A road map that matters
“Strategy is the DIRECTION of the Company for the long-term future”, one professor told me.
With the strategy, the Company pens a window into the future, setting the road map to follow.
A business strategy to be successful needs to have four major ingredients at the very least, 1) Vision and Mission, 2) Macro-environment analysis, 3) An industry and sector analysis and 4) a Business model.
One must also put the above ingredients in a plan using time frames, justifying how much time it will take to reach the strategy.
1. Vision and Mission statements
Vision, by definition, gives a picture of the future and answers questions such as:
- Which product would we like to build?
- How do we see the future of our Company?
- Where do we want to arrive?
Vision is “the endpoint”. Where we want to be in the future, and it is usually a challenging picture of the future.
Mission gives reasons, the motivation, and the contribution of the Company to building the Vision.
In a way, it is the answer to hard questions such as:
- Which is the contribution of the Company to the Vision?
- How do we make the Vision real?
- What is the deep motivation of our Company?
When a Company develops its Vision and Mission statements, it is important to review them and make sure they are consistent and feasible. It is extremely important to understand the direction! If the Vision can be implemented or not?
And how to drive people via the mission to implement the Vision. If this is not the case, then we need to review both Vision and Mission and formulate them since together they should shape the business idea.
2. Macro-environment analysis
If you choose to compete into an existing market (“Red Ocean”) it is vital to understand it, analyse it, segment it, in order so you can position your Company into that market.
If you choose to develop your own market (“Blue Ocean”) with a new business idea, then you should think outside of the box.
Rule number 1: Understand your market.
The easiest way to understand your market is by answering the following questions:
- What is the size of your market?
- Which market do you want to target (geo-based)?
- Is your market developing (CAGR)? and are there any cycles in your market?
- Which trends are developing in your market? and how will they impact your market?
Porter analysis
A porter analysis will allow us to create an “eagle-eye” of the market, understand the dependencies and market dynamics. This analysis that can be easily performed by answering a set of questions, such as the following:
- How strong are the clients? Are they able to impose their points of view? Will there be many or few clients?
- How strong are the suppliers? Are they able to impose their points of view/prices? Will there be many or few suppliers?
- Which is the estimated strength of new players in the same market if they are bigger than your Company?
- Which are the products the clients could switch to? Are the substituting products able to completely drive your products out or in part?
- How tough is the competition? Which is the average EBIT in the market? Considering all the forces: is the market competition increasing?
3. Industry and sector analysis
Rule number 2: Get to know the competitors very well.
When it comes to industry and competitor analysis, one should think about it as a chess game, i.e. how many moves can you forecast of your competitor? It becomes a risk management exercise, and you need to think where competitors are going and what kind of risk they will entail.
Any Company should be ready always to answer the following questions:
- Which are the main competitors? and how do they influence your decisions into your Company?
- Are new competitors entering the market you target? is there any barrier to entry?
- How did the competitors develop in the last years? how did they evolve their offer into the market?
In this way you can position your Company in terms of the market players, the type of end-clients and type of products you offer.
4. Business Model
The business model has to be innovative and, in a way, validate the Vision and Mission of the Company.
A good innovative business model should be consistent in at least one of the following areas:
- New products;
- New processes;
- New services;
- New organization.
As a side note, one should know that patents are not a strategic advantage, since how you deliver the patents to the market can only be considered as the true advantage for your Company.
A strong Business model should answer 5W + 1H question, and all answers should match, making it a powerful business puzzle.
The Ws in detail:
- Why: Why do you foresee such business opportunities for which you are developing the Strategies? Why will clients buy from your Company? Which “uncovered needs” are you going to satisfy?
- What: What do you want to offer to the market? Which products and/or services? How do you bundle your offer?
- Which: Which market do you want to serve? Which is your positioning into the market?
- Who: Who is going to run the business? Which competences and experiences do you have into the Company?
- Where: Where do you produce? Which advantages do the selected locations have?
& the How:
1. How: How do you want to organize the most important suppliers? How do you organize the distribution and sales?
The Business Model should also be based on a set of good assumptions covering the market, the competitors and the product and services you are going to deliver.
As a checkpoint, you should remember
- resources are limited (people and money);
- your specific capabilities can translate to competences that you can leverage;
- you build some expectations or goals to reach which “make sense” = give a purpose to the people to work toward.
In summary, the most important reasons why a strategy is needed within a Company are:
- To set up a new business;
- To diversify the business of an SBU;
- To develop an existing business in new geo-areas;
- To acquire another company.
In this way, our strategy will allow us to benchmark against our competitor’s strategy, based on a “continuum” of market approach.