Strategy Dossier

Table of Contents
1. What is Strategy? ............................................................................................................................................ 1

2. Core Strategy Tools ......................................................................................................................................... 3

2.1 SWOT Analysis .............................................................................................................................................. 3

2.2 TOWS Matrix................................................................................................................................................. 5
2.3 Core Competence Analysis ........................................................................................................................... 6
2.4 PEST Analysis ............................................................................................................................. ................... 7
2.5 Porter’s Five Forces .................................................................................................................................... 10
3. Competitive Advantage ................................................................................................................................ 12
3.1 USP Analysis ................................................................................................................................................ 12
3.2 Porter’s Diamond........................................................................................................................................ 13
3.3 Porter’s 4 Corners Model .......................................................................................................................... . 14
3.4 VRIO ............................................................................................................................................................ 15
4. Strategic Options .......................................................................................................................................... 19
4.1 Developing your strategy .......................................................................................................................... . 19
4.2 Bowman’s Strategic Clock ......................................................................................................................... . 22
4.3 Mintzberg’s 5 P’s of Strategy ..................................................................................................................... 25
4.4 Simonson and Rosen’s Influence Mix ........................................................................................................ 27
4.5 Scenario Analysis ............................................................................................................................. ........... 28
5. Organizational Design .................................................................................................................................. 31
5.1 The McKinsey Framework .......................................................................................................................... 31
5.2 Greiner Curve ............................................................................................................................. ................. 32
6. Strategic Prioritization .................................................................................................................................. 35
6.1 BCG Matrix ............................................................................................................................. ..................... 35
6.2 Porter’s Value Chain ................................................................................................................................... 36
6.3 Mullin’s Seven Domains Model ................................................................................................................. 39
7. Executing Strategy ........................................................................................................................................ 43
7.1 Mission and Vision Statements ................................................................................................................. . 43
7.2 The Pyramid of Purpose ............................................................................................................................ . 44
7.3 VMOST Analysis .......................................................................................................... ................................ 47
 1. What is Strategy? (Must Do)
Strategy has been studied for years by business leaders and by business theorists. Yet, there is no
definitive answer about what strategy really is. One reason for this is that people think about strategy
in different ways. For instance, some people believe that you must analyze the present carefully,
anticipate changes in your market or industry, and, from this, plan how you'll succeed in the future.
Meanwhile, others think that the future is just too difficult to predict, and they prefer to evolve their
strategies organically.

Gerry Johnson and Kevan Scholes, authors of "Exploring Corporate Strategy," say that strategy
determines the direction and scope of an organization over the long term, and they say that it should
determine how resources should be configured to meet the needs of markets and stakeholders.
Michael Porter, a strategy expert and professor at Harvard Business School, emphasizes the need for
strategy to define and communicate an organization's unique position, and says that it should
determine how organizational resources, skills, and competencies should be combined to create
competitive advantage.

While there will always be some evolved element of strategy, at Mind Tools, we believe that planning
for success in the marketplace is important; and that, to take full advantage of the opportunities open
to them, organizations need to anticipate and prepare for the future at all levels. For instance, many
successful and productive organizations have a corporate strategy to guide the big picture. Each
business unit within the organization then has a business unit strategy, which its leaders use to
determine how they will compete in their individual markets. In turn, each team should have its own
strategy to ensure that its day-to-day activities help move the organization in the right direction. At
each level, though, a simple definition of strategy can be: "Determining how we are going to win in the
period ahead."

Strategy can be classified into 3 components:

 Corporate Strategy
 Business Unit Strategy
 Team Strategy
Corporate Strategy

In business, corporate strategy refers to the overall strategy of an organization that is made up of
multiple business units, operating in multiple markets. It determines how the corporation as a whole
supports and enhances the value of the business units within it; and it answers the question, "How do
we structure the overall business, so that all of its parts create more value together than they would
individually?" Corporations can do this by building strong internal competences, by sharing
technologies and resources between business units, by raising capital cost-effectively, by developing
and nurturing a strong corporate brand, and so on. So, at this level of strategy, we're concerned with
thinking about how the business units within the corporation should fit together, and understanding
how resources should be deployed to create the greatest possible value. Tools like Porter's Generic

1|Page
Strategies, the Boston Matrix, the ADL Matrix and VRIO Analysis will help with this type of high-level
analysis and planning. The organization's design is another important strategic factor that needs to be
considered at this level. How you structure your business, your people, and other resources – all of
these affect competitive advantage and can support your strategic goals.
Business Unit Strategy

Strategy at the business unit level is concerned with competing successfully in individual markets, and it
addresses the question, "How do we win in this market?" However, this strategy needs to be linked to the
objectives identified in the corporate level strategy. Competitive analysis, including gathering competitive
intelligence, is a great starting point for developing a business unit strategy. As part of this, it's important
to think about your core competencies, and how you can use these to meet your customers' needs in the
best possible way. From there you can use USP Analysis to understand how to strengthen your competitive
position. You will also want to explore your options for creating and exploiting new opportunities. Porter's
Five Forces is a must-have tool for this process, while a SWOT Analysis will help you understand and address
the opportunities and threats in your market.

Team Strategy

To execute your corporate and business unit strategies successfully, you need teams throughout your
organization to work together. Each of these teams has a different contribution to make, meaning that each
team needs to have its own team-level strategy, however simple. This team strategy must lead directly to
the achievement of business unit and corporate strategies, meaning that all levels of strategy support and
enhance each other to ensure that the organization is successful. This is where it's useful to define the
team's purpose and boundaries using, for example, a team charter; and to manage it using techniques such
as Management by Objectives and use of key performance indicators. You need to be working efficiently to
achieve the strategic objectives that have been set at higher levels of the organization; so, an important
element of your team strategy is to implement best practices to help your team to meet its objectives.
Activities that optimize supplier management, quality, and operational excellence are also important
factors in creating and executing an effective team strategy.

Following are few of the important categories of strategy:

 Core Strategy Tools

 Competitive Advantage
 Strategic Options
 Organization Design
 Strategic Prioritization
 Executing Strategy
We will now look into these concepts individually.

2|Page
 2. Core Strategy Tools
2.1 SWOT Analysis (Must Do)

SWOT Analysis is a useful technique for understanding your Strengths and Weaknesses, and for identifying
both the Opportunities open to you and the Threats you face. Used in a business context, a SWOT Analysis
helps you carve a sustainable niche in your market. Used in a personal context, it helps you develop your
career in a way that takes best advantage of your talents, abilities and opportunities.

What makes SWOT particularly powerful is that, with a little thought, it can help you uncover
opportunities that you are well placed to exploit. And by understanding the weaknesses of your
business, you can manage and eliminate threats that would otherwise catch you unawares. More than
this, by looking at yourself and your competitors using the SWOT framework, you can start to craft a
strategy that helps you distinguish yourself from your competitors, so that you can compete
successfully in your market.

Originated by Albert S Humphrey in the 1960s, SWOT Analysis is as useful now as it was then. You can
use it in two ways – as a simple icebreaker helping people get together to "kick off" strategy
formulation, or in a more sophisticated way as a serious strategy tool.

