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Complete Guide to Business
Strategy Design
Context
A business strategy specifies what an organisation wants to achieve,
where and how it should compete and how the strategy can be delivered
Business Strategy Development – Issue Tree
Key Question

Issue

1. What does the
organisation want to
achieve?

2. Where should the
organisation compete?

Sub-Issues
• What is the organisation‟s vision and mission?
• What are the organisation‟s long term goals?
• What values does the organisation stand for?

• What is the structure of the industry in which the organisation
competes?
• In which markets / segments can the organisation compete?
• Which markets are the most attractive?

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organisation‟s
business strategy?

3. How can the
organisation effectively
compete?

4. How can the strategy
be delivered?

• What are best practice strategies for competing?
• What are the most economically sensible options to compete in the
chosen markets?
• What is the likely competitor response to these options?
• Who are the key stakeholders and are they supportive of the overall
strategy?
• What are the strategic initiatives underpinning the overall strategy?
• What projects are required to deliver each initiative?
• What is the timeline, target and accountability measure for each
project?

1
Context
There are typically 12 elements in business strategy formulation – checking the
health of each element gives a good audit of the business strategy
Business Strategy - Elements
1. Corporate
Goals

2. Situation
Diagnosis

1.1 Agree Mission /
Vision / Values

1.2 Set 3-5 Year
Goals

1.3
Communicat
e Goals

What do we
want to
achieve?

2.1 Define Market /
Segment

2.2 Assess
Segment
Attractivenes
s

2.3 Assess
Segment
Competitive
Position

Where to
compete?

3.1 Review
Competitive Options

3.2. Make
Strategy
Choices

3.3. Document
Strategy

How to
compete?

4.1 Ensure
Communication /
Buy-in

4.2. Assign
Initiatives &
Projects

4.3. Set Targets
& Monitor
Progress

How to
deliver?

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3. Strategy
Levers

4. Action Plan

2
1. Corporate Goals
Developing an organisation‟s mission, vision and values and identifying
key stakeholders are required when setting corporate goals
Corporate Goals – Issue Tree
Key Question

Issue

Sub-Issues

1. What is the
organisation‟s
mission?

• What is the overriding purpose of the organisation as a whole?
• What is its „reason for being‟?

2. What values does the
organisation
represent?

• What should every employee of the organisation value and
represent?
• What distinguishes the organisation from others?

3. What is the
organisation‟s longterm vision and goals?

• What does the organisation want to achieve in the next 10 years?
(vision)
• What specific goals does the organisation want to achieve in the next
3 – 5 years? (financial, customers, employees, community goals)

4. Who are the
organisation‟s key
stakeholders?

• What are the main groups of stakeholders? (eg customers,
employees, suppliers)
• What is the most practical and effective method of communicating to
each stakeholder group?

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organisation want
to achieve?

3
1.1

1.2

1.3

2.1

1. Corporate Goals

2.2

2.3

3.1

3.2

3.3

4.1

4.2

4.3

The mission, vision and values of an organisation have different time horizons
1.1 Agree Mission, Vision & Values

What is it?
Mission

Vision

The overarching purpose an organisation
- Will never be outgrown
The future the organisation aims to deliver
- Achievable in a CEO‟s time horizon

Time Horizon

Examples
3M: "To solve unsolved problems innovatively"

Indefinite
Walt Disney: "To make people happy."
10 years
(goals are typically 35 years)

Wal-Mart (1990): ”Become a $125 billion company by
the year 2000"
Honda: "We will crush, squash, and slaughter

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Values
Walt Disney:
behaviour

Day-to-day

• No cynicism
• Nurturing and promulgation of "wholesome
American values"
• Creativity, dreams and imagination
• Fanatical attention to consistency and detail
• Preservation and control of the Disney "magic"

4
1.1

1.2

1.3

2.1

1. Corporate Goals

2.2

2.3

3.1

3.2

3.3

4.1

4.2

4.3

Different methods of communication may be required for each stakeholder group
1.3 Communicate Goals – Sample High Level Communication Plan

Stakeholder
Group / Level

Business
Sponsorship

Business
Sponsor

Mode of
Communication

ILLUSTRATIVE

Frequency

GMD Level

Person A

GMD Email

Quarterly

Person B

Group Wide

Division Email

Monthly

Division Level

MD Level

Person C

BU Level

BU Leads

Person F

„Town For further One per and
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full D
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BU-specific presentation
Person E

Internal

Newsletter

Weekly

Flyer

Approx X

Website article

Updated as required

Website announcement

As needed

Analyst Briefing

As needed

Person G
Customers

GMD Level

Person A

Shareholders

GMD Level

Person A

External

5
2. Situation Diagnosis
Understanding the market and the organisation‟s current competitive
position will influence the decision on where to compete
Situation Diagnosis – Issue Tree
Key Question

Issue

Sub-Issues

1. In which market(s)
does the organisation
compete?

• Which markets does the organisation compete in?
• How has the organisation‟s involvement changed over time? (e.g.
duration of participation, markets entered / exited)

2. How has the
organisation
performed?

• How has the organisation performed? (current and historical)
– Financial
– Customer
– Product

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to compete?

3. What are the key
market characteristics?

4. What is the
organisation‟s
competitive position?

• What are the key characteristics of the market(s)?
– Segments / profit pools within the market
– Customer profile
• What is the attractiveness of the market? (by segment)
– Size, growth, profitability
– Industry structure
– Risk / volatility

• Who are the key players in the market(s)? (number, share,
performance)
• How has the organisation‟s position changed over time?
• What are the organisation‟s competitive advantages? (assets /
capabilities / competencies that can be leveraged, brand strength, etc)

6
1.1

1.2

1.3

2.1

2. Situation Diagnosis

2.2

2.3

3.1

The Situation Diagnosis phase seeks to develop understanding of the
profit impact of segment attractiveness and competitive position

3.2

3.3

4.1

4.2

4.3

Situation Diagnosis – Key Questions
1. What are our returns
from each segment?

