Business Definition
Design of strategy begins by setting the boundaries for strategic thinking. If you are operating with unclear or outmoded assumptions or a lack of consensus about how you define your business, you may inadvertently create uncertainty and ambiguity, particularly when it comes to understanding the market. Without consensus, it becomes difficult to answer such key strategic questions as:
- How might you segment your market to gain competitive advantage?
- What value propositions can you provide to targeted segments?
Defining your business requires you to make strategic choices. These choices do not need to be made frequently but they can aid you in establishing the context in which you should conduct your strategic thinking. If your business is defined too broadly, it is difficult to identify customer segments with similar needs and buying patterns. On the other hand, if you define your business too narrowly, you may miss important changes in your markets. Fundamental changes in markets—inflection points—happen infrequently and are difficult to discern, even in hindsight. Through Business Definition, you employ a form of 'radar' that helps you to identify such changes.
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Planning Assumptions
Markets change continuously, creating both new opportunities and challenges. To realize your goals, you must understand the macro-environmental trends and changes that will influence your business. You must also commit consciously to a set of assumptions about these changes so that you both understand and are prepared to act on what you foresee.
In designing strategy, it is important both to develop insights into what has happened in the past and to project what may happen in the future. Many organizations, caught up in the rush of day-to-day events, find it difficult to capture such views with precision and clarity. But, however imperfectly understood, such views do develop and can operate as the foundation of strategy. These unstated assumptions—often in conflict, and rarely questioned—can limit strategic choices and cloud market opportunities.
Thus it is important, in designing strategy, to 'get inside' the assumptions that govern how the organization behaves, and to make them a conscious and constructive part of planning and opportunity identification.
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Customer Value Analysis
Understanding what customers need and want goes to the heart of the marketing discipline. This knowledge and insight into customers is essential for developing a needs-based segmentation approach, which in turn allows you to target customers with carefully designed value propositions.
Obtaining information about customers' needs and wants is not as easy as it might first appear. Customers often don't know what they need, may find it difficult to articulate their needs, may sometimes be unwilling to admit to them and occasionally cannot readily differentiate between what they need and what they want. Customers are often unaware of the potential ways in which they can satisfy needs and wants and may not know what other options might satisfy their requirements.
There are many ways in which you can gather information about customers—surveys, interviews, satisfaction surveys, questionnaires, focus groups, observation, anecdotes and secondary sources are some examples. Organizations often have a wealth of information about customers, but find it difficult to develop insight. Customer Value Analysis is often the source of inspiration that leads to insight into true needs and wants of customers.
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Value Chain Analysis
To achieve a deep understanding of a business—yours, your customer's, your distributor's, or your competitor's—you must dig under the surface. To develop such insights, it is helpful to disaggregate the business into its constituent activities, which can then be analyzed. Every business performs several discrete but interrelated activities to deliver products and services to customers. Such activities can include, for example, marketing, sales, product development, manufacturing, distribution and procurement.
Value Chain Analysis provides a systematic method for displaying and analyzing all of the activities performed by a business for the purpose of documenting how they interact and add value. It can be used to understand the basis of a firm's competitive advantage and to determine how a firm makes money. Assessing your own firm's value chain can also help you determine how best to allocate resources. Identifying a competitor's value chain can help you better understand the competitor's strengths and weaknesses. An analysis of your distributor's value chain may give you additional insight into their business model. Finally, by investigating your customer's value chain, you gain a better understanding of your possible roles in adding value to their business.
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Key Success Factors
Key Success Factors are skills or assets that any organization—you or your competitors—need to compete successfully. Winning organizations are usually strong in several key success factors and weak in few or none. The building blocks required to formulate strategy—how to segment, which segments to target, in what way to position in a given segment, what value propositions to offer—will provide a more solid foundation when they are anchored in the reality of the marketplace. By understanding key success factors, you create a means for ensuring that marketplace realities are properly taken into account. You can find potential key success factors in a variety of places. Some sources to consider include:
- location relative to customers, suppliers and distribution resources
- functional expertise
- access to raw materials and other 'ingredients' required to create products and services
- networks of vendors, distributors and customers
- access to proprietary technology and the ability to apply it
- the know-how and experience of people
- financial resources
- relationships with various constituencies
- reputation, brand identity and image
By understanding the key success factors required for a given market, you can make sounder judgments about where to invest in creating the capabilities you need to compete successfully—and where to avoid investing when it is unlikely that you will be able to perform successfully, regardless of how attractive the markets may be.
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Competitor Analysis
Strategic planning literature is replete with examples of companies—even whole industries—that have ignored or failed to understand their competition. Sometimes they have lacked the skills or information to adequately analyze competitors. In other instances, they have simply not given adequate attention to the potential impact of competitors. Identifying and understanding competitors, and taking into account their potential moves, is one of the most important elements of situation analysis.
