There are a host of definitions for strategy. Rather than trying to be comprehensive or creating a definition that tries to be the authoritative source, I’ll use a simple definition of strategy for my purposes. Strategy is a plan of action designed to achieve outcomes. That’s it. This definition is loyal to best tenants of strategy as well; be flexible, nimble and leave options until you reach the appropriate time or level to add further definition.
The process of defining the desired outcomes is usually incorporated into the concept of strategy planning. In an agile and well-led organization, execution is also wrapped into strategy so that the plans can stay flexible, updated, and resources can be used to increase success.
The best, most refined, and most successful strategy model has evolved from ancient China, was updated in Prussia, and has slowly been creeping into the business world. There are four steps to the process and I prefer to keep them all under the strategy umbrella to help leaders reach the planned outcomes. The iterative sequence is: setting goals, planning, actions, and outcomes.
In setting strategic goals, you must consider what outcomes you desire for your business. Assuming that you are in business to earn revenue, you must link your outcomes to needs that your customers have in order to capture that revenue. The best source for setting goals is your business mission, values, and vision statement. Provided you have a well thought out statement, your goals should flow directly from your mission and vision. What do you desire? What outcomes are you seeking? Where do you want your business to go? These are all important questions to ask. Additionally, you’ll want to conduct analysis and hypothesis testing of your assumptions to ensure you have goals that have a reasonable chance of success.
At the business level, goals should be general and short. For instance, you might set a goal of establishing a presence in a new market and capturing $2M in revenue within 2 years. Then you might develop a new layer that adds more strategy and assigns responsibility to different segments of your organization. In the above example, you might divide the revenue responsibilities between two business units and also assign sales and marketing targets. Each of these units might then break their sub-goals down further to responsible units or people. At each decomposed level, they would be informed as to the goals of the parent organization and overall business so they understand the overall context of the strategy.
When strategic goals have been formulated and assigned, planning begins. The business conducts an analysis of the environment, competitors, their own capabilities, their customers, and any other areas critical to the goals. They also assign resources to the different sections and identify people that will be responsible for achieving the outcomes defined in the strategic goals. They might also place constraints on the same, for instance certain segments of the market might be defined as unattractive.
With the goals, analysis, and resources/constraints in hand, the units and people responsible for the outcomes begin planning how they will reach the goals. The planning at the business level will be high level, as were the goals. As the planning cascades down through the organization, the plans will become more detailed at each level. Care must be taken in planning to ensure that only enough detail, not too much, is built into the plans.
As each layer of plan is created, there is a back and forth communication and evaluation of the plans until a level of confidence is reached. Care must be taken that planning doesn’t become such a long process that opportunities are missed while creating the perfect plan to take advantage of them. The old adage: a good plan executed now is better than the best plan executed too late is even more valid today given the speed of information in our society.
The final component of planning is establishing how to measure success. Using key performance indicators (KPIs) is a useful manner to track progress towards goals and helps leadership avoid micromanagement. When using KPIs, typically only three to five KPIs will be chosen at each level. They are selected because they are the most critical indicator to success. For instance, and airline trying to raise its customer satisfaction ratings and rankings identified one KPI, aircraft departure timeliness and subordinated all actions to that KPI. It’s also very helpful to have few KPIs as it keeps managers from trying to micromanage every detail instead of leading.
When the plans have been cascaded and completed, the flow moves into action. It is in the action phase that the outcomes and goals are reached. The plans come to life in the action phase. It is also the action phase where the plans begin falling apart. When you are writing your plan, conducting your analysis, creating goals, cascading the process, etc. it is easy fall into the assumption that when you launch the plan, it will proceed as written. Wrong. In the military, it is assumed that no plan will survive the first contact with the enemy. What that means is that when you’re planning, you are making assumptions and even though you’ve conduced a robust analysis, it won’t be perfect. In business, your clients, partners, competitors, economy, technology, and any other variable won’t behave as you’ve predicted. Some may be close, but there will be wrenches throw into your machine.
The natural reaction to this chaos is to manage more intensely, which is counterproductive and won’t produce the results and outcomes you are targeting. Instead, you need to build a flexible business that has well-trained employees who are making decisions at the lowest level possible. The people in direct contact with your customers are frequently able to make great decisions in the context of achieving your goals. But, to make those decisions they need to be empowered with the authority to act and also know that they are allowed to mistakes as part of the learning process. Anything short of this and you’ll have a much more difficult time succeeding.
The actions taken will lead directly to the outcomes. Outcomes are what you’ll measure against your goals to determine success. The more frequently and accurately you are able to measure progress without interfering with actions, the more successful you’ll be. Here is where choosing correct KPIs will pay dividends. When monitoring progress towards goals, leaders will be able to adjust, add or subtract resources, spread lessons learned, and take any other necessary actions. At this stage, you’ll also be leading another cycle of planning.
These four phases are continuously ongoing and spiraling through the organization. Each level goes through the phases and also links with other levels at each stage. While it seems complex and only suitable for large organizations, small businesses can start using this method as soon as they have more than one person. By starting with a robust, simple, and structured method of strategic planning and execution a small business can scale the process as they grow and have a competitive advantage as a result. Businesses that can’t plan well, are weak at analysis, micromanage, and set unreasonable goals face a challenge to stay in business. Lack of a strategic plan is the most cited reason for small business failure, but it might be more insightful to say that lack of a strategic plan and execution methodology is the root cause of those failures.
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