High

Segment Attractiveness
Strong/
Attractive

2. How attractive is the profit
potential of the segment
vs. others?

3. What are the basis for
economic advantages over
competitors and how do we
rate?

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• Growth - customer
needs, substitutes
•
DP,
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technology,
• Returns - customer price
sensitive, competitor
concentration and rivalry

manning

Moderate/
Unattractive

• Quality… on-time
delivery service

Low
Weak

Strong
Our Competitive Position

7
1.1

1.2

1.3

2.1

2. Situation Diagnosis

2.2

2.3

3.1

The output from the measurement of profitability by segment should
show differences in the overall magnitude of returns…
2.1 Define Market / Segment – Returns by Segment

5

6

4.3

7

Contribution on Selected Assets
% p.a.

Unallocated
Costs
A

B

Total EBIT = $15m

C

35

20

3.3

4.2

EXAMPLE

Contribution
$m p.a.

Average

3.2

4.1

(3)

20

Total ROA
= 15%

Selected Assets
$m

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30
20
A

B

C
10

Total Assets = $100m

Segments
A

B

C

Unallocated
Assets

8
1.1

1.2

2.1

2. Situation Diagnosis – Segment Attractiveness

2.2

1.3
2.3

3.1

The situation diagnosis involves an assessment of the underlying
attractiveness of each segment relative to others

3.2

3.3

4.1

4.2

4.3

2.2 Assess Segment Attractiveness

A. Estimate current segment size and
past growth

B. Explain current profit by segment
in terms of underlying attractiveness

C. Estimate future growth and trends
in segment attractiveness

• Current size by segment: volume and
revenue
• Past demand growth rate by segment
over a number of years
• Identify key drivers of demand by
segment, e.g. population growth vs.
per caps

• Strength of basis for advantage
– Cost advantage
– Differentiation advantages
• Height of entry barriers
• Competitive intensity / level of rivalry /
industry structure
• Pressure from substitutes
• Bargaining power of buyers /
suppliers
• Profitability
• Risk / volatility

• Future demand growth: changes in
drivers of growth, customer needs,
substitutes
• Future growth in supply capacity: ours
vs. competitor plans
• Other trends in segment profitability:
changes in drivers of attractiveness

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9
1.1

1.2

2.1

2. Situation Diagnosis

2.2

1.3
2.3

3.1

Each segment should be contrasted in terms of the factors driving
underlying attractiveness

3.2

3.3

4.1

4.2

4.3

2.2 Assess Segment Attractiveness – Impact of Segment Characteristics (1 of 2)

Segment Characteristic

Possible Measure

Impact on
Attractiveness

Strength of Basis for
Cost advantages from differences in
Advantage between
factor costs, scale, experience
competitors (see Step 1.3)
Differentiation advantages from unique
differences in customer value in product
features/quality, service or branding

Ratio of highest cost producer to lowest cost

Height of Barriers to new
entrants

Size of initial unit of investment required to
be a „player‟

+

Risk/consequence of retaliation by
incumbents

Extent of past retaliation to entry (e.g. price
cuts vs. buy-out)

+

Level of concentration

% market share held by top 2 or 3 firms… vs.
owner operators

+
-

Rate of demand growth vs. capacity

Growth in demand

+

Size of capacity increments

-

Proportion of fixed costs

% fixed costs to total costs

-

Height of exit barriers

Costs of exit in terms of retrenchment, plant
write offs vs. resale/use

-

Initial capital investment required

+

Ratio of highest priced to lowest priced
+

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Switching costs faced by buyers and
Cost to buyers or distributors of
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distributors
their staff, re-equipping

Competitive Intensity

10
1.1

2. Situation Diagnosis

2.1

1.2
2.2

1.3
2.3

3.1

Cost advantages stem from sustainable differences in factor costs, scale
and experience - and to a lesser extent from operating choices

3.2

3.3

4.1

4.2

4.3

2.2 Assess Segment Attractiveness – Sources of Cost Advantage

Source

Factor Costs

Description
Preferred access to low cost
• Natural resources
• Labour
• Capital
• Technology
• Customer information

Threats to Sustainability

• Change in access to factors

Larger relative volumes…

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view of costs in manufacturing set-ups
Diseconomies of scale / complexity
•
• Provide access to lower cost processing
Scale
• Decreasing
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technologies
• Provide greater purchasing power with suppliers

Experience

Other Operational
Decisions

Improve know how from larger cumulative output over
time helps drive cost-reduction process and product
improvements
• Reduced wastage and rework
• Less duplication
• Fewer parts
• Tighter tolerances

increasing variety and flexibility

• Leakage of proprietary experience
(catch up)
• New technologies (leapfrog)

Costs are also driven by choice of technology / plant,
• …but such choices are often easily
decisions on maintain / manage vs replace, firm specific
matched
work practices…

11
1.1

1.2

2.1

2. Situation Diagnosis

2.2

1.3
2.3

3.1

The final step in the diagnosis requires an assessment of the
organisation‟s relative competitive position for each segment

3.2

3.3

4.1

4.2

4.3

2.3 Assess Segment Competitive Position
A. Identify customers‟
selection criteria and
competitor ranking
• Identify criteria (price
vs. other feature
tradeoffs)
• Assess weighting of
criteria

B. Estimate competitors‟
shares and price realisation
For each segment and for
each competitor:
• Volume shares in terms
of throughput and
capacity
• Price realisation (lists,
salesforce)

C. Estimate competitors‟
relative cost and asset
positions
• Identify cost and asset
drivers from our
economics
• Measure where
competitors and
potential new entrants
stand on drivers

D. Identify the basis for
advantage and our relative
position
• Identify competitors
value proposition
• Identify our internal
assets / capabilities and
competencies that can
be leveraged