There is often a tendency to gather, organize and display volumes of descriptive data about competitors. While comparisons of products, strategies, markets, costs, are potentially valuable, frequently these data are not actionable because they are not analyzed for the 'gems' of competitive insight that they may contain. Through Competitor Analysis, you capture relevant descriptive information about current and potential competitors and then synthesize what you obtain into useful insights on which you can act strategically.
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Segmentation
It is widely accepted that outwardly-focused organizations are more successful at designing and executing strategy. They are in touch with the needs and wants of customers and do a better job of matching what they offer to these needs and wants. Recognizing the pitfalls of trying to be 'all things to all people,' such organizations make choices about which customers to serve and what value propositions to offer. To make such decisions requires that they have both a clear understanding of the market environment, past, present and future, and a means of organizing the market into natural groupings based on differences in customer needs and wants.
Segmentation involves organizing a market into groups of customers and prospects who have similar needs and / or characteristics and who, as a result, may tend to make similar decisions about the purchase and use of a given product or service. The outcome of the segmentation process is a description of the market that provides you with a clearly defined and readily understood way of delineating customers according to their preferences. When completed, the description enables you to make decisions about which segments deserve your focus and which you should ignore, based on what customers need and how well you can satisfy those needs.
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Summary and Conclusions
Design of strategy can be flawed if foundational analysis fails to include sufficient reflection about circumstances and the drawing of insightful conclusions. As difficult as it is sometimes is to marshal the facts and data, it is even more challenging to understand what the facts and data mean, and to determine how they influence decisions about the formulation of strategy.
To complete the foundational portion of the Strategic Planning Process, it is important to articulate and record the insights that have come from your analysis in a concise and compelling manner. In particular, the summary and conclusions should answer these questions:
- How should we define our business for the future?
- In what way is the external business environment evolving and how will these changes affect us?
- What size is the overall market? In what way is it changing? How much and what parts of the market should we attempt to reach?
- Who are our customers, current and potential? In what way are their needs, wants and preferences changing?
- Against whom do we compete? What will it take for us to win in the marketplace?
- What opportunities lie in front of us? What challenges do we face?
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Targeting
Targeting involves choosing 'where to play.' The willingness and ability to make such choices is an important attribute of successful companies. Targeting is important because not all customers are equally attractive to a business. Businesses typically do not have sufficient resources and capabilities to compete effectively in every market segment. Focusing on those customer groups that are both attractive and that you are well-equipped to serve lies at the heart of the marketing discipline. By making targeting decisions, you can avoid dissipating scarce and finite resources on unprofitable customers or on market forays that you are ill-equipped and ill-prepared to undertake.
The strategic choices implied by targeting decisions often require a sustained commitment of effort in order to obtain a long-term effect. As such, they need to be taken deliberately, with the intention of seeing them through over the longer term.
After determining segment attractiveness and making choices among segments, there are also choices to be made with regard to the overall approach you will take to the market, and the objectives that you will establish within each segment.
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Positioning
Once you have determined how you can best segment your market and have selected the segments that are going to command your attention and resources, you are confronted with a series of decisions about each of your targeted segments, one of which is your decision about positioning. Your opportunity to win segment customers is dependent in a major way on your ability to establish distinctive positioning: how you are perceived by the customer in a way that is meaningful to the customer and contrasted with other forms of competition—actual and potential, direct and indirect—that contend for the customer's attention and action.
Positioning plays a central role in determining how you are going to 'capture and keep' customers and anticipates the important role of the value proposition, the means by which you will organize and align your resources to deliver the value you intend to provide to segment customers.
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Value Proposition
Where positioning helps you focus on how you wish to be perceived by the customer, the value proposition reverses the field of vision to look inward. Your positioning is intended to occupy a meaningful and distinctive place in the customer's mind relative to your competitors. The customer must also find your positioning believable. The value proposition provides you with a means for ensuring that all of your organization's resources are properly applied and aligned to deliver the 'promise' of positioning.
The value proposition is to your organization what the positioning statement is to your customer. It helps you organize and align your resources to deliver your intended value to segment customers, in fulfillment of your preferred positioning.
The value proposition acts as a set of guidelines for internal use. It is not intended to be a communication to your customer; rather, it provides essential internal direction for ensuring that each function is prepared and able to play its role in implementing strategy within a given market segment. The value proposition also helps each function build the internal linkages needed to ensure seamless, superior execution of what you offer to your customers.
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Implementation
Elegant and insightful strategies are worth little if they cannot be implemented successfully. To determine what resources and investment you will require, and to build a business case for your intended strategy, it is necessary for you to prepare a high-level implementation plan. A workable implementation plan addresses all of the important elements of your strategy and identifies key roles for and responsibilities of each part of the organization. Once you have made the decision to proceed with your strategy, the implementation plan provides the guidelines for moving forward into operational execution.
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