This Slideshare presentation is a partial preview of the full business document. To view and download the full document, please go here: http://flevy.com/browse/business-document/the-complete-guide-to-business-strategy-development-375 Summary: This document provides a framework to design your business strategy. A key question that every business needs to able to answer is "What is our strategy?" 'Strategy' is part of everyday business language and is often used in the wrong context ( 'Operational Excellence' is not strategy). The core of any strategy is about making choices of where to play and how to win, supplemented with a 'why' (the mission) and the 'how' (doing it). This document cover these topics in three main sections: 1. What an organisation wants to achieve (Mission, Vision, etc) 2. Where and how it should compete (making choices - the heart of strategy) 3. How the strategy can be delivered (execution and implementation) There are typically 12 elements in business strategy formulation and this powerpoint provides a powerful and effective strategy framework for any business to check the health of each element to give a good audit of the business strategy.

1. The Complete Guide to Business Strategy
Development

2. Context
A business strategy specifies what an organisation wants to achieve,
where and how it should compete and how the strategy can be delivered
Business Strategy Development – Issue Tree
Key Question
Issue
1. What does the
organisation want to
achieve?
2. Where should the
organisation compete?
What is the
organisation‟s
business strategy?
3. How can the
organisation effectively
compete?
4. How can the strategy
be delivered?
Sub-Issues
• What is the organisation‟s vision and mission?
• What are the organisation‟s long term goals?
• What values does the organisation stand for?
• What is the structure of the industry in which the organisation
competes?
• In which markets / segments can the organisation compete?
• Which markets are the most attractive?
• What are best practice strategies for competing?
• What are the most economically sensible options to compete in the
chosen markets?
• What is the likely competitor response to these options?
• Who are the key stakeholders and are they supportive of the overall
strategy?
• What are the strategic initiatives underpinning the overall strategy?
• What projects are required to deliver each initiative?
• What is the timeline, target and accountability measure for each
project?
2

3. Context
There are typically 12 elements in business strategy formulation – checking the
health of each element gives a good audit of the business strategy
Business Strategy - Elements
1. Corporate
Goals
2. Situation
Diagnosis
3. Strategy
Levers
4. Action Plan
1.1 Agree Mission /
Vision / Values
1.2 Set 3-5 Year
Goals
1.3
Communicat
e Goals
What do we
want to
achieve?
2.1 Define Market /
Segment
2.2 Assess
Segment
Attractivenes
s
2.3 Assess
Segment
Competitive
Position
Where to
compete?
3.1 Review
Competitive Options
3.2. Make
Strategy
Choices
3.3. Document
Strategy
How to
compete?
4.1 Ensure
Communication /
Buy-in
4.2. Assign
Initiatives &
Projects
4.3. Set Targets
& Monitor
Progress
How to
deliver?
4

4. 1. Corporate Goals
Developing an organisation‟s mission, vision and values and identifying
key stakeholders are required when setting corporate goals
Corporate Goals – Issue Tree
Key Question
Issue
Sub-Issues
1. What is the
organisation‟s
mission?
2. What values does the
organisation
represent?
What does the
organisation want
to achieve?
• What is the overriding purpose of the organisation as a whole?
• What is its „reason for being‟?
• What should every employee of the organisation value and
represent?
• What distinguishes the organisation from others?
3. What is the
organisation‟s longterm vision and goals?
• What does the organisation want to achieve in the next 10 years?
(vision)
• What specific goals does the organisation want to achieve in the next
3 – 5 years? (financial, customers, employees, community goals)
4. Who are the
organisation‟s key
stakeholders?
• What are the main groups of stakeholders? (eg customers,
employees, suppliers)
• What is the most practical and effective method of communicating to
each stakeholder group?
6