• Our position vs.
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competitors
• Draw together volumes,
• Estimate competitor‟s /
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new entrant‟s costs and
assets

assets for competitors /
new entrants, factoring
in future plans

• Draw out key basis for
advantage
• Identify our relative
position

Determine key target segments

12
1.1

1.2

2.1

2. Situation Diagnosis

2.2

1.3
2.3

3.1
4.1

Estimating competitors‟ relative cost and asset positions requires
identifying and measuring drivers

3.2

3.3

4.2

4.3

2.3 Assess Segment Competitive Position – Estimating Relative Cost and Asset Position
Drivers
1.Identify cost and asset
drivers from our own
economics

EXAMPLE

Costs and Assets

• Network configuration and
density

Fleet and manning utilisation

• Fleet type / age / utilisation

Longhaul and PUD, R&M, fuel,
fixed assets

$ / driver
• Manning levels

Distinguish
• Fixed
• Variable
• Marginal cash

Transport, warehouse, DP

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• Stocking, Debtor, and
Working Capital
Creditor policies
2.Measure where competitors
and potential new entrants
stand on the drivers

Measure
Drivers
Competitor B

…

•

•

….

•

•

…
3.Estimate competitors / new
entrants costs and assets

Competitor A

•

•

Data from interviews
with suppliers,
customers, exemployees,
competitors direct
(e.g. site visits)

Measure x $ / measure = $

13
Contents

Page

Context

1

Business Strategy Development
1.

Corporate Goals

5

2.

Situation Diagnosis

11

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3. Strategy Levers
28
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4. Action Plan

14
1.1

1.2

1.3

2.1

3. Strategy Levers

2.2

2.3

3.1

3.2

3.3

4.1

4.2

4.3

Understanding strategy levers will help answer the question “how to compete?”
Strategy Levers

3.1 Competitive
Options

• Generate strategic options
for competition in chosen
segments, e.g.
– Strengthen our
competitive position
– Shift our mix to more
attractive segments
– Improve attractiveness
of key segments
• Incorporate international
trends and best practice

3.2. Strategy
Choices

• Evaluate and make choices
on “how to compete” on the
basis of risks and returns
– Economics / modelling
– Competitor response
• Determine strategies
required to deliver (the 5 to
7 big things)
• Develop clearly linked
economics to overall
targets
• Determine internal
organisational changes
required
• Determine position
sustainability

3.3. Document
Strategy

How to
compete?

• Document overall
strategic goal and
high level targets
• Clarify our offering in
each segment /
value proposition
• Clarify our basis of
advantage - cost /
scale, differentiation,
innovation, customer
intimacy

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15
1.1

3. Strategy Levers

2.1

1.2
2.2

1.3
2.3

3.1

Generic Strategy 1: Strengthening Competitive Position in Attractive Segments

4.2

4.3

ILLUSTRATIVE

Create new sources of advantage

Raise relative performance
• Improvements in costs or differentiation are not enough –
only strengthening relative position raises performance

Relative unit cost
performance

3.3

4.1

Strengthening a competitive position in attractive segments can be done
by raising relative performance or creating new sources of advantage

3.2

Example: better exploit
existing basis for advantage

• Overturning strong positions is difficult, but discontinuities
provide opportunities
• Examples of discontinuities include:
– Product service or process innovation
– Change in customer needs
– New distribution techniques/channels
– Changes in supply/ factor markets
– Altered government regulation

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Costs
Costs
Competitor C

Competitor B

Take
share

Price
Unit
Cost

Competitor A
Time

Uncover latent
service needs

Scale

A

B

16
1.1

1.2

2.1

3. Strategy Levers

2.2

1.3
2.3

3.1

An organisation can raise the attractiveness of segments in which it has
or could have strong positions

3.2

3.3

4.1

4.2

4.3

Generic Strategy 3: Increasing Segment Attractiveness

ILLUSTRATIVE

Price
Reduce Pressure from
Substitutes e.g.
•
•

Reduce Level of Rivalry e.g.
• Promote signalling

Lower price / raise
performance relativities

• Initiate co-operation
• Engage in tit-for-tat

Increase switching costs /
lock-in

Raise Entry Barriers e.g.

•

Demonstrate harsh retaliation
on new entrants

•

Lobby governments on
“protection” standards

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Reduce Power of Buyers /
Suppliers
•

Encourage fragmentation /
new entry

•

Oppose consolidation

Unit Costs

17
1.1

3. Strategy Levers

2.1

1.2
2.2

1.3
2.3

3.1

3.3

4.1

To be implementable, strategies must be aligned with existing
organisation structures and operating policies

3.2
4.2

4.3

3.2 Strategy Choices – Alignment of Structure & Strategy

Strategy

Organisation = HR
Plan

• Structure
• Strengthen competitive
position: cost /
differentiation

• Sales and
Marketing:

Customer account
management approaches and
pricing policies

• Production:

Plant operation and maintenance
policies

• Staffing Levels

• Shift segment mix

Operating Policies

• Skills

• Purchasing:
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• R & D:
Approach to developing/trialling

• Raise segment
attractiveness

• Monitoring and
Reward Systems

new product and process
technologies
• Assets:

Major investment projects and
asset management

• IT:

Information systems for planning
and control

18
1.1

3. Strategy Levers

2.1

1.2
2.2

1.3
2.3

3.1

Asset plans need to identify the major projects and asset management
policies required to support the strategy

3.2

3.3

4.1

4.2

4.3

3.2 Strategy Choices – Asset Plans

Major Capital
Projects

• Identify major capital projects based on strategic analysis
– Analyse current performance of key plant assets comparing one unit to
another
- Across time and versus competitors to identify improvement opportunities
- e.g. age and technology type, availability and utilisation, yield and wastage,
maintenance costs, manning levels, location / transport costs, output quality
– Develop broad options for the portfolio of key plant (e.g. replace / change
technology, maintain, expand / close, relocate)
– Select preferred plant option by analysing the economic impact on segment
attractiveness (e.g. overcapacity, entry barriers, price disciplines) and
competitive position (e.g. cost and quality)

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Asset
Management
Policies

• Develop asset management policies for
– Streamlining repetitive / predictable plant capex
– Managing support assets (cars, fitouts, communications, computers) and
rationalising idle assets (e.g. underutilised property)
– Setting project hurdle rates specific to business project risks
– Valuing assets for performance measurement vs accounting (e.g. written down
replacement vs cash flow valuation vs alternative use)

19
Contents

Page

Context

1

Business Strategy Development
1.

