to think strategically and act operationally.
The starting point must be to determine a company’s existing vision, mission, objectives and strategies. Then judge these against actual performance along the following lines:
How has the company sought to increase sales and market share?
How has the company been managed?
Describe the actual strategies followed over the past few years in respect of products/services, operations, finance, marketing, technology, management, etc.
Is the current vision being realized?
How has the company’s mission and objectives changed over the past say, three years? Why have the changes occurred or why have no changes occurred? Identify primary reasons and categorize them as either internal or external.
Critically examine each strategy statement by reference to activities and actions in key functional areas covering such matters as:
How has the company been funded?
How have productivity/costs moved?
We must take each element and quantify by reference to actual performance. Ask of each ‘why not?’ ‘why only?’ or ‘why so?’ and locate the reasons for differences between the actual and desired performance.
In most companies, devising the business strategy takes the form of managers brainstorming opportunities and then planning how they will take advantage of them. Unfortunately, while this type of approach is important, much more than this must be done if they want to be successful.
After all, there’s no point in developing a strategy that ignores competitors’ reactions, or doesn’t consider the culture and capabilities of the organisation. And it would be wasteful not to make full use of the company’s strengths - whether these are obvious or not.
Management expert, Henry Mintzberg argued that it’s really hard to get strategy right. To help us think about it in more depth, he developed his 5 Ps of Strategy – five different approaches to developing strategy.
By understanding each P, we can develop a robust business strategy that takes full advantage of the organisation’s strengths and capabilities.
Strategy as a Plan
Planning is something that many managers are happy with, and it’s something that comes naturally to us. As such, this is the default, automatic approach that we adopt – brainstorming options and planning how to deliver them.
Concepts like PEST Analysis, SWOT Analysis and Brainstorming help managers to think about and identify opportunities. The problem with planning, however, is that it’s not enough on its own. This is where the other four Ps come into play.
Strategy as Ploy
Mintzberg says that getting the better of competitors, by plotting to disrupt, dissuade, discourage, or otherwise influence them, can be part of a strategy. This is where strategy can be a ploy, as well as a plan.
For example, a grocery chain might threaten to expand a store, so that a competitor doesn’t move into the same area; or a telecommunications company might buy up patents that a competitor could potentially use to launch a rival product.
Here, techniques and tools such as the Futures Wheel, Impact Analysis, Game Theory and Scenario Analysis can help you explore the possible future scenarios in which competition will occur.
Strategy as Pattern
Strategic plans and ploys are both deliberate exercises. Sometimes, however, strategy emerges from past organisational behaviour. Rather than being an intentional choice, a consistent and successful way of doing business can develop into a strategy.
To use this element of the 5 Ps, take note of the patterns you see in your team and organisation. Then, ask yourself whether these patterns have become an implicit part of your strategy and think about the impact these patterns should have on how you approach strategic planning.
Tools such as USP Analysis and Core Competence Analysis can help you with this. A related tool, VRIO Analysis, can help you explore resources and assets (rather than patterns) that you should focus on when thinking about strategy.
Strategy as Position
‘Position’ is another way to define strategy - that is, how you decide to position yourself in the marketplace. In this way, strategy helps you explore the fit between your organisation and your environment and it helps you develop a sustainable competitive advantage.
For example, your strategy might include developing a niche product to avoid competition, or choosing to position yourself amongst a variety of competitors, while looking for ways to differentiate your services.
When you think about your strategic position, it helps to understand your organisation’s ‘bigger picture’ in relation to external factors. To do this, use PEST Analysis, Porter’s Diamond, and Porter’s Five Forces to analyse your environment - these tools will show where you have a strong position and where you may have issues. You can also use SWOT Analysis to identify what you do well and to uncover opportunities.
Strategy as Perspective
The choices an organisation makes about its strategy rely heavily on its culture – just as patterns of behaviour can emerge as strategy, patterns of thinking will shape an organisation’s perspective and the things that it is able to do well.
For instance, an organisation that encourages risk-taking and innovation from employees might focus on coming up with innovative products as the main thrust behind its strategy. By contrast, an organisation that emphasizes the reliable processing of data may follow a strategy of offering these services to other organisations under outsourcing arrangements.
To get an insight into your organisation’s perspective, use cultural analysis tools like the Cultural Web and the Congruence Model.
Using 5 Ps
Instead of trying to use the 5 Ps as a process to follow while developing strategy, think of them as a variety of viewpoints that you should consider while developing a robust and successful strategy.
A word of advice! There are three points in the strategic planning process where it’s particularly helpful to use the 5 Ps: (1) When you’re gathering information and conducting the analysis needed for strategy development, as a way of ensuring that you’ve considered everything relevant, (2) When you’ve come up with initial ideas, as a way of testing that that they’re realistic, practical and robust, (3) As a final check on the strategy that you’ve developed, to flush out inconsistencies and things that may not have been fully considered.
(The writer is a corporate director with over 25 years’ senior managerial experience. He can be contacted at email@example.com)