5. 1.1
1.2
1.3
2.1
1. Corporate Goals
2.2
2.3
3.1
3.2
3.3
4.1
4.2
4.3
The mission, vision and values of an organisation have different time horizons
1.1 Agree Mission, Vision & Values
What is it?
Mission
Vision
Values
The overarching purpose an organisation
- Will never be outgrown
The future the organisation aims to deliver
- Achievable in a CEO‟s time horizon
Time Horizon
Examples
3M: "To solve unsolved problems innovatively"
Indefinite
Walt Disney: "To make people happy."
10 years
(goals are typically 35 years)
The principles that guide day to day
behaviour
Day-to-day
Wal-Mart (1990): ”Become a $125 billion company by
the year 2000"
Honda: "We will crush, squash, and slaughter
Yamaha"
Walt Disney:
• No cynicism
• Nurturing and promulgation of "wholesome
American values"
• Creativity, dreams and imagination
• Fanatical attention to consistency and detail
• Preservation and control of the Disney "magic"
8

6. 1.1
1.2
1.3
2.1
1. Corporate Goals
2.2
2.3
3.1
3.2
3.3
4.1
4.2
4.3
Different methods of communication may be required for each stakeholder group
1.3 Communicate Goals – Sample High Level Communication Plan
Stakeholder
Group / Level
Business
Sponsorship
Business
Sponsor
Mode of
Communication
ILLUSTRATIVE
Frequency
Quarterly
Division Email
Monthly
„Town Hall‟ Presentation
One per Division
BU-specific presentation
One per BU
Person F
Newsletter
Weekly
Flyer
Approx X
Website article
Updated as required
Website announcement
MD Level
Internal
GMD Email
Person E
Division Level
GMD Level
Person A
Person B
Group Wide
As needed
Analyst Briefing
As needed
Person C
Person D
BU Level
BU Leads
Person G
Customers
GMD Level
Person A
Shareholders
GMD Level
Person A
External
10

7. 2. Situation Diagnosis
Understanding the market and the organisation‟s current competitive
position will influence the decision on where to compete
Situation Diagnosis – Issue Tree
Key Question
Issue
Sub-Issues
1. In which market(s)
does the organisation
compete?
• Which markets does the organisation compete in?
• How has the organisation‟s involvement changed over time? (e.g.
duration of participation, markets entered / exited)
2. How has the
organisation
performed?
• How has the organisation performed? (current and historical)
– Financial
– Customer
– Product
Where do we want
to compete?
3. What are the key
market characteristics?
4. What is the
organisation‟s
competitive position?
• What are the key characteristics of the market(s)?
– Segments / profit pools within the market
– Customer profile
• What is the attractiveness of the market? (by segment)
– Size, growth, profitability
– Industry structure
– Risk / volatility
• Who are the key players in the market(s)? (number, share,
performance)
• How has the organisation‟s position changed over time?
• What are the organisation‟s competitive advantages? (assets /
capabilities / competencies that can be leveraged, brand strength, etc)
12

8. 1.1
1.2
1.3
2.1
2. Situation Diagnosis
2.2
2.3
3.1
The Situation Diagnosis phase seeks to develop understanding of the
profit impact of segment attractiveness and competitive position
3.2
3.3
4.1
4.2
4.3
Situation Diagnosis – Key Questions
1. What are our returns
from each segment?
High
Segment Attractiveness
Strong/
Attractive
2. How attractive is the profit
potential of the segment
vs. others?
3. What are the basis for
economic advantages over
competitors and how do we
rate?
• Growth - customer
needs, substitutes
• Returns - customer price
sensitive, competitor
concentration and rivalry
• Cost… fleet, DP,
technology, utilisation,
manning
Moderate/
Unattractive
• Quality… on-time
delivery service
Low
Weak
Strong
Our Competitive Position
14

9. 1.1
1.2
1.3
2.1
2. Situation Diagnosis
2.2
2.3
3.1
The output from the measurement of profitability by segment should
show differences in the overall magnitude of returns…
2.1 Define Market / Segment – Returns by Segment
5
6
Unallocated
Costs
A
B
Total EBIT = $15m
C
35
(3)
20
13
4.3
7
Contribution on Selected Assets
% p.a.
20
3.3
4.2
EXAMPLE
Contribution
$m p.a.
Average
3.2
4.1
Total ROA
= 15%
Selected Assets
$m
40
30
20
A
B
C
10
Total Assets = $100m
Segments
A
B
C
Unallocated
Assets
16

