4.2 Tools for Strategy Planning Analysis Copy
Strategic Analysis is a core step in the Strategic Learning Cycle. Every strategist should have a toolbox of analytical models at his or her disposal. Having the right tools won’t necessarily make you a good mechanic. Nor will having the right strategy analysis tools make you a good strategist. But they will help a good strategist get the job done more effectively.
The Strategic Learning Cycle
One of the many reasons why strategies fail is that strategic planning separated from the rest of the function of the organisation. A handful of executives retreat from the organisation to draft a plan. This spends the year safely on their shelves until they repeat the process a year later.
Reasons why strategies fail in implementation:
1. Strategies are not differentiated and specific
The first failing of strategy must be vagueness and/or blandness. As Machiavelli has said, “There is nothing more difficult to carry out nor more doubtful of success than to initiate a new order of things”. To have any chance of success, a strategic plan must from the outset be bold and clear.
2. Strategies are not known and understood
Articulating a differentiated and specific strategy is no good if the people who must implement it are not aware of it, or aware of it, do not understand it. The strategy must be articulated and communicated in such a manner as to engage with the implementers. This often requires a style of communication quite different to what is appropriate for the people who formulated it if they are a different group. It is better still if the implementers know and understand the strategy by virtue of having been involved in formulating it.
3. Strategies are not actionable
Understanding a strategy will not deliver results unless the strategy is actionable. That is, each person in the organisation must know what it is they will do as a result of the strategy. What they will do can fall into three categories:
- start doing,
- stop doing or
- do differently
It is only in the doing that new organisational habits develop and the strategy will become sustainable. Merely knowing how things should be different and wanting them to be different is insufficient you must know how to act differently.
4. Strategies are not linked to departmental, team and individual objectives
Such actions must become embedded in existing departmental, team and individual objectives. If this is not so, then existing objectives will continue to work against and undermine the delivery of the strategy. Note that even if the existing departmental, team and individual objectives are not formally written down, they still exist in established norms and behaviours and must be addressed.
5. People do not act according to their departmental, team and individual objectives
If this is the case, then you have a fundamental problem of discipline. Link the objectives to reward may go some way to alleviate this.
6. Strategies are not linked to structure, resource allocation and reward
The old adage that “Structure follows strategy” is most certainly true. You cannot expect an existing organisation system to produce a different result without changing the system. Such changes do not only enable the delivery of the strategy. They also send an important signal to the whole organisation that the strategy is a real, tangible and significant change.
7. Feedback and management reporting is tactical, not strategic
Likewise, it is said that “You get what you measure”, and measurement systems must also be brought in line with the new strategy. Organisations are frequently tempted to measure:
- that for which the data is readily to hand or just
- that which is required of them, by regulation, for example.
A new strategy will require new measurements. Often these will require new measurement processes and systems. Failure to invest in these will ultimately mean that the organisation will revert to the behaviours encouraged by its existing measures. At the heart of all of this, is one simple fact: strategies will not be delivered if they are formulated, communicated and implemented in a way which allows individuals to continue to act in the way they did before the strategy was formulated. That is, if they are vague enough that different people with different agendas can honestly all find in the strategy sufficient justification for their pre-existing plans. A successful strategy must engage all implementers in all their activities in different behaviours. The Strategic Learning Cycle embeds strategic planning in the executive process. This ensures that it has an ongoing impact on all decisions at all levels within the organisation.
The Strategic Learning Cycle is comprised of 4 processes:
STAGE 1: Analyse the business and its environment.
Assess the market. Assess the capabilities of the organisation and its competitors. Assess the needs of the organisation’s current and target customers. Analyse the trends that could change these.
STAGE 2: Articulate a strategic vision, objectives and values.
Develop and evaluate options, and make decisions to define the business’s response to its environment.
STAGE 3: Craft and execute a plan of action.
The plan must require the actors in the business to do (or not do) something other than what they would otherwise have done.
STAGE 4: Measure success against the vision and objectives.
It’s important to measure against the vision, objectives and values, rather than just against the plan. You want to measure results, not just effort.
We draw the Strategic Learning Cycle as a circle with two feedback loops. The first feedback loop recognises that the execution of the strategy changes the organisation and its environment. In this case, you may have to reconsider the whole strategy. The second smaller feedback loop recognises that the execution of the strategy may not go according to plan. In this case, you may have to adjust the execution plan.
The speed at which you should iterate around the Strategic Learning Cycle depends:
- On the rate of change in your industry,
- The strength of your current position in the market.
- In a very strategically mature organisation, you can even operate all 4 steps of the Strategic Learning Cycle simultaneously and on a continual basis. This will free you from the perils of the annual planning cycle.
- Resourcing your process
- Each stage in the Strategic Learning Cycle requires different skills.
- Analysis: research and data skills
- Articulation: ideation and vision skills
- Planning: project and programme management skills
- Measuring: management accounting and audit skills
In a small organisation, you may need to rely on one individual who is able to balance all of those skills. In a mid-sized organisation, you may be able to hire different individuals with appropriate skills for each stage. In a larger organisation, you may need to co-ordinate multiple people spread amongst different departments to manage all 4 stages.
How and where to use it
The Strategic Learning Cycle can be used by any Strategic Business Unit. However, with minor adaptations, you can apply it recursively through lower-level departments, even down to individual people.
Essential tools for strategy analysis:
The SWOT is the most basic form of strategic analysis. Simply list the organisation’s Strengths, Weaknesses, Opportunities and Threats.
2. Porter’s Value Chain
The value chain is a simple (graphical) method for identifying and describing a firm’s main functions and understanding how they contribute to value creation.
3. The Strategy Canvas
The Strategy Canvas was popularised in the book “Blue Ocean Strategy”. You can use it to understand how a firm differentiates itself from its competitors.
4. The Business Model Canvas
Alexander Osterwalder and Yves Pigneur introduced The Business Model Canvas in the book “Business Model Generation”. It is a very effective way of describing the key components of a business model. You can use it as the starting point for strategic analysis as well as for exploring alternative business models.
The PESTEL framework is useful for ensuring that you consider a broad range of possible sources of opportunities and threats. The letters represent the Political, Economic, Social or Socio-economic, Technological, Environmental and Legal opportunities and threats in the firm’s environment.
6. McKinsey 7S
The McKinsey 7S is useful for ensuring that you consider all aspects of the organisation when identifying its strengths and weaknesses. The 7 Ses stand for: Structure, Systems, Style, Staff, Skills, Strategy and Shared Values.
7. Porter’s 5 Forces
Porter’s 5 Forces model is another framework for identifying threats and opportunities within the firm’s environment. It considers the bargaining position of suppliers and customers (including distributors), the threat of new entrants and substitutes, as well as competitive factors within the industry itself.
8. Pareto Analysis
A Pareto Analysis is based on the maxim that 20% of the products, services, customers or distribution deliver 80% of the profits. A Pareto chart is a useful visualisation for showing this. However, its accuracy depends on the reliability of your cost allocation system.
9. BCG Matrix
You can apply the BCG Matrix to any business with more than one product or service line, or more than one customer segment. Plot the market share against the market growth rate for each product, service or customer segment. Then consider strategic options based on their relative position on the chart.
10. Scenario Analysis
The future is inherently uncertain. Fortunately, good business strategy only requires you to be able to anticipate the future. You don’t need to be able to predict it. Scenario Analysis is a tool to help you to anticipate multiple different futures. This allows you to construct your strategy around the premise that you can’t be sure which, if indeed any, of them will come to pass.
- List the essential tools for strategy analysis.
- Describe the 4 processes of Strategic Learning Cycle.