THE STRATEGIC FRAMEWORK
Do you have a strategy and is it aligned to your overall purpose and vision?
PURPOSE: Everything starts with your WHY, and this should be a constant in your strategy – it is the reason your business exists. Your purpose may be general in nature or may have a strong social purpose. I really like this definition as it covers both aspects:
VISION: Your Vision is your long term aim/objective – WHAT does your business look like in say 5 years time? The Business Model Canvas is a great tool to map out this future state and to see where the gaps are from where you are now to where you want your vision to be. This then informs your strategy.
STRATEGY: Your Strategy is the medium term plan on HOW you are going to achieve your vision and this in turn informs your areas of priority and focus, and drives the action plan.
All of this must be underpinned by your Values – what are the beliefs and behaviours that will drive you towards your vision. Most importantly your values must align back to your purpose, or there will be a disconnect and you will lose trust with your clients, employees and other stakeholders.
It is a lot to think about but break it down one step at a time.
As SMEs many of you will set off with a clear idea of the product or service you are offering, in effect the WHAT. What is harder to define is the WHY.
There are two parts to this question:
Let us explore part one first:
WHY you exist?
Do you have a clear purpose? Your purpose is the reason WHY your business exists. With the purpose driving your strategy it is important you get this right. That is why the Value Proposition is fundamental to any business model.
The Value Proposition must be developed with the-customer in mind. What is the ‘job to be done’?
Theodore Levitt, a Harvard Business School professor illustrates this well with his example of a drill. “People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!”
Another textbook example is the milkshake. This is a great example of a product that has a different value proposition for different target markets. E.g.
A businesswoman grabs a milkshake to drink on the way to work. The job to be done is “nourish me on my commute”.
A parent picks up their child from school and buys them a milkshake. The job to be done is “treat my child.”
Two very different propositions, which operate in different competitive spaces and need different marketing messages. The direct competitors for “nourish me” could be a muesli bar or a banana, whereas for “treat my child” it could be a small toy.
WHY should your customers’ buy from you?
This leads us nicely to the second WHY. What is your differential?
Michael Porter, a renowned strategist, argues there are two ways to achieve competitive advantage –have the lowest cost or differentiate your product in some way.
Having the lowest cost may not be the right strategy as often all that happens is your competition start to undercut you and margins across the whole industry become tighter. Nobody wins – except the customer!
Showing your value through differentiation makes more sense – but how do you do this? To have true competitive advantage you need to excel in one of these areas:
(a) Product design
Does your product or service offer unique features? Is the quality of the highest specification. Are you continuously looking at ways to enhance the products?
Apple are a great example of this strategy and customers will happily pay a premium in return for the quality, innovation, and range of features.
(b) Customer experience
Do you go above and beyond to deliver outstanding customer service? Do you build customer intimacy through personalising your approach? Do you look after your customers beyond the initial sale?
Virgin Atlantic are often used as a case study here, but this is a great value proposition for local, smaller businesses, as they can build strong relationships within their communities and adapt quickly to meet customer needs.
(c) Operational efficiency
Do you have slick, streamlined processes? Do you use technology to its fullest advantage? By being operationally efficient, and eliminating wasteful activities, your cost base will be lower than your competitors, and you can reflect this in your pricing.
McDonalds are a great example of this and run a massively successful franchise model due to their strong processes and procedures.
So, taking the drill as an example: Why should the customer buy your drill? Is your value proposition based on product design, customer service or operational efficiency. E.g.
Product -your drills are manufactured from the highest grade of metal and are guaranteed to last for 25 years.
Customer – you have a loyalty scheme that provides customers with a replacement drill bit every year.
Efficiency – your drills are made in a factory that uses robotics; therefore, your product is cheaper to produce, without compromising quality.
To summarise, to understand your value proposition you need to understand:
WHY you exist
WHY should your customers’ buy from you
There are lots of strategy tools available to business owners to help with this, but as I said earlier it is really hard to do this for your own business.
