It’s that time of the year again. Time to dust off the desk and put together the business strategy for 2017. How many of you are working at companies that develop a 100-page 3 or 5-year strategic plan that represents a future nirvana vision for your business? The end product is a glorious dream of all of the money you will make, great products that will launch on time, and how your competition will wither. The management team presents the plan to the Board of Directors using a 100 slide multi-color PowerPoint slide deck, answers some softball questions, then everyone grabs some hors d’oeuvres and drinks. After the meeting and party, the team files the document and forgets about it for the next 12 months.
So why do so many leaders struggle with strategy? They know they need a blueprint to follow that provides context for decision making. Many articles suggest a three-part process for strategy. First, start with a lofty vision and mission. Then, the management team thinks of a long list of initiatives, such as product development, facility and manufacturing enhancements, and market expansion. This long list is only constrained by the available budget. Last, the team translates the initiatives into financials, which can be incorporated into the annual budget. Pull it all together into a nice packet and voilà! A nice fiction to read before falling asleep.
Business Strategy, Market Segments and Value Propositions
Perhaps many leaders are confused on what a “business strategy” is… and is not. A strategy is the set of guiding principles that communicate how people throughout the organization should make decisions and allocate limited resources (people, cash, time, facilities, equipment, etc.) in order to accomplish key objectives. A good strategy provides a clear roadmap and defines the actions people in the business should take (and not take) and the things they should prioritize (and not prioritize) to achieve the desired goals. At its core, a business strategy should be simple by addressing just two questions:
- Which market segment will you target (who are my customers)?
- How will you win (what is your value proposition versus the competition)?
To address these areas, we suggest a few key steps. First, critically assess current year performance versus previous strategic plan. What went well and why? What went poorly and why? Be brutally honest so that you understand what isn’t broken and what changes should be considered.
Next, analyze the market. Assess the types of customers, their products and service needs, the market sizes, and market growth rates. Determine the market share by competitor, product type, etc. It also is important to capture trends of external factors outside of your control like government regulations, socioeconomic issues, political changes, and the environment. And, discuss the distribution channels needed for each of the segments being considered. At the end of this assessment, you should have a clear idea of where you plan to compete.
Then analyze and determine what it takes to win in that segment. Start by analyzing your competitors, their products, and their value propositions. It might be helpful to look at the market from their perspective. Another useful tool is to develop a price-performance matrix that allows a comparison of your company’s products and services versus those of the competition. Be sure to develop the price-performance analysis according to what the customer values in the targeted market segment. Patent analysis is an extremely useful tool to identify the intellectual property landscape for your market. It may identify absence of patents in a particular product or technology area (white space) to define your product and technology development pathways. Alternatively, it also will identify the technology investments of your competitors.
Define Quantifiable Initiatives
Once you have a firm understanding of the customers you are targeting and what it takes to gain market share, it is time to determine the initiatives. We recommend identifying no more than four to five measurable initiatives. Why so few? Having few initiatives should force the management team to identify the most important actions for the business. It helps to drive the discussions on what not to do and even what projects should be killed. And, why should the initiatives be measureable? Measurable initiatives are important to an organization because they enable managers and employees to evaluate progress and pace developments. For example, an initiative “to differentiate our products substantially during the next few years” is not a measurable goal, but “to increase sales by 30 percent during the upcoming year by launching 3 differentiated products” provides a concrete objective to be achieved in a specific time frame.
The process of strategic planning can be as important to an organization as the results.
Strategic planning can be an especially valuable process when it includes employees in all departments and at all levels of responsibility thinking about how their activities and responsibilities fit into the larger picture, and about their potential contributions. The result will be a strategy that can be summarized in simple words and concepts. It can be communicated easily to the board of directors and the entire company allowing people to know the priorities and what actions to take.