In order to understand how to create a business strategy in 6 simple strategy process steps, it’s worth starting with strategic planning.
Strategic planning is the process of creating a strategic direction for your business or organization. It describes designing the choices you make towards achieving an objective or desired future state.
Strategy development includes a thorough assessment of your business or organization and the environment in which you operate. It determines where you are headed and how you are going to get there.
The Strategy Process
The strategy development process includes 6 steps and answers 6 critical questions:
Businesses or organizations develop strategies for different purposes and over different time horizons. Most commonly strategies span 3-5 years and aim to develop the business towards a specific objective. This may for example include growth or productivity or often both.
Strategies are also often designed for shorter term purposes such as annual operating plans. In this case the objectives are to be achieved within one year and the strategies chosen are more tactical in nature.
In larger corporations, the strategic development process actually takes multiple of these horizons into considerations and incorporates them into one strategy process. In their book “Playing to Win: How Strategy Really Works”, A.G. Lafley and Roger L. Martin, describe this process as cascading the strategy.
Cascading is an important process to ensure different divisions and functions of a large corporation align their objectives and strategies with the larger purpose and resources of the company. We’ll talk about that later.
For smaller, for example owner-led businesses, this is overkill and too time-consuming. Strategy development is critical for small businesses nonetheless as we will describe in the 6 steps of strategy development.
In this article you will learn how to take your business through the strategy process to create strategies that deliver results. And you will get to know a charming restaurant owner who exemplifies what this process could look like in action.
Want to learn more about strategy?
Side bar: if you’d like to read more about strategy before jumping into the strategy development process, check out this article on “What is strategy?”.
Let’s go through the 6 steps one by one starting with the mission of the business. Before we jump in, consider engaging an experienced facilitator to help guide you and your team through the process in a strategy workshop.
Step 1: Mission of the Business
We begin with a description of your business. The reason we start here is because clarity about the identity and purpose of your business is a critical first element of your strategy.
Don’t overlook this important step. This is like building the foundation before you construct a house on it. A strong foundation allows you to build a tall and beautiful home.
The description of your business should include a statement about the business scope, the products you are selling, the markets you are targeting, and the geographies you are operating in. It is useful to write this out and to discuss it in your team to ensure that everyone is on the same page.
Being clear about your business is very important because it will influence the choices you make and ultimately whether you will be successful in implementing your strategy.
It strikes me time and again how different people have different ways to describe the same business. The differences may be subtle, only a few words may be different. But when you are developing a strategy, it is important that everyone is clear about who you are and what your starting point is. Otherwise it will be difficult to describe your destination and what you need to do to get there.
Consider the following simple example.
Example: Tony’s Pizza
Example: Tony’s Pizza
Tony is the owner of a small chain of pizza restaurants called Tony’s Pizza. There are 2 locations in the tri-state area. Tony has gathered his team to review their strategy and identify new areas of growth. Having subscribed to “Rock Your Strategy”, Tony is beginning with a discussion of the mission of the business.
“Easy!”, exclaims Stefano, head chef of the chain and designer of its menu. “All we have to do is expand the menu beyond pizza. We are an Italian family restaurant after all! Diners want antipasti and secondi!”.
“Italian family restaurant?” asks Jen confused. Jen is Tony’s wife and takes care of the company’s finances. “Honestly, we are a pizza parlor. We make pizza and sell pizza. People come here because we have the best pizza at the best prices. People don’t come here for the ‘dining experience’”.
Brian, the part-time delivery driver, looks up from his smartphone. “Actually, I do get asked occasionally when I deliver pizzas whether we are only a pizza delivery service or whether we have a sit-in restaurant as well. It seems customers are not aware of our 2 restaurant locations.”
Tony realizes that this is going to be more difficult than he had expected. Ten minutes into the meeting and there is no consensus on what kind of business they are actually running today: a family restaurant, a pizza parlor, or a pizza delivery service? Tony senses that clarity about today’s business is needed before they can discuss how to identify future opportunities for growth.
Okay, I admit that the Tony’s Pizza example is maybe an oversimplification. But the point is that Tony’s choices about how to grow his business are going to be vastly different depending on how he defines his starting point.
If he determines his business to be a family restaurant, then to grow sales, he may indeed consider expanding his menu. Investing in new, higher-priced main dishes may appeal to a different kind of customer segment with more disposable income.
If Tony concludes that his business is a pizza parlor, growing sales may require opening additional locations. This might take time and be quite capital intensive.
If in the mind of the customer Tony’s Pizza is only a delivery service, then maybe all he needs to do is advertise to make people aware of his 2 dine-in locations to grow sales.
His strategy therefore strongly depends on the definition of his company’s current business scope, products, and markets.
