Nutshell: A strategic planning toolkit

There is a virtual carpetbag of tools we can use to help us stretch the boundaries of ‘what’s possible’ when it comes to creating strategic plans.

The enduring popularity of Mary Poppins may lie in her no-nonsense method of magically making order out of chaos, aided as she was by the contents of a rather capacious carpetbag.

Those of us engaged in strategic planning can be similarly assisted by having the right tools to hand. So, this toolkit brings together some of the best-known and most widely used frameworks, matrices, assessments and other apparatus, to help us with the job in hand.

It’s worth noting that many of these tools were designed with larger-scale corporates in mind and in a pre-disruption era. However, there are still useful lessons to learn and transpose across to smaller businesses.

Here’s an indication of the answers to be found inside this magical carryall:

• Q: How do we determine our position in the market?
  A: Get to grips with Michael Porter’s Five Forces framework

• Q: How do we find the external influences most likely to affect our organisation?
  A: Try a PESTLE analysis
   
• Q: How do we work out which products to offer – and which markets to enter?
  A: Use the Ansoff Matrix
   
• Q: How do we open up new market space and create new demand?
  A: Dive onto Blue Ocean Strategy
   
• Q: How do we evaluate the strategic options we have generated?
  A: Take a view of Rumelt v Johnson and Scholes
   
• Q: How do we decide which businesses to prioritise, and when?
  A: Take a look at the Growth–Share Matrix
   
• Q: How do we work out if our plans are feasible?
  A: Undertake a resource deployment assessment
  
  

Michael Porter’s Five Forces framework – understanding our position in the market

Michael Porter is seen by many as the founder of modern strategy. He first described the Five Forces framework in a Harvard Business Review article, published in 1979 – the same year that the Apple II Plus personal computer was released and the world embraced the Walkman portable cassette player.

While circumstances, mindsets and technology have changed immeasurably since the late 1970s, Porter’s insights continue to shape business practice and academic thinking and thus remain a useful reference point.

Why do we need this?

To understand our position in the market and our relative power within our own sector(s). This can help us to determine our likely success when entering new markets and to identify where we are most at risk.

The Five Forces in more detail:

1. Threat of new entry – new competitors who can do what we can do, only better or cheaper

We become vulnerable when a competitor offers a very similar product or service but beats us on quality or undercuts us on price – just as German ‘discounter’ Aldi stole a big share of UK trade away from supermarkets Sainsbury’s and Tesco, first with its low prices and more recently with its sourdough baguettes and Prosecco.

This is a risk we can sometimes minimise by making replication more difficult; for example, through patents or by investing in brand advertising.

• For example, Marks & Spencer recently took legal action against low-cost rival Aldi, claiming the latter’s Cuthbert the Caterpillar cake (at £4.99) infringed the trademark of its own iconic Colin (at £7.00), despite closer rivals Waitrose already having a Cecil on sale (also at £7.00). This spawned a myriad of amusing memes, but also unhelpful speculation (for M&S) that this was more a matter of class than a battle of cylindrical chocolate sponges.
  
  
• Conversely, Coca-Cola’s vast investment in brand advertising has succeeded in making ‘Coke’ the generic term for cola (the ‘hoover’ of the fizzy drinks world). Such is its success that main rival Pepsi has had to diversify its range with products such as Lipton, Pure Leaf and organic drinks to grab its own full-fat share of the market.

2. Threat of substitution – new options that can easily replace what we offer

We become vulnerable when hitherto unavailable options are brought to the market and, whether purposefully or incidentally, muscle in on our territory.

• When the Channel Tunnel opened, airlines and ferry companies faced the previously non-existent threat of people being able to take the train to Paris, rather than choosing to fly or sail.
  
  
• Clearly, in an era when our Uber driver can pick us up in a Tesla, disruption and innovation are both in full throttle. So, none of us can rest on our laurels with the lazy expectation that the equivalent of the Channel Tunnel couldn’t happen to us.

3. Buyer power – a low number of buyers relative to suppliers, with the power to negotiate on price or quality

We become vulnerable when buyers can shop around quickly and easily to find a better deal.

