If strategy is about actively participating in discussions on emerging issues, how do businesses go about setting their course? This overview delivers all you need to know about strategy formulation in the 2020s.
Written by: James Milsom, Head of Marketing
In a time of unforeseen change, the 2020s have demonstrated that the ability to create agile, adaptive strategies is fundamental to achieving truly breakthrough performance, no matter the conditions.
However, strategies do not formulate by themselves.
The successes of industry leaders and paradigm shifters originate through setting strategic roadmaps using well-established frameworks and principles designed to give your organization the greatest opportunities for success.
In today’s overview, we will be providing the 101 of strategy formulation, exploring its meaning, how it fits into the conveyor belt of Strategy Execution Management and an analysis of who should be involved in the process.
At its conclusion we will share examples of strategies that follow a new approach to strategy setting, demonstrating how your business can follow this overview and apply the learnings to your own endeavors.
What is strategy formulation?
When you hear the term ‘strategy formulation’, what comes to mind?
Is it senior leaders huddling around a table determining how they can create market differentiation in their industry?
Perhaps it is your marketing team determining how they will support your business to create more leads through an inbound marketing approach?
Is it something that is at a business level, or can it be a functional level strategy?
Is it an account-based approach for your sales team, finding key prospects who are likely to purchase your solution?
Or, could it be something that is more of sustainability challenge, rooted in shifting societal views?
If you answered any of the above, then you are correct.
Strategy formulation is about setting a course of direction by looking at the internal and external environment surrounding you, scanning it for opportunities and openings which will allow you to chart a course for success.
It is a conceptualization of routes to success, making fundamental decisions on products, services, internal structures and more which will define the most effective means to create value for your customers.
Strategic planning vs thinking
In some instances, strategy formulation is framed as being an exercise to turn problems into solutions using tried and testing tools.
However, as Harvard Business Review expands, using a standard toolkit should only be the foundation, and in reality you should push your boundaries – known as breakthrough management:
“In fact, if you are entirely comfortable with your strategy, there’s a strong chance it isn’t very good…You need to be uncomfortable and apprehensive: True strategy is about placing bets and making hard choices.
The objective is not to eliminate risk but to increase the odds of success.”
So, if strategy formulation (or planning) is not solely about using tried and tested principles, what is missing from our understanding?
Bolisani and Bratianu (2018), go a step further and indicate that there is a divide between reactive strategy and adaptive strategy, intimating that to focus on predicting the future based on certainties vs. envisioning an unpredictable future would be short-sighted.
The solution is to use strategic principles (planning) and your people (strategic thinking):
“The purpose of strategic thinking is to discover novel, imaginative strategies that can re-write the rules of the competitive game; and to envision potential futures significantly different from the present”.
In this view, strategic planning is based on the analysis of a state and on sensible forecasts about the future, and is substantially a reactive process to the changing conditions of the environment; strategic thinking is an intuitive vision of a substantially unpredictable future, and a proactive process that aims to anticipate change.”
Perhaps the people factor is too understated.
The strategic mindset to envision a future state, all the while balancing the current challenges your organization faces is what is required.
In fact, Strategy Execution Management takes real character:
- Diplomacy – developing initial agreement over strategic direction
- Lead – craft and agree on breakthrough objectives to support the direction
- Clarify – clearly define the mission and values of the organization
- Navigate – identify and assess the external and internal factors which will impact the direction
- Align – align the strategic plan to the business’ policy and value system
This character, alongside principles and frameworks, ensures that your organization can go about the strategy setting exercise in an optimal fashion.
Who is involved in strategy setting?
The entire process of Strategy Execution Management should be participatory.
Whether setting strategy or executing it, there is a prerequisite for collaboration across your organization. And at the strategy formulation stage this is never more important.
While sitting down and creating iterations of your SWOT or Porter’s Five Forces analysis could create some meaningful insights and direction for your organization, sometimes less is more.
While an initial and regular scanning of your environment is worthwhile, it is the time spent speaking to team leaders, surveying your staff’s views and sharing in the process where results originate.
It is what can be referred to as participatory strategic planning – a sibling of engagement techniques including Hoshin Kanri’s catchball.
Through this approach, you can involve key stakeholders representing segments of your business – corporate, division, function, teams, and they set out to:
- Agree on a vision for the business
- Achieve consensus on the obstacles facing the business reaching this position, and prioritize their importance
- Identify means by which to overcome those obstacles
- Move into the implementation, execution and review phases of Strategy Execution
This participatory approach promotes collaboration and engagement in the strategic planning process, all the while providing invaluable new perspectives to your strategy, setting your business up to move seamlessly through the Strategy Execution Management process.
How does strategy formulation fit into strategy execution management?
Think of your strategy as a story.
If a strategy is a story, and the planning phase is where you formulate a hypothesis to overcome an obstacle, then the natural narrative flow would see stakeholders follow the entire journey, reaching its conclusion in realized benefits.
Strategy formulation is our beginning. It is the scene setting, but the adventure is where the greatest value of a story lies, and that means, in Strategy Execution, the implementation phase.
Formulation will inevitably veer into suggestions around how your organization can go about putting in place the building blocks and project portfolio to achieve its goals.
Interestingly, it is common for businesses to skip the implementation phase, assuming that with a strategy set the only inevitable is that you move into executing it. However, that is akin to applying for a provisional driving license and moving straight to the driving test.
Success is in preparation.
That means taking a strategy and turning it into an implementation plan.
What are the goals of strategy setting?
At its purest, strategy setting has one clear goal – to set a course of direction will help your organization drive greater revenue.