10. 1.1
1.2
2.1
2. Situation Diagnosis – Segment Attractiveness
2.2
1.3
2.3
3.1
The situation diagnosis involves an assessment of the underlying
attractiveness of each segment relative to others
3.2
3.3
4.1
4.2
4.3
2.2 Assess Segment Attractiveness
A. Estimate current segment size and
past growth
B. Explain current profit by segment
in terms of underlying attractiveness
C. Estimate future growth and trends
in segment attractiveness
• Current size by segment: volume and
revenue
• Past demand growth rate by segment
over a number of years
• Identify key drivers of demand by
segment, e.g. population growth vs.
per caps
• Strength of basis for advantage
– Cost advantage
– Differentiation advantages
• Height of entry barriers
• Competitive intensity / level of rivalry /
industry structure
• Pressure from substitutes
• Bargaining power of buyers /
suppliers
• Profitability
• Risk / volatility
• Future demand growth: changes in
drivers of growth, customer needs,
substitutes
• Future growth in supply capacity: ours
vs. competitor plans
• Other trends in segment profitability:
changes in drivers of attractiveness
18

11. 1.1
1.2
2.1
2. Situation Diagnosis
2.2
1.3
2.3
3.1
Each segment should be contrasted in terms of the factors driving
underlying attractiveness
3.2
3.3
4.1
4.2
4.3
2.2 Assess Segment Attractiveness – Impact of Segment Characteristics (1 of 2)
Segment Characteristic
Possible Measure
Impact on
Attractiveness
Strength of Basis for
Cost advantages from differences in
Advantage between
factor costs, scale, experience
competitors (see Step 1.3)
Differentiation advantages from unique
differences in customer value in product
features/quality, service or branding
Ratio of highest cost producer to lowest cost
Height of Barriers to new
entrants
Initial capital investment required
Size of initial unit of investment required to
be a „player‟
+
Switching costs faced by buyers and
distributors
Cost to buyers or distributors of re-training
their staff, re-equipping
+
Risk/consequence of retaliation by
incumbents
Extent of past retaliation to entry (e.g. price
cuts vs. buy-out)
+
Level of concentration
% market share held by top 2 or 3 firms… vs.
owner operators
+
-
Rate of demand growth vs. capacity
Growth in demand
+
Size of capacity increments
-
Proportion of fixed costs
% fixed costs to total costs
-
Height of exit barriers
Costs of exit in terms of retrenchment, plant
write offs vs. resale/use
-
Competitive Intensity
+
Ratio of highest priced to lowest priced
+
20

12. 1.1
2. Situation Diagnosis
2.1
1.2
2.2
1.3
2.3
3.1
Cost advantages stem from sustainable differences in factor costs, scale
and experience - and to a lesser extent from operating choices
3.2
3.3
4.1
4.2
4.3
2.2 Assess Segment Attractiveness – Sources of Cost Advantage
Source
Description
Factor Costs
Preferred access to low cost
• Natural resources
• Labour
• Capital
• Technology
• Customer information
Scale
Larger relative volumes…
• Amortise fixed costs in manufacturing set-ups
• Provide access to lower cost processing
technologies
• Provide greater purchasing power with suppliers
Experience
Improve know how from larger cumulative output over
time helps drive cost-reduction process and product
improvements
• Reduced wastage and rework
• Less duplication
• Fewer parts
• Tighter tolerances
Other Operational
Decisions
Threats to Sustainability
• Change in access to factors
• Diseconomies of scale / complexity
• Decreasing minimum scale /
increasing variety and flexibility
• Leakage of proprietary experience
(catch up)
• New technologies (leapfrog)
Costs are also driven by choice of technology / plant,
• …but such choices are often easily
decisions on maintain / manage vs replace, firm specific
matched
work practices…
22

