The corporate strategy describes the ways that a firm plans and reaches long-term objectives, and it results from a long process of evaluation and choosing appropriate ways forward. A successful strategy derives from strategic thinking that is led by a group of professionals and comprises many innovative ideas and efficient ways to reach milestones. In this article, I want to highlight the main steps involved in strategic thinking and creating a corporate strategy.
Be aware of the reasons for creating a strategy
Thinking forward can be a challenge, as any enterprise may end up having many directions to achieve the same set of goals. This situation may get even much worse if it is involved in some expensive resources and financial burdens. For these reasons, strategic thinking is the right choice to reduce ambiguity, mitigate risks and make effective decisions forward. Yet, strategic thinking becomes more valuable, if it is aligned with specific drivers to articulate a corporate strategy. Firms may create a strategy to increase the profit, grow market shares and sales or survive. Whatever the reasons, strategy thinking provides the basis to identify the strategic direction, positioning and action plan to reach the milestones.
Start by evaluating the internal situation
This is studying the enterprise’s situation to identify strengths, weaknesses, opportunities and threats. It also leads to identifying the competitive advantages of a firm to stand out in the crowd. These findings provide the basis to decide on the strategic direction, positioning, objectives, initiatives and action plan of the firm. Firms conduct the SWOT analysis to evaluate their financial and non-financial performances. The financial analysis includes the balance sheet, income statement, cash flow and investments, whilst the non-financial analysis comprises sales and marketing, operation and human resources.
The balance-sheet evaluation checks the liquidity and net worth of a firm, and the income statement shows profitability. And the cash-flow analysis describes the surpluses and deficits of cash flow over a particular term. Firms also use ratios analysis to evaluate their financial performances, including liquidity, profitability, solvency and efficiency ratios.
In investment appraisal, firms evaluate the performance of their investments by calculating the payback period, the internal rate of return and the net present value.
While the non-financial analysis includes assessing the marketing, operational and human performances of a firm toward a set of metrics and objectives. The importance of such analysis identifies the core competencies, level of productivity and efficiency, sales and growth and staff capabilities.
Then, evaluate the external environment
Firms usually use the PESTLE tool to study the external situation. PESTLE stands for political, economic, social, technology, legal and environment. Such analysis provides vital information about opportunities and threats that may incur because of any reforms of external factors.
For the political and legal change, it includes studying any changes that have occurred or may occur to the political environment and legislation affecting business activities. Firms need to check these changes and how they influence the performance of their business. For example, in the UK, studying the business-related acts and agreements, including anti-competitive agreements, merged control, fair trading act, competition act of 1998, enterprise act of 2002 and employment act of 2008.
For an economic change, it involves studying any economic reforms and their influence on business performance. It includes GDP, taxation, exchange rates, inflation, fiscal and monetary policy and trade.
Social change involves studying social reforms and their influence on business performance. It includes urbanization, migration, consumer lifestyle, buying behaviour or the growth of the online business.
The environmental change involves studying ecological changes and their influence on business performance. It includes how a business deals with environmental changes and green issues which include protecting the environment and conserving natural resources. People are increasingly aware of these issues, and firms should avoid any harm to the environment.
Crafting mission and vision
This is creating the mission and vision of the firm. The mission defines what the firm does, where and how it operates, who its target customers are, and why it exists. The vision is a long-term dream that a business aspires to, and the vision statement inspires and aligns employees towards realizing it.
Choosing a strategic direction
The strategic direction of a firm reflects which markets to compete in, what products to offer, and how to operate. The strategic direction is a peripheral of setting up a strategy and illustrates ways to reach corporate objectives. A firm determines its strategic direction to achieve many objectives such as allowing the focus of staff, matching the desires of customers, standing out of the crowd in the market or improving the investment opportunities for the firm.
The strategic direction identifies ways forward, and it results from the evaluation of internal and external situations. Internal strengths such as profitability, cash flows, sales or productivity, influence the strategic direction of a firm. Competitive advantages are the key internal influences of how a firm operates, sells and makes money and comprise any superior assets that enable a firm to outperform its rivals. While external influences are factors that arise because of any changes made or expected in the political, legal, economic, social, environmental and technological conditions. Firms have many strategic choices to go forward depending on the business. For example, a business firm may have the choices of product development, market development or diversity, while the social enterprise may have to choose the best philanthropic choice forward.
Strategic positioning- determining how to compete
Strategic positioning is how a group of customers view the firm’s offer in comparison with competitors. Strategic positioning can be for the firm and product and aims at creating an iconic image in the eyes of customers and investors and differentiating its product offer to meet the needs of customers. A firm can determine its strategic positioning through its chosen strategic direction, competitive advantages and the activities to achieve it. Michael Porter in his work on generic strategies, the strategic positioning options of a firm can include low cost, differentiation or niche focusing. The low-cost leadership is a strategic option whereby a firm produces and sell cheaper products and a differentiation option when a firm produces and sell differentiated products or offers. While niche leadership is a strategic option whereby a firm concentrates on a narrow subset of the target market. This strategy can offer a focus market mix that most suits the customer segment.
Setting up strategic objectives
This is defining strategic goals that the firm plans to achieve by the end of the planned strategy’s duration. Objectives must be SMART, which means specific, measurable, attainable, realistic and achievable within the time limit. Strategic objectives cover the firm’s business activities, including sales and marketing, operations, finance and human resources.
This involves deciding on the most suitable way or approach to delivering the objectives. For example, the strategies to grow sales by 20% would entail investing in promotion, growing customers, market penetration, product development or market development through diversification.
Preparing an action plan
An action plan describes the short-term targets, activities, timelines and resources needed to conduct operations and usually answers specific questions about what, how, who and when to do activities. It typically covers a one-year term and focuses on breaking down strategic deliverables into particular tasks and targets.
This involves estimating the resources required to carry out the activities in the strategy, namely people, capital, assets and intangible assets. Firms allocate sufficient resources to execute the identified action plan effectively.
Setting key performance indicators- KPIs
This involves establishing industry benchmarks to check the performance of the strategy. These benchmarks are standards or points of reference acceptable by industry and are used to compare achievements against targets set in an action plan and to set threshold levels of success to monitor progress.
Monitoring and control
This is the system of measuring and checking the performance of the strategy. Monitoring means measuring performance while controlling refers to the evaluation of the performance against strategic milestones. Firms must put a system in place to monitor and control strategy, including details about the duties of staff in charge of reporting and evaluation.
This article is extracted from my new book- Mastering Enterprise Skills for Potential Entrepreneurs, which can be found on www.amazon.co.uk. If you want to receive more information about the book and our activities, you can register in our newsletter by using this link.
Prepared by Munther Al Dawood
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