• For example, Amazon.com alone has more than 1,000 entries for ‘desktop fan’, so if we want to sell a Dyson Cool Tower for £349, it has to be pretty special – or have the same big-brand kudos as Coke. Dyson may not be the generic for ‘hoover’ (yet), but thanks in part to its engineering and brand design efforts, many ‘cool’ consumers do want a Dyson to vacuum with.

4. Supplier power – a low number of suppliers that may have the power to raise their prices

We become vulnerable when our options are limited or when switching is difficult or costly, as that’s when our suppliers may flex their advantage and raise their prices.

• For example, while a fast-food restaurant may offer any generic brand of cola, offering Coke could improve footfall or give them an edge over their rivals. With brand equity on their side, Coca-Cola can therefore be fairly confident that if it raises its prices, its buyers are unlikely to walk.

5. Competitive rivalry – whether the market we are in is unfavourably crowded or favourably clear

While we can shine by being distinctive – and by being ‘the only’ – we become vulnerable when what we offer is difficult to distinguish or find within a crowded marketplace.

• While we can strengthen our own position by offering a product or service that no one else can, being unique is extremely difficult. That’s when Blue Ocean Strategy might be useful for putting clear blue water between us and the competition.

Let’s Google an example…

Google has become the biggest word in internet searches, with more than 92% of market share. And the company has continued to innovate, developing a web of interlinked services such as Google Maps and Gmail.

So far, so successful, but what does Porter’s Five Forces framework reveal about Google’s vulnerabilities and position in the market?

Is Porter still relevant?

The world has changed a lot since the Five Forces framework rose to prominence in the 1980s.

Since then, we have moved from a period of strong competition, relative market stability and steady technological change to a business environment that is constantly shifting.

With so much disruption, it’s important to remember that the Five Forces tool cannot give us all of the information we need to anticipate what lies ahead. So, while it still earns its place in the carpetbag, it must be used in conjunction with other proven techniques, to help us build up a more thorough understanding of the prevailing competitive environment.

The PESTLE analysis – examining and anticipating external influences

PESTLE started out as just a PEST – or rather an ETPS – in a 1967 book by Francis J Aguilar, an American scholar of strategic planning and general management, who had joined the faculty of Harvard Business School three years prior.

Since then, it has evolved into a strategic tool to help throw light on the external factors that could have a major impact on a company’s success; PESTLE being an acronym for the six main pressures and influences presented by the external environment:

Why do we need this?

A PESTLE analysis is a tool to examine and anticipate the external influences most likely to impact on our organisation. It can be used to review an overall direction, a marketing proposition, or future business and product development initiatives. However, it is only useful if action points are then agreed.

A thorough PESTLE analysis should therefore comprise the following six stages:

1. Identification of the external factors likely to have an impact
2. Verification of those factors
3. Observation as to which factors are having the most significant impact right now
4. Projection as to which are likely to increase/decrease in importance
5. Planning which actions can be undertaken now and in the future as a response
6. Implementation of actions to counter the adverse effects of the relevant factors
   
   

Putting PESTLE to the metal

Since arriving on the streets of San Francisco in 2009, Uber has attracted huge customer numbers – and more than its fair share of controversy. But what does a PESTLE analysis reveal?

Is PESTLE still relevant?

In our fast-moving world, it is increasingly difficult to anticipate developments that may affect our organisation in the future, so to be effective, the PESTLE process must be repeated on a regular basis. We should also be mindful of two extremes: a tendency for users to either oversimplify the amount of data needed or capture too much data, which may lead to ‘paralysis by analysis’.

The Ansoff Matrix – deciding which products or services to offer, and to which markets

The Ansoff Matrix is a strategic planning tool named after Russian American Igor Ansoff, an applied mathematician and business manager who created the concept in the 1950s.

Why do we need this?

The Ansoff Matrix (or Product/Market Expansion Grid) enables us to map products or services against market needs and geography to help analyse and plan our strategies for growth. It can also help to build our understanding of the associated risks of each strategy.

Blue Ocean Strategy – opening up new market space and creating new demand

Blue Ocean Strategy was first described by Chan Kim and Renée Mauborgne, who coined the terms ‘red ocean’ (to describe the bloody pool of shrinking profit being fought over by many competitors) and ‘blue ocean’ (to describe the clear waters of opportunity, where new businesses might flourish uncontested).

Why do we need this?