Strengths:
 What advantages does your organization have?
 What do you do better than anyone else?
 What unique or lowest-cost resources can you draw upon that others can't?
 What do people in your market see as your strengths?
 What factors mean that you "get the sale"?
 What is your organization's Unique Selling Proposition (USP)?
 Consider your strengths from both an internal perspective, and from the point of view of your
customers and people in your market.

Also, if you're having any difficulty identifying strengths, try writing down a list of your organization's
characteristics. Some of these will hopefully be strengths! When looking at your strengths, think about
them in relation to your competitors. For example, if all of your competitors provide high quality
products, then a high quality production process is not a strength in your organization's market, it's a
necessity.

Weaknesses:
 What could you improve?
 What should you avoid?
 What are people in your market likely to see as weaknesses?
 What factors lose you sales?
3|Page
4|Page
Again, consider this from an internal and external basis: Do other people seem to perceive weaknesses
that you don't see? Are your competitors doing any better than you? It's best to be realistic now, and
face any unpleasant truths as soon as possible.

Opportunities:
 What good opportunities can you spot?
 What interesting trends are you aware of?
Useful opportunities can come from such things as:

Changes in technology and markets on both a broad and narrow scale. Changes in government policy
related to your field. Changes in social patterns, population profiles, lifestyle changes, and so on.

Threats:
 What obstacles do you face?
 What are your competitors doing?
 Are quality standards or specifications for your job, products or services changing?
 Is changing technology threatening your position?
 Do you have bad debt or cash-flow problems?
 Could any of your weaknesses seriously threaten your business?

Further SWOT Tips:

If you're using SWOT Analysis as a serious tool (rather than as a casual "warm up" for strategy
formulation), make sure you're rigorous in the way you apply it:

 Only accept precise, verifiable statements ("Cost advantage of US$10/ton in sourcing raw
material x", rather than "Good value for money").
 Ruthlessly prune long lists of factors, and prioritize them, so that you spend your time thinking
about the most significant factors.
 Make sure that options generated are carried through to later stages in the strategy formation
process.
 Apply it at the right level - for example, you might need to apply SWOT Analysis at product or
product-line level, rather than at the much vaguer whole company level.
 Use it in conjunction with other strategy tools (for example, USP Analysis and Core Competence
Analysis) so that you get a comprehensive picture of the situation you're dealing with.

5|Page
 2.2 TOWS Matrix (Can Do)

TOWS Analysis is a variant of the classic business tool, SWOT Analysis. TOWS and SWOT are acronyms
for different arrangements of the words Strengths, Weaknesses, Opportunities and Threats.
By analyzing the external environment (threats and opportunities), and your internal environment
(weaknesses and strengths), you can use these techniques to think about the strategy of your whole
organization, a department or a team. You can also use them to think about a process, a marketing
campaign, or even your own skills and experience.
Identifying Strategic Options

SWOT or TOWS analysis helps you get a better understanding of the strategic choices that you face.
(Remember that "strategy" is the art of determining how you'll "win" in business and life.) It helps you
ask, and answer, the following questions: How do you:

 Make the most of your strengths?

 Circumvent your weaknesses?
 Capitalize on your opportunities?
 Manage your threats?
A next step of analysis, usually associated with the externally-focused TOWS Matrix, helps you think
about the options that you could pursue. To do this you match external opportunities and threats with
your internal strengths and weaknesses, as illustrated in the matrix below:

6|Page
This helps you identify strategic alternatives that address the following additional questions:

Strengths and Opportunities (SO) – How can you use your strengths to take advantage of the
opportunities?

Strengths and Threats (ST) – How can you take advantage of your strengths to avoid real and potential
threats?

Weaknesses and Opportunities (WO) – How can you use your opportunities to overcome the
weaknesses you are experiencing?
Weaknesses and Threats (WT) – How can you minimize your weaknesses and avoid threats?

2.3 Core Competence Analysis

The idea of "core competences" is one of the most important business ideas currently shaping our
world. This is one of the key ideas that lies behind the current wave of outsourcing, as businesses
concentrate their efforts on things they do well and outsource as much as they can of everything else.
In this article we explain the idea and help you use it, on both corporate and personal levels. And by
doing so, we show you how you can get ahead of your competition – and stay ahead. By using the idea,
you'll make the very most of the opportunities open to you:

You'll focus your efforts so that you develop a unique level of expertise in areas that really matter to
your customers. Because of this, you'll command the rewards that come with this expertise.

You'll learn to develop your own skills in a way that complements your company's core competences.
By building the skills and abilities that your company most values, you'll win respect and get the career
advancement that you want.

Explaining Core Competences: The Value of Uniqueness

The starting point for understanding core competences is understanding that businesses need to have
something that customers uniquely value if they're to make good profits. "Me too" businesses (with
nothing unique to distinguish them from their competition) are doomed to compete on price: The only
thing they can do to make themselves the customer's top choice is drop price. And as other "me too"
businesses do the same, profit margins become thinner and thinner. This is why there's such an
emphasis on building and selling USPs (Unique Selling Points) in business. If you're able to offer
something uniquely good, customers will want to choose your products and will be willing to pay more
for them. The question, though, is where this uniqueness comes from, and how it can be sustained. In
their key 1990 paper "The Core Competence of the Corporation," C.K.Prahalad and Gary Hamel argue
that "Core Competences" are some of the most important sources of uniqueness: These are the things
that a company can do uniquely well, and that no-one else can copy quickly enough to affect
competition.

7|Page
Prahalad and Hamel used examples of slow-growing and now-forgotten mega corporations that failed
to recognize and capitalize on their strengths. They compared them with star performers of the 1980s
(such as NEC, Canon and Honda), which had a very clear idea of what they were good at, and which
grew very fast. Because these companies were focused on their core competences, and continually
worked to build and reinforce them, their products were more advanced than those of their
competitors, and customers were prepared to pay more for them. And as they switched effort away
from areas where they were weak, and further focused on areas of strength, their products built up
more and more of a market lead.

Now you'll probably find this an attractive idea, and it's often easy to think about a whole range of
things that a company does that it can do well. However, Hamel and Prahalad give three tests to see
whether they are true core competences:

Relevance: Firstly, the competence must give your customer something that strongly influences him or
her to choose your product or service. If it does not, then it has no effect on your competitive position
and is not a core competence.

Difficulty of imitation: Secondly, the core competence should be difficult to imitate. This allows you to
provide products that are better than those of your competition. And because you're continually
working to improve these skills, means that you can sustain its competitive position.

Breadth of application: Thirdly, it should be something that opens up a good number of potential
markets. If it only opens up a few small, niche markets, then success in these markets will not be
enough to sustain significant growth.

2.4 PEST Analysis (Must Do)

Changes in your business environment can create great opportunities for your organization – and cause
significant threats. For example, opportunities can come from new technologies that help you reach
new customers, from new funding streams that allow you to invest in better equipment, and from
changed government policies that open up new markets. Threats can include deregulation that exposes
you to intensified competition; a shrinking market; or increases to interest rates, which can cause
problems if your company is burdened by debt.

PEST Analysis is a simple and widely used tool that helps you analyze the Political, Economic, Socio-
Cultural, and Technological changes in your business environment. This helps you understand the "big
picture" forces of change that you're exposed to, and, from this, take advantage of the opportunities
that they present.

