Fundamentals of
Business Strategy
Picking the right goals for your business
WHAT IS STRATEGY
Principles
How your
team works
Path
Where your team
is headed
Priorities
Where you focus your resources
WHY IS STRATEGY NEEDED
Strategy is about making decisions of focus – what to focus on...and what not to do.
Potential
Sometimes it’s not so much need as it is opportunity that drives strategic planning. There is untapped potential when you have -
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An interest in exploring new markets
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Ideas for new products
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More money to invest in building the business
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Significant hiring plans
Improvement
The need for strategic planning can show up in several ways in a business when -
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Groups are siloed or working at odds with each other
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Profitability has stalled
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Employees aren’t energized and engaged
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The company feels like it is drifting
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Change is needed
WHAT ARE THE BENEFITS OF STRATEGY
Focus/Alignment
A common focus and direction for your business has several benefits. The impact of small actions is magnified when they are a focused. In addition, alignment makes it easier to manage a bigger business – it takes the same effort to manage 10 people who are not aligned or 50 people who are aligned.
Evolution
Most businesses are good at continuous improvement – the small tweaks that can make your business 5% better each year. But many businesses struggle with evolution that involves more change and investment – the initiatives that require 2-3 years and $50-500K in investment. Those initiatives can be hard to identify, choose, and manage – and strategic planning helps with all of those aspects.
Improvement
Sometimes things go off track. The market changes, or your people change, or your customers (and their markets) change. Whatever the cause, something in your business model isn’t working the way it used to, and as a result your profits are suffering. Strategic planning provides the tools and process to identify and address those issues.
Profitability
Gross margin is essentially a measure of how needed and how unique your offering is. You cannot focus on something that is needed and unique by being everything to everybody – as Jim Collins’ Hedgehog Principle highlights, earning outsized profits requires focus.
Motivation
A big part of employee motivation comes from a culture that aligns with their values. But we’ve all heard the saying, “Culture eats strategy for breakfast.” That saying captures the power of culture – but also misses how strategy and culture work together. Strategy is what gives culture direction and meaning – strategy provides the “why” for the culture to move toward, and the motivation for employees to live out their values.
Growth
Why should you grow? How? There are growth opportunities around a business all the time. Which ones make sense? Which ones will get the business where it wants to go – and which ones will take it off track.
WHAT ARE THE ELEMENTS OF STRATEGY
Top Down
These are your mission, vision, and values. Why does your business exist? Where are you headed? How will you get there?
Bottom Up
How does the business need to be improved? What are the important operational issues you need to address? What isn’t working anymore; what needs to be fixed?
Inside Out
How well is your leadership team…leading? Are there skills or behaviors that individuals on the leadership team need to change? Are there team dynamics that you need to improve? The inside-out look at your business ensures that your leadership team is pushing your business forward.
Outside In
How is your market changing? What are the customer needs and market forces that you need to adapt to – or better yet, lead? How are you positioned to capitalize? How are your competitors? The outside-in look at your business keeps you aligned with what’s happening in your market.
WHAT ARE THE KEY STEPS TO STRATEGY
Identify needs and opportunities
The process starts with identifying all of the areas you could focus on – often this is a list of 20 possibilities for small companies and 100 possibilities for mid-sized companies. Using the 4 channels of strategy – top-down, bottom-up, outside-in, inside-out – identify needs and opportunities for your business. Does your leadership team need training? Do you need to hire an HR leader? Is there a customer trend you should change your product to meet? Is there an investment needed to get you closer to your vision?
Select Priorities
Strategic planning is part science and part art. The artistry of strategy comes in picking which of the many needs and opportunities to focus on. How do you choose? By answering the questions:
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What are the “games” we most need to win?
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What are the “games” we’re most likely to win?
Justify the investment
After selecting priorities, you’ll have 5-10 key initiatives that you want to focus on. At this point in the process, you should write a business case – what are you hoping to accomplish with the initiative, and how much will it cost? Each initiative will have its own investment request – and they’re likely to exceed the available budget, so this step includes refining the investment amounts so that the budget is best allocated across all of the initiatives.
Manage initiatives and results
The last step in the process is to manage, refine, and redirect the initiatives. Team members can be pulled onto other projects, new customers may come along, budgets may change, new opportunities can be discovered, and people’s overflowing to-do lists can slow progress. Monitoring and adjusting the plan is just as important as making it.
Develop the action plan
With the investments set, each initiative should get an action plan that includes major milestones, who is on the team, and first steps.
WHAT ARE THE CHALLENGES OF STRATEGY
Too many priorities: Most businesses can come up with a list of 10-20 areas of need. But anything more than 3-5 focus areas is too much.
People wearing individual not team hats: Your leadership team has to balance their role as leader of their team, with their role as leader of the whole company. Many teams have leaders who struggle to see the big picture.
Not committing enough time or sticking with it: If you have not committed time to strategic planning, you may be overwhelmed with operational issues. That makes it hard to take time to think about strategy. If strategy is about solving tomorrow’s problems ahead of time, the lack of strategy means that you are solving yesterday’s problems after the fact. When you start doing strategic planning, you have both yesterday’s and tomorrow’s problems – and that can feel overwhelming. But if you stick with it, you start to feel more on-top of your business.
Not having conflict: The reality of business is that there are limited resources, and those resources have many possible uses. That dynamic is at the heart of the “healthy conflict” that strategic discussions should focus on. If you have a strategic planning session in which everyone gets what they want…then you didn’t just have a strategic planning session – you’ve just kicked the can down the road so that resource allocation decisions will be made day-to-day.
WHAT IS THE ROI OF STRATEGY
Choosing more valuable short-, medium-, and long-term priorities
Having people work more on things that matter and less on things that don’t matter. More impact, less waste
Better ROI from investments
You’ll pick better opportunities to invest in, and will manage those investments better
Less risk
You’ll identify risk earlier, and take steps to avoid or manage it
Faster results
By focusing, you’ll drive to results faster