Corporate Goals

5

2.

Situation Diagnosis

11

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28
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4. Action Plan

20
1.1

1.2

1.3

2.1

4. Action Plan

2.2

2.3

3.1

The action plan ensures that the strategy can be practically delivered and
tracked

3.2

3.3

4.1

4.2

4.3

Action Plan

4.1 Ensure
Communication /
Buy-in

4.2. Assign
Initiatives &
Projects

4.3. Set Targets
& Monitor
Progress

How to
deliver?

• Stakeholders clearly
Individual
• Targets for each initiative
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and progress to
• Communication method /
collateral appropriate to
each group is available
• Communications plan
developed and executed
• Awareness and support
achieved from stakeholder
groups

• Project template
completed for each
initiative
• Economic model
linked to align bottom
up initiative
economics with
strategies and overall
goals

goals
• Clear single point
accountability established
for each initiative
• Tracking system
established and regularly
monitored showing
progress of each initiative
and gap to overall goals

21
1.1

1.2

2.1

4. Action Plan

2.2

1.3
2.3

3.1

Future state goals will reveal key strategic initiatives / themes; projects
should be created to deliver strategic initiatives

3.2

3.3

4.1

4.2

4.3

4.2. Assign Initiatives & Projects
„Where Do We Want To Be?‟
Future State Goals

•

“Become the leading Australian provider of
XYZ services”
Financial
– EVA: 25%
– Revenue: ~25%, greater relative contribution
from Division A and Division B
– NOPAT: 37%
– Measure performance across the entire value
chain via Balanced Scorecard and KRAs
Clients - Target individuals and corporates to
position Client ABC as a lifetime provider of XYZ
services
Employees – Minimise duplication across
business units and increase value added by
building functional support to delivery units; Staff
will be respected professionals in their area of
expertise
Community – Support community initiatives that
align with Client ABC‟s activities

ILLUSTRATIVE

„What Do We Need To Focus On?‟
Strategic Initiatives /
Themes

„How Do We Make This Happen?‟
Strategic Projects

1. Branding

1.1 Branding Project 1
1.2 Branding Project 2
1.3 Branding Project 3

2. Marketing
&
Distribution

2.1 Marketing Project 1
2.2 Distribution Project 1
2.3 Distribution Project 2

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•
3. Profitable
•

•

Developed in Section 1: Corporate Goals

Growth

3.3 Growth Project 2
3.4 Growth Project 3

4. Product
Quality

4.1 Product Project 1
4.2 Product Project 2
4.3 Product Project 3

5. Business
Architecture

5.1 Bus Arch Project 1
5.2 Bus Arch Project 2
5.3 Bus Arch Project 3

Developed in Section 3: Strategy Levers

22
1.1

1.2

2.1

4. Action Plan

2.2

1.3
2.3

3.1

Strategic projects should be prioritised based on impact and ability to
implement
4.2. Assign Initiatives & Projects – Project Prioritisation

3.2

3.3

4.1

4.2

4.3

ILLUSTRATIVE

High Priority Projects
3.1 Growth Project 1

High

3.4 Growth Project 3
5.1 Bus Arch Project 1
5.2 Bus Arch Project 2

4.3 Product Project 3

1.1 Branding Project 1
4.2 Product Project 2
1.1 Branding Project 1

Profit

Medium

3.3 Growth Project 2

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2.2 Distribution Project 1
4.1 Product Project 1
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2.1 Marketing Project
1.2 Branding Project 2

Low

2.3 Distribution Project 2

Hard

Easy
Ability to Implement

23
1.1

1.2

2.1

4. Action Plan

1.3

2.2

2.3

3.1
4.1

Owners should be assigned to each project and a delivery timeline
should be agreed upon

3.2

3.3

4.2

4.3

4.3. Set Targets & Monitor Progress

ILLUSTRATIVE

Year 1
1. Branding
1.1 Branding Project 1
1.2 Branding Project 2
1.3 Branding Project 3
2. Marketing & Distribution
2.1 Marketing Project 1
2.2 Marketing Project 2
2.3 Marketing Project 3
3. Profitable Growth
3.1 Growth Project 1
3.2 Growth Project 2
3.3 Growth Project 3
4. Quality Products
1.1 Product Project 1
1.2 Product Project 2
1.3 Product Project 3
5. Business Architecture
2.1 Bus Arch Project 1
2.2 Bus Arch Project 2
2.3 Bus Arch Project 3

Owner
Marketing Director
Marketing Director
Project Manager

H1

H2

Year 2
H1

H2

Year 3
H1

H2

Year 4
H1

H2

Year 5
H1

H2

Marketing Director
Marketing Director
Marketing Director

This is only a partial view of the full presentation. For further details and download
Finance Director
CEO
please goto: www.straticx.com/store.html
MD
Operations Manager
Operations Manager
Project Manager
Technology Manager
Technology Manager
Technology Manager

24
This is only a partial view of the full presentation. For further details and download
please goto: www.straticx.com/store.html

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Complete 40-Character Guide to Developing a Winning Business Strategy

