The term strategy is perhaps one of the most misused, and misunderstood concepts in business literature. On the one hand it is referred to with a connotation of long term planning (i.e., strategy tactics operations) and on the other it may refer to positioning the firm with respect to its environment. In this series of blog postings we follow the latter definition, and answer the question: how can we (a) improve the process of strategic management through the use of models, and (b) improve the execution / implementation of strategies with Enterprise Architecture Management. It should be noted that we plan to cover these topics in more details in future blog postings, whitepapers, and a handbook.
In this second posting we zoom in on the question: how do strategists come up with a solid business model? We also briefly touch upon the use of models in this context.
Strategic issues
Our line of thinking is very much inspired by (the first few chapters of) the book Strategy Synthesis by de Wit and Meyer (ISBN: 1408018993). In line with this book, we take the point that strategists deal with the resolution of strategic issues such as:
- What is our competitive advantage and on which market can we be successful?
- Do we aim for synergies between our businesses, or should we strive to maximize the responsiveness to market needs of each individual business?
- Are synergies between various countries in which we are active relevant?
It is often assumed that dealing with these issues is both a rational and deliberate/ planned (5 year plans). In practice this is often not the case. For many organizations the process of strategizing is rather organic / creative and far from planned at all. There is a school of thought that suggests that for many companies no pre-planned strategy exists at all: only in hindsight can one discern a pattern in the stream of strategic choices that have been made.
Schools of thought
During the course of the last few decades, different schools of thought have been established for many of the strategic issues. For example, for the issue of competitive advantage, some authors proclaim that an inside-out approach (also called resource-based view, referring to dynamic capabilities of organization) is best: start with what youre good at, develop products and find appropriate markets. Others claim the exact opposite and adopt an outside-in (Blue ocean seeking uncontested market space, or Red Ocean trying to improve in existing markets) approach: find a market where you expect to be successful and develop an appropriate activity system / resource base.
Similarly for the issue of synergies versus responsiveness, some authors claim that the best way to be successful for a multi-business organization is to maximize synergies between businesses:
- Sharing resources such as knowledge, skills, or equipment
- Organize some processes across all businesses to gain economies of scale
- Create an integrated product offering using services from various businesses to offer customers a one stop shop experience
Again, other authors claim the exact opposite and propose a portfolio approach. The central ideal of this approach is that by offering maximum freedom, businesses have the biggest chance to be successful. By spreading business risk over several businesses, the long term success of the portfolio is most likely to be maximized.
Use of models
In order to improve (a) deliberate / rational strategizing, and (b) communication about all aspects of strategy, several models have been proposed. It may seem that these models have been developed primarily to assist in rational and deliberate / planned decision making but this is most definitely not the case: they can also be used to document and communicate about strategies that are discovered in hindsight in a more creative/ incremental approach to strategic management.
Important models to consider in this context are:
- SWOT analysis: which can be used to brainstorm strengths, weaknesses, opportunities, and threats for an organization. The step to strategic choice can be made by elaborating these further using a confrontation matrix.
- Blue Ocean Strategy: is an approach that covers several models, including the strategy canvas and the ERRC grid as well as a step-by-step approach to discover how organizations can avoid competition in red oceans and be successful in blue oceans of unrivalled potential.
- 5-forces/ PEST: are two complementary models that help to map out the relation of the organization to its environment using 5 competitive forces, and 4 socio-economic factors.
- Value chain: helps to map out key aspects of an organizations activity system that enables them to be successful. The approach may be old, we see that is still being used a lot in practice!
In our opinion, the act of strategizing, and answering hard questions about what the organization strives to be, is what strategic management is all about. Whether models are used to rationalize the strategic options / decision making process that an organization, or if they are used to merely document the outcome of the strategic process in hindsight: we strongly believe that models are an indispensable tool for long term success of the organization: by combining (the results of) different strategic models, strategists broaden their horizon and break free from a single-paradigm view of the world.
Providing tools to help strategists in using models and strategic tools alone is not enough, though: the key to success lies in execution. In the next posting of this series I will zoom in on the business model canvas as a tool to (a) give an integrated view on the strategy of an organization, either in an as-is situation or in the future, and (b) show how existing models such as outlined in this post can help to fill in this canvas. The canvas provides a uniform language as well as a solid tool for analyzing the impact of options (resulting from various strategic models) on the business model of the organization.
This will give us a good starting point to move towards execution in subsequent posts.
Outlook
The next posting in this series zooms in on the business model canvas and is scheduled to be posted in February. If you have any questions, or suggestions: please drop me a note using the comment function below, or send an E-mail to h.franken@bizzdesign.com
