How to Ensure You Have A Complete And Sound Business Strategy
What does strategy really mean?
After all, we hear this word all around us in the modern business environment – service strategy, branding strategy, sales strategy, and the list goes on.
When it comes to defining a strategy, you should ask yourself: Where are you going to play and how are you going to win? This question comes from Alan Lafley’s book Playing to Win – we recommend you to take a look at this guidebook when you have time.
You can define your target market – the “where” – using the Jobs to be done framework (take a look at our last article) and focus on answering this one question: What job to be done do you want to fulfill?
Once you determine the “ where” you can move on to the second part of Lafley’s question concerns the “how”: Why would customers buy from you? Why are you better? How do you differentiate? Generally, unless there is a very compelling reason for you to make a profit, neither your customers or your competitors will let you be profitable.
That’s why you need a great STRATEGY.
How to create a successful business strategy [everything you need to know about the Strategy Diamond framework]
Every entrepreneur approaches a business strategy in their own unique way depending on how they define it and what strategic tools they prefer to use.
We like to view business like taking part in a board game. The important thing one has to always keep in mind is that, just like with any board game, you can choose which board game you want to play. Before choosing it, one should consider the game’s potential, the rules of the game, and what are one’s chances to win.
This comparison gets us to the next point – the strategy diamond model, developed by the academics Donald C. Hambrick and James W. Fredrickson – that embodies this board game mindset. According to the strategy diamond framework, a strategy has five main elements, each coming with one essential question:
- Arenas – Where are you going to compete?
- Vehicles – How will you get there?
- Differentiators – How will you win in the marketplace?
- Staging – What will be your speed and sequence of moves?
- Economic logic – How will you obtain your returns?
This framework was designed to come as a solution for the current situation we have now: executives operating with “strategic threads” instead of complete, coherent strategies, thus creating confusion and diminishing their credibility.
Here you have a visual representation for the diamond model:
We’ll go through all five elements and show you what each of them involves:
- Arenas – In order to determine arenas, it’s essential to be as specific as possible about the product categories, market segments, geographic areas, and core technologies the business intends to take on. You need to decide not only where the business will be active, but also how much emphasis will be placed on each arena.
- Vehicles – If you decide to expand your product range, are you going to rely on organic, internal product development, or are there other vehicles – like joint ventures or acquisitions – that you should consider? If you are committed to international expansion, you should determine the vehicles you’re going to use to achieve your goal – green-field startups, local acquisitions, licensing, or joint ventures.
- Differentiators – Having the best combination of differentiators can offer you a great marketplace advantage. Regardless of the differentiators you choose – image, customization, price, product styling, after-sale services, or others – the important thing is to make up-front, deliberate choices.
- Staging – Decisions about staging are driven by many factors including: resources (financial, human, informational), urgency (brief windows of opportunity should be pursued first), credibility (valuable for attracting resources and stake-holders) and the pursuit of early wins (do what is achievable first, then deal with the more challenging or unfamiliar initiatives).
- Economic Logic – At the heart of any business strategy, there must be a clear idea of how profits will be generated – not just some profits, but profits above the company’s cost of capital. As it was mentioned in the beginning, we consider that Jobs to be done should stand at the heart of Economic Logic. Thus, once there’s a clear Job to be done identified, you will have economic logic. Then you can move on to the other elements of your strategy.
What is important to remember is that a strategy is more than simply choices on these five areas; it is an integrated, mutually reinforcing set of choices – choices that form a coherent whole.
Surprisingly enough, most strategic plans out there emphasize just one or two of the elements without giving any consideration to the others. The lack of those elements is most visible when the strategy that a company worked on doesn’t bring the expected results it envisioned.
Finally, to test the quality of the strategy you’ve just put together, you should ask yourself the following questions:
- Does your strategy fit with what’s going on in the environment?
- Does your strategy exploit your key resources? With your particular mix of resources, does this strategy give you an advantage against your competitors?
- Will your differentiators be sustainable? Will competitors have difficulty matching you?
- Are the elements of your strategy internally consistent? Have you made choices of arenas, vehicles, differentiators, and staging, and economic logic that fit and mutually reinforce each other?
- Do you have enough resources to pursue this strategy? Do you have the money, managerial time and talent, and other capabilities to do all you want to achieve?
- Is your strategy implementable? Will your key consistencies allow you to follow this strategy?
A great strategy or nothing
When you set off on a journey, you usually take time to get the necessary information and prepare everything you need. In short, with all the decisions you make, you create a strategy that helps you enjoy that journey to the maximum.
Why should it be different when you set your business strategy? A complete strategy will be there to show you what the future of your business looks like. In detail.
We talked about having a complete strategy before, but how do you make sure it’s also sound?
The wealth of strategic analysis tools that have been developed in the last decades represents a great advantage for any entrepreneur setting off to create their business strategy. Such tools as industry analysis, technology cycles, value chains, and core competencies, among others, are very helpful for improving the soundness of your strategy.
We sincerely hope that you enjoyed the How To Nail Down The Product-Market Fit series and that it will be a handy guide on your own journey as an entrepreneur.
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