Define the strategy
Business strategy involves making decisions about what the company should do and how it should allocate resources. These decisions should take into account current competitive conditions and growth opportunities in the industry. Remember, good execution begins with good strategy.
The first stage in strategy formulation is to define the strategy. To develop a truly focused strategy, you must fully examine the business, its goals, and its environment. An effective and focused strategy is essential because it helps your company build a favorable competitive position. The process of defining the strategy has three steps:
- clarify the company’s mission, vision, and values,
- review the current situation with an emphasis on internal and external influences and the existing strategy, and
- create strategy direction statements.
Clarify the mission, vision, and values
The first step in defining the strategy is to clarify the mission, vision, and values. These three items form the basis of the company’s purpose, actions, and aspirations. Essentially, they clarify why the company is in business. The executive team should return regularly to the mission, vision, and values statements, as they tend to remain stable over time.
The mission statement is typically a one- or two-sentence statement that explains your company’s purpose. It should also describe what your company provides to customers or clients. Finally, it should define the overall goal that employees and executives are pursuing.
The vision statement outlines the company’s mid- to long-term goals. This generally encompasses a three- to ten-year period. This statement is focused on the market and describes how the company wants to be perceived by the world. The vision statement usually contains ambitious goals and a time frame for achieving them, as well as a clear measure of success.
The values statement reflects the company’s core values. These are the ways the company defines its attitudes, character, and behavior.
Before they can define strategy, leaders and managers need to agree on the mission, values, and vision statements. The mission and values statements don’t tend to vary from year to year. The vision statement isn’t as stable, but typically remains constant during a company’s three- to five-year strategic plan.
Review the current situation
Once you’ve clarified the mission, vision, and values, it’s time to review your company’s current situation — the second step in defining the strategy. To do this, you examine three things:
- external influences — External influences are the macro- and industry-level trends that have an impact on the company’s strategy and operations. You need to assess what’s going on in the outside world. This assessment includes the state of the economy, industry growth, prices, regulations, and a general idea of what consumers expect from the company. The external analysis isn’t complete without an assessment of competitors as well
- internal influences — When you examine internal influences, you consider your own company’s performance and capabilities. To do this, you might use a balanced scorecard or rely on financial information to do the assessment. Another common method for assessing internal influences is to identify the processes required to deliver products and services to customers. The company’s goal should be to identify the processes that it can do better or differently to differentiate itself from competitors.
- the existing strategy — Examining the existing strategy means identifying the company’s existing strengths and weaknesses. Then you summarize the conditions that aren’t currently being addressed. These conditions must be addressed when developing the strategy. Figuring out what a company’s strengths and weaknesses are can give it a clear indication of its current situation. A thorough examination of external and internal influences can uncover a lot of information — categorizing it as strengths or weaknesses can help the management team identify the key issues that need to be addressed.
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