  • 1. Complete Guide to Business Strategy Design
  • 2. Context A business strategy specifies what an organisation wants to achieve, where and how it should compete and how the strategy can be delivered Business Strategy Development – Issue Tree Key Question Issue 1. What does the organisation want to achieve? 2. Where should the organisation compete? Sub-Issues • What is the organisation‟s vision and mission? • What are the organisation‟s long term goals? • What values does the organisation stand for? • What is the structure of the industry in which the organisation competes? • In which markets / segments can the organisation compete? • Which markets are the most attractive? This is only a partial view of the full presentation. For further details and download What is the please goto: www.straticx.com/store.html organisation‟s business strategy? 3. How can the organisation effectively compete? 4. How can the strategy be delivered? • What are best practice strategies for competing? • What are the most economically sensible options to compete in the chosen markets? • What is the likely competitor response to these options? • Who are the key stakeholders and are they supportive of the overall strategy? • What are the strategic initiatives underpinning the overall strategy? • What projects are required to deliver each initiative? • What is the timeline, target and accountability measure for each project? 1
  • 3. Context There are typically 12 elements in business strategy formulation – checking the health of each element gives a good audit of the business strategy Business Strategy - Elements 1. Corporate Goals 2. Situation Diagnosis 1.1 Agree Mission / Vision / Values 1.2 Set 3-5 Year Goals 1.3 Communicat e Goals What do we want to achieve? 2.1 Define Market / Segment 2.2 Assess Segment Attractivenes s 2.3 Assess Segment Competitive Position Where to compete? 3.1 Review Competitive Options 3.2. Make Strategy Choices 3.3. Document Strategy How to compete? 4.1 Ensure Communication / Buy-in 4.2. Assign Initiatives & Projects 4.3. Set Targets & Monitor Progress How to deliver? This is only a partial view of the full presentation. For further details and download please goto: www.straticx.com/store.html 3. Strategy Levers 4. Action Plan 2
  • 4. 1. Corporate Goals Developing an organisation‟s mission, vision and values and identifying key stakeholders are required when setting corporate goals Corporate Goals – Issue Tree Key Question Issue Sub-Issues 1. What is the organisation‟s mission? • What is the overriding purpose of the organisation as a whole? • What is its „reason for being‟? 2. What values does the organisation represent? • What should every employee of the organisation value and represent? • What distinguishes the organisation from others? 3. What is the organisation‟s longterm vision and goals? • What does the organisation want to achieve in the next 10 years? (vision) • What specific goals does the organisation want to achieve in the next 3 – 5 years? (financial, customers, employees, community goals) 4. Who are the organisation‟s key stakeholders? • What are the main groups of stakeholders? (eg customers, employees, suppliers) • What is the most practical and effective method of communicating to each stakeholder group? This is only a partial view of the full presentation. For further details and download What does the please goto: www.straticx.com/store.html organisation want to achieve? 3
  • 5. 1.1 1.2 1.3 2.1 1. Corporate Goals 2.2 2.3 3.1 3.2 3.3 4.1 4.2 4.3 The mission, vision and values of an organisation have different time horizons 1.1 Agree Mission, Vision & Values What is it? Mission Vision The overarching purpose an organisation - Will never be outgrown The future the organisation aims to deliver - Achievable in a CEO‟s time horizon Time Horizon Examples 3M: "To solve unsolved problems innovatively" Indefinite Walt Disney: "To make people happy." 10 years (goals are typically 35 years) Wal-Mart (1990): ”Become a $125 billion company by the year 2000" Honda: "We will crush, squash, and slaughter This is only a partial view of the full presentation. Yamaha" For further details and download The principles that guide day to day please goto: www.straticx.com/store.html Values Walt Disney: behaviour Day-to-day • No cynicism • Nurturing and promulgation of "wholesome American values" • Creativity, dreams and imagination • Fanatical attention to consistency and detail • Preservation and control of the Disney "magic" 4
  • 6. 1.1 1.2 1.3 2.1 1. Corporate Goals 2.2 2.3 3.1 3.2 3.3 4.1 4.2 4.3 Different methods of communication may be required for each stakeholder group 1.3 Communicate Goals – Sample High Level Communication Plan Stakeholder Group / Level Business Sponsorship Business Sponsor Mode of Communication ILLUSTRATIVE Frequency GMD Level Person A GMD Email Quarterly Person B Group Wide Division Email Monthly Division Level MD Level Person C BU Level BU Leads Person F „Town For further One per and This is only a partial view of the Personpresentation. Hall‟ Presentation detailsDivision download full D please goto: www.straticx.com/store.htmlOne per BU BU-specific presentation Person E Internal Newsletter Weekly Flyer Approx X Website article Updated as required Website announcement As needed Analyst Briefing As needed Person G Customers GMD Level Person A Shareholders GMD Level Person A External 5
  • 7. 2. Situation Diagnosis Understanding the market and the organisation‟s current competitive position will influence the decision on where to compete Situation Diagnosis – Issue Tree Key Question Issue Sub-Issues 1. In which market(s) does the organisation compete? • Which markets does the organisation compete in? • How has the organisation‟s involvement changed over time? (e.g. duration of participation, markets entered / exited) 2. How has the organisation performed? • How has the organisation performed? (current and historical) – Financial – Customer – Product This is only a partial view of the full presentation. For further details and download Where do we want please goto: www.straticx.com/store.html to compete? 3. What are the key market characteristics? 4. What is the organisation‟s competitive position? • What are the key characteristics of the market(s)? – Segments / profit pools within the market – Customer profile • What is the attractiveness of the market? (by segment) – Size, growth, profitability – Industry structure – Risk / volatility • Who are the key players in the market(s)? (number, share, performance) • How has the organisation‟s position changed over time? • What are the organisation‟s competitive advantages? (assets / capabilities / competencies that can be leveraged, brand strength, etc) 6