Key Take-away from Step 1
Be clear about your business’ main mission and purpose and make sure everyone on your team has the same understanding. This will ensure that you are thinking along the same lines later as you discuss steps 2-6.
Step 2: Business Analysis
If step 1 was about your company’s mission, then step 2 dives deeper to identify your business’ core competencies and competitive position.
Step 2 answers the question “What are my unique strengths and weaknesses?”
Let me first say that a detailed business analysis can be a daunting task. You pull away the curtain and unveil your company’s deepest secrets. This can be very uncomfortable and some owners might not be agreeable to reveal such details to their teams. This is up to you.
In my experience, it is helpful to be honest with yourself and teams appreciate the trust and understanding of the business. If you are not comfortable to do this in your team, conduct the analysis by yourself and share your outcomes. The insights about strengths and weaknesses are important, less so how you arrived at them.
Company Financials
During business analysis, review the historical financial performance of your business. Analyze your sales, costs and profitability by product line, market, and geography. Seek insights from the data to identify where you perform particularly well or particularly poorly.
Customer Feedback
Do you have a record of customer feedback? This is the time to bring out that dusty bin with the feedback forms. Customer feedback is an invaluable resource in strategy development. Review the feedback and seek patterns of things you do well and things that customers are not satisfied with. If you do not have a record of customer feedback, consider conducting a survey or spend time speaking with your customers to gain insights for this process.
Employee Satisfaction
Also speak with your employees about their perception of company strengths and weaknesses. Ask them about their satisfaction working for your company. What are they particularly fond of? Where do they see room for improvement?
Strengths and Weaknesses
Bring all the insights together and record your business’s strengths and weaknesses. Identify your core competencies. In the next steps of strategy development, you will want to use your core strengths to your competitive advantage. And you will want to work on improving or managing your weaknesses depending on their importance to achieving your objectives.
A powerful tool to help you with this is the SWOT analysis. SWOT stands for strengths, weaknesses, opportunities, and threats. Read here in more detail how to do the SWOT analysis right. The link also includes examples and templates.
Key Take-away from Step 2
Business analysis is all about identifying your company’s key strengths and weaknesses as suggested by your financial performance, your customers’ feedback and your employees’ satisfaction. You will want to leverage your strengths in your strategy and manage or improve your weaknesses.
Step 3: Industry Analysis
While step 2 looked at your business in detail, step 3 now analyzes the external environment in which your business operates. This is an assessment of your industry to identify growth drivers and business risks.
Step 3 answers the question: “what are my opportunities and threats?”
Independent of the size of your business, it is a good idea to have a solid understanding of your external environment. In this step, I am not talking about GDP figures or unemployment rates, even though these can be interesting indicators about the overall economic environment. Industry analysis seeks to identify risks and opportunities directly relevant to your industry and to your business. Insights gained here may have a direct effect on your choices where to play and how to win.
To do this well, consider the following analyses: industry attractiveness and customer needs.
Industry Attractiveness Analysis
The objective of industry analysis is to learn how attractive your industry is long term and which parts to focus on. This should include a brief look at macroeconomic factors influencing your business, understanding your key competitors, as well as the size and growth prospects of your market.
Tools that may help with this step include a PESTEL analysis, Porter’s Five Forces, and market size and growth estimates as well as market growth drivers. In B2B markets, it would additionally be useful to analyze the value chain and create an industry map.
When applying the tools, focus on identifying opportunities and threats and capture these. Find templates and explanations for these tools here.
Customer Needs Analysis
The objective of customer needs analysis is to understand what your customers are looking for and what is important to them. This will help you determine how to develop your product and service offerings when making strategic choices.
The approach to customer needs analysis can differ in B2C and B2B markets, but the essence is the same: understand your customers!
Just to briefly scrape the surface, in B2C markets seek to explore your customers’ preferences, likes and dislikes. There are expensive market and retail reports and other key figures available by third party market research firms if you want to fork out a hefty amount of money. Or you can simply ask your customers about their preferences if this is practical for you. The customer feedback forms above may already give you a head start.
In B2B markets, focus your analysis not on what customers want but what they truly need and what they are willing to pay for. This can often be understood in economic terms since your customers are profit-making businesses too and your products or services have an economic value to them.
Identify needs that are not yet served by you or your competitors. Look for changes in your customer preferences which may allow you to cut costs. Capture the opportunities and risks identified.
Pro-Tip: Look for patterns in your findings and group customers into segments. Cluster those customers together that have similar needs. If you go into marketing planning after your strategy process, this information will become very useful.
