Why do companies need strategies?
Strategies specify sensible ways to achieve goals with which companies can be successful. So before strategies are developed, appropriate goals must first be formulated towards which strategies can be directed. Strategies are used to make decisions for certain courses of action and against other possible courses of action. In this way, activities in companies can be focussed and at the same time the effort can be limited. Strategies therefore help companies to work more effectively and efficiently.
When do you develop a strategy?
Strategies are usually developed after a coherent "text"-Argument fehlt! has been defined. The aim of the strategy is to make the business model successful with the target customers in the existing competitive environment. Strategic work helps to focus on the potential for success. So consider strategy making as a process to find and define a suitable path to your goal.
While in the past the strategy process preceded the implementation phase, today it is appropriate to interweave the strategy process and implementation process. This has two advantages: With implementation, you first notice whether the strategy is effective. While you are implementing, you readjust the strategic line on the basis of the experience gained. This makes it clear that strategies in changing markets need to be constantly honed and adapted to changing environments in order to be effective. While the Vision gives your organisation orientation for a longer period of time, there is nothing reprehensible in repeatedly re-sharpening strategies against the background of the vision and the business model or in completely revising them cyclically.
The (dynamic) complexity leads to increasing forecast uncertainty and shorter planning cycles. The perception of changing framework conditions for the current business requires great attentiveness. Strategies must be continuously adapted in an agile manner. This ongoing comparison between strategy and the reaction of the environment, the handling of strategies, decisions for or against strategies, their implementation and control are strategic management.
What methods are there for strategy development?
Strategy development begins with decisions for a concrete orientation of the business activity. Based on the goals, the strategy can consist of positioning oneself as a price leader, a technology leader, a service leader, an innovation leader or a premium provider, for example. It is hardly possible to implement all qualities at the same time. Both the activities within the company and the business perceived in the market would lose focus.
A distinction is made between resource-based, market-based and competition-based approaches to strategy development. In resource-based approaches, the special capabilities of the company are taken as the starting point. Market-based approaches use the needs of the target customers as a basis. Competition-based approaches attempt to differentiate effectively from competitors’ offerings. In practice, a combined strategic approach will be most effective.
Once the strategic orientation has been decided, all activities must be guided by this orientation.
What types of strategies are there?
When it comes to forming strategies, first be clear whether you want to be Shaper or Adaptor. As a shaper you shape markets, as an adaptor you align your business with given markets. A decision for a shaper positioning requires a strong market position. There are good reasons for both orientations, and companies can be successful with both orientations.
But deciding on a strategy is not the end of the story. Strategies will only become effective when they really “arrive” in the organisation. For this to happen, the strategy must have an impact in all areas of the organisation. Depending on the size of the organisation, this is a demanding task that requires an ongoing communication effort that should not be underestimated.
A group strategy must be reflected in the strategies of business units; and these strategies must in turn be reflected in the strategies of the companies and locations located within the group. In addition, functional strategies, such as a procurement strategy, a marketing strategy, a sales strategy, an HR strategy and a manufacturing strategy, must be derived consistently from the group strategy, the business unit strategy and, where appropriate, the site strategy. Otherwise there will be tensions that lead to frictional losses.
In matrix organisations, functional strategies will prevail across all locations within a business unit. For example, a sales strategy will be developed for the business unit that will affect all companies and locations in the business unit. Sales success, manufacturing success, logistics success, etc. then indirectly determine the success of the individual companies and locations. In line organisations, the company and location strategies will take precedence. Functional strategies, for example the sales strategy, are more likely to be decided at the locations, which have overall responsibility for the company’s or location’s results and see them in the foreground.
How do you implement strategies effectively?
Strategies always take place in a market context. In markets, all information is rarely available. In particular, information about the possibilities of action of other market participants (“players”) can often only be assumed through observation and with probabilities. In order to arrive at reasonable strategic decisions, game-theoretical models can be usefully employed.
You can ensure the seamless strategic connection of your company to current and future customer expectations through an ongoing corporate foresight process. In a corporate foresight process, scenarios are created and given their probabilities of occurrence. Then you look at what impact the occurrence of each of these scenarios would likely have on your own business and organisation. The last step is to work out measures that can minimise the risks and increase the opportunities and implement them in the company.
A Balance Scorecard can help with the seamless transition from target systems to strategies to implementation. A balanced scorecard can systematically ensure that social aspects, sustainability and social responsibility are taken into account in addition to immediate financial aspects.
The Hoshin Kanri concept is suitable for harmonising work on strategic goals with short-term goals from day-to-day business. Operational goals to be derived from this can be agreed with the SMART principle.
All strategies must be developed, well aligned, explicitly documented and communicated throughout the organisation. A strategy document that sits in a folder is of no use to the organisation. For strategies to be effective, it is essential to illustrate to each employee why the particular strategy has been chosen and what the strategy means to them in their workplace. The more concretely it is broken down which activity contributes in what way to the pursuit of the strategy, the more effective the strategy is for the company.