  • 8. 1.1 1.2 1.3 2.1 2. Situation Diagnosis 2.2 2.3 3.1 The Situation Diagnosis phase seeks to develop understanding of the profit impact of segment attractiveness and competitive position 3.2 3.3 4.1 4.2 4.3 Situation Diagnosis – Key Questions 1. What are our returns from each segment? High Segment Attractiveness Strong/ Attractive 2. How attractive is the profit potential of the segment vs. others? 3. What are the basis for economic advantages over competitors and how do we rate? This is only a partial view of the full presentation. For further details and download • Growth - customer needs, substitutes • DP, please goto: www.straticx.com/store.html Cost… fleet,utilisation, technology, • Returns - customer price sensitive, competitor concentration and rivalry manning Moderate/ Unattractive • Quality… on-time delivery service Low Weak Strong Our Competitive Position 7
  • 9. 1.1 1.2 1.3 2.1 2. Situation Diagnosis 2.2 2.3 3.1 The output from the measurement of profitability by segment should show differences in the overall magnitude of returns… 2.1 Define Market / Segment – Returns by Segment 5 6 4.3 7 Contribution on Selected Assets % p.a. Unallocated Costs A B Total EBIT = $15m C 35 20 3.3 4.2 EXAMPLE Contribution $m p.a. Average 3.2 4.1 (3) 20 Total ROA = 15% Selected Assets $m This is only a partial view of the full presentation. For further details and download 13 40 please goto: www.straticx.com/store.html 30 20 A B C 10 Total Assets = $100m Segments A B C Unallocated Assets 8
  • 10. 1.1 1.2 2.1 2. Situation Diagnosis – Segment Attractiveness 2.2 1.3 2.3 3.1 The situation diagnosis involves an assessment of the underlying attractiveness of each segment relative to others 3.2 3.3 4.1 4.2 4.3 2.2 Assess Segment Attractiveness A. Estimate current segment size and past growth B. Explain current profit by segment in terms of underlying attractiveness C. Estimate future growth and trends in segment attractiveness • Current size by segment: volume and revenue • Past demand growth rate by segment over a number of years • Identify key drivers of demand by segment, e.g. population growth vs. per caps • Strength of basis for advantage – Cost advantage – Differentiation advantages • Height of entry barriers • Competitive intensity / level of rivalry / industry structure • Pressure from substitutes • Bargaining power of buyers / suppliers • Profitability • Risk / volatility • Future demand growth: changes in drivers of growth, customer needs, substitutes • Future growth in supply capacity: ours vs. competitor plans • Other trends in segment profitability: changes in drivers of attractiveness This is only a partial view of the full presentation. For further details and download please goto: www.straticx.com/store.html 9
  • 11. 1.1 1.2 2.1 2. Situation Diagnosis 2.2 1.3 2.3 3.1 Each segment should be contrasted in terms of the factors driving underlying attractiveness 3.2 3.3 4.1 4.2 4.3 2.2 Assess Segment Attractiveness – Impact of Segment Characteristics (1 of 2) Segment Characteristic Possible Measure Impact on Attractiveness Strength of Basis for Cost advantages from differences in Advantage between factor costs, scale, experience competitors (see Step 1.3) Differentiation advantages from unique differences in customer value in product features/quality, service or branding Ratio of highest cost producer to lowest cost Height of Barriers to new entrants Size of initial unit of investment required to be a „player‟ + Risk/consequence of retaliation by incumbents Extent of past retaliation to entry (e.g. price cuts vs. buy-out) + Level of concentration % market share held by top 2 or 3 firms… vs. owner operators + - Rate of demand growth vs. capacity Growth in demand + Size of capacity increments - Proportion of fixed costs % fixed costs to total costs - Height of exit barriers Costs of exit in terms of retrenchment, plant write offs vs. resale/use - Initial capital investment required + Ratio of highest priced to lowest priced + This is only a partial view of the full presentation. For further details and download Switching costs faced by buyers and Cost to buyers or distributors of + please goto: www.straticx.com/store.html re-training distributors their staff, re-equipping Competitive Intensity 10
  • 12. 1.1 2. Situation Diagnosis 2.1 1.2 2.2 1.3 2.3 3.1 Cost advantages stem from sustainable differences in factor costs, scale and experience - and to a lesser extent from operating choices 3.2 3.3 4.1 4.2 4.3 2.2 Assess Segment Attractiveness – Sources of Cost Advantage Source Factor Costs Description Preferred access to low cost • Natural resources • Labour • Capital • Technology • Customer information Threats to Sustainability • Change in access to factors Larger relative volumes… This is only a partialAmortise fixed the full presentation. For• further details and download view of costs in manufacturing set-ups Diseconomies of scale / complexity • • Provide access to lower cost processing Scale • Decreasing please goto: www.straticx.com/store.html minimum scale / technologies • Provide greater purchasing power with suppliers Experience Other Operational Decisions Improve know how from larger cumulative output over time helps drive cost-reduction process and product improvements • Reduced wastage and rework • Less duplication • Fewer parts • Tighter tolerances increasing variety and flexibility • Leakage of proprietary experience (catch up) • New technologies (leapfrog) Costs are also driven by choice of technology / plant, • …but such choices are often easily decisions on maintain / manage vs replace, firm specific matched work practices… 11
