We all know the power of a business strategy — it’s the difference between a good company and a great company, it’s the difference between a memorable brand and a forgettable brand — the difference between Apple and System76. Wait. Who is System76?
Our point exactly.
We all recognise the difficulty in crafting a strong business strategy, which is why we often choose to overlook or neglect this seemingly arduous task.
But strategy is inescapable. It is essential for both developing a foundation for your company and a platform for your company’s success. Strategy is more than your profit and loss statement, more than a couple of goals splashed across a company report.
Strategy is a word everybody has heard and every business uses, but when questioned about it — nobody really understands what it encapsulates at its core.
The Way We Talk about Strategy Is Wrong
Strategy is certainly one of the most overused terms in business, and in many cases, it is misunderstood because we engage in generalisations.
From our perspective, strategy is simply about making choices in an environment where resources are scarce. A corporate strategy is therefore about addressing where these resources can be applied to yield the greatest return.
From what we’ve seen at Step Change by working with more than 95 clients per year, most strategic planning is simply a review of last year’s performance, with a rough projection of new figures attached to it. While this is the way many businesses will plan for the future, it doesn’t encapsulate the range of different concerns a company needs to be focusing on. It isn’t a business strategy — it’s simply a goal for productivity gains and lower costs.
Competing on price alone isn’t enough. Companies that focus solely on these metrics will end in a price war with a competitor, which destroys value for the industry as a whole. An effective corporate strategy allows you to find value that extends beyond cost and appeals to customers.
Be Proactive, not Reactive
Choosing to retreat from strategic planning is something we see often — a prime example being the identity crisis of Yahoo! We’ve seen them switch from a media-based company to a product-based company — followed by an equally quick succession of CEOs and interim CEOs. Their vision has been short-lived, and their strategies keep changing. What people don’t realise is that this retreat is still a strategy — it’s just a reactive one that won’t help the organisation grow.
One issue here is the way we think about risk and choice. Humans naturally feel loss more acutely than a victory, so they are inherently and subconsciously risk-averse — also known as loss aversion.
Formulating a strategy is about making choices that will shape the company’s future, and that involves a significant degree of risk, something that many leaders subconsciously try to avoid.
An effective strategy is one that encourages companies to take smart risks, those that overcome the loss aversion bias and can provide an organisation with concrete direction.
The Steps to a Great Strategy
For companies that do want to build a strategy that is proactive rather than reactive, it’s important to start with a comprehensive framework.
There are six core steps that need to be completed in order to build a comprehensive business strategy that can help a company to succeed:
Every organisation has to be led by a core purpose. This is more than just a mission statement; it’s about expressing the reason why your business exists in the first place.
When a company is in the startup phase, many business owners will have been able to clearly articulate their purpose. However, as an organisation grows and becomes more professional, this purpose can easily get lost. When this happens, the company also loses the motivation they need to touch, move, and inspire every stakeholder.
Companies will often lose focus of their purpose as they grow — replacing it with a commercial ambition like maximising shareholder value. The result here is that the company ends up destroying value for customers, employees, and the wider community in pursuit of this commercial goal.
Maximising shareholder value is an ambition that companies can have, but it isn’t a good reason why the company should exist in the first place. Confusing these two will inevitably cloud the purpose behind an organisation and will undermine their strategic planning.
The goal here is to have a purpose statement that you could display over an arch or a doorway that everyone has to pass through when they visit the company. The purpose of a purpose, if you like, is to both unite existing staff and differentiate the company from its competitors.
Your ambition is the place to be more hard-nosed and commercially minded. This step involves introducing metrics and measures that you can use to determine whether or not you have achieved that purpose.
In other words, if the purpose is about where you want the business to go, the ambition is how you will know that you have arrived there.
This ambition doesn’t need to be broadcast as widely as the purpose and it’s fine if this doesn’t go any further than the team of executives.
Henry Ford offers a good example here of the difference between a purpose and an ambition. The purpose of Ford was, “To help Americans explore this great land“. The ambition for the company was, “A Ford in every driveway“ — which encapsulated how the company would be able to measure whether it had realised its purpose.
3. Opportunities and Challenges
The next step of the strategy is to identify opportunities and challenges that a business is facing. Especially for startups and lean organisations that are trying to disrupt their industry, the biggest factor underpinning success is going to be opportunity and timing.
This is why it’s so important to consider opportunities and challenges within organisational strategy. What we are doing here is adding context to the strategy so we get a clearer picture of the factors that will affect a strategy.
Once you’ve understood the context, introduced priorities, and considered how new challenges will emerge over the horizon, you can move on to the next step: determining what the strategy needs to achieve.
Everyone knows how objectives and goals should be achieved, but too often, these objectives are fluffy and won’t provide concrete guidance for managers and staff members who are tasked with achieving them.
At Step Change, we subscribe to the Stephen Covey model of objectives, which states that all goals should be framed as “Verb from X to Y by when“. What this means is that we need to determine an action (e.g. lose weight) from one state (e.g. 73 kg) to another state (e.g. 70 kg) by a particular date (e.g. in three months time). This simple formula makes it easy for business leaders to formulate concrete objectives that will actually help the organisation achieve change.
5 & 6. Strategy and Tactics
These final two steps follow on from those goals you have just set. They involve setting a specific strategy for each objective and then implementing them through the right tactics. Strategy, specifically, is a hypothesis your business makes about the world. It’s a series of choices made with intent to inform and to drive your business towards measurable goals.
This last step is where the company is able to finally implement their strategy and use it as a guiding point for changes within the business.
The most difficult part of setting a strategy is that a company generally has limited resources in terms of time, money, and focus. In other words, we can’t do everything at the same time. It’s at this point that business leaders need to make the tough decisions not only about what to do, but also what not to do.
Making the Most of Strategy
In order for you to build a comprehensive strategy, you need to not only find the right solution for your business, but you need to think about setting your company apart.
You need to find areas of growth for your business and ensure that your company has a plan for the future. You need a targeted definition of your business’s purpose and then support it with the right ambitions, context, and objectives to cement your efforts in measurable change.
Editor’s note: This article has been updated for relevance and freshness.