How to Formulate a Business Strategy in 5 Steps

A newsletter talking about tactics and strategies used in business

What is business strategy? Many entrepreneurs and senior managers are confused about the true meaning of business strategy. Some even think that it is just a concept made up by consultants to sell services. That couldn’t be further from the truth.

The business strategy explains how a company identifies and distinguishes itself in the marketplace and how it uses this position to deliver superior value to customers, differentiation and profitable growth.

“Strategy is ultimately it’s about making choices”

In his book, Roger Martin explains how to play to win in today’s business world where there is no longer any such thing as a level playing field. He shows how the unique characteristics of each industry demand variations on the business strategy.

Concentrating on winning aspiration

“A Winning Aspiration defines the purpose of your enterprise, its guiding mission and aspiration, in strategic terms.”

~ AG Lafely & Roger Martin, Playing to Win; How Strategy Really Works

A winning aspiration defines an organization’s purpose, its guiding mission and aspiration, in strategic terms. What does winning look like for this organization? What, specifically, is its strategic aspiration? These answers provide the basis for the discussion of strategy.

Where do you want to play?

A company’s “where to play” strategy is built upon a set of choices that narrow the competitive field. The company’s top leadership should ask questions focusing on where their company will compete, who their customers and consumers are, which channels they’ll use to reach those customers, what products or services the company will offer and which product categories they’ll sell, and what vertical stages of the industry in question the company will enter.

How will you win?

Where to play determines what options are available; how to win determines how one can succeed in these where to play choices. It is crucial for a company to decide how it will compete in the chosen market segments, categories, channels, geographies, and so on. The how-to-win choice is intricately tied to the where-to-play choice.

To achieve a sustainable competitive advantage, a firm must exploit its unique value proposition by consistently delivering this value in a distinct way. Michael Porter called this unique value proposition a source of differentiation that allows an organization to create superior customer value and gain a competitive advantage over its rivals.

What capabilities are needed?

Strategy is about the choices a company makes about what capabilities will enable it to win in the marketplace, and how management must support those strategic choices.

What management systems are needed?

The final strategic choice in the cascade focuses on management systems. These systems can be used to foster, support, and measure the strategy. To be effective, they must be purposefully designed to support each choice and capability.

Conclusion

These three steps can help a team create an effective, cross-functional strategic framework that helps all parties involved understand their role in the creation and implementation of a strategy. Setting aside time to develop a framework removes previously discussed issues and focuses everyone on the creation of an effective strategy.

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