The cornerstone of Blue Ocean Strategy is Value Innovation; the idea that by simultaneously driving down our costs and driving up value for our customers, we can open up new and uncontested market space, making the competition irrelevant.

While it can seem there’s nothing new under the sun, think back just 30 years to a time before smartphones, biotechnology, snowboards, coffee bars… and any number of now multi-billion-dollar industries that previously didn’t exist. The potential for new blue oceans is clearly all around us.

Kim and Mauborgne use the example of Cirque du Soleil to show how breaking market boundaries – in this case between the thrills of the circus and the artistic richness of the theatre – can create a blue ocean of new market space.

By appealing to a whole new group of customers – that is, adults – Cirque du Soleil achieved a level of revenue that Barnum & Bailey spent more than 100 years creating. In fact, Cirque du Soleil has made its creator, Guy Laliberte, a billionaire. Of course, this still required a huge leap of faith – and not just from the trapeze. As Laliberte reveals, when he took Cirque du Soleil from Canada to the USA in 1987 for a show at the Los Angeles Arts Festival, it was a high stakes gamble. “I bet everything on that one night,” he says. “If we failed, there was no cash for gas to come home.”

Blue Ocean tools and frameworks

Kim and Mauborgne set out the following guiding principles for developing a blue ocean of our own:

Formulation principles:

• Reconstruct market boundaries
  • The authors have created a “six paths framework” to help organisations remake market boundaries and identify the most compelling “needles” (aka opportunities) in the “haystack of possibilities”.
• Focus on the big picture, not the numbers
  • Here, the authors advocate for drawing a “strategy canvas” rather than a traditional strategic plan to reveal the “big picture” of how to break away from the competition.
• Reach beyond existing demand
  • This includes the interesting idea of looking at not just customers but non-customers too.
    • For example, while the US golf industry fought to win a greater share of existing customers, Callaway Golf created a blue ocean of new demand by asking why sports enthusiasts had not taken up golf. The insight they unearthed – that the small size of the golf club demanded enormous hand-eye coordination to the point where novices became so frustrated they simply gave up – eventually led to Big Bertha; a club with a large head, which went on to spawn a highly successful new product line.
• Get the strategic sequence right
  • Kim and Mauborgne summarise this sequence as buyer utility > price > cost > adoption. That is, starting with the importance of a compelling reason for people to buy, then the acceptability of the price, then the cost required to achieve a healthy profit margin, then addressing any hurdles – or as the authors express it, “educating the fearful” – whether that’s employees and business partners or the general public.
    • They encourage us to think of how Monsanto made the mistake of letting the green lobby take over the debate on genetically modified food. If instead they had foregrounded their ambition to tackle famine and disease the company might have avoided being vilified and instead “ended up as the Intel Inside of food for the future – the provider of the essential technology”.

Execution principles:

• Overcome key organisational hurdles
  • Kim and Mauborgne describe these hurdles as cognitive (waking up employees to the need for a shift), limited resources, motivation and politics (being shot down before you stand up). To succeed, they advocate for “tipping point leadership”, citing the example of the New York City Police Department, which executed a so-called Blue Ocean Strategy in the 1990s to address the seemingly insurmountable problem of high violent crime, poor police morale and resident near-desperation.
    • In just two years, Mayor Bill Bratton succeeded in turning New York into one of the safest cities in the world, using the theory of “broken windows”. This involved tackling the visible signs of crime, anti-social behaviour and civil disorder that affected most people’s experience of daily life, rather than allowing it to proliferate, encouraging further crime and disorder. To make the most of his limited budget, Bratton shifted resources to known hotspots, concentrated on influencing key people and overhauled communication to create a performance culture. He also made the challenge attainable by breaking it into bite-size chunks so no one could say “this challenge is beyond me”. And these are lessons we can all learn from.
• Build execution into strategy
  • Encouraging people out of their comfort zones and into new territory is a job for hearts and minds. To build the “intangible capital” of trust and voluntary commitment, Kim and Mauborgne argue that we must build execution into strategy right from the start. They sum this up neatly in their “three E principles” of Engagement, Explanation and Expectation clarity.
    • As Dwight D. Eisenhower famously said: “Motivation is the art of getting people to do what you want them to do because they want to do it.”

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Is Blue Ocean credible?

