Planning a business strategy often begins with a mission statement about a business’s aims in the future. However, if a strategy is too futuristic it may be too abstract for employees. A strategy should motivate your team right now.
It is better to define your mission when your purpose and vision are clear. Spell out why you exist and what you want to achieve and then work out how. You will need to define your company’s objectives and plan how you will achieve these, considering the resources available and the environment in which your business operates.
There are numerous frameworks to assist in formulating a business strategy, such as SWOT and Porter’s five forces analysis, but these will only provide a starting point.
SWOT analysis
SWOT analysis is a traditional planning method that evaluates the strengths, weaknesses, opportunities, and threats of a business. It involves identifying the factors that are favorable and unfavorable to achieve your business objectives.
SWOT analysis will allow you develop a plan of action to focus effort on your strengths and opportunities, and to lessen the impact of weaknesses or threats that could prevent you from achieving your business objectives. For example, you may be able to take advantage of existing relationships with suppliers or your low cost labor location.
Porter’s five forces
The Porter’s five forces model (P5F) looks at the industry structure and analyses it in terms of the state of the competition. Porter’s five forces include – the risk of being replaced by other products or services, the threat from established players, the likelihood of new entrants, and potential shifts in the bargaining power of suppliers and customers.
Porter’s five forces analysis is an important tool for assessing whether new products, services or businesses have the potential to be profitable. It works by identifying how each force affects your business so you can assess your position and work out how to take advantage of your strong points and tackle any weaknesses.
In the automobile industry you can clearly see each of the five forces at play. Tesla represents a new entrant using a new technology (electric cars) to enter the market with a traditional ownership business model. Uber and Google’s self driving cars are the threat of a substitute, which could replace traditional car ownership with on demand transport. Customers and regulatory authorities have huge power to affect profitability as Volkswagen’s recent problems have shown. On the supplier side, software and electronics are largely provided by OEMs (original equipment manufacturers) who can dictate terms to vehicle assemblers for innovative products, such as navigation and communication systems.
7 Strata
Methodology from Scaling Up; Strategy 7 Strata, advocates beginning strategy planning by listing the words you own – what words do you want customers to use when describing your brand? The next consideration is – who and where are your core customers, what are the products and services you are going deliver to them, what is your brand promise and your KPIs?
Whichever methodology you use, it is important to consider: whether you compete on quality, price, delivery timescales or functionality? How do external factors influence your pricing? How will a particular strategy help your business to achieve better economic performance than your competitors’? The aim is to find a strategy that maximizes your price and minimizes costs. We recommend holding strategy reviews quarterly, as this will give you time to reflect on your company and industry news.
Your business strategy must respond to the factors that are most important to your business. The Xerox case study is a great example – it faced competition from new entrants, so to prevent vendors from duplicating its photocopying machines, Xerox focused on a patent protection strategy. Xerox invested in legal teams that wrote lots of patents and pursued infringements aggressively. This strategy effectively blocked new players.
Motivate employees
Traditional manufacturing businesses have focused on unit profitability, however, a better strategy doesn’t simply equal a better gross margin. People based businesses are more complex. For software companies the biggest input cost is typically the cost of employing people. Highly-skilled employees therefore have a lot of power and companies need to keep them happy.
This isn’t just a case of paying staff more. Employees are attracted to companies that pay well but they don’t necessarily become more productive if you pay them more. There are many other factors that will influence performance and motivate your workforce – for example, the ability to work flexible hours, from home, and to take vacations.
In the last couple of years there has been a shift to strategies that relate to the motivation of people. One idea is based on the belief that people are largely motivated by social purpose. They want to work for organizations that are doing something useful for the greater good. Modern theories also highlight the importance of being able to learn on the job and to have autonomy over how you do your job. People don’t want to be treated like robots, but do want a say in how they work.
Conscious capitalism
Conscious capitalism takes this further. While making money is crucial, conscious businesses focus on their purpose beyond profit. Companies need to really reflect on the impact their business has on the environment, people and society. It is important to do something positive.
For a software business, how you treat employees and customers is the most important consideration when formulating a strategy. Be clear on what it is you are trying to do and define your higher purpose both today, and in the future, and use traditional strategy planning tools as a way to implement this. It is also a good idea to use external advisors and industry experts to review and refine your strategy. They will be able to offer valuable insight that could save you time and prevent costly mistakes.
At Vie Carratt we help companies to develop strategies that will prioritize opportunities, solve challenges and focus effort on where they can be most successful. We then put strategies to the test through detailed conversations with industry analysts, who scrutinize plans before they are put into practice.
More often than not, this includes defining a company’s social purpose and how they benefit those around them, beyond profits. We believe that creating value for all stakeholders is a powerful way to motivate your team and impact their performance. It will also attract customers to your business.
Don’t forget to review our introductory article on Scaling Up and the importance of Execution.
Our next article will discuss People – let us know if you have any questions!