13. 1.1
1.2
2.1
2. Situation Diagnosis
2.2
1.3
2.3
3.1
The final step in the diagnosis requires an assessment of the
organisation‟s relative competitive position for each segment
3.2
3.3
4.1
4.2
4.3
2.3 Assess Segment Competitive Position
A. Identify customers‟
selection criteria and
competitor ranking
• Identify criteria (price
vs. other feature
tradeoffs)
• Assess weighting of
criteria
• Our position vs.
competitors
B. Estimate competitors‟
shares and price realisation
For each segment and for
each competitor:
• Volume shares in terms
of throughput and
capacity
• Price realisation (lists,
salesforce)
C. Estimate competitors‟
relative cost and asset
positions
• Identify cost and asset
drivers from our
economics
• Measure where
competitors and
potential new entrants
stand on drivers
• Estimate competitor‟s /
new entrant‟s costs and
assets
D. Identify the basis for
advantage and our relative
position
• Identify competitors
value proposition
• Identify our internal
assets / capabilities and
competencies that can
be leveraged
• Draw together volumes,
prices, costs and
assets for competitors /
new entrants, factoring
in future plans
• Draw out key basis for
advantage
• Identify our relative
position
Determine key target segments
24

14. 1.1
1.2
2.1
2. Situation Diagnosis
2.2
1.3
2.3
3.1
4.1
Estimating competitors‟ relative cost and asset positions requires
identifying and measuring drivers
3.2
3.3
4.2
4.3
2.3 Assess Segment Competitive Position – Estimating Relative Cost and Asset Position
Drivers
1.Identify cost and asset
drivers from our own
economics
Costs and Assets
• Network configuration and
density
Fleet and manning utilisation
• Fleet type / age / utilisation
Longhaul and PUD, R&M, fuel,
fixed assets
$ / driver
• Manning levels
Working Capital
Measure
Drivers
Competitor A
Competitor B
…
•
•
….
•
•
…
3.Estimate competitors / new
entrants costs and assets
Distinguish
• Fixed
• Variable
• Marginal cash
Transport, warehouse, DP
admin
• Stocking, Debtor, and
Creditor policies
2.Measure where competitors
and potential new entrants
stand on the drivers
EXAMPLE
•
•
Data from interviews
with suppliers,
customers, exemployees,
competitors direct
(e.g. site visits)
Measure x $ / measure = $
26

15. Contents
Page
Context
1
Business Strategy Development
1.
Corporate Goals
5
2.
Situation Diagnosis
11
3.
Strategy Levers
28
4.
Action Plan
40
28

16. 1.1
1.2
1.3
2.1
3. Strategy Levers
2.2
2.3
3.1
3.2
3.3
4.1
4.2
4.3
Understanding strategy levers will help answer the question “how to compete?”
Strategy Levers
3.1 Competitive
Options
• Generate strategic options
for competition in chosen
segments, e.g.
– Strengthen our
competitive position
– Shift our mix to more
attractive segments
– Improve attractiveness
of key segments
• Incorporate international
trends and best practice
3.2. Strategy
Choices
• Evaluate and make choices
on “how to compete” on the
basis of risks and returns
– Economics / modelling
– Competitor response
• Determine strategies
required to deliver (the 5 to
7 big things)
• Develop clearly linked
economics to overall
targets
• Determine internal
organisational changes
required
• Determine position
sustainability
3.3. Document
Strategy
How to
compete?
• Document overall
strategic goal and
high level targets
• Clarify our offering in
each segment /
value proposition
• Clarify our basis of
advantage - cost /
scale, differentiation,
innovation, customer
intimacy
30

17. 1.1
3. Strategy Levers
2.1
1.2
2.2
1.3
2.3
3.1
Generic Strategy 1: Strengthening Competitive Position in Attractive Segments
• Improvements in costs or differentiation are not enough –
only strengthening relative position raises performance
Unit
Costs
Example: better exploit
existing basis for advantage
Unit
Costs
Take
share
• Overturning strong positions is difficult, but discontinuities
provide opportunities
• Examples of discontinuities include:
– Product service or process innovation
– Change in customer needs
– New distribution techniques/channels
– Changes in supply/ factor markets
– Altered government regulation
Uncover latent
service needs
Price
Unit
Cost
Competitor A
Time
4.3
ILLUSTRATIVE
Competitor C
Competitor B
4.2
Create new sources of advantage
Raise relative performance
Relative unit cost
performance
3.3
4.1
Strengthening a competitive position in attractive segments can be done
by raising relative performance or creating new sources of advantage
3.2
Scale
A
B
32

