Is the firm’s working plan for achieving its vision, prioritizing objectives, competing successfully, and optimizing financial performance with its business model.
How does a business formulate a business strategy?
Step 1: Build on the vision
Successful strategies build on the founder’s vision for the business. For some firms, the founders write a formal vision statement. Others list the core ideas that give the business substance, shape, and direction. Either way, the vision pictures the essential nature of the business: what it looks like and what it does. Strategy formulation Step 1 lays a foundation for the strategy. Here, the strategy builder re-states several ideas from the founder’s vision for the business.
- Offerings and value proposition.
- Customers and market.
Step 2: Focus on top level objectives
Businesspeople sometimes ask: What is the purpose of the strategy? The answer must name a business objective. The strategy’s reason for being is to explain how the firm achieves specific goals. Strategy formulation continues in Step 2 by naming tangible top-level of business objectives and explaining how to measure progress towards meeting them. The generic business strategy explicitly addresses the firm’s most important goals. As a result, Strategy formulation Step 2 is a matter of specifying the firm’s highest-level objectives.
Step 3: Plan Your Attack and Choose Your Battlefield
For firms in competitive industries, the high-level generic strategy is necessarily a competitive strategy. In most cases, the selected approach results from two choices. The strategy builder must choose:
- Firstly, a plan of attack, which is the general approach for differentiating the firm and its offerings from the competition.
- Secondly, the battlefield, which is the specific market and market focus where competition takes place.
Strategy formulation Step 3 addresses the “How” question: Exactly how does the company achieve objectives? For firms in competitive industries, the question becomes this: Specifically, how does the company win against competitors, create customer demand, and earn, sustain, and grow profits? For these firms, the generic business strategy is a competitive strategy.
Step 4: Reality Check: Does the Model Stand?
The strategy will be ready to “go to market” only after it validates with a quantitative business model. Strategy formulation Step 4 completes the general business strategy by developing the business model inherent in the strategic plan. Here, the challenge is to build a quantitative model, implied by the approach, that is realistic and credible.
Step 5: Build the Strategic Framework
Firms succeed partly because their high-level generic strategies are successful. Generic plans need support, however, from quite a few lower level strategies. Strategy formulation Step 5 completes the strategic framework that supports the general strategic plan. Success with the highest-level strategy is due to the underlying product strategy, branding strategy, and operational strategy, for instance, to name just a few.