An effective strategy sets the direction for the business but it also should be specific enough to say no – no to pursuing certain customers, no to entering certain markets, no to certain programs or investments, no to hiring a certain person. The strategy says no to choices that diverge from the optimal direction for the business to achieve its objectives.
Business strategy sets the direction for an organization by describing where and how the business will compete in order to provide value to the customer that will lead to accomplishing the organization’s strategic objectives. The purpose of strategic planning is to provide a clear and succinct statement of the organization’s strategy that can guide decisions within the organization. Strategy should focus the organization’s efforts to those with the highest return potential. The strategy then becomes a screen that sifts through decisions regarding which business opportunities to pursue and about the allocation of resources. With an effective plan and management process the organization can then say yes to the right opportunities and no to the suboptimal choices.
The business strategy provides a means to screen business opportunities. The organization should be able to compare every new business opportunity with the parameters of where and how to compete that is described in the strategy and decide if it fits. Sometimes organizations write what they call strategy in broad, vague terms because they do not want to limit their business options. One reason for this is that they are desperate to find any revenue to survive and fear passing by any revenue source, even those that will detract from their long-term profitability potential. A second possible reason is that they are incapable of properly positioning their business. To position the business requires a good understanding of customers and their needs, not just today’s needs but also evolving needs. It also requires an understanding of the organization’s core competencies and how these competencies can match with customer needs.
The business opportunities that maximize return are those where the organization can provide unique value based on its core competencies. The core competencies either provide a unique value to customers or they provide a unique economic advantage in generating solutions to customer needs. The strategy needs to clearly demonstrate how the organization is building its core competencies and what customer needs it seeks to fulfill. (For more thoughts on this, see the strategy example article.) Business opportunities that align with the strategy should be considered and pursued. Business opportunities that do not align with the strategy distract from a pursuit of competitive advantage and will not generate optimal returns. Those business opportunities that do not fall within the business strategy should be discarded.
Strategy also guides the organization in its allocation of resources. Resources applied to building core competencies that then lead to competitive advantage in providing value to the customer have the potential to generate a higher return. Scattering resources among a variety of programs that are not strategy driven dilutes efforts and resources. The strategy provides a means to screen projects and resource decisions. If a project or decision cannot demonstrate strategic value, the answer should be no.
We see then two common mistakes that organizations make in their strategic planning efforts. First, by not thinking deeply enough or not recognizing the value and purpose of effective strategic planning, they might not develop a plan with the clarity and specificity to actually guide any decisions. A second mistake is not recognizing the purpose of planning to guide every decision. In order to do so, the strategic plan needs to be clearly communicated to the organization and held out as the signpost providing direction for the long-term development of the business.
Does your strategic plan optimize your decision process?