How you achieve that goal is truly dependent on your mindset. But there are a number of pitfalls that should be avoided in the pursuit of strategic planning:1) Focusing on anything other than revenue generators – your customers, and misunderstanding the Voice of the Customer.
2) Cost-based thinking leading to decisions made on a short term view of success, such as where your choice to pursue a strategy of building more infrastructure is prohibited by a shareholder’s valuation of your business.
3) Adopting a strategic framework in a rigid manner, whereby the controllable and defined is what the strategy is built around, not planning on the unforeseen, and certainly not practicing adaptive strategy.
It should therefore be your goal to create a strategic plan which makes use of your internal resource, with one eye on the current competitive landscape, all the while acknowledging that real step-changes in performance necessitate paradigm-shifts in your organization.
The 5Q strategy formulation technique
While we briefly explore popular strategic planning frameworks here, it is worthwhile considering a non-descript approach to your formulation.
Harvard Business Reviews’ 5Q strategy formulation technique is one way to go about asking the right questions to create your strategy.
1) What are your aspirations?
Begin with what you picture your organization to be when you close your eyes – imagine the dream state of your business. How would you measure your achieving this reality?
2) Where will you play?
Start to narrow your focus at this stage.
While you could list an array of routes to achieving your dream state, what pockets of opportunities exist for your business based on its strengths and weaknesses vis a vis the competitive environment?
3) How will you play?
With your field of play set, what do you feel your organization can do better than the competition to help it achieve its dream state?
What are direct and indirect competitors doing that you need to know of and how do they deliver value to customers. Can you do it more effectively?
4) What do you need?
What financial, human and material resources do you need to set forth on this new path and sustain a position of success?
5) How will you operate?
What changes need to be made to create an operating system where your strategy can succeed and, where deviation from expected performance takes place, can root causes be identified and overcome?
While this has elements of traditional tools such as the SWOT, it does challenge you to rethink how you approach strategic formulation.
The main reason is that the process links questions together, showing a natural flow in your thinking process.
By surrounding yourself with people who can participate in this approach and answer your questions as such, you can remove the shackles of preconceptions, refocusing the conversation to one of action, not intellectual gesticulating.
Examples of strategies
To conclude our overview of strategy formulation, here are a handful of examples, all based on the voice of the customers, applying the 5Q technique:
|Type||What achieve||Where play||How play||What needed||How operate|
|Drive more revenue from valued accounts with cross-sell opportunities||Existing accounts, top 20 performing accounts, org. by value||Dedicated marketing, sales and product development to service accounts||Budget for promotional activities and systems to track accounts||Account reviews on a monthly basis against agreed KPIs|
|Innovation||Grasp hold of a new market by identifying latent customer needs||Existing market, within little presence geographic territory||Take market research and develop new products to be a market leader||Investment in new product development and market research||Feedback loop from market into product development, and monthly reviews of sentiment|
|Create more customers similar to existing by creating products that deliver more value to them||Existing market, within strong geographic territory||Identify gaps in competitors and create products to fill||Investment in new product development, market research and go to market campaign program||Feedback loop from market into product development, competitive analysis update and monthly reviews of sentiment|
|Pricing||Incentivize revenue growth and defend positioning with median pricing||Existing markets where competitive presence high||Role out new pricing in select markets to more competitively place our product||Corporate business case to reduce price which increases volume and overall revenues||Monthly reviews of pricing of competition and elasticity analysis, alongside reports on impact of new pricing|
|M&A||Identify complimentary players in adjacent markets to boost product offering||Adjacent markets or territories||Approaching collaborative marketing efforts, which test viability of acquisition and then moving forward||Financial resource to support collaborative efforts, alongside sentiment tracking of these efforts to underpin acquisition||Market sentiment tracking and monthly collaborative campaign reports|
Moving forward with strategy formulation
While there are many elements to strategy formulation, and indeed Strategy Execution Management, often it pays to approach this in its most effective way – with simplicity.
Indeed, while the likes of Hoshin Kanri, OKR, SWOT, PESTLE, Porter’s Five Forces and more exist, it is refreshing to look at strategy setting in a different light such as that suggested by Harvard Business Review with its 5Qs.
For your organization to achieve in modern strategy, the process must begin with formulating a path.
The setting of your strategy is crucial, and as such should not be overlooked.
A strategy without a plan is simply noise.
Continue learning about Strategy Execution Management
Click here to visit our Strategy Execution Management knowledge hub, filled with content to support you in embracing the 'no normal' of strategy in the 2020s and beyond, or explore these recommendations:
- Adaptive Strategy - the future of delivering strategic value at pace?: Watch our latest webinar addressing the future of strategic planning, program deployment and portfolio optimization for value delivery at pace.
- How AI and machine-assisted learning will help your Strategy Execution: As Artificial Intelligence becomes a mainstay in our lives, read how AI and machine-assisted learning will evolve to support your Strategy Execution.
- Download our Key to Strategy Execution eBook: Read how companies like Danaher and HP have mastered Strategy Execution Management and what you can learn from them.
About the author
James Milsom is Head of Marketing at i-nexus. James has wide-ranging experience of markets such as telecommunications, energy, education and software.
As Head of Marketing, his drive is to raise awareness and understanding of the challenges facing enterprises in delivering strategic objectives and transformation amidst changing markets and the obstacles traditional tools and methods present leaders.
If you’d like to talk more about Strategy Execution, reach out to James on firstname.lastname@example.org or connect with him on LinkedIn for the latest insights.