To tackle the challenges that come with building a successful strategy for organizational growth, it's essential to start by knowing how to build a growth strategy effectively. Many organizations struggle with poor strategy formulation due to a lack of time, knowledge, or confidence. However, equally important is ensuring that employees are engaged with the company's strategy, and communication is effective. Surprisingly, a large percentage of business leaders cannot even list their organization's strategic objectives, and the number is even lower for employees in sales and service. Therefore, by educating leaders and employees on how to build a growth strategy and ensuring effective communication, we can reduce the high failure rates of strategies and set organizations up for success.
Why a Good Strategy Matters
On the other hand, strategies can also fail due to poor management and a lack of cohesion among the tools used. Often, plans are scattered across various documents and not updated, leading to incoherent and ineffective strategies. These issues often result in businesses failing to achieve their goals, and that's precisely what we’d like to address at Lucidity.
This blog aims to guide you through developing an effective, data-backed strategy. We'll give you some exercises to help you determine what you want to achieve and create a plan to get there. It will also help you consider strategic options and how to make informed decisions. We'll delve into good and bad execution practices and provide you with some helpful resources.
We understand that developing a strategy can be daunting. We’ll look at some tools, such as PESTLE, which can help you systematically analyze the political, economic, social, technological, legal, and environmental issues and help you make strategic decisions to support you in developing a winning strategy that helps your business succeed.
PESTLE Analysis: A Tool for Making Informed Decisions
In order to make informed decisions about your business, it's important to consider a variety of external factors. Political considerations, such as government actions and international issues, can have an impact on your business. Economically, factors like inflation, cost of living, and the possibility of recession should be taken into account. Societal trends like housing availability, demographics, and COVID also play a role, as do technological advances and legal considerations like employment law. Environmental impact is another important factor to consider. By using a PESTLE analysis, you can identify both opportunities and risks for your business. Whether you are in manufacturing, confectionery, or leisure, each industry will face unique challenges and opportunities. For example, one gym owner used a PESTLE analysis during the COVID shutdown and realized that while the virus severely impacted society, online training programs and wearable technology were increasing in popularity. By staying informed and taking external factors into consideration, you can make smart, informed decisions for your business.
Porter’s Five Forces: Identifying the Likelihood of Profitability
Investing in online services and products is a great way to stay connected with your customer base and keep revenue flowing, even during difficult times. PESTLE analysis can help identify risks and opportunities, allowing for a more strategic approach. Another useful tool is Porter's Five Forces, which helps determine the likelihood of profitability in a current or potential market. This involves assessing the level of competition, the threat of new entrants, and the likelihood of substitution. For example, the emergence of digital cameras and then smartphones impacted Kodak's chemical film business. Staying aware of these factors is important for making informed decisions and staying competitive in today's ever-changing business landscape.
Mitigating Factors: Maintaining Profitability in a Competitive Market
One example of how substitution can impact a business is when children started buying text message bundles and ringtones instead of chocolate. Supplier power is another important factor to consider, especially for companies with a significant number of suppliers. Buyer power has also increased with the rise of the Internet, making it easy for customers to compare pricing and specifications. Porter's Five Forces can help determine the likelihood of profitability in a current or potential market. Mitigating factors like differentiation, loyalty programs, and product development can help maintain profitability in a competitive market. It's important to segment customers, revenues, and profits to understand what makes up the overall numbers and make strategic choices about where to focus and where not to. The "start, stop, continue" tool can be a helpful way to make those choices. Ultimately, strategy is about making informed choices and focusing on the right areas to achieve success.
