A 20th Century French poet by the name of Antoine de Saint-Exupéry once said “A goal without a plan is just a wish”. While Mr Saint-Exupéry ‘s message is a good life lesson, it fails to mention any of the trouble of putting a plan and the elements of strategy together. How often do you feel like you have a an objective but do not know the best way to achieve it? As an owner of a small business or a senior manager at a large business creating a structured strategic plan can be a daunting task. In this article, we will explore the importance of a strategic framework. We will review the elements of strategy across 6 options to help you better structure your strategic plans and achieve your goals!
What is a Strategic Framework?
Simply put a Strategic Framework is a tool that people utilise when creating their overall Strategic model or plan. Specifically, it is used to evaluate and formulate a strategic plan. Businesses use a strategic framework to analyse their overall strategic position against different market factors.
The basis of any strategic framework is to ultimately improve the position of a business through effective strategic planning and managing performance. It is important to remember that business improvement can relate to areas other than finance. Too often people only value financial measures. Whilst financial stability is vital there are other factors that are equally as important. Customer relations for example is just as important as any factor when measuring a businesses strength in the market.
For the purpose of this article and to best help our readers, we will focus on 6 strategic frameworks as well as the elements of strategy contained in each option. We have categised these frameworks into 2 groups, Internal and External Analysis Frameworks.
External Analysis – what’s occurring outside the business:
- Porter’s Five Forces
- Blue Ocean Strategy
Internal Analysis – What’s occurring inside the business:
- SWOT Analysis
- Balanced Scorecard
- VMOST Analysis
Porter’s Five Forces
Porter’s Five Forces is a strategic framework that helps to analyse five competitive forces that shape every industry, determining an industries strengths and weaknesses. Michael Porter presented a clear contrast between Strategy and Operational Effectiveness with his book Competitive Strategy. The five forces model that he created helps determine how competitive an industry is based on the following elements of strategy:
- Rivalry amongst existing competitors
- Threat of substitute products
- Bargaining power of buyers
- Threat of new entrants
- Bargaining Power of Suppliers
The basic point from Michael Porter’s theory is that a business can only outperform competitors if it can create a difference that it can uphold. Hence any strategy should reflect the businesses ability to position itself where it can defend against these competitive forces or influence them in its favour.
“Understanding the competitive forces and their underlying causes reveals the roots of an industry’s current profitability while providing a framework for anticipating and influencing competition over time”
Porter M.E (2008, p.80)
Strategic analysts often use Porter’s Five Forces to understand whether new products or services could be profitable. If you learn where the power lies in a market, you can identify areas of strength, improve weaknesses and avoid mistakes. Porters Model is all about putting yourself in a position of power to maximise potential profits.
PESTLE analysis, also known as PEST analysis, is a strategic framework and as well as a diagnostic tool. This framework is designed to help you learn of key factors external to your business that can impact strategy and operations. PESTLE is a strategic framework designed to analyse market growth or decline, overall business position and potential profit within the market.
PESTLE is an acronym for:
- P – Political
- E – Economic
- S- Social
- T – Technology
- L – Legal
- E – Environment
The real strength of using PESTLE analysis is due to the depth of knowledge it can provide any business. Yes, it is important to focus on your internal affairs but nearly all businesses operate in an open market. Therefore it is crucial that businesses, small or large, understand the external factors that will have an impact on how they will make money.
For example, let’s take a local pizza store that offers delivery. With the rise of Uber Eats and other delivery services, your local pizza store has to change the way they receive and take orders. The purchase of tablets or PCs to handle new ways customers interact is an example of a business reacting to external factors.
BHP Group looking at potential changes in government regulations in mining and fossil fuel production are examples of political factors.
PESTLE is a strategic framework that is used to understand the main trends in your business environment which will allow you to maintain or shift operations to compete in the market.
Blue Ocean Strategy
The Blue Ocean Strategy developed in 2004 by W. Chan Kim and Renée Mauborgne is defined as a business’ “pursuit of differentiation and low cost to open up a new market space and create new demand”. This strategic framework is pushed by innovation, the search for new uncontested markets that a company can then grow and maintain a significant market capitalisation.
