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Strategy Development Methodology
Developing a Strategy - Methodology
1. Strategy Development
1. Mission, Vision, Value
2. Formulate Strategy
2. Translate Strategy
1. Strategic objectives & themes
2. Measures and targets
3. Operational Planning1. Processes2. Sales plans3. Resource planning4. Budgets
4. Execution Phase
1. Execute processes and initiatives
5. Monitor and Learn
1. Strategy reviews
2. Operational reviews
6. Test and Adapt the Strategy
1. Profitability analysis
2. Strategy correlation analysis
3. Review/consider emerging strategies
Strategy plan
Strategy map
Balanced score card
Operating plan
Budgets
Pro forma P&L
Dashboards
Developing a Strategy Phase 1 - Strategy development
Strategy Development
1. Mission, Vision, Value
2. Formulate Strategy
What business are we in and why
What is our purpose (aka, what’s our mission) Brief statement (1-2 sentences) that defines why the organization exists and what it offers to customers
What do we aspire to for future results (aka, what’s our vision) A concise statement that defines the mid-to-long term goals of the organization. It should contain:
A stretch goal
Definition of market focus
Time line for execution
What guides our actions (aka, what are our values) Prescribe the attitude, behavior and character of an organization
What are the key issues we are faced with in our business External analysis (PESTEL analysis)
Internal analysis (capabilities; performance; what gives us competitive advantage)
How can we best compete What customers/markets do we target What are the required resources for us to excel
What is the value prop the differentiates us Technology enablers to accomplish strategy
Key processes that gives us competitive advantage Organizational enablers to accomplish strategy
Developing a Strategy Phase 2 - Translating the Strategy
Translate Strategy
1. Strategic objectives & themes
2. Measures and targets
Strategy plan
Strategy map
Balanced score card
1. A strategy map – helps visualize the strategy as a chain of cause and effect
relationships among strategic objectives
A. A strategy map usually consist of 3-5 strategic themes (12-18 months duration)
B. A strategic theme (a vertical slice within a strategy map), consists of a related set of strategic objectives. The benefits are:
a) Can be customized to specific account/region and its priorities (creates focus…)
b) Benefits can be delivered over a different time periods – manage short/intermediate/long term value creation
2. Resource requirements
3. Assign a senior executive to lead/sponsor each strategic objective
a) Advise, help execute, and monitor performance
b) Assist in resource allocation and budget
Developing a Strategy Phase 3 - Developing an operational plan
Operational Planning1. Processes2. Sales plans3. Resource planning4. Budgets
Operating plan
Budgets
Pro forma P&L
Dashboards1. Process Improvements
I. Identify the critical success factors
2. Sales plan
I. Account selection
II. Revenue targets
3. Resource planning
4. Budgets
Developing a Strategy Phase 4- Executing the strategy
Execution Phase
1. Execute processes and
initiatives
Strategy plan
Strategy map
Balanced score card
Operating plan
Budgets
Pro forma P&L
Dashboards
Executing against operating plan
Developing a Strategy Phase 5- Monitoring and oversight
Monitor and Learn
1. Strategy reviews
2. Operational reviews
Meeting Type
Operational Review Strategy Review Strategy adaptation
Information Requirements
Key performance indicators and financial summaries (budgets and sales)
Strategy map and balanced score card
Strategy map and sales reports; analyze strategy; review external and competitive factors
Frequency Weekly Monthly Quarterly
Attendees Functional personnel and senior managers
Senior managers and strategic theme ‘owners’
Senior managers and strategic theme ‘owners’; functional personnel
Focus Solve operational problems. How well is the strategy being implemented
Test and adapt the strategy based on:
1. Casual analysis
2. Sales
3. Changing environment
Goals Respond to short term problem and promote execution improvements
Fine-tune strategy and make mid-course adjustments
Adapt strategy as necessary. Revise targets and approve new initiatives
Developing a StrategyPhase 6- Changing the Strategy
• Cost and profitability reports – consider current economics of existing strategy
– Activity based reviews• Costing reports
• Customer issues
• Market segments and channel
• Statistical analysis
– Validate investment in specific initiatives with expected results
• Emergent strategies – consider new ways of thinking
– Most innovative strategies emerge from within an organization
Test and Adapt the Strategy
1. Profitability analysis
2. Strategy correlation analysis
3. Review/consider emerging strategies
Strategy Development Methodology
Building Successful Alliances
Keys to Successful Alliance Building
Key Objective
Identify the best practices in making partnerships work.