18. 1.1
1.2
2.1
3. Strategy Levers
2.2
1.3
2.3
3.1
An organisation can raise the attractiveness of segments in which it has
or could have strong positions
3.2
3.3
4.1
4.2
4.3
Generic Strategy 3: Increasing Segment Attractiveness
ILLUSTRATIVE
Price
Reduce Pressure from
Substitutes e.g.
•
•
Reduce Level of Rivalry e.g.
• Promote signalling
Lower price / raise
performance relativities
• Initiate co-operation
• Engage in tit-for-tat
Increase switching costs /
lock-in
Raise Entry Barriers e.g.
•
Demonstrate harsh retaliation
on new entrants
•
Lobby governments on
“protection” standards
Reduce Power of Buyers /
Suppliers
•
Encourage fragmentation /
new entry
•
Oppose consolidation
Unit Costs
34

19. 1.1
3. Strategy Levers
2.1
1.2
2.2
1.3
2.3
3.1
3.3
4.1
To be implementable, strategies must be aligned with existing
organisation structures and operating policies
3.2
4.2
4.3
3.2 Strategy Choices – Alignment of Structure & Strategy
Strategy
Organisation = HR
Plan
• Structure
• Strengthen competitive
position: cost /
differentiation
• Staffing Levels
• Shift segment mix
• Skills
• Raise segment
attractiveness
• Monitoring and
Reward Systems
Operating Policies
• Sales and
Marketing:
Customer account
management approaches and
pricing policies
• Production:
Plant operation and maintenance
policies
• Purchasing:
Supplier management and
negotiation approaches
• R & D:
Approach to developing/trialling
new product and process
technologies
• Assets:
Major investment projects and
asset management
• IT:
Information systems for planning
and control
36

20. 1.1
3. Strategy Levers
2.1
1.2
2.2
1.3
2.3
3.1
Asset plans need to identify the major projects and asset management
policies required to support the strategy
3.2
3.3
4.1
4.2
4.3
3.2 Strategy Choices – Asset Plans
Major Capital
Projects
Asset
Management
Policies
• Identify major capital projects based on strategic analysis
– Analyse current performance of key plant assets comparing one unit to
another
- Across time and versus competitors to identify improvement opportunities
- e.g. age and technology type, availability and utilisation, yield and wastage,
maintenance costs, manning levels, location / transport costs, output quality
– Develop broad options for the portfolio of key plant (e.g. replace / change
technology, maintain, expand / close, relocate)
– Select preferred plant option by analysing the economic impact on segment
attractiveness (e.g. overcapacity, entry barriers, price disciplines) and
competitive position (e.g. cost and quality)
• Develop asset management policies for
– Streamlining repetitive / predictable plant capex
– Managing support assets (cars, fitouts, communications, computers) and
rationalising idle assets (e.g. underutilised property)
– Setting project hurdle rates specific to business project risks
– Valuing assets for performance measurement vs accounting (e.g. written down
replacement vs cash flow valuation vs alternative use)
38

21. Contents
Page
Context
1
Business Strategy Development
1.
Corporate Goals
5
2.
Situation Diagnosis
11
3.
Strategy Levers
28
4.
Action Plan
40
40

22. 1.1
1.2
1.3
2.1
4. Action Plan
2.2
2.3
3.1
The action plan ensures that the strategy can be practically delivered and
tracked
3.2
3.3
4.1
4.2
4.3
Action Plan
4.1 Ensure
Communication /
Buy-in
• Stakeholders clearly
identified – internal and
external
• Communication method /
collateral appropriate to
each group is available
• Communications plan
developed and executed
• Awareness and support
achieved from stakeholder
groups
4.2. Assign
Initiatives &
Projects
• Individual initiatives
to support each
strategy developed
• Project template
completed for each
initiative
• Economic model
linked to align bottom
up initiative
economics with
strategies and overall
goals
4.3. Set Targets
& Monitor
Progress
How to
deliver?
• Targets for each initiative
established in terms of
timing, progress to drivers
and progress to economic
goals
• Clear single point
accountability established
for each initiative
• Tracking system
established and regularly
monitored showing
progress of each initiative
and gap to overall goals
42