PEST Analysis is useful for four main reasons:

 It helps you to spot business or personal opportunities, and it gives you advanced warning of
significant threats.

8|Page
  It reveals the direction of change within your business environment. This helps you shape
what you're doing, so that you work with change, rather than against it.
 It helps you avoid starting projects that are likely to fail, for reasons beyond your control.
 It can help you break free of unconscious assumptions when you enter a new country, region,
or market; because it helps you develop an objective view of this new environment.

Step 1: Brainstorm Factors

Political Factors to Consider

 When is the country's next local, state, or national election? How could this change government
or regional policy?
 Who are the most likely contenders for power? What are their views on business policy, and
on other policies that affect your organization?
 Depending on the country, how well developed are property rights and the rule of law, and how
widespread are corruption and organized crime? How are these situations likely to change, and
how is this likely to affect you?
 Could any pending legislation or taxation changes affect your business, either positively or
negatively?
 How will business regulation, along with any planned changes to it, affect your business? And
is there a trend towards regulation or deregulation?
 How does government approach corporate policy, corporate social responsibility,
environmental issues, and customer protection legislation? What impact does this have, and is
it likely to change?
 What is the likely timescale of proposed legislative changes?
 Are there any other political factors that are likely to change?

Economic Factors to Consider

 How stable is the current economy? Is it growing, stagnating, or declining?

 Are key exchange rates stable, or do they tend to vary significantly?
 Are customers' levels of disposable income rising or falling? How is this likely to change in the
next few years?
 What is the unemployment rate? Will it be easy to build a skilled workforce? Or will it be
expensive to hire skilled labor?
 Do consumers and businesses have easy access to credit? If not, how will this affect your
organization?
 How is globalization affecting the economic environment?
 Are there any other economic factors that you should consider?

9|Page
Socio-Cultural Factors to Consider

 What is the population's growth rate and age profile? How is this likely to change?
 Are generational shifts in attitude likely to affect what you're doing?
 What are your society's levels of health, education, and social mobility? How are these
changing, and what impact does this have?
 What employment patterns, job market trends, and attitudes toward work can you observe?
Are these different for different age groups?
 What social attitudes and social taboos could affect your business? Have there been recent
socio-cultural changes that might affect this?
 How do religious beliefs and lifestyle choices affect the population?
 Are any other socio-cultural factors likely to drive change for your business?

Technological Factors to Consider

 Are there any new technologies that you could be using?

 Are there any new technologies on the horizon that could radically affect your work or your
industry?
 Do any of your competitors have access to new technologies that could redefine their products?
 In which areas do governments and educational institutions focus their research? Is there
anything you can do to take advantage of this?
 How infrastructure changes have affected work patterns (for example, levels of remote
working)?
 Are there existing technological hubs that you could work with or learn from?
 Are there any other technological factors that you should consider?

There are variations of PEST Analysis that bring other factors into consideration. These include:
PESTLE/PESTEL: Political, Economic, Socio-Cultural, Technological, Legal, Environmental.
PESTLIED: Political, Economic, Socio-Cultural, Technological, Legal, International, Environmental,
Demographic.
STEEPLE: Social/Demographic, Technological, Economic, Environmental, Political, Legal,
Ethical. SLEPT: Socio-Cultural, Legal, Economic, Political, Technological.
LONGPESTLE: Local, National, and Global versions of PESTLE. (These are best used for understanding
change in multinational organizations.)

10 | P a g
e
Step 2: Brainstorm Opportunities

Once you've identified the changes that are taking place in your business environment, it's time to look at
each change, and brainstorm the opportunities that this could open up for you. For example, could it help
you develop new products, open up new markets, or help you make processes more efficient?

Step 3: Brainstorm Threats

It's also important to think about how these changes could undermine your business. If you understand this
early enough, you may be able to avoid these problems, or minimize their impact. For example, if a core
part of your market is in demographic decline, could you open up other areas of the market? Or if
technology is threatening a key product, can you master that technology and improve the product? (Risk
Analysis can help you to assess these threats and devise strategies to manage them.)

Step 4: Take Action

Where you have identified significant opportunities, build the actions you'll take to exploit them into
your Business Plan. Where you've identified significant risks, take appropriate action to manage or
eliminate them.

2.5 Porter’s Five Forces (Must Do)

The Porter's Five Forces tool is a simple but powerful tool for understanding where power lies in a
business situation. This is useful, because it helps you understand both the strength of your current
competitive position, and the strength of a position you're considering moving into.

With a clear understanding of where power lies, you can take fair advantage of a situation of strength,
improve a situation of weakness, and avoid taking wrong steps. This makes it an important part of your
planning toolkit.

Conventionally, the tool is used to identify whether new products, services or businesses have the
potential to be profitable. However it can be very illuminating when used to understand the balance
of power in other situations.

Understanding the Tool

Five Forces Analysis assumes that there are five important forces that determine competitive power in
a business situation. These are:

10 | P a g e
Supplier Power: Here you assess how easy it is for suppliers to drive up prices. This is driven by the
number of suppliers of each key input, the uniqueness of their product or service, their strength and
control over you, the cost of switching from one to another, and so on. The fewer the supplier choices
you have, and the more you need suppliers' help, the more powerful your suppliers are.
Buyer Power: Here you ask yourself how easy it is for buyers to drive prices down. Again, this is driven
by the number of buyers, the importance of each individual buyer to your business, the cost to them
of switching from your products and services to those of someone else, and so on. If you deal with few,
powerful buyers, then they are often able to dictate terms to you.
Competitive Rivalry: What is important here is the number and capability of your competitors. If you
have many competitors, and they offer equally attractive products and services, then you'll most likely
have little power in the situation, because suppliers and buyers will go elsewhere if they don't get a
good deal from you. On the other hand, if no-one else can do what you do, then you can often have
tremendous strength.
Threat of Substitution: This is affected by the ability of your customers to find a different way of doing
what you do – for example, if you supply a unique software product that automates an important
process, people may substitute by doing the process manually or by outsourcing it. If substitution is
easy and substitution is viable, then this weakens your power.
Threat of New Entry: Power is also affected by the ability of people to enter your market. If it costs
little in time or money to enter your market and compete effectively, if there are few economies of
scale in place, or if you have little protection for your key technologies, then new competitors can
quickly enter your market and weaken your position. If you have strong and durable barriers to entry,
then you can preserve a favorable position and take fair advantage of it.
These forces can be neatly brought together in a diagram like the one in figure below:

11 | P a g e
 3. Competitive Advantage
3.1 USP Analysis (Should Do)

A USP is one of the fundamental pieces of any solid marketing campaign. Simply stated, it’s a summary
of what makes your business unique and valuable to your target market. It answers the question: How
do your business services benefit your clients better than anyone else can?

In my previous post, I suggested replacing your traditional business plan with three key pieces, one of
which is your USP. This is because a USP can give a great deal of clarity to your business model, what
your company does and why you do it. It can define your business and most important business goals
in just a sentence. Successful USPs can be used as a company slogan and should be incorporated into
all of your marketing activities.