Strategic Business Imperatives
Alliance building is an evolving activity; provisions for uncertainty and continuous learning must be made.
Some type of crisis will always precipitate the transition from one phase of alliance building to another; the ability to recognize and manage these crises is essential to driving greater alliance value.
The Phases of Alliance Evolution
Considerable academic research has gone into understanding organizational evolution and growth. The following methodology for the development of alliances is based, in part, on such research as well years of experience in
managing partnerships in the IT market.
There are four basic developmental phases through which companies tend to pass:
Phase 1- The drive to opportunity
Phase 2- Focus on implementation
Phase 3- Operational excellence
Phase 4- Value optimization
Crisis brings About Change
Phase 1
Phase 2
Phase 3
Phase 4
Opportunity ImplementationOperational Excellence Value Optimization
Crisis ofEfficiency
Crisis ofInnovation
Crisis ofValue
Time
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Phase 1 – The Opportunity
Capturing the opportunity is the overriding objective
Changing market and competitive conditions create an urgency to act:
Competitor moves in alliance building are viewed as a threat.
Not being left out of current and emerging opportunities
OUTCOME: Size of alliance portfolio increases
CHALLENGES: - Growth in alliance volume hasn’t translated into results - Alliance are formed for their PR value. No sustained value
CRISIS: Crisis of value. Where is the ROI
SOLUTIONS: - Reassess alliance activities
- Increase/Replace alliance managers
- Revamp existing programs
Phase 2 – Focus on Implementation
Building robust implementation capabilities
Top management active sponsor
Systematic process for implementing alliance opportunities
Best of breed approach in alliance selection
OUTCOME: Measurable goals. No paper partnerships!
CHALLENGES: - Existing process proves insufficient to handle a growing
complex partner portfolio.
- Limited resources and increased cost of alliances.
- Competitors are pursuing alliances and strengthening implementation.
CRISIS: Crisis of efficiency.
SOLUTIONS: - Scale back partnering activities.
- Expand capabilities to manage growing alliance portfolio.
Phase 3 – Operational Excellence
Explore new means of making alliance practices more time-and-cost-efficient, and more partner friendly
Improve channel management with better tools
Better lead and results tracking
Sales & product training and better partner communications
OUTCOME: - Can operate in an operational excellence mode without signs
of impending crisis.
- Alliance management becomes a “center of competency”.
CHALLENGES: Internal questioning – Is there more to be achieved?
- Internal soul searching of long held views: What do we stand for? How do we conduct business?
- The “well-oiled alliance machine” may be choking the value out of it.
CRISIS: Crisis of innovation – The most challenging phase.
SOLUTIONS: - Adapting to the way the" alliance organization and its business”.
Phase 4 – Value Optimization
Very few organizations are firmly entrenched in this phase. Many are moving in this direction. Areas of focus include:
Managing alliances as investments and R&D: The value of the entire alliance portfolio is the over-riding concern.
Allows investment in more speculative opportunities.
Cross-Partner and Cross-enterprise collaboration: Create unique solutions – Interact and create new opportunities with every
partner in the portfolio. Bring added-value to the relationship.
Leveraging the “alliance center of competency” to identify and exploit new opportunities:
A highly collaborative model.
The alliance manager acts as a catalyst and listening post for ideas.
Basic Business Planning to Ensure Success
Key Objective
How to become attractive to potential partners.
Strategic Business Imperatives:
Present a business plan that goes beyond the technical capabilities and that addresses market and business value-add
Address each partner’s core competency:
Skill sets sought by each potential partner.