At present, there are few success stories of companies that have actively applied Kim and Mauborgne’s theories. One notable exception being Nintendo, which used it in the creation of the Nintendo DS and the Wii, both going on to rank among the biggest selling platforms in history.

However, it has been said that many of the book’s key concepts were previously covered in Competing for the Future, a book by Gary Hamel and C.K. Prahalad, first published in 1996. This advocated for staking out new marketing territory in what the authors called “white space”. Others have also raised the question as to whether Blue Ocean Strategy is simply re-interpreting successful innovations through a different lens – all be it with the benefit of a powerful and memorable metaphor and a shed load of tools.

Rumelt v Johnson and Scholes – evaluating the strategic options we have generated

The esteemed strategist Richard Rumelt sets out four tests of strategic options, while Professors Gerry Johnson and Kevan Scholes describe three similar tests.

The territory covered by both sets of tests is comparable and the two can be considered side by side.

How to assess the Consonance/Suitability of a strategy

Here, we are looking at the logic or rationale which underpins the strategy, to ensure it makes sense and to find any gaps that need to be addressed.

We might ask ourselves:

• Does the strategy create and/or maintain a competitive advantage?
  
  Reach for the Five Forces framework and a SWOT analysis.
  
  
• Does it address the challenges of our internal and external environment?
  
  Remember your PESTLE…
  
  
• Does it enhance the resources and capabilities we have as an organisation? / Does it create or exploit any synergies?
  
  Useful tools for assessing synergy include portfolio matrices, core competence analysis, management styles analysis and the parenting matrix.
  
  
• Is it consistent with our corporate culture?
  
  Consider how the option may be accepted or resisted by those within the organisation.
  
  Don’t forget to communicate. As George Bernard Shaw said: “The single biggest problem in communication is the illusion that it has taken place.”
  
  

How to assess the Consistency/Acceptability of a strategy

Here, we are looking at whether a strategy is likely to meet stakeholder expectations and their anticipated rewards or returns.

We might ask ourselves:

• Are the expected outcomes of the strategy in line with stakeholder expectations?
  
  Stakeholder mapping can be very useful for assessing expectations and likely reactions, and for proactively managing relationships to improve the chances of stakeholders accepting a strategy.
  
  
• Does the strategy look attractive in terms of financial returns and the timescale required?
  
  Organisations often set required rates of return on capital employed (ROCE) for strategic options. Another financial measure we can use to assess acceptability is the payback period: the timescale needed to recover any investment.
  
  
• What risks are involved in following the strategy and how significant are they?
  
  Some individuals and organisations are much more risk-averse than others, so formal risk assessments can help with objective evaluation. Risk management techniques, such as scenario planning and future modelling, can also help organisations to make sound judgements.
  
  If you were Burger King, would you introduce a plant-based burger?
  
  It may be risky, but in August 2019, the launch of the Impossible Whopper saw sales increase by 5% for the quarter compared to the previous year; the biggest increase for Burger King since 2015.
  
  If you were Dove, would you move away from using models in your ads?
  
  It may be risky, but their ‘Real Beauty’ campaign paved the way for advertising using ‘ordinary’ women rather than career models and also resulted in more than 1.5 million visitors to the Campaign for Real Beauty website.
  
  If you were Crumbs Bake Shop, would you diversify from your hugely successful range of cupcakes?
  
  It may be risky to diversify, but with their short-sighted focus on a single, trending product, Crumbs soon discovered that their hefty investment in retail space was unsustainable. What was once a chain of 79 stores quickly became a single online shop and the company has now ceased trading.

When it comes to enrolling stakeholder support, financial measures can be useful, such as a break-even analysis (which determines when the level of profit generated by the option will equal its expenses), projections for the liquidity (short-term financial solvency) and gearing (long-term capital structure) ratios of the organisation.

We can use ‘what if’ or sensitivity analysis to assess the acceptability of risk by building a picture of how possible disruptions would affect the outcome of the strategy. For example, if the success of an option depends on the availability of a particular material, a ‘what if’ analysis can help to identify the potential impact of it becoming unavailable.

How to assess the Feasibility of a strategy

Here, we are looking at whether our organisation has the resources and capabilities to successfully implement the strategy. This should include ‘intangible’ resources, such as the skills and knowledge of employees.

We might ask ourselves:

• Has the organisation got the resources and capabilities to deliver the strategy?
  