Step 1: Describe Your Target Audience

Before you can even start marketing your services, you need to know who you are targeting. In this
step, you want to be as specific as possible. For example, if you are a Web developer with a CMS
expertise, instead of targeting anyone who needs helping building or modifying a CMS, you may identify
your target client as a small business owner who is looking for a developer well-versed in MODx to
customize his/her site.

Step 2: Explain the Problem You Solve

From your prospective clients’ perspective, what is the individual need or challenge they face that your
business can solve for them?

Step 3: List the Biggest Distinctive Benefits

In this step, list 3-5 of the biggest benefits a client gets from choosing to work with you that they could
not get from someone else (i.e., what sets you apart from your competition). Again, thinking from the
clients’ perspective, these benefits should explain why your services are important to them and why
they would choose you over another provider.

Step 4: Define Your Promise

A big part of a successful USP is making a pledge to your clients. While this can be implied instead of
spelled out in your USP, write down this promise you make to your clients in this step.

Step 5: Combine and Rework

Once you’ve completed steps 1-4, take all of the information you listed and combine it into one
paragraph. There should be some recurring ideas and thoughts, so you’ll want to start merging
statements and rewriting in a way that flows and makes sense.

12 | P a g e
Step 6: Cut it Down
In this step, take your paragraph from step 5 and condense it even more into just a sentence. You want
your final USP to be as specific and simple as possible. Take your time while doing this exercise and do
several drafts over the course of a week until you arrive at your final USP. A fresh mind and perspective
is essential, so I would recommend doing this at the beginning of your day versus at the end when you
are tired. You also may want to come back and do this exercise again, once you try out your USP for a
while, or if anything changes with your business.

3.2 Porter’s Diamond (Can Do)

The diamond model is an economical model developed by Michael Porter in his book The Competitive
Advantage of Nations, where he published his theory of why particular industries become competitive in
particular locations. Afterwards, this model has been expanded by other scholars.

The approach looks at clusters, a number of small industries, where the competitiveness of one company
is related to the performance of other companies and other factors tied together in the value-added chain,
in customer-client relation, or in a local or regional contexts. The Porter analysis was made in two steps.
First, clusters of successful industries have been mapped in 10 important trading nations. In the second,
the history of competition in particular industries is examined to clarify the dynamic process by which
competitive advantage was created. The second step in Porter's analysis deals with the dynamic process by
which competitive advantage is created. The basic method in these studies is historical analysis. The
phenomena that are analysed are classified into six broad factors incorporated into the Porter diamond,
which has become a key tool for the analysis of competitiveness:

Factor conditions are human resources, physical resources, knowledge resources, capital resources
and infrastructure. Specialized resources are often specific for an industry and important for its
competitiveness. Specific resources can be created to compensate for factor disadvantages.

13 | P a g e
Demand conditions in the home market can help companies create a competitive advantage, when
sophisticated home market buyers pressure firms to innovate faster and to create more advanced
products than those of competitors.
Related and supporting industries can produce inputs that are important for innovation and
internationalization. These industries provide cost-effective inputs, but they also participate in the
upgrading process, thus stimulating other companies in the chain to innovate.
Firm strategy, structure and rivalry constitute the fourth determinant of competitiveness. The way in
which companies are created, set goals and are managed is important for success. But the presence of
intense rivalry in the home base is also important; it creates pressure to innovate in order to upgrade
competitiveness.
Government can influence each of the above four determinants of competitiveness. Clearly
government can influence the supply conditions of key production factors, demand conditions in the
home market, and competition between firms. Government interventions can occur at local, regional,
national or supranational level.
Chance events are occurrences that are outside of control of a firm. They are important because they
create discontinuities in which some gain competitive positions and some lose.
The Porter thesis is that these factors interact with each other to create conditions where innovation
and improved competitiveness occurs.

3.3 Porter’s 4 Corners Model (Can Do)

Porter’s four corners model is a predictive tool designed by Michael Porter that helps in determining a
competitor’s course of action. Unlike other predictive models which predominantly rely on a firm’s
current strategy and capabilities to determine future strategy, Porter’s model additionally calls for an
understanding of what motivates the competitor. This added dimension of understanding a
competitor's internal culture, value system, mindset, and assumptions helps in determining a much
more accurate and realistic reading of a competitor’s possible reactions in a given situation.

Motivation – drivers
This helps in determining competitor's action by understanding their goals (both strategic and tactical) and
their current position vis-à-vis their goals. A wide gap between the two could mean the competitor is highly
likely to react to any external threat that comes in its way, whereas a narrower gap is likely to produce a
defensive strategy. Question to be answered here is: What is it that drives the competitor? These drivers
can be at various levels and dimensions and can provide insights into future goals.

Motivation – management assumptions

The perceptions and assumptions the competitor has about itself and its industry would shape strategy.
This corner includes determining the competitor's perception of its strengths and weaknesses, organization
culture and their beliefs about competitor's goals. If the competitor thinks highly of its competition and has
a fair sense of industry forces, it is likely to be ready with plans to counter any threats to its position. On
the other hand, a competitor who has a misplaced understanding of industry

14 | P a g e
forces is not very likely to respond to a potential attack. Question to be answered here is: What are
competitor's assumption about the industry, the competition and its own capabilities?

Actions – strategy
A competitor's strategy determines how it competes in the market. However, there could be a
difference between the company's intended strategy (as stated in the annual report and interviews)
and its realized strategy (as is evident in its acquisitions, new product development, etc.). It is therefore
important here to determine the competitor's realized strategy and how they are actually performing.
If current strategy is yielding satisfactory results, it is safe to assume that the competitor is likely to
continue to operate in the same way. Questions to be answered here are: What is the competitor
actually doing and how successful is it in implementing its current strategy?

Actions – capabilities
This looks at a competitor's inherent ability to initiate or respond to external forces. Though it might
have the motivation and the drive to initiate a strategic action, its effectiveness is dependent on its
capabilities. Its strengths will also determine how the competitor is likely to respond to an external
threat. An organization with an extensive distribution network is likely to initiate an attack through its
channel, whereas a company with strong financials is likely to counter attack through price drops. The
questions to be answered here are: What are the strengths and weaknesses of the competitor? Which
areas is the competitor strong in?

3.4 VRIO (Can Do)

The VRIO framework, in a wider scope, is part of a much larger strategic scheme of a firm. The basic
strategic process that any firm goes through begins with a vision statement, and continues on through
objectives, internal & external analysis, strategic choices (both business-level and corporate- level), and
strategic implementation. The firm will hope that this process results in a competitive advantage in the
marketplace they operate in. VRIO falls into the internal analysis step of these procedures, but is used
as a framework in evaluating just about all resources and capabilities of a firm, regardless of what phase
of the strategic model it falls under. VRIO is an acronym for the four question framework you ask about
a resource or capability to determine its competitive potential: the question of Value, the question of
Rarity, the question of Imitability (Ease/Difficulty to Imitate), and the question of Organization (ability
to exploit the resource or capability).

The Question of Value: "Is the firm able to exploit an opportunity or neutralize an external threat
with the resource/capability?"
The Question of Rarity: "Is control of the resource/capability in the hands of a relative few?"
The Question of Imitability: "Is it difficult to imitate, and will there be significant cost disadvantage to
a firm trying to obtain, develop, or duplicate the resource/capability?"
The Question of Organization: "Is the firm organized, ready, and able to exploit the
resource/capability?"