Intersection of such competencies relative to the common customer set.
Convert the joint business plan into a solid value proposition to the customer.
Business Plan Questions
Overall objective: Identify partners for specific solution delivery or enhancement and
to increase solution sales opportunities.
Will this partner enhance a specific solution
Will this partner help my business
Identify specific benefits:
Improved efficiency and effectiveness of alliance through properly constructed
infrastructure and resource allocation
Effective alliance management processes
Accelerate go-to-market time through established training and educational
programs
Thought leadership and solution branding through marketing initiatives.
Improved profit margins through sales initiatives.
Contribution to solution quality and customer satisfaction through quantifiable
performance benchmarks.
Business Plan Components
Market Value-Add:
Industry or geographic coverage
Target customers
Market perception of each partner
Impact on brand reputation and mind share.
Business Value-Add:
Contributed leads, proposals and engagements per partner.
Level of funding for training, marketing and support activities
Sales force compensation.
Technical Value-Add:
Technical and service capabilities being contributed by each partner
Implementation issues
Development of joint unique solutions, future methodologies and derivative products
Management Perspectives
“ The high technology marketplace is rapidly changing and requires that creative solutions are developed by joint players.”
“ Partnerships and alliances are a critical business strategy for organizations that wish to thrive in times of dynamic change.”
“ Organizations that successfully leverage the business competencies of their partners must be able to discern the pretenders from the contenders. This can be accomplished via the use of highly focused business plans.”
Strategy Development Methodology
Re-inventing the Business Model
The Fundamental principles of Re-inventing the business model
A business model consists of four interlocking elements that, together create and deliver customer value:
– Customer Value Proposition (CVP)
– Profit Formula
– Key Resources
– Key Processes
Delivers value to
customer and
company
How that value will
be delivered to
customer and
company
Customer Value Proposition (CVP)
A successful company is one that found a way to create value for customers:
• Help customers get an “important job” done– Address a fundamental problem in a given situation that needs a solution
• Once we understand the job and all its dimensions, including the process how to get it done, we can design the offering/solution
CPV
Job Importance levelLow High
Customer Value Proposition (CVP)
The most important attribute of CVP is its PRECISION! How perfect it nails the customer job to be done and nothing else. Such precision is often difficult to achieve. Often it gets diluted by attempting to do lots of things, and in doing
lots of things, they do nothing really well. MAINTAIN FOCUS on:
• Target customers – Whose problem are we trying to solve
• Job to be done – To solve an important problem or fulfill an important need for the target market
• Offerings – A solution which satisfies the problem or fulfills the need . This is defined not only by what is sold but also by how it is sold.
Profit Formula
The profit formula is the blue print that defines how the company creates value for itself while providing value
to the customer. It consists of the following components:
• Revenue model = Price X Volume
• Cost structure = Direct; indirect; economies of scale; cost structure driven
by the cost of key resources required by the business model
• Margin model = The contribution needed from each transaction to achieve
desired profit
• Resource velocity = How fast we need to turn over inventory, fixed and
other assets – how well we need to utilize resources to support expected volume
Profit Formula
Revenue Model
How much money can we
make can be made = price
x volume. Volume can be
thought of in terms of
market size, purchase
frequency, ancillary sales,
etc….
Cost Structure
How costs are allocated:
includes cost of key
assets, direct costs,
indirect costs and
economies of scale
Margin Model
How much each
transaction should net to
achieve desired profit
levels
Resource Velocity
How quickly resources
need to be used to
support target volume.
This includes lead times,
throughput, inventory
turns, asset utilization…..