A strategy is simply a plan of how you are going to win – in whatever field/industry you are playing in. Winning will mean different things to different business owners. It may mean:
– being the biggest, taking market share from your competitor
– being profitable and sustainable to give you the income you need and/or to give back to society
– growing the business ready for it be sold to another company in x years time.
– giving you the lifestyle and work: life balance you desire.
Whatever your end goal is you need to have a plan for how you are going to achieve it.
Your business strategy should cover:
Use the business model canvas to help you with this and to ensure you have a viable base on which to grow your business.
Once you have your baseline you can then look to grow your business in various ways:
The more you move away from existing products and markets, the more risky the growth strategy so make sure you have done your homework and research!
You will have developed your strategic plan with the high-level actions that will take you towards your goals. It is important you have some key measures in place so you can make sure your strategy is working – and to alert you if a change is needed!
Remember, a strategy is only as good as the day it was developed – depending on what industry you are in the market dynamics may change regularly. Your competitors may be making moves that you need to react to and/or a disruptor may enter your market that takes you unaware. There may also be legal or regulatory changes you need to adapt to.
Consumer attitudes and behaviours are constantly evolving and you will need to keep informed on social and economic trends that may pose a threat to your business or provide an opportunity to take advantage of.
All this means that you should regularly review your business strategy to make sure it remains fit for purpose or whether a change in direction is required. This way you are on the front foot before there’s a problem – you can be pro-active about your business decisions rather than reactive and trouble shooting. Even in the most stable of industries it is still good practice to review your business strategy at least annually.
There are many tools you can use to help you including:
|PEST is a tool that is used to analyse the external environment and current trends and helps you think about what will have an impact on your business – either in a positive way or as a threat.|
|PEST in an acronym for:
• Political; Economic; Social; Technological
Sometimes it is called PESTLE as it adds in:
• Legal; and
These categories help you think widely about the market in which your business operates. Where you plot them on the PEST template will help you assess what factors are likely to have the biggest impact.
You can then plan accordingly to minimise the risk or maximize the opportunity.
Top Tip: Don’t get too hung up on the categories – it’s where you plot them that is important
SWOT is probably the best known and most widely used strategy tool. It simply lets you summarise your:
As it is a summary tool it is best used in conjunction with other analysis tools such as PEST and competitor analysis.
Top Tip: It’s a great exercise to do once a year and highlight what has changed since the previous SWOT.
There are many ways to undertake competitor analysis. This tool lets you select two market features and plot your own business and your competitors on the grid depending on their relative positioning.
Some suggested features are:
Once you have mapped the relative positioning there may be a clear gap in the market – this is called ‘the white space’, and there is an opportunity to ‘seize it’.
Top Tip: Make the model 3D by varying the size or colour of the competition markers to denote a third dimension.
Don’t worry, you don’t have to do it alone. You are the expert in your business – you know your customers, their needs and the market. Get in expert help from a strategy expert to help you develop your strategy and to review with you on an ongoing basis.
How do you engage your stakeholders with your business’s strategy?
You may have a strategic plan which you share. You may cascade key information throughout the business. You may hold events where you tell your people what the strategy is. You may even have a lovely diagram that shows your mission, vision, values and priorities.
All this is great. However, how engaged are your people in what you are telling them?
Would they be able to clearly articulate the strategy to another colleague? A new starter in their team? Are they aligning their own objectives and priorities to the overall strategy?
Now I appreciate that is a lot of questions which I am asking on purpose. If the answer is ‘no’ to any on them then you may want to consider using storytelling as a great tool for engaging stakeholders.
Storytelling is a very successful technique for communicating strategy, presenting new concepts and even perfecting your elevator pitch.
So, let me share some top tips with you for storytelling:
You will also need a structure to follow. Pixar’s six sentence structure is a good one to use. The structure is:
Try it! Once you have mastered it you will find it useful in many situations:
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