15 | P a g e
Question of Value: The basic question asked by the V in the VRIO framework for internal analysis is “Is
this resource or capability valuable to the focal firm?” In this case, the definition of value is whether or
not the resource or capability works to exploit an opportunity or mitigate a threat in the marketplace.
If it does do one of those two things, it can be considered a strength of the company. However if it does
not work to exploit an opportunity or mitigate a threat, it is a weakness. Occasionally, some resources
or capabilities could be considered strengths in one industry and weaknesses in a different one.
(Strategic Management Journal, 5, pp. 171–180. Barney, J.B. (1991)). Six common examples of
opportunities firms could attempt to exploit are technological change, demographic change, cultural
change, economic climate, specific international events, and legal and political conditions.
Furthermore, five threats that a resource or capability could mitigate are the threat of buyers, threat
of suppliers, threat of entry, threat of rivalry, and threat of substitutes.

Generally, this exploitation of opportunity or mitigation of threat will result in one of two more
outcomes: an increase in revenues or a decrease in costs (or both).

A great way to identify possibly valuable resources or capabilities is by looking into the company’s value
chain. In the value chain, a business develops its products and services step-by-step, with each function
along the way adding some sort of value to the product or service. The choices a firm makes regarding
its value chain (including how to operate, and which steps to operate in) is closely tied to the firms
resources and capabilities, therefore making it a valuable tool in identifying value in resources and
capabilities. If some asset that your company has allows you to operate more effectively in a certain
portion of the value chain, chances are that resource will be considered valuable by the VRIO
framework.

Question of Rarity
Having rarity in a firm can lead to competitive advantage. Rarity is when a firm has a valuable resource or
capability that is absolutely unique among a set of current and potential competitors. How to determine if
your resource is rare and creates competitive advantage? A firm’s resources and capabilities must be both
short in supply and persist over time to be a source of sustained competitive advantage. If both elements
(short supply and persistence over time) aren’t met, then the resources and capabilities a firm has can’t be
a sustained competitive advantage. If a resource is not rare, then perfect competition dynamics are likely
to be observed. Example of Rarity - A janitor who defines his/her job as helping the firm make and sell
better products instead of just referring to their job as simply cleaning up facilities is quite unusual. Most
individuals would agree that this firm has a source of competitive advantage over other firms in their
industry because their objectives and strategies are transparent throughout the entire firm; unlike many
other firms where only top tier management is the only group that believes in their objectives and strategies
(Barney & Hesterly, 2011).

16 | P a g e
Question of Imitability
The primary question of “imitability” asked in the VRIO framework in internal analysis is that “Do firms
without a resource or capability face a cost disadvantage in obtaining or developing it compared to
firms that already possess it?” Firms with valuable and rare resources, which are hard to imitate by
other firms, can gain the first-mover advantages in the market and can hence gain competitive
advantage.

A firm can either exploit an external opportunity or neutralize an external threat by using its rare and
valuable resources. In this case, the firm can gain competitive advantage. When the firm’s competitors
discover this competitive advantage, they may respond in two ways. First, they can choose to ignore
the profit gaining by the competitive advantage and continue to operate in their old ways. Second, they
can choose to analyze and duplicate the competitive strategy of its rival. If there is no cost or little cost
in obtaining this rare and valuable resource, the fellow firms can imitate the competitive advantage in
order to gain competitive parity (firms that create the same economic value as their rivals experience
competitive parity). However, sometimes it is hard for other firms to get access to the resources and
imitate the innovative company’s strategy. As a result, the innovative companies that implement its
strategies based on costly-to-imitate and valuable resources can gain long-term competitive
advantage, which ensures a company’s sustained success (Hill & Jones, 1998). Hence, to sustain the
competitive advantage, it is not sufficient for a firm's resources and capabilities to be valuable and rare
- they should also be inimitable.

Forms of imitation
In most cases, imitation appears in two ways, direct duplication or substitution. After observing other
firms’ competitive advantage, a firm can directly imitate the resource possessed by the innovative firm.
If the cost to imitate is high, the competitive advantage will be sustained. If not, the competitive
advantage will be temporary. Otherwise, an imitating firm can attempt to use a substitute in order to
gain similar competitive advantage of the innovative firm.
Cost of imitation: Cost of imitation is usually high in order to gain a competitive advantage due to the
following reasons: unique historical conditions, causal ambiguity, social complexity, patents.
Unique Historical Conditions: an innovative firm gains low-cost access to rare resources in a particular
time and space.
Causal Ambiguity: an imitating firm cannot tell the factors that lead to the competitive advantage of
an innovative firm.
Social Complexity: when the resources involved in gaining competitive advantage is based on
interpersonal relationship, culture and other social background.
Patents: a source of long-term competitive advantage certificated by authority in a few industries such
as pharmaceuticals (Barney & Hesterly, 2011).

17 | P a g e
Question of Organization
Once you have realized the value, rarity and imitability of your company’s resources and capabilities,
the next step is to organize your company in a way to exploit these resources. If done successfully, your
company can enjoy a period of sustained competitive advantage. There are many components to this
question of organization. They include, but are not limited to, the company’s formal reporting
structure, management control systems and compensation policies. Formal reporting structures are
simply a description of who in the firm reports to whom. Management control systems include both
formal and informal means to make sure that managers’ decisions align with a firm’s strategies. Formal
control systems can consist of budgeting and reporting activities that keep top management informed
of decisions made by employee’s lower down in the firm. Informal controls can include a company’s
culture and encouraging employees to monitor each other. Firms incentivize their employees to behave
a desired way through compensation policies. These policies can include bonuses, stocks or salary
increases but can also include non-monetary incentives such as additional vacation days or a larger
office. These components of organization are known at complementary capabilities and resources
because alone they do not provide much value. However, in combination with a firm’s other resources
and capabilities, it can result in sustained competitive advantage. Without the correct organization,
even firms with valuable, rare and costly to imitate resources and capabilities can suffer competitive
disadvantage.

18 | P a g e
 4. Strategic Options
4.1 Developing your strategy (Must Do)
Approaches to Strategy
In a for-profit company, for which competition and profitability are important, your goals will differ
from those of a non-profit or government department. Likewise, objectives for a department or team
will have a different scope from objectives for your organization as a whole. For example, and
depending on scope and circumstances, you may want to develop strategies to:
 Increase profitability.
 Gain more market share.
 Increase approval ratings, or boost customer satisfaction.
 Complete a project under budget.
 To determine your strategy, you must understand fully the internal and external environmental
factors that affect you. With that understanding, you can identify your clear advantages and use
these to be successful. From there, you can make informed choices and implement your
strategy effectively.

So, strategy creation follows a three-stage process:

 Analysing the context in which you're operating.
 Identifying strategic options.
 Evaluating and selecting the best options.