Key Resources
The key resources are assets used to deliver value to the customer and consists of the following components:
• People
• Technology/Products
• Information
• Facilities
• Equipment
• Distribution Channels
• Brand awareness
The resources are required
to deliver the value
proposition to the targeted
customers. Focus is on the
key resources that create
value
Key Processes
Successful companies must have operational and managerial processes that allow them to deliver value
that is:
• Repeatable
• Scalable
• Training
• Development
• Manufacturing
• Budgeting
• Planning
• Sales, service and support
• Core values
• Metrics and measurements
Key Processes
Key processes as well as rules, metrics, and norms, that make the profitable delivery of the CVP repeatable and
scalable, might include:
• Repeatable
• Scalable
Processes:Design, product development, manufacturing,
marketing, hiring and training
Rules and Metrics:Margin requirements for investment,
credit terms, lead times, supplier terms
Norms: opportunity size needed for investment,
approach to customer and channel
When a new business model is needed
There are clearly times when creating new growth requires venturing into an unknown business model. When? When significant changes are needed to all four elements of the
existing business model1. The opportunity to address through disruptive innovation the need of a large group
of potential customers who are shut out of the market because existing solutions are too expensive or complicated
2. The opportunity to capitalize on a brand new technology by wrapping a new business model around it, or leveraging a tested technology by bringing it to a whole new market
3. The opportunity to bring a “job-to-be-done” focus where one does not yet exist –redefining industry profitability.
4. The opportunity to fend off low-end disrupters
Successful Execution of a new business model
There is no point in instituting a new business model unless it’s not only new to the company but in some way new or game-changing to the
industry or market. Ask yourself the following:
1. Can I nail the job with a focused , compelling customer value proposition (CVP) ?
2. Can I devise a model in which all elements – CVP, THE PROFIT FORMULA, KEYRESOURCES, and the KEY PROCESSES – work together to get the job done in the most efficient way possible?
3. Can I create a new business development process unfettered by the often negative influences of my core business
4. Will the new business model disrupt competitors?
Creating a new business model, or re-inventing an existing one, does not mean the current model is threatened or should be changed. A new business model often
reinforces and complements the core business
Case Study 1
Established business model:
Power tool company
New business model:
Tool fleet management service
Sales of industrial and professional power tools and accessories
CVP Leasing a comprehensive fleet of tools to increase contractor’s on-site productivity
Low margin; high inventory turn over
Profit Formula Higher margins, asset heavy, monthly payments for tool maintenance, repair & replacement
Distribution channel, low cost mfg. plants in developing countries, R&D
Key Resources and Processes
Strong direct sales approach, contract management, IT systems for inventory management and repair, warehousing
• Existing business - Company is in the power tool business
• Market opportunity - A game-changing opportunity to turn products into services rather than sell tools
• CVP – Company is selling “just-the-tool-you-need-when-you-need-it, no-repair-or-storage-hassles”
service
Case Study 2
Established business model:
High margin products/services
New business model:
Basic products at low margins
Customized solutions, negotiated contracts
CVP No frills, bulk prices sold through the internet
High margins, high overhead retail prices pay for value added services
Profit Formula Spot-market pricing, low overhead to accommodate low margins, high throughput
R&D, sales, service oriented Key Resources and Processes
IT systems, lowest-cost processes, maximum automation
• Existing business - Company is in the chemical, silicone-based products providing sophisticated array of services to many industries
• Market opportunity – Offering basic products at low cost through a dedicated business unit
• CVP – Company is selling basic products at lower prices while maintaining its high margin/high value business and not cannibalizing it
1. OPEN DISCUSSIONHandout – Strategy Development Template + sample
1. What’s my CVP
What issues/challenges my group faces
2. How do I solve these issues
3. Develop a plan
QAS - Case Study
Established business model:
Commodity energy usage displays
New business model:
EPM platform
Customized solutions, negotiated contracts
CVP Energy performance management solutions based on robust analytics engine
Low margins, product sell with high overhead
Profit Formula Solution sell. Unbundle solution and services. Create pre-packaged service offerings
Services, project management, no partner involvement
Key Resources and Processes
Services, Project management, Partner involvement
Existing business - Company provides commodity visualization/display kiosks for sustainability and energy usage metrics
Market opportunity – Provide an energy performance management solution to manage the convergence of sustainability and energy management
CVP – Company is selling an Operational Business Intelligence solution for energy performance management, helping organization manage, analyze and reduce energy consumption