A Word of Caution
Have you heard of the term ‘analysis paralysis’? Don’t overdo it with analyzing every detail of the environment around you. This step is also not about using and filling every tool you can find in management books. This is about using tools to guide you in asking the right questions and generating meaningful insights to determine where to take your business.
Once you have the insights you need, stop the analysis and move forward. If you don’t yet feel comfortable with your findings or identify a risk or opportunity you don’t yet fully understand, dive deeper.
Key Take-away from Step 3
Analyze your industry attractiveness and your customer needs to identify opportunities and threats in your external environment.
Step 4: Vision
During steps 1-3 we described the present situation of your business and your industry. In step 4 we begin thinking more concretely about the future – your future.
Step 4 describes the vision for your business and answers the questions “where am I going?” or “where to play?”.
The vision is not a fantasy or dream about your company. It is a real destination you aspire to reach in the next 3-5 years. You make concrete choices about the where you intend to play.
In step 4 you derive key insights from the mission of the business, your key strengths and weaknesses and your main opportunities and threats. You use these to set concrete objectives and goals for your business.
Objectives
The objective is a qualitative statement about your business’s ambitions over the next 3-5 years. This is the future state of your organization. The objective should be concise and specific. It should spell out in no unmistakable terms what you are aiming to achieve, i.e. where you will play.
Read here in more detail how to write a great objective statement for your business.
Depending on the type of your business and the current situation it is in, this might be a single sentence statement. If you envision a major transformation of your business, you may want to elaborate a bit more.
Your objective should be aspirational. It should allow you to leverage your identified strengths to take advantage of identified opportunities or mitigate identified threats. It may describe how you want to position yourself to add value to your customers.
Goals
The goals are the quantitative description of your objective. Goals should translate your qualitative objective statement into measurable, financial figures. These are the numbers that represent the future state and help you to measure whether you are successful.
Make sure that your goals align with the purpose and the timeframe of your objective. A great way to describe your goals is to apply the SMART approach to goal-setting. Goals must be
- Specific: the goal must be clear and unambiguous
- Measurable: the goal must be quantifiable and progress trackable
- Achievable: the goal should be ambitious, but it must be attainable
- Relevant: the goal must be realistic and relevant to your objective
- Time-bound: the goal must have a clear timeline and target end point.
The objective and goals together describe WHAT you are aiming to achieve. Click here to learn more about how to set clear goals for your strategic plan.
Let’s meet Tony again to see how he set the vision for Tony’s Pizza.
Example: Tony’s Objective
Example: Tony’s Pizza
Reviewing the business has been an exciting journey for Tony and his team so far. They studied their business financials and customer feedback. They reviewed local economic data and sifted through competitive insights. Tony and Jen even dined a couple of times in different restaurants in the city to see what other restaurants were doing.
Tony was pleased to read how much customers loved their pizza. Particularly their pizza dough and his family’s secret pizza sauce received rave reviews.
However he was surprised to see population growth figures in the tri-state area and rising GDP per capita. It’s true, more and more young families had moved to their town from the city over the past 5 years ever since the new interstate was built. But he hadn’t realized how much bigger the town had become.
Speaking with the mayor, the chamber of commerce and other small business owners, Tony learned that their town had become a popular dwelling for families who sought more space outside the city but were not willing to give up their modern city lifestyles. The only thing missing really was more dining choices. There were a couple of pizza restaurants, fast-food chains, and a steakhouse. After all, they had been doing well in this setting with their pizza parlor for many years. But Tony was curious whether a proper sit-down family restaurant with Italian cuisine would be a popular niche not yet served.
After further studying the possibility, Tony and his team made a decision. They were to transform one of their pizza parlors into a family restaurant. Tony captured their objective:
Tony’s aims to expand beyond its delicious pizzas to become a trusted Italian restaurant where families feel at home and share an enjoyable, freshly cooked meal.
Tony looked up and felt proud. This sounded like a great objective. He could already see the smiles on happy customer faces and smell the intoxicating scent of fresh Italian dishes being served.
Key Take-away from Step 4
Creating a vision for your business means describing what you want to achieve in 3-5 years, i.e. deciding where you choose to play. This future state is captured in ambitious but achievable objectives and goals.
Step 5: Strategic Choices
In step 4, you set an aspirational objective for your business that you aim to achieve in 3-5 years. Step 5 is about defining the strategy and designing the path to your destination. This is probably the hardest part of strategy development. It is about making tough choices.
Step 5 answers the questions “how am I going to get there?” or “how to win?”.
Are you familiar with the proverb “all roads lead to Rome”? There are probably many ways how you could achieve your objectives. However, resources are finite. So in step 5, you will choose how to allocate your time and your resources to achieve your objective.
Strategies
Choose 3-5 strategies that align with the purpose of your business, your objective and the identified strengths, weaknesses, opportunities, and threats. As so often in life, less is more! You will benefit from being able to focus.