Stage 1: Analysing Your Context and Environment

In this first stage, you ensure that you fully understand yourself and your environment. Do the
following:
Analyse Your Organization
Firstly, examine your resources, liabilities, capabilities, strengths, and weaknesses. A SWOT Analysis is
a great tool for uncovering what you do well and where you have weaknesses, providing that you use
it rigorously. It's much easier to achieve your objectives when your strategy uses your strengths
without exposing your weaknesses.
Also, look at your Core Competencies. These highlight your unique strengths, and help you think about
how you can set yourself apart from your competitors.
Analyse Your Environment
Now you need to examine your current operating environment to predict where things are moving.
Are there exciting opportunities that you should pursue? What future scenarios are likely in your
industry, and how will these impact the work that you do?
PEST Analysis, Porter's Diamond, and Porter's Five Forces are great starting points for analyzing your
environment. They show where you have a strong position within the larger environment, and where
you may have issues.

19 | P a g e
As you prepare to create your strategy, make sure that you're working in a way that's aligned with
changes in your operating environment, rather than working against them. These external factors are
often beyond your control, so if you pursue a strategy that requires a change in one of these elements,
you may have a long, exhausting, unprofitable battle ahead of you.

Analyse Your Customers and Stakeholders

Your strategy defines how you'll win, and winning is typically framed by how well you satisfy your
customers. For-profit companies must keep their customers and shareholders happy. Governments,
non-profits, and project teams all have other stakeholders to satisfy as well. Strategy creation must
consider these needs.
Identify your clients and stakeholders. What do your clients want? And who are the key stakeholders
in your success? A Stakeholder Analysis will help you uncover these needs and preferences.
Also, look at your market in detail. Answer key questions such as "How is our market segmented?",
"What subpopulations can we reach cost-effectively?" and "What is our optimal Marketing Mix?"
Analyse Your Competitors
In a traditional for-profit company, you must understand how your products compare with
competitors' products, and what your competitors' competencies are. How easy, or difficult, is it to
enter your market? What alternatives do customers have?
Our article on USP Analysis helps you identify ways in which you can compete effectively. You'll also
find many useful tools that can help you understand competitors in our article on Competitive
Intelligence.
Non-profits, departmental teams and projects have competitors too. Other projects and teams within
the department compete for money and other resources. Therefore, you must prove that you can add
value, meet objectives, and contribute to organizational success.

Stage 2: Identifying Strategic Options

In Stage 1, you developed an understanding of how your organization or team fits within the context
of the internal and external environments. Now it's time to think about the different things that you
could do to create a clear advantage, and meet your objectives. Here are some fundamental activities
that can help you make this decision.

Brainstorm Options
Use creativity tools like Brainstorming, Reverse Brainstorming and Starbursting to explore projects that
you could run to develop competitive advantage. Guide your brainstorming with reference to the
organization's mission statement, but, depending on your role in the organization, consider how far
you should be constrained by this.

20 | P a g e
Examine Opportunities and Threats
Your SWOT Analysis identified some of the main opportunities and threats you face. Using this as a
starting point, brainstorm additional ways to maximize your opportunities, minimize your threats, or
perhaps even turn your threats into opportunities.

Solve Problems
A problem-solving approach can also help at this stage. If your problem is that you're not achieving
your goals, ask yourself how you can ensure that you do. (If everyone in your industry finds it hard to
deal with a particular problem, then you may gain a competitive edge by dealing with it.)
For example, if you want to increase your customer satisfaction ratings in an industry plagued by poor
customer relations, your starting position is "low satisfaction." Brainstorm why this is the case, and
create strategic options that would increase satisfaction. Tools like Root Cause Analysis, the 5 Whys,
and Appreciative Inquiry can give you some interesting new perspectives on these problems.

Stage 3: Evaluating and Selecting Strategic Options

The final stage is to evaluate strategic options in detail, and select the ones that you want to pursue.

Evaluate Options
By this stage, you've probably identified a range of good projects that you could run. You must now
evaluate these to choose the best strategic options. Consider every option you've identified, but don't
make a final judgment until you've completed your assessment.
Start by evaluating each option in the light of the contextual factors you identified in Stage 1. What do
these tell you about each option?
Techniques like Risk Analysis, Failure Modes and Effects Analysis and Impact Analysis can help you spot
the possible negative consequences of each option, which can be very easy to miss. Make sure that
you explore these thoroughly.
Many options will be analysed on a financial basis. Here, techniques like Cost-Benefit Analysis, Break-
Even Analysis, use of Net Present Values (NPVs) and Internal Rates of Return (IRRs), and Decision Trees
are helpful.
Decision Matrix Analysis is particularly helpful for bringing together financial and non-financial decision
criteria. It helps you weight individual decision criteria, and consider subjective features - like team fit
and the likelihood of team buy-in - as well as objective, tangible factors like cost and return on
investment.
Choose the Best Way Forward
With your evaluation complete, you now must choose the best strategic option or strategic options,
making sure that you don't choose so many options that you spread your resources too thinly.
Check your ideas for consistency with your organization's Vision, Mission and Values, and update these if
necessary. It's easy to forget about these critical elements during strategic planning, so ensure that what
you want to "win" is something that contributes towards the organization's overall purpose.

21 | P a g e
Check your assumptions using the Ladder of Inference. This helps you confirm the soundness of the
reasoning process used to develop your strategy.

4.2 Bowman’s Strategic Clock (Can Do)

In many open markets, most goods and services can be purchased from any number of companies, and
customers have a tremendous amount of choice. It's the job of companies in the market to find their
competitive edge and meet customers' needs better than the next company. So, how, given the high
degree of competitiveness among companies in a marketplace, does one company gain competitive
advantage over the others? When there are only a finite number of unique products and services out
there, how do different organizations sell basically the same things at different prices and with different
degrees of success?

This is a classic question that has been asked for generations of business professionals. In 1980, Michael
Porter published his seminal book, "Competitive Strategy: Techniques for Analyzing Industries and
Competitors", where he reduced competition down to three classic strategies:

 Cost leadership
 Product differentiation
 Market segmentation

These generic strategies represented the three ways in which an organization could provide its
customers with what they wanted at a better price, or more effectively than others. Essentially Porter
maintained that companies compete either on price (cost), on perceived value (differentiation), or by
focusing on a very specific customer (market segmentation).

Competing through lower prices or through offering more perceived value became a very popular way
to think of competitive advantage. For many businesspeople, however, these strategies were a bit too
general, and they wanted to think about different value and price combinations in more detail. Looking
at Porter's strategies in a different way, in 1996, Cliff Bowman and David Faulkner developed Bowman's
Strategy Clock. This model of corporate strategy extends Porter's three strategic positions to eight, and
explains the cost and perceived value combinations many firms use, as well as identifying the likelihood
of success for each strategy. Figure below, represents Bowman's eight different strategies that are
identified by varying levels of price and value.

22 | P a g e
Position 1: Low Price/Low Value

Firms do not usually choose to compete in this category. This is the "bargain basement" bin and not a
lot of companies want to be in this position. Rather it's a position they find themselves forced to
compete in because their product lacks differentiated value. The only way to "make it" here is through
cost effectively selling volume, and by continually attracting new customers. You won't be winning any
customer loyalty contests, but you may be able to sustain yourself as long as you stay one step ahead
of the consumer (we're not going to mention any names here!) Products are inferior but the prices are
attractive enough to convince consumers to try them once.
Position 2: Low Price

Companies competing in this category are the low cost leaders. These are the companies that drive
prices down to bare minimums, and they balance very low margins with very high volume. If low cost
leaders have large enough volume or strong strategic reasons for their position, they can sustain this
approach and become a powerful force in the market. If they don't, they can trigger price wars that
only benefit consumers, as the prices are unsustainable over anything but the shortest of terms.
Walmart is a key example of a low price competitor that persuades suppliers to enter the low price
arena with the promise of extremely high volumes.

