Strategic thinking has changed the world of business. From the early practical phases of strategic planning, generalization, and competitive advantage, through to the later conceptual phases of strategy processes and dynamic strategy, the fundamental nature of how organizations operate has shifted. Strategy formulation and implementation is now seen as a constant learning process.
The variation of approaches in the schools of strategic thought can be perplexing. However, the prescriptive, descriptive, and configuration schools have a common objective – to find a pattern that separates success from failure. Charting the future of a company requires both creativity and a capacity to make strategic decisions. Ultimately, success will be determined not by following rigid instructions, but by the creative application of strategic thought.
Strategy emerges over time, as the business environment influences managerial decisions about procedure. But strategy differs from procedure in that it precedes the actions to which it applies. This involves planning.
Strategic plans have broad organizational scope allowing for occasional important decisions. These plans lay a path for operational procedure – day-to-day decisions that have a more restricted scope but happen frequently. Strategy formulation involves a series of steps that goes from initial analysis through development and on to implementation.
The initial steps of strategy formulation involve analyzing the organization. The initial steps are to
- review and analyze current and past market status – Reviewing and analyzing current and past market status involves learning from the present and the past. Successes and failures are examined and analyzed. Areas reviewed include products, processes, demographic information, markets, customers, and competitors.
- conduct a resources and capabilities audit – Conducting a resources and capabilities audit involves focusing on the organization’s core competencies. The organization’s unique resources are inventoried, including proprietary technology, patented processes and products, reputation and brand recognition, captured market share, and service capability.
- analyze the competitive environment – Analyzing the competitive environment involves assessing what the organization is up against. In a competitive analysis, competitors are examined in regard to price, product, market share, practices, strengths and weaknesses, and hostility level.
The interim steps of strategy formulation involve evaluating how the outside world influences the organization. The steps are to
- carry out a risk, threat, and vulnerabilities assessment – This step involves risk management. Potential threats can include financial vulnerability, labor disruptions, natural disasters, changing customer preferences, and supply shortages.
- determine critical success factors – The determining critical success factors step involves looking at the big picture. Forces that drive success in the industry are examined. These can include cost, innovation, ease of application, rapid time-to-market, reliability, and brand recognition.
- test assumptions – The test assumptions step uses practical tools to assess subjective assumptions. Practical reference points are established to test assumptions based on information gathered in the preceding steps. Tools may include benchmarking, audits, sales analysis, and market studies.
The concluding steps lead up to and implement the strategy. These concluding steps are to
- craft the mission statement – In this step, the purpose of the strategy is drafted. The mission is a broad statement of strategic intent. It states what the organization plans to do, who it is trying to reach, and how the plans will be carried out. It includes understandable and achievable targets.
- draft the strategy – This step involves connecting the means and the mission. It involves setting priorities and selecting the most appropriate tools and methods to achieve the objectives of the mission. In essence, it sets the roadmap between where the organization is and where it wants to be.
- engage and execute the strategy – This step involves setting the strategy in motion and guiding it through to fruition. It involves communicating the strategy to stakeholders, executing detailed plans, and risk management, as well as continuous monitoring of progress and adjusting of approach.
Formulating strategy involves practical analysis of an organization’s environment, resources and capabilities, and market position, but it also involves creativity in conceiving future aspirations and goals. The nine stages of strategy development represent a practical implementation of the concepts that make up an effective and innovative strategy.