When choosing your strategies, think about your customer needs, industry trends and your company strengths. Consider what products and services to develop or what markets to focus on. Consider whether you will win against competition via better prices (lower cost) or better products (differentiation). And consider what company culture or people skills will be needed to succeed.
Double-check whether any of your weaknesses or identified threats may prevent you from achieving your objectives. Incorporate mitigation measures into your strategic initiatives.
Example: Tony’s Strategies
Example: Tony’s Pizza
Tony had decided to sleep over his freshly drafted objective statement. This is something he learned from his late mother: important decisions should not be made lightly. Tony could still remember the ring of her voice in his ears, “a good night’s sleep will bring clarity and determination.” And that was the case.
Coffee in hand, Tony and his team resumed discussion on their new strategy. They sought to create 3-5 strong strategic initiatives that would help them turn their pizza parlor into an Italian restaurant local residents would love.
The team debated several aspects of successful Italian restaurants they knew. But the longer they discussed, the more they came back to two important principles. They wanted to create a restaurant that remained true to Tony’s values and reminded people of the cozy pizza parlor heritage. And they wanted to make sure that the restaurant was unique to the tri-state area and incorporated features of the community.
At the end of the day, they stared at 5 scribbled statements on scattered flipcharts. At that moment they knew they had nailed it.
- Offer dishes the entire family will love by developing an approachable Italian menu with Tony’s all-time classics and rotating seasonal specialties
- Serve great-tasting, freshly cooked food by sourcing most ingredients fresh from the local tri-state area
- Turn customers into guests who feel at home by designing a cozy restaurant interior that reminds people of a small-town Italian trattoria.
- Hire and train experienced employees who embody Tony’s values and make guests feel at home.
- Make people in the tri-state area aware of Tony’s new dining experience by implementing marketing initiatives that create interest to give the new Tony’s a try.
Key Take-away from Step 5
Strategic choices is about deciding how to allocate your resources to achieve your objectives. Strategies define the roadmap to success, i.e. how to win.
Step 6: Execution Plan
We are almost there! But not quite yet. Because a good strategy is only as good as its execution. And how often have you seen people make plans that they did not turn into reality? Exactly! Step 6 is about creating an execution plan that ensures you implement your strategies and reach your objective and goals.
Step 6 answers the question: “What actions do I need to take to realize my plan?”
Developing an execution plan means defining concrete, quantifiable measures that combine actions with caretakers and timelines. Step 6 is all about commitment.
Make sure that for each of the 3-5 strategies chosen in step 5, there are concrete actions defined. Think through what it takes to deliver the strategy. What actions are needed? What resources do you need? Who do you need to speak with? Whose support, expertise or permission is needed?
Consider breaking down each strategy into no more than 3-5 concrete actions and define owners, timelines, and a quantifiable target for each. Especially the quantifiable target makes sure that there is clarity about expectations and what success looks like.
In addition to designing an action plan, create a review dashboard and agree how the plan is followed up on. How do you check progress? When do you review the plan? When and how are employees expected to report back?
Depending on the nature and time horizon of your strategy, it is good practice to review the action plan of a 3-5 year strategy every 6 month and to review the progress of an annual operating plan at least once per quarter.
Key Take-away from Step 6
Designing an execution plan means agreeing on key actions, caretakers, timelines and targets and implementing a reporting and review procedure.
Strategy Process Conclusion
In this article you learned how to take your business through the strategy development process to create effective strategies that deliver results.
Strategy development includes a thorough assessment of your business or organization and the environment in which you operate. It determines where you are headed and how you are going to get there.
The strategic planning process consists of 6 steps:
- Mission of the Business
- Business Analysis
- Industry Analysis
- Vision
- Strategic Choices
- Execution Plan
Bonus Tip: Strategy Development and OGSM
The beauty of the OGSM methodology is that it can help you capture all 6 steps of the strategy development process. In the OGSM, you can set your business’ 3-5 year objective and goals. You describe your strategies or strategic choices how you will get there. And you determine your measures, i.e. your action plan. All on one page. This makes your strategy easy to read and understand, easy to communicate, and easy to execute.
To learn more about OGSM and how it can help you simplify your strategy and deliver results, click here.
Read more about OGSM in our top 10 OGSM tips or the long list of OGSM Do’s and Don’ts and the 13 reasons why successful companies choose OGSM.
If you enjoyed this article, have any questions or would like to leave feedback, please use the comment box below. Would love to hear from you!
References
Lafely, A.G. & Martin, Roger L. (2013). Playing To Win: How Strategy Really Works. Boston: Harvard Business Review Press.
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