Using the "Start, Stop, Continue" Tool
To make strategic decisions, it's important to take a critical look at your business and determine what should be continued, stopped, and started. You should continue activities that produce high revenue and profit, have good growth potential, healthy customers, low competition, and a unique selling proposition. Conversely, you should stop activities that contribute little to revenue/profit or growth, toxic for the business, declining, and have no competitive advantage. Creating this space will enable you to start new initiatives that have great potential, such as significant revenue and profit, good growth potential, healthy customers, low competition, and competitive advantage. However, it's critical to be brave in making these tough decisions and properly invest in the new initiatives. McKinsey refers to this type of approach as "peanut butter" since many organizations tend to spread their resources too thin, resulting in no success. Leaders should focus on protecting and growing an organization's strengths, dealing with weaknesses, investing in opportunities, and mitigating threats. Ultimately, SWOT analysis is a valuable tool to use in identifying these important factors.
I was fortunate enough to get involved with a business in its early stages, consisting of six ingenious engineers in Paris and two sharp commercial minds in London. This was in the telecommunications industry, where the competitors were behemoths with over 300,000 employees. With only eight people, we had to leverage our strengths and identify our weaknesses to stand a chance. The team's expertise lay in high-speed data networks. We narrowed down our target customers to wealthy finance traders between London and Paris who needed ultra-high-speed networks. By playing to our strengths and focusing on financial services, we managed to pull off the impossible and beat the competition. This turned the business into a multi-million-pound enterprise with multiple awards.
Another business we worked with faced a serious challenge with recruitment. Despite investing heavily in it, they were struggling to attract suitable talent. We came up with a software platform and brand called "Hacker Lab" to leverage their expertise in cybersecurity. This brand organized meetups at a pub for cybersecurity developers interested in hacking, which attracted a lot of people. Their engineers ran the events themselves, which helped elevate their status and improve retention rates. By thinking outside the box, we solved our client's talent acquisition problem and helped them grow by 400-500%.
Conducting a SWOT Analysis
Conducting a SWOT analysis is just the first step in understanding your organization's strengths, weaknesses, opportunities, and threats. It's important to assess it in a competitive context and identify genuine opportunities and segments. Once you've done that, you need to creatively think of solutions that move your organization forward.
Let's take a closer look at how we can use SWOT to identify genuine strengths and weaknesses and whether they can be addressed. Are the opportunities presented in the marketplace truly applicable to your organization? And have you considered all possible threats, including newcomers? Once we have completed the SWOT analysis, it's crucial to identify what we want to achieve and establish SMART objectives that are specific, measurable, realistic, relevant, and time-bound. This could be reaching breakeven by December 2023, increasing gross sales by 5% by May 31st, or gaining a 10% market share by September. These goals should be based on the reality of the SWOT analysis, and once achieved, we can measure and quantify our progress. With this in mind, we can move on to the next stage of our strategy.
Creating a solid strategy requires more than just focusing on a single approach. In fact, having multiple alternative strategies gives you the flexibility to respond effectively to unforeseen changes in the market or within your organization. It's crucial to develop two or three alternative strategies to achieve your goals and then conduct a thorough appraisal to select the best one to take forward.
It's important to understand what a strategy truly means. It's not a tactic or a quick fix like launching a new product or jumping on a social media trend. Rather, a strategy sets the direction for an organization in the long or medium term. It involves establishing or gaining an advantage over competitors, considering changes in the business environment, assessing an organization's resources and capabilities, and taking into account the values and expectations of stakeholders. Crafting a successful strategy requires an integrative approach, where all parts of the organization are aligned with the objectives, challenges, and execution plan.
Developing Alternative Strategies
To turn a SWOT analysis into a comprehensive plan, one can create a TOWS matrix that uses strengths and opportunities to monetize business prospects. Conversely, when weaknesses get in the way of opportunities, it's necessary to create options that address and reduce those weaknesses. Generating options that use strengths to mitigate threats and avoid challenges that hinder efforts is also crucial for creating a well-rounded strategy. Depending on the time horizon, different strategies should be given weightage. Focusing on short, medium, or long-term objectives can help develop effective strategies that generate new sources of growth and profits while minimizing risks. Overall, creating a sound strategy is complex and requires revisiting on a regular basis, but it's essential to stay ahead of an ever-evolving market.