In order to understand the Blue Ocean Strategy, you must first understand what a Red Ocean is. Also, define by Kim W.C and Mauborgne R, a red ocean is an existing market space where competition is fierce. It is a market space where businesses look to compete for exiting demand, often having to make the value vs. cost trade off.
The trade off businesses make in a Red Ocean is between providing a high quality service for a high price or lower quality for a lower price. There is a focus on having to always beat your competition. A Blue ocean on the other hand does not have this issue.
Blue Oceans are created through innovation, often by redefining what a red ocean is. An example of this is the invention of the iPod. Apple brought forward a completely new way to experience listening to music. For those old enough to remember Walkman’s with a physical cassette or CD were the standard. Apple was able to create uncontested market space and capture new demand which made the competition irrelevant.
Other examples of the Blue Ocean Strategy are Netflix, Uber and Cirque du Soleil.
Strategy is as unique and personal as anything. There is no one strategy for growth. Strategy is always situational. Often businesses struggle to develop relevant strategies unique to their position. If you can relate to this or want a solid starting point, SWOT analysis is the way to go.
A common, yet trusted method of self analysis “SWOT” is a strategic framework that has the ability to shape a business. It helps provide an organisation with precise focus points and drives the business forward.
A SWOT analysis consists of the following 4 elements of strategy:
- Strengths: In order to create a strong strategy you must understand what you do well and how build from it. Being able to understand what it is you do best provides you a resource to develop good strategy and ultimately an advantage in the market.
- Weaknesses: Analysing and understanding your weak areas will help any business in two major ways. Firstly it allows you an opportunity to improve an area which may be hurting your position. Secondly it allows you to create a strategy that does is less impacted by weak areas in your operation.
- Opportunities: Analysing for any possibilities that will have a positive impact on your business. These can be external or internal. Examples could be moving into a new international market or upskilling and promoting an individual to reform how your business operates.
- Threats: Analysing factors, either internal or external, that will have a negative impact on your business. This can be a confronting task for any business owner/decision maker but it is necessary. Without knowing the threats you face it will be impossible to combat them.
One of the most popular strategic frameworks that is used commonly across many businesses. A balanced scorecard is a tool used to identify and improve key aspects crucial to the success of any business.
This framework focuses on four important elements of strategy or KPI areas which include:
- Internal Processes
- Learning and Growth
A common mistake by many organisations for years was the sole focus on financial KPIs. While financial stability is crucial to any business, it is only a single part of the whole picture. Customer satisfaction, operational process and the ability to shift and grow are all equally vital to the overall health of a business.
Decision makers must clearly define their goals, targets and a way to measure success across each of these four KPI areas. These goals must relate to and explain the overall mission of a business.
Balanced scorecard analysis will help provide clarity to employees, improve relations with customers and strengthen the overall position of any business.
VMOST analysis is a strategic framework designed to evaluate a business’ overall strategic intent and supporting measures that align with the companies overall mission. This strategic framework was first introduced by Rakesh Sondhi in his book Total Strategy.
The internal analysis focuses on five key elements of strategy:
- V – Vision
- M- Mission
- O- Objectives
- S – Strategy
- T- Tactics
The idea behind VMOST is that all aspects of a strategic plan should feed into and have relevance to each other. Basically, the mission of any business should always reflect the ultimate vision. When you achieve this your goals, strategies and tactics will always be aligned.
VMOST has a real strength in ensuring that everyone in your business, large or small, are aligned. By removing doubt and presenting a clear plan forward employees are able to work together to reach a shared goal.
VMOST often pairs with PESTLE or other strategic frameworks to get the best of both worlds. This ensures staff understand both external and internal factors that drive the business forward.
What is the right framework for me?
In short, there is no one answer. Strategy is a forever changing face, it’s situational and constantly reacting to different factors outside its control. It is no surprise then that strategic frameworks operate in a similar fashion. They are situational tools used in accordance with the strategic plan to best facilitate your goals and objectives.
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