From our previous article on strategic management, we now follow-up on how your business can formulate a workable strategy to truly get ahead of the competition.
The Strategic Management process has three main stages; Strategy Formulation, Strategy Implementation and then Strategy Evaluation.
Strategy formulation is the first step in strategic management and must be handled well to achieve the benefits of strategic management. Strategy formulation is an action plan that identifies the organisation’s long-term direction and guides resource utilisation to achieve its goals.
Starting off by sharing experiences; I have two friends that have successfully made it in business using different approaches to doing business. One, we can call Charles from a very humble background with modest formal education, has been in business for now two decades trading in cattle for slaughter. He started as a casual labourer and helped traders to load cattle from people’s farms onto truck to Kampala. Because of his superb performance and attitude, he got a better offer as a turn-boy on one of those trucks that ferried livestock from the rural western Uganda to Kampala. He started saving his hard-earned cash until he was able to buy one goat and sold it in Kampala at a premium price earning him a decent profit. He did this over and over as he increased his volume and frequency. Today he loads of twenty five (25) cows twice or thrice a week in the high season and fifteen (15) cows twice a week in the low season earning him millions of shillings in net profit on a weekly basis.
My other friend is Peter, a qualified civil engineer. He got a well-paying job with one of the leading construction firms after university about 10 years ago. On a thorough thought of what he wanted to do in future, he decided he wanted to run his own business in his area of interest and expertise. Due to limited competencies in the areas of business management, he commissioned an independent business consultant to carry-out a feasibility study for a pre-mix concrete business that turned out positive. He then developed a business plan and he was operational in the next 18 months. He has since quit his job and his business is growing.
The two approaches by Charles and Peter are a common thing that we witness very so-often. They show two complete ways of planning and operating a business both leading to success. Management scholars have thus come up with two different schools of thought regarding strategy formulation. Some urge that “strategies come about as a result of careful deliberation typically associated with top management decisions” while other say that “strategies do not develop on the basis of some grand plan but tend to emerge in organizations over time”.
Whether Peter or Charles, it will be evident that they undertook the same stages while formulating their strategies. The differences lie in the levels of clarity, documentation and communication among others. Therefore strategy formulation is characterised by five (5) stages which when do well, will yield a good strategy for your business. These are;
1. Knowing the true purpose of the organisation and what you would like to achieve in future.
This is involved in the Vision and Mission statements. The vision of any organisation is just an answer to “what do we want to become?” while the mission is the purpose of its being. For example, according to Peter, he wanted to apply his skills in a private practice. He then had to establish a business in the building and construction industry.
2. Understanding the organisation’s environment.
This shall take into consideration both the internal and external environment. Internally, a business must know its strengths and weaknesses while externally, it must know the opportunities and threats. Taking a look at Charles, he was aware of the market gaps, the price advantage in Kampala and the experience he had gained while working with the traders. It was therefore prudent for him to engage in the trade of livestock.
3. Establish your goals and objectives.
The objectives need to be SMART (Specific, Measureable, Achievable, Realistic and Time bound) and must be derived from the organisation’s broad goals. These goals and objectives must be in sync with the organisation’s Vision and Mission. For example, for a firm with a vision of becoming a market leader in its industry must set objectives like growing its market share and product diversification in a specific planning period, as opposed to instituting lean operations and focusing on specific products and markets. Think of Citi Bank and Centenary Bank in Uganda.
4. Develop different strategy options.
Given the organisation’s understanding of the environment and after setting its goals and objectives, different strategies can then be developed to assess how they can be used to enable organisation achieve its Vision and Mission. Strategies may range from Market penetration, horizontal or vertical integration, mergers and acquisitions, joint ventures and many others.
5. Selecting a particular strategy.
Whereas the business may have different options, it must select the most appropriate strategy for its business. All organisations are different in a number of ways and no one strategy will be appropriate for all. Different organisations must analyse the information from the above four stages and establish what works for them as opposed to copying others that may be in the same industry or others.
When you have now established a strategy for your business, all is not done with strategy formulation. When it comes to implementation, things may not go as planned. This may be due to both factors within or outside your control. In reaction to the unforeseen factors affecting your business, unplanned responses to the situation will lead to what we call Emergent Strategies. These strategies are developed progressively over time in the streams of decisions that managers make as they learn from and respond to work situations.
The next article on our blog shall be practical tips on strategy implementation.