An additional tool that can be used alongside TOWS is the Ansoff Growth Matrix, a practical framework that's still very relevant today, despite being developed in 1957. The first strategy involves staying with existing products, services, and customers, aiming to increase market share, referred to as market penetration. This low-risk option can be challenging in a competitive market, but it's a good way to achieve modest growth. On the other hand, market development involves expanding into new markets, preferably new geography or exporting the product. It's a riskier option as it requires building knowledge of new distribution channels and legal frameworks.
Product development, another ambitious alternative, focuses on developing additional products and services aimed at existing customers. This approach has been successfully implemented by banks, Sainsbury's, Tesco, and accounting firms with tax management, HR, and IT offerings. Lastly, diversification involves going into new markets with new products based on new technologies or services. It's the riskiest approach, but it can lead to the highest level of growth. Tata Group is an excellent example of a successful diversification strategy.
After developing these alternative strategies, it's important to evaluate each of them based on suitability, acceptability, and feasibility to identify the most ideal alternative that meets the organization's objectives. Suitability outlines how appropriate the strategy is for safeguarding against opportunities and threats, acceptability evaluates the return, risk, and how stakeholders will respond, while feasibility focuses on the resources the organization needs to implement the strategy. Using this framework can help make an informed decision on which strategy to adopt based on the score each one received.
Executing the Plan
Let's talk about executing a strategic plan. After doing some homework and coming up with strategic options, it's essential to take an objective view when making a decision. Execution is where the real hard work starts, and it's crucial to get everyone on the same page. Creating a simple and structured plan is essential, starting with a vision statement that sets the direction for the organization. Underpinning the vision are a small number of strategic objectives, usually three to six in number, that break down further into separate goals with key performance indicators (KPIs), assigned tasks, and deadlines.
Monitoring progress is crucial, and data and facts should be used when making decisions. Communication is also key, and there should be a regular update on the strategic plan communicated to everyone in the organization. The accountability piece is critical because everyone needs to know their roles and responsibilities.
Leaders should be consistent and monitor progress regularly. There should also be proactive efforts to engage members of the team who may not be entirely on board with the plan, and this can be done by involving them in the formulation process and creating an environment for open and honest discussion.
Best practice requires being brave about stopping things that should not continue and funding the new activities correctly. This includes setting SMART objectives with clear deadlines, owners, and employees who feel engaged, informed, and motivated.
Finally, communication should be visually engaging by using icons, charts, and other visual elements to keep everyone informed, engaged and motivated. Reinforcement should also be part of the communication strategy to ensure that everyone stays focused on the strategic plan.
To encourage prioritization of strategy within senior management, it's important for them to lead by example and make it a priority early on in meetings. In addition, using dashboards to track progress and having consistency with labels, language, and measurements can help maintain focus and ensure clear communication. For further resources, there are several strategy-focused books recommended, such as "Beyond the Hockey Stick," "Strategy That Works," and "Playing to Win."
When we begin a new year, many organizations are taking the opportunity to review and re-evaluate their strategies. One common challenge is the development of alternative strategies, which can be difficult to generate. It's also important to keep all analyses and frameworks used in the background of your strategy and continually update and reflect on them throughout the implementation process. Lucidity's platform allows for easy storage and updating of analysis, including SWOTs and other tools. For organizations with multiple business units, each unit should have its own strategy, possibly even broken down by geography or product. However, it's also important to have an overarching corporate strategy that is more abstract and long-term. Regardless, keeping all strategies updated and using them as a basis for discussion and decision-making can lead to a more thoughtful and informed strategy.
In summary, it's important for businesses to have a clear and structured approach to strategy. This can include developing strategies for each business unit or product, as well as maintaining consistency and clarity through tools like dashboards. Lucidity offers a software platform that can aid in building, tracking, and collaborating on strategy, with tools for tasks and risk management, as well as clear dashboards.