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:
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:
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.
We become vulnerable when hitherto unavailable options are brought to the market and, whether purposefully or incidentally, muscle in on our territory.
We become vulnerable when buyers can shop around quickly and easily to find a better deal.
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.
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.
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.
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:
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:
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?
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 is a strategic planning tool named after Russian American Igor Ansoff, an applied mathematician and business manager who created the concept in the 1950s.
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 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).
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.”
Kim and Mauborgne set out the following guiding principles for developing a blue ocean of our own:
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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.
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.
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:
Here, we are looking at whether a strategy is likely to meet stakeholder expectations and their anticipated rewards or returns.
We might ask ourselves:
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.
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:
Here, we are looking at whether the organisation can capture enough of the value it creates.
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.
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.
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.
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.
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”.