  • 13. 1.1 1.2 2.1 2. Situation Diagnosis 2.2 1.3 2.3 3.1 The final step in the diagnosis requires an assessment of the organisation‟s relative competitive position for each segment 3.2 3.3 4.1 4.2 4.3 2.3 Assess Segment Competitive Position A. Identify customers‟ selection criteria and competitor ranking • Identify criteria (price vs. other feature tradeoffs) • Assess weighting of criteria B. Estimate competitors‟ shares and price realisation For each segment and for each competitor: • Volume shares in terms of throughput and capacity • Price realisation (lists, salesforce) C. Estimate competitors‟ relative cost and asset positions • Identify cost and asset drivers from our economics • Measure where competitors and potential new entrants stand on drivers D. Identify the basis for advantage and our relative position • Identify competitors value proposition • Identify our internal assets / capabilities and competencies that can be leveraged • Our position vs. This is only a partial view of the full presentation. For further details and download competitors • Draw together volumes, • Estimate competitor‟s / please goto: www.straticx.com/store.html prices, costs and new entrant‟s costs and assets assets for competitors / new entrants, factoring in future plans • Draw out key basis for advantage • Identify our relative position Determine key target segments 12
  • 14. 1.1 1.2 2.1 2. Situation Diagnosis 2.2 1.3 2.3 3.1 4.1 Estimating competitors‟ relative cost and asset positions requires identifying and measuring drivers 3.2 3.3 4.2 4.3 2.3 Assess Segment Competitive Position – Estimating Relative Cost and Asset Position Drivers 1.Identify cost and asset drivers from our own economics EXAMPLE Costs and Assets • Network configuration and density Fleet and manning utilisation • Fleet type / age / utilisation Longhaul and PUD, R&M, fuel, fixed assets $ / driver • Manning levels Distinguish • Fixed • Variable • Marginal cash Transport, warehouse, DP This is only a partial view of the full presentation. For further details and download admin please goto: www.straticx.com/store.html • Stocking, Debtor, and Working Capital Creditor policies 2.Measure where competitors and potential new entrants stand on the drivers Measure Drivers Competitor B … • • …. • • … 3.Estimate competitors / new entrants costs and assets Competitor A • • Data from interviews with suppliers, customers, exemployees, competitors direct (e.g. site visits) Measure x $ / measure = $ 13
  • 15. Contents Page Context 1 Business Strategy Development 1. Corporate Goals 5 2. Situation Diagnosis 11 This is only a partial view of the full presentation. For further details and download 3. Strategy Levers 28 please goto: www.straticx.com/store.html 40 4. Action Plan 14
  • 16. 1.1 1.2 1.3 2.1 3. Strategy Levers 2.2 2.3 3.1 3.2 3.3 4.1 4.2 4.3 Understanding strategy levers will help answer the question “how to compete?” Strategy Levers 3.1 Competitive Options • Generate strategic options for competition in chosen segments, e.g. – Strengthen our competitive position – Shift our mix to more attractive segments – Improve attractiveness of key segments • Incorporate international trends and best practice 3.2. Strategy Choices • Evaluate and make choices on “how to compete” on the basis of risks and returns – Economics / modelling – Competitor response • Determine strategies required to deliver (the 5 to 7 big things) • Develop clearly linked economics to overall targets • Determine internal organisational changes required • Determine position sustainability 3.3. Document Strategy How to compete? • Document overall strategic goal and high level targets • Clarify our offering in each segment / value proposition • Clarify our basis of advantage - cost / scale, differentiation, innovation, customer intimacy This is only a partial view of the full presentation. For further details and download please goto: www.straticx.com/store.html 15
  • 17. 1.1 3. Strategy Levers 2.1 1.2 2.2 1.3 2.3 3.1 Generic Strategy 1: Strengthening Competitive Position in Attractive Segments 4.2 4.3 ILLUSTRATIVE Create new sources of advantage Raise relative performance • Improvements in costs or differentiation are not enough – only strengthening relative position raises performance Relative unit cost performance 3.3 4.1 Strengthening a competitive position in attractive segments can be done by raising relative performance or creating new sources of advantage 3.2 Example: better exploit existing basis for advantage • Overturning strong positions is difficult, but discontinuities provide opportunities • Examples of discontinuities include: – Product service or process innovation – Change in customer needs – New distribution techniques/channels – Changes in supply/ factor markets – Altered government regulation This is only a partial view of the full presentation. For further details and download Unit Unit please goto: www.straticx.com/store.html Costs Costs Competitor C Competitor B Take share Price Unit Cost Competitor A Time Uncover latent service needs Scale A B 16
  • 18. 1.1 1.2 2.1 3. Strategy Levers 2.2 1.3 2.3 3.1 An organisation can raise the attractiveness of segments in which it has or could have strong positions 3.2 3.3 4.1 4.2 4.3 Generic Strategy 3: Increasing Segment Attractiveness ILLUSTRATIVE Price Reduce Pressure from Substitutes e.g. • • Reduce Level of Rivalry e.g. • Promote signalling Lower price / raise performance relativities • Initiate co-operation • Engage in tit-for-tat Increase switching costs / lock-in Raise Entry Barriers e.g. • Demonstrate harsh retaliation on new entrants • Lobby governments on “protection” standards This is only a partial view of the full presentation. For further details and download please goto: www.straticx.com/store.html Reduce Power of Buyers / Suppliers • Encourage fragmentation / new entry • Oppose consolidation Unit Costs 17
  • 19. 1.1 3. Strategy Levers 2.1 1.2 2.2 1.3 2.3 3.1 3.3 4.1 To be implementable, strategies must be aligned with existing organisation structures and operating policies 3.2 4.2 4.3 3.2 Strategy Choices – Alignment of Structure & Strategy Strategy Organisation = HR Plan • Structure • Strengthen competitive position: cost / differentiation • Sales and Marketing: Customer account management approaches and pricing policies • Production: Plant operation and maintenance policies • Staffing Levels • Shift segment mix Operating Policies • Skills • Purchasing: This is only a partial view of the full presentation. For furtherSupplier management and details and download negotiation approaches please goto: www.straticx.com/store.html • R & D: Approach to developing/trialling • Raise segment attractiveness • Monitoring and Reward Systems new product and process technologies • Assets: Major investment projects and asset management • IT: Information systems for planning and control 18