  We can conduct an assessment of financial feasibility using cash-flow forecasting (also known as funds flow analysis). This can help to determine the most favourable option(s) in terms of cost.
  
  We can use a resource deployment assessment to determine whether current capabilities meet the requirements of a potential new strategy, or if it calls for the procurement of new staff, new machinery or new suppliers. Where change is needed to sustain competitive advantage, we can use it to measure whether or not these changes are feasible.
  
  
• What gaps must we address in order to ensure success?

How to assess the potential Advantage of a strategy

Here, we are looking at whether the organisation can capture enough of the value it creates.

We might ask ourselves:

• Will the strategy create or maintain a competitive advantage in one or more of these three areas: superior skills, superior resources or superior position?
  
  
• Are these advantages enduring and difficult to duplicate?

The Growth–Share Matrix – deciding which of our businesses to prioritise, and when

The Growth–Share Matrix – also known as the product portfolio matrix, the Boston Box, the BCG-matrix, the Boston matrix, the Boon Consulting Group analysis and a portfolio diagram – was created in 1968 by Boston Consulting Group founder Bruce Henderson. At the height of its success, it was used by around half of all Fortune 500 companies.

Why do we need this?

When our organisation has more than one business, we don’t just need to evaluate and choose from a range of strategic options; we also need to decide which of our businesses to prioritise – and when. This popular tool can help us to do this.

At the core of the matrix is a table, split into four quadrants, each representing a specific combination of relative market share and growth. By assigning each of our businesses to one of these four categories, we can decide where to focus our resources and capital to generate the most value – as well as where to cut our losses.

Is it still relevant?

The Growth-Share Matrix remains relevant, although today’s more dynamic and unpredictable business environment requires us to invest in more question marks, to experiment with them in a quicker and more economical way than our competitors, and to systematically select promising ones to grow into stars. At the same time, we need to be prepared to respond to changes in the marketplace, cashing out stars, retiring cows more quickly and maximising the information value of pets.

This echoes Rita McGrath’s thinking in her book The End of Competitive Advantage, which we touched on in What is strategy?; the idea that in today’s high velocity world, we need to move to a portfolio of advantages that can be built swiftly, exploited simultaneously and, if necessary, quickly abandoned.

In addition, we now see new drivers of competitive advantage, which means the market share axis is no longer sufficient. So, we must also consider other factors when working our way through the quadrants, such as the ability to adapt to – or shape – changing circumstances.

Resource deployment assessment – working out how feasible it is to make desired changes

There’s no point having an amazing strategy if you don’t have the resources or people to deliver on it.

A resource deployment assessment can be used to evaluate how unique resources and/or core competences can be developed to sustain competitive advantage – and to measure whether or not those developments are feasible.

For example, a strategy based on developing new products could depend on production skills, marketing and distribution expertise. So, an assessment of current resources in those areas would help us to see whether this option calls for the procurement of new staff, new machinery, and/or new suppliers and thus whether it is feasible.

In the 20th century, skunkworks projects (small groups focussed on radical innovation) were the hallmark of progressive corporations. However, we are now in an era of innovation by design rather than innovation by exception and the use of skunkworks could indicate that an organisation has failed to master continuous innovation and is therefore at risk of being left behind.

Using these tools

These tools can give the process of strategic planning a useful underpinning framework.

However, we shouldn’t use this as a crutch to lean on but use it as a springboard from which to leap.

We must also pay attention to what’s unfolding in the real world once our plans are put into practice, as history is littered with the fallout of centralised, top-down strategic plans gone bad or blindly followed despite causing mayhem and disaster.

Take Stalin’s series of Five-Year Plans, by way of example. While his strategy to transform the Soviet Union from a poorly controlled, agriculture state into an industrial powerhouse initially met with some success, the human cost was immense. The rapid pace of industrialisation caused huge conflict as new social structures emerged overnight. Unrest was then succeeded by famine with three to four million people dying of starvation or even freezing to death while waiting in line for rations.

Whether building a communist nation or developing a business, life is always much messier than can be captured in a strategic plan, however colourful the chart or compelling the spreadsheet. So yes, do have a good old delve in the toolkit, but remember to keep your eyes and ears open for both the pitfalls and the pathways.

Then, as Mary Poppins might have said: “There’s nowhere to go but up”.