23 | P a g e
Position 3: Hybrid (moderate price/moderate differentiation)

Hybrids are interesting companies. They offer products at a low cost, but offer products with a higher
perceived value than those of other low cost competitors. Volume is an issue here but these companies
build a reputation of offering fair prices for reasonable goods. Good examples of companies that
pursue this strategy are discount department stores. The quality and value is good and the consumer
is assured of reasonable prices. This combination builds customer loyalty.

Position 4: Differentiation

Companies that differentiate offer their customers high perceived-value. To be able to afford to do this
they either increase their price and sustain themselves through higher margins, or they keep their
prices low and seek greater market share. Branding is important with differentiation strategies as it
allows a company to become synonymous with quality as well as a price point. Nike is known for high
quality and premium prices; Reebok is also a strong brand but it provides high value with a lower
premium.
Position 5: Focused Differentiation

These are your designer products: High perceived value and high prices. Consumers will buy in this
category based on perceived value alone. The product does not necessarily have to have any more real
value, but the perception of value is enough to charge very large premiums. Think Gucci, Armani, Rolls
Royce. Clothes either cover you or they don't, and a car either gets you around the block or it doesn't.
If you believe pulling up in your Rolls Royce Silver Shadow is worth 25 times more than in an economy
Ford then you will pay the premium. Highly targeted markets and high margins are the ways these
companies survive.
Position 6: Increased Price/Standard Product

Sometimes companies take a gamble and simply increase their prices without any increase to the value
side of the equation. When the price increase is accepted, they enjoy higher profitability. When it isn't,
their share of the market plummets, until they make an adjustment to their price or value. This strategy
may work in the short term, but it is not a long-term proposition as an unjustified price premium will
soon be discovered in a competitive market.

Position 7: High Price/Low Value

This is classic monopoly pricing, in a market where only one company offers the goods or service. As a
monopolist, you don't have to be concerned about adding value because, if customers need what you
offer, they will pay the price you set, period. Fortunately for consumers in a market economy,
monopolies do not last very long, if they ever get started, and companies are forced to compete on a
more level playing field.

24 | P a g e
Position 8: Low Value/Standard Price

Any company that pursues this type of strategy will lose market share. If you have a low value product,
the only way you will sell it is on price. You can't sell day-old bread at fresh prices. Mark it down a few
cents, and suddenly you have a viable product. That is the nature of consumer behavior, and you will
not get around it, no matter how hard you try.

4.3 Mintzberg’s 5 P’s of Strategy (Can Do)

What's your approach to developing strategy? Many of us brainstorm opportunities, and then plan how
we'll take advantage of them. Unfortunately, while this type of approach is important, we need to think
about much more than this if we want to be successful. After all, there's no point in developing a
strategy that ignores competitors' reactions, or doesn't consider the culture and capabilities of your
organization. And it would be wasteful not to make full use of your company's strengths – whether
these are obvious or not. Management expert, Henry Mintzberg, argued that it's really hard to get
strategy right. To help us think about it in more depth, he developed his 5 Ps of Strategy – five different
definitions of (or approaches to) developing strategy.

About the 5 Ps
Mintzberg first wrote about the 5 Ps of Strategy in 1987. Each of the 5 Ps is a different approach to
strategy. They are:

 Plan
 Ploy
 Pattern
 Position
 Perspective

By understanding each P, you can develop a robust business strategy that takes full advantage of your
organization's strengths and capabilities.

1. Strategy as a Plan
Planning is something that many managers are happy with, and it's something that comes naturally to
us. As such, this is the default, automatic approach that we adopt – brainstorming options and planning
how to deliver them. This is fine, and planning is an essential part of the strategy formulation process.
The problem with planning, however, is that it's not enough on its own. This is where the other four Ps
come into play.

25 | P a g e
2. Strategy as Ploy
Mintzberg says that getting the better of competitors, by plotting to disrupt, dissuade, discourage, or
otherwise influence them, can be part of a strategy. This is where strategy can be a ploy, as well as a
plan. For example, a grocery chain might threaten to expand a store, so that a competitor doesn't move
into the same area; or a telecommunications company might buy up patents that a competitor could
potentially use to launch a rival product.

Here, techniques and tools such as the Futures Wheel, Impact Analysis and Scenario Analysis can help
you explore the possible future scenarios in which competition will occur. Our article on Game Theory
then gives you powerful tools for mapping out how the competitive "game" is likely to unfold, so that
you can set yourself up to win it.

3. Strategy as Pattern
Strategic plans and ploys are both deliberate exercises. Sometimes, however, strategy emerges from
past organizational behaviour. Rather than being an intentional choice, a consistent and successful way
of doing business can develop into a strategy.

For instance, imagine a manager who makes decisions that further enhance an already highly
responsive customer support process. Despite not deliberately choosing to build a strategic advantage,
his pattern of actions nevertheless creates one.

To use this element of the 5 Ps, take note of the patterns you see in your team and organization. Then,
ask yourself whether these patterns have become an implicit part of your strategy; and think about the
impact these patterns should have on how you approach strategic planning.

Tools such as USP Analysis and Core Competence Analysis can help you with this. A related tool, VRIO
Analysis, can help you explore resources and assets (rather than patterns) that you should focus on
when thinking about strategy.

4. Strategy as Position
"Position" is another way to define strategy – that is, how you decide to position yourself in the
marketplace. In this way, strategy helps you explore the fit between your organization and your
environment, and it helps you develop a sustainable competitive advantage.

For example, your strategy might include developing a niche product to avoid competition, or choosing
to position yourself amongst a variety of competitors, while looking for ways to differentiate your
services.

When you think about your strategic position, it helps to understand your organization's "bigger
picture" in relation to external factors. To do this, use PEST Analysis, Porter's Diamond, and Porter's

26 | P a g e
Five Forces to analyse your environment – these tools will show where you have a strong position, and
where you may have issues.

As with "Strategy as a Pattern," Core Competence Analysis, USP Analysis, and VRIO Analysis can help
you craft a successful competitive position. You can also use SWOT Analysis to identify what you do
well, and to uncover opportunities.

5. Strategy as Perspective
The choices an organization makes about its strategy rely heavily on its culture – just as patterns of
behaviour can emerge as strategy, patterns of thinking will shape an organization's perspective, and
the things that it is able to do well.

For instance, an organization that encourages risk-taking and innovation from employees might focus
on coming up with innovative products as the main thrust behind its strategy. By contrast, an
organization that emphasizes the reliable processing of data may follow a strategy of offering these
services to other organizations under outsourcing arrangements.

4.4 Simonson and Rosen’s Influence Mix (Should Do)

Have you made any big purchases recently? Perhaps you bought a new laptop or tablet, or upgraded
your phone? If so, how did you decide which model to choose?

