Knowing the features of strategic decisions, we can begin to describe the main element of the unified strategic management model – the process of formulating a strategy (note, not choosing a strategy).
In many information sources, this stage is assigned a combination of phrases: formation of strategy options – selection of the best option. This indicates the creative, non-formalized nature of actions. But even for the development of equally creative inventions, there is an algorithm. True, some authors also propose private algorithms for solving a number of problems in analyzing the internal and external environment, but without a systematic representation of the entire process.
Overview of the strategy formulation process
Having systematized and made minor adjustments to individual schemes of I. Ansoff, set out in the “New Corporate Strategy”, we received a general scheme of strategic analysis. It combines two principles: the formal logic of action and the creative content of strategic decisions.
Formal logic allows you to organize the composition and sequence of elements (a kind of rules of action, so as not to miss anything and not do unnecessary things). Creative content corresponds to the nature of the strategy and its features. If used repeatedly, the scheme can be abandoned, similar to most management regulations.
The scheme includes three stages:
- competitive analysis;
- portfolio analysis;
- implementation and implementation of strategy (not to be confused with marketing terms of the same name).
Competitive and portfolio analyzes are separated in relation to traditional and new areas (areas) of activity, since they have different selection criteria and different degrees of specificity of information (we know more about traditional activities).
This is one of the reasons for abandoning the common SWOT analysis in our methodology.
General express analysis
Analyzes traditional (currently) types of activities: product structure, its potential, areas for improvement. The analysis begins with a general brief express analysis of the internal and external environment of the enterprise.
The internal environment and its potential are assessed as part of: economic, financial, innovative, and general management potentials. Conclusions are drawn about the level and extent of use of the overall internal potential to resolve the issue of the possibility of reform without bankruptcy proceedings.
The macro environment is analyzed as consisting of: political, economic, social, technological. Based on macroanalysis, a conclusion is drawn about the direction (positive, negative) and the degree of influence (strong, medium, weak) of each environment on the operation of the enterprise.
The micro-environment is studied as part of five competitive forces: customers, suppliers, substitutes, existing competitors, possible new competitors. The degree of influence of each element on the operation of the enterprise is determined. By combining internal and external analyses, a preliminary strategic choice is made regarding the need for future diversification and its type (synergistic, conglomerative).
An extremely important stage. Reflect the desired future of the enterprise. Goals should be as ambitious as possible, measurable (in specific numbers with units of measurement), and technically achievable. It is based on the conclusions of express analysis and the expectations and interests of all interested groups (internal and external).
We divide the goals into: economic and non-economic (reflecting social responsibilities and restrictions and requiring an increase in economic goals), long-term (3 – 5 more years) and short-term (a year).
When making a strategic choice in favor of diversification, long-term goals include the goal of “flexibility” in the number of new products (or technologies for specialized enterprises). Short-term goals should not repeat long-term ones, since the latter are later broken down by year. The total list of goals should be no more than 5-6. Their decomposition will be made in operational plans.
Working with forecasts
Initially, a current (extrapolated) forecast for each goal for the long term is developed by extrapolating existing trends over a number of previous years.
If the forecast turns out to be higher than the target, it is revised upward. The general gap between the current forecast and long-term goals is determined, which must then be filled by rationalizing existing production and developing new directions. To solve the first problem, an analysis of the strengths and weaknesses of the enterprise is carried out, which is used to improve traditional production together with an analysis of market potential. For the latter, the predicted future parameters of the most successful competitors and the requirements (expectations) of stakeholders are used.
- commodity-market structure (price, quality);
- growth and profitability;
- strategic perspective.
A comparison of the parameters of the enterprise and the market reveals a gap that should be reduced as much as possible using the strengths of the enterprise and taking into account its weaknesses. The company’s potential will increase and the growth will be reflected in the revised forecast.
The same action is carried out regarding successful strategies of competitors and optimal strategic investments. The revised forecast is checked against the availability of strategic resources. A general picture of the gaps for the long-term period is constructed for each goal consisting of: goals, current forecast, revised forecast.
The natural gap between the targets and the revised forecast is filled using portfolio analysis. An analysis of the future market potential is carried out for each business area if their product and market parameters differ significantly. Based on the results of the analysis, certain business areas may be excluded from the product program.