23. 1.1
1.2
2.1
4. Action Plan
2.2
1.3
2.3
3.1
Future state goals will reveal key strategic initiatives / themes; projects
should be created to deliver strategic initiatives
3.2
3.3
4.1
4.2
4.3
4.2. Assign Initiatives & Projects
„Where Do We Want To Be?‟
Future State Goals
•
•
•
•
“Become the leading Australian provider of
XYZ services”
Financial
– EVA: 25%
– Revenue: ~25%, greater relative contribution
from Division A and Division B
– NOPAT: 37%
– Measure performance across the entire value
chain via Balanced Scorecard and KRAs
Clients - Target individuals and corporates to
position Client ABC as a lifetime provider of XYZ
services
Employees – Minimise duplication across
business units and increase value added by
building functional support to delivery units; Staff
will be respected professionals in their area of
expertise
Community – Support community initiatives that
align with Client ABC‟s activities
Developed in Section 1: Corporate Goals
ILLUSTRATIVE
„What Do We Need To Focus On?‟
Strategic Initiatives /
Themes
„How Do We Make This Happen?‟
Strategic Projects
1. Branding
1.1 Branding Project 1
1.2 Branding Project 2
1.3 Branding Project 3
2. Marketing
&
Distribution
2.1 Marketing Project 1
2.2 Distribution Project 1
2.3 Distribution Project 2
3. Profitable
Growth
3.1 Growth Project 1
3.3 Growth Project 2
3.4 Growth Project 3
4. Product
Quality
4.1 Product Project 1
4.2 Product Project 2
4.3 Product Project 3
5. Business
Architecture
5.1 Bus Arch Project 1
5.2 Bus Arch Project 2
5.3 Bus Arch Project 3
Developed in Section 3: Strategy Levers
44

24. 1.1
1.2
2.1
4. Action Plan
2.2
1.3
2.3
3.1
Strategic projects should be prioritised based on impact and ability to
implement
4.2. Assign Initiatives & Projects – Project Prioritisation
3.2
3.3
4.1
4.2
4.3
ILLUSTRATIVE
High Priority Projects
3.1 Growth Project 1
High
3.4 Growth Project 3
5.1 Bus Arch Project 1
5.2 Bus Arch Project 2
4.3 Product Project 3
1.1 Branding Project 1
4.2 Product Project 2
1.1 Branding Project 1
Profit
Impact
Medium
3.3 Growth Project 2
5.3 Bus Arch Project 3
4.1 Product Project 1
2.2 Distribution Project 1
2.1 Marketing Project 1
1.2 Branding Project 2
Low
2.3 Distribution Project 2
Hard
Easy
Ability to Implement
46

25. 1.1
1.2
2.1
4. Action Plan
1.3
2.2
2.3
3.1
4.1
Owners should be assigned to each project and a delivery timeline
should be agreed upon
3.2
3.3
4.2
4.3
4.3. Set Targets & Monitor Progress
ILLUSTRATIVE
Year 1
1. Branding
1.1 Branding Project 1
1.2 Branding Project 2
1.3 Branding Project 3
2. Marketing & Distribution
2.1 Marketing Project 1
2.2 Marketing Project 2
2.3 Marketing Project 3
3. Profitable Growth
3.1 Growth Project 1
3.2 Growth Project 2
3.3 Growth Project 3
4. Quality Products
1.1 Product Project 1
1.2 Product Project 2
1.3 Product Project 3
5. Business Architecture
2.1 Bus Arch Project 1
2.2 Bus Arch Project 2
2.3 Bus Arch Project 3
Owner
Marketing Director
Marketing Director
Project Manager
H1
H2
Year 2
H1
H2
Year 3
H1
H2
Year 4
H1
H2
Year 5
H1
H2
Marketing Director
Marketing Director
Marketing Director
Finance Director
CEO
MD
Operations Manager
Operations Manager
Project Manager
Technology Manager
Technology Manager
Technology Manager
48