  • 20. 1.1 3. Strategy Levers 2.1 1.2 2.2 1.3 2.3 3.1 Asset plans need to identify the major projects and asset management policies required to support the strategy 3.2 3.3 4.1 4.2 4.3 3.2 Strategy Choices – Asset Plans Major Capital Projects • Identify major capital projects based on strategic analysis – Analyse current performance of key plant assets comparing one unit to another - Across time and versus competitors to identify improvement opportunities - e.g. age and technology type, availability and utilisation, yield and wastage, maintenance costs, manning levels, location / transport costs, output quality – Develop broad options for the portfolio of key plant (e.g. replace / change technology, maintain, expand / close, relocate) – Select preferred plant option by analysing the economic impact on segment attractiveness (e.g. overcapacity, entry barriers, price disciplines) and competitive position (e.g. cost and quality) This is only a partial view of the full presentation. For further details and download please goto: www.straticx.com/store.html Asset Management Policies • Develop asset management policies for – Streamlining repetitive / predictable plant capex – Managing support assets (cars, fitouts, communications, computers) and rationalising idle assets (e.g. underutilised property) – Setting project hurdle rates specific to business project risks – Valuing assets for performance measurement vs accounting (e.g. written down replacement vs cash flow valuation vs alternative use) 19
  • 21. Contents Page Context 1 Business Strategy Development 1. Corporate Goals 5 2. Situation Diagnosis 11 This is only a partial view of the full presentation. For further details and download 3. Strategy Levers 28 please goto: www.straticx.com/store.html 40 4. Action Plan 20
  • 22. 1.1 1.2 1.3 2.1 4. Action Plan 2.2 2.3 3.1 The action plan ensures that the strategy can be practically delivered and tracked 3.2 3.3 4.1 4.2 4.3 Action Plan 4.1 Ensure Communication / Buy-in 4.2. Assign Initiatives & Projects 4.3. Set Targets & Monitor Progress How to deliver? • Stakeholders clearly Individual • Targets for each initiative This is only a partial–view of the •fullsupportinitiatives identified internal and to presentation. For further details and download each established in terms of external please goto: strategy developed timing, progress to drivers www.straticx.com/store.html economic and progress to • Communication method / collateral appropriate to each group is available • Communications plan developed and executed • Awareness and support achieved from stakeholder groups • Project template completed for each initiative • Economic model linked to align bottom up initiative economics with strategies and overall goals goals • Clear single point accountability established for each initiative • Tracking system established and regularly monitored showing progress of each initiative and gap to overall goals 21
  • 23. 1.1 1.2 2.1 4. Action Plan 2.2 1.3 2.3 3.1 Future state goals will reveal key strategic initiatives / themes; projects should be created to deliver strategic initiatives 3.2 3.3 4.1 4.2 4.3 4.2. Assign Initiatives & Projects „Where Do We Want To Be?‟ Future State Goals • “Become the leading Australian provider of XYZ services” Financial – EVA: 25% – Revenue: ~25%, greater relative contribution from Division A and Division B – NOPAT: 37% – Measure performance across the entire value chain via Balanced Scorecard and KRAs Clients - Target individuals and corporates to position Client ABC as a lifetime provider of XYZ services Employees – Minimise duplication across business units and increase value added by building functional support to delivery units; Staff will be respected professionals in their area of expertise Community – Support community initiatives that align with Client ABC‟s activities ILLUSTRATIVE „What Do We Need To Focus On?‟ Strategic Initiatives / Themes „How Do We Make This Happen?‟ Strategic Projects 1. Branding 1.1 Branding Project 1 1.2 Branding Project 2 1.3 Branding Project 3 2. Marketing & Distribution 2.1 Marketing Project 1 2.2 Distribution Project 1 2.3 Distribution Project 2 This is only a partial view of the full presentation. For further details and download please goto: www.straticx.com/store.html 3.1 Growth Project 1 • 3. Profitable • • Developed in Section 1: Corporate Goals Growth 3.3 Growth Project 2 3.4 Growth Project 3 4. Product Quality 4.1 Product Project 1 4.2 Product Project 2 4.3 Product Project 3 5. Business Architecture 5.1 Bus Arch Project 1 5.2 Bus Arch Project 2 5.3 Bus Arch Project 3 Developed in Section 3: Strategy Levers 22
  • 24. 1.1 1.2 2.1 4. Action Plan 2.2 1.3 2.3 3.1 Strategic projects should be prioritised based on impact and ability to implement 4.2. Assign Initiatives & Projects – Project Prioritisation 3.2 3.3 4.1 4.2 4.3 ILLUSTRATIVE High Priority Projects 3.1 Growth Project 1 High 3.4 Growth Project 3 5.1 Bus Arch Project 1 5.2 Bus Arch Project 2 4.3 Product Project 3 1.1 Branding Project 1 4.2 Product Project 2 1.1 Branding Project 1 Profit Medium 3.3 Growth Project 2 This is only a partial view of the full 5.3 Bus Arch Project 3 For further details and download presentation. Impact 2.2 Distribution Project 1 4.1 Product Project 1 please goto: www.straticx.com/store.html 1 2.1 Marketing Project 1.2 Branding Project 2 Low 2.3 Distribution Project 2 Hard Easy Ability to Implement 23
  • 25. 1.1 1.2 2.1 4. Action Plan 1.3 2.2 2.3 3.1 4.1 Owners should be assigned to each project and a delivery timeline should be agreed upon 3.2 3.3 4.2 4.3 4.3. Set Targets & Monitor Progress ILLUSTRATIVE Year 1 1. Branding 1.1 Branding Project 1 1.2 Branding Project 2 1.3 Branding Project 3 2. Marketing & Distribution 2.1 Marketing Project 1 2.2 Marketing Project 2 2.3 Marketing Project 3 3. Profitable Growth 3.1 Growth Project 1 3.2 Growth Project 2 3.3 Growth Project 3 4. Quality Products 1.1 Product Project 1 1.2 Product Project 2 1.3 Product Project 3 5. Business Architecture 2.1 Bus Arch Project 1 2.2 Bus Arch Project 2 2.3 Bus Arch Project 3 Owner Marketing Director Marketing Director Project Manager H1 H2 Year 2 H1 H2 Year 3 H1 H2 Year 4 H1 H2 Year 5 H1 H2 Marketing Director Marketing Director Marketing Director This is only a partial view of the full presentation. For further details and download Finance Director CEO please goto: www.straticx.com/store.html MD Operations Manager Operations Manager Project Manager Technology Manager Technology Manager Technology Manager 24
  • 26. This is only a partial view of the full presentation. For further details and download please goto: www.straticx.com/store.html