A method to define a strategy
When working with our clients we often revolve around the following notions in order to define their strategy. It is important to note that these are not sequential, they rather occur iteratively.
- Market segmentation
- Environment analysis
- Resource analysis
- Strategy formulation
The sections below give an overview of each of these elements with some hints concerning the methods which can be used.
The following activities can help determining a segmentation:
- Formulate the institutional strategy: this will provide an initial frame and scope for the reflection
- Synthesise current activities: organise these following pertinent criteria. This will provide a basis for the segmentation
- Determine potential new activities: this will help refine and extend the initial segmentation
- Suggest a segmentation: analyse and iterate over the available elements and determine segmentation criteria (Key Success Factors, ...)
This segmentation will help:
- Identifying of competitors' profiles: indeed, for each segment, a competitor search can be done. This in turn might impact on the segmentation and require its update
- Elaborating business strategies (one by segment). This implies that a given strategy must be applicable globally to all the elements of the segment
Porter's five force model is a good place to start this work. One of the main goals of this activity is to determine opportunities and threats. The five forces are:
- Competitors: these are the firms who already act in the market and with whom you compete for clients
- Potential competitors: these are firms who aren't currently in the market but who have reasonable chances of entering (for example GSM firms entering the camera market)
- Clients: these are the people to whom the competitors in the market try to sell their products or services
- Suppliers: suppliers provide input to the value chain which is usually common to all the competitors in the market
- Substitutes: a substitute is a product or service which could replace the ones currently offered in the market (TV could have been a substitute for radio)
There are many other elements of the environment which should be taken into account. For example, two important ones are the technological environment and the socio-economico-politico environment.
A central goal of this activity is to analyse the available resources in order to determine strengths and weaknesses. The following methods can help doing this:
- Stevenson's canvas: take generic aspects (R&D capacities, employee implication, processes, incentives, ...) of the firm and affect notes to each to determine strengths and weaknesses.
- Study the experience and scale curves: this two elements can be either advantages or not depending on the market's 'standards'
- Value chain analysis: study the value chain to identify when and where real value is created in order to find core activities
These are orientations for the analysis and many other elements can also be taken into account for this task.
Hamermesh identifies 3 levels of strategy which need to be clearly specified as part of the formulation work.
The first is the institutional strategy. This strategy states the overall vision, goals, objectives, values, etc of the firm. It should also outline some means for achieving these.
The second is the directing strategy. This strategy determines in which activities the firm should try to compete.
The third is the business strategy. This strategy determines for each activity how the firm should obtain competitive advantage.