The selection of new product lines (products) is carried out in stages, sequentially moving from an expanded list to an accessible, effective, accepted, final one. The expanded list is formed based on the prospects of traditional production and its growth vectors. Each transition (stage) uses its own criteria by which lists can be reduced.
For an extended list this is:
- achieving goals
- necessary synergy (similarity),
- required investments
- recoupment of input costs.
For affordable – availability of entry costs.
For effective – the presence of an economic perspective, the proximity of competitive profiles (technology, knowledge and skills of personnel), success factors in competitors’ strategies.
For accepted – again goals.
The final list is determined by expert assessment according to the following criteria: goals, input costs, synergies, using a 10-point scale. In this case, each goal is considered separately. The number of selected areas should not be lower than that adopted in the “flexibility” goal.
Now we already have a list of traditional directions (from competitive analysis) and a list of new directions. It is necessary to determine their relationship and structure.
The criterion is the predicted profitability of each group and, possibly, each product line. We get the so-called diversification option. Next, product program options are formed in the form of portfolios of different contents and structures. Each portfolio must meet the following criteria: achieving goals, resource provision, internal synergy; each portfolio position must have sufficient critical mass to make a profit (in terms of volume) and have a sustainable growth vector (the possibility of repurposing into a technologically similar product).
Expert assessment of portfolios for three groups of goals (short-term, long-term, flexibility goal) allows you to choose the best portfolio using a three-point scale.
The accepted portfolio is “revealed” in key characteristics:
- growth vector;
- competitive advantage;
- strategic flexibility (determined by diversity);
- choice “make or buy.”
To do means to develop a new direction on your own premises, or to buy a ready-made business. The adopted portfolio with its characteristics means the formation of a portfolio strategy.
Next comes the choice of a competitive position (strategy). It can be standard (prescribed in almost all educational literature), or individual. The latter is prescribed by the following parameters: growth rate relative to the market, market differentiation by market share, product differentiation by quality.
Success factors are indicated for each parameter. The competitive position can be projected onto the well-known BCG matrix. At the end of the stage, a general picture of the gaps is again constructed. The portfolio gap must be filled, the revised forecast achieves the goals. If this does not happen, the priorities of the goals, the competitive position or the goals themselves may be revised.
Next, if necessary, a strategic plan is developed. It includes:
- revised goals;
- portfolio strategy;
- competitive position;
- a set of functional strategies.
Implementation and implementation of strategy
To paraphrase I. Ansoff, “coming up” with a strategy in a smoky executive’s office is not difficult (of course, without the analysis described). It’s difficult to implement. For successful implementation, it is necessary to fully coordinate the “profile” and abilities of managers and the enterprise (represented by management) with the complexity and requirements of the environment.
For assessment, I. Ansoff recommends 4 tables. The future competitive (requiring prompt action) and business environment is assessed. At the same time, an assessment is made of the current competitive and entrepreneurial abilities of the enterprise. Each table contains its own set of characteristics and their four levels (from 1 to 4). Choosing a level means assigning a certain score to each characteristic. Based on the assessment results, the weakest abilities are identified, and the average score for each type is calculated (table).
Based on a comparison of the average assessment of the environment and the corresponding abilities, a plan for the development of management abilities is developed. Standard situation: the assessment of the entrepreneurial environment is 3.6 points (for example), and the average assessment of entrepreneurial abilities is 2.4 points. The competitive assessment is the opposite.
Thus, the capability development plan will focus on enhancing strategic activity and developing related capabilities. The plan contains sections:
- organizational values (goals, objectives, standards of behavior of personnel);
- managers (knowledge, skills, attitude to risk, depth of management);
- organizational structure of management;
- management process (problem analysis, decision making, communication, motivation);
- management technology (forecasting, planning, delegation, participation, control, technical means).
The analysis ends with the choice of change management method.
This is taken into account only on a subconscious level, without a qualitative assessment. Although the author of the method, I. Ansoff, recommends many quantitative assessments. For example, synergy analysis allows you to calculate savings from production synergies (due to the universal nature of the equipment) or from sales synergies due to the common sales market. But these are the difficulties and experience of working with the model, its in-depth study. At this stage, our task is to generate interest in this model. The process is complex, but not all managers have the gift “from God” – strategic thinking without effort on oneself and mastering scientific and practical recommendations.
It is accepted that the best practice is a good theory, which is born from a practical generalization. Unfortunately, practice is more conservative and less selective in the choice of strategic management techniques, especially in modern Russian conditions.