People are increasingly turning to online reviews and social media before they make an important
purchase. So, how should you take account of this in your marketing planning?

This article looks at Simonson and Rosen's Influence Mix. This helps you think about the impact of social
media on your customers' purchasing decisions, so that you can develop a well-focused marketing
strategy.

About the Tool

Itamar Simonson and Emanuel Rosen are experts in how social media is changing the way that people
shop, by making other people's opinions more accessible.

In their 2014 book, "Absolute Value," they explain how the Internet is moving us towards an age of
nearly perfect information. This allows people to predict, with great accuracy, what it would be like to
own and use a product before they buy it.

Where people's purchasing decisions are strongly influenced by online reviews and peer-to-peer
information sharing, you clearly need to take account of this in your marketing. However, customers
don't assess all purchases in the same way.

27 | P a g e
Simonson and Rosen identified three main factors that influence customers' purchasing decisions,
and published them in the January/February 2014 issue of the Harvard Business Review. These are:

 Prior preferences, beliefs, and experiences (P).

 Information from marketers, such as packaging, pricing, and advertising (M).
 Input from other people, such as friends, family, and peers (O).
 The more a person is influenced by one of these factors, the less influence the other factors will
have. To make the most of people's preferences, you need to identify which factor is the most
influential, and then tailor your marketing strategy to fit this.

4.5 Scenario Analysis (Should Do)

Imagine that you're facing a really significant decision, which could fundamentally affect your personal life,
or could determine the future of your business. Maybe you're thinking about "stretching your finances" to
buy a bigger house. Or maybe you're thinking of launching a new product which you know could
"cannibalize" existing sales. Perhaps you've done the numbers, and these seem OK. But deep down, you
dread what could go wrong. After all, no one has a fool proof vision of the future, and while you may have
strong instincts as to how things may develop, any single projection of the future is clearly vulnerable to
disruption by a range of different factors. Scenario Analysis helps you bring these fears into the open and
gives you a rational and professional framework for exploring them.

Using it, you can make decisions in the context of the different futures that may come to pass. The act
of creating scenarios forces you to challenge your assumptions about the future. By shaping your plans
and decisions based on the most likely scenarios, you can ensure that your decisions are sound even if
circumstances change.

In Scenario Analysis, the scenarios are stories about the way the world might turn out if certain trends
continue and if certain conditions are met.

We offer a simple five-phase Scenario Analysis process, as follows:

1. Define the Problem

First, decide what you want to achieve, and think about the time horizon you want to look at. This will
be driven by the scale of the plans and scenarios that you want to test.

Example:
Barry Holtz was starting to plan a new business that focused on helping corporate clients implement a
popular financial management software package. He wanted the business to grow to a reasonable size
over the next five years. With this in mind, he decided to use scenario thinking to look at what the
future might hold over this period.

28 | P a g e
2. Gather Data
Next, identify the key factors, trends, and uncertainties that may affect the plan. If your plan is a large-
scale one, you may find it helpful to do a PEST Analysis of the context in which it will be implemented
to identify political, economic, socio-cultural, and technological factors that could impact it. Then,
identify the key assumptions on which the plan depends.

Example:
Amongst others, Barry identified the following factors as important:

The state of the economy (people don't buy much new software in a recession).
The ongoing importance of new software in increasing clients' productivity.
Whether the software package would maintain its market position.
Whether he could recruit enough skilled implementation consultants.

3. Separate Certainties from Uncertainties

You may be confident in some of your assumptions, and you may be sure that certain trends will work
through in a particular way. After challenging them appropriately, adopt these trends as your
"certainties." Separate these from the "uncertainties" – trends that may or may not be important, and
underlying factors that may or may not change. List these uncertainties in priority order, with the
largest, most significant uncertainties at the top of the list.

Example:
Based on analysis of recent vacancy rates, Barry was confident that, provided he paid attention to
recruitment, he could find a sufficient number of new employees. And seeing the new technologies
shortly to be deployed by the software vendor, he was confident that clients would reap considerable
efficiency gains by implementing the next versions of the software.

He was anxious, however, that a global software giant might enter the market and displace the current
vendor. Furthermore, he'd seen plenty of implementation companies go bust in the previous recession.

4. Develop Scenarios
Now, starting with your top uncertainty, take a moderately good outcome and a moderately bad
outcome, and develop a story of the future around each that fuses your certainties with the outcome
you've chosen. Then, do the same for your second most serious uncertainty. Don't do too many
scenarios in this step, or you may find yourself quickly hitting "diminishing returns."

29 | P a g e
Example:
Barry decided to prepare the following scenarios:
"All's going well": The economy grows steadily over the five-year period with only minor slowdowns,
and he's "backed the right horse." The software vendor consolidates itself in the market and moves
into a position of market leadership.
"Economic slowdown": Toward the end of the period, a commodity price shock pushes the economy
into mild recession. While some new software implementations do go ahead, many clients decide to
defer implementation until things pick up.
"Intensifying competition": The global giant enters the market. While it takes time to get its products
established, toward the end of the period, it is starting to squeeze the current supplier.

5. Use the Scenarios in Your Planning

You can now use the scenarios you came up with in your planning.

Example:
Having looked at the scenarios, Barry's aware that there's some risk to the business in the medium
term. In his business planning, he decides to gear the business to use a mix of full-time staff and short-
term contractors so he can scale his business quickly, depending on the circumstances. And he notes
that he's going to have to monitor the activities of software companies entering the market so he can
cross-train personnel if a new entrant starts to threaten the existing supplier.

30 | P a g e
 5. Organizational Design
5.1 The McKinsey Framework (Must Do)
How do you go about analyzing how well your organization is positioned to achieve its intended
objective? This is a question that has been asked for many years, and there are many different answers.
Some approaches look at internal factors, others look at external ones, some combine these
perspectives, and others look for congruence between various aspects of the organization being
studied. Ultimately, the issue comes down to which factors to study. While some models of
organizational effectiveness go in and out of fashion, one that has persisted is the McKinsey 7S
framework. Developed in the early 1980s by Tom Peters and Robert Waterman, two consultants
working at the McKinsey & Company consulting firm, the basic premise of the model is that there are
seven internal aspects of an organization that need to be aligned if it is to be successful.

The 7S model can be used in a wide variety of situations where an alignment perspective is useful, for
example, to help you:

 Improve the performance of a company.

 Examine the likely effects of future changes within a company.
 Align departments and processes during a merger or acquisition.
 Determine how best to implement a proposed strategy.

The Seven Elements

The McKinsey 7S model involves seven interdependent factors which are categorized as either "hard"
or "soft" elements:

Hard Soft
Strategy Shared Values
Structure Skills
System Style
Staff

"Hard" elements are easier to define or identify and management can directly influence them: These
are strategy statements; organization charts and reporting lines; and formal processes and IT systems.
"Soft" elements, on the other hand, can be more difficult to describe, and are less tangible and more
influenced by culture. However, these soft elements are as important as the hard elements if the
organization is going to be successful.

Strategy: the plan devised to maintain and build competitive advantage over the competition.
Structure: the way the organization is structured and who reports to whom.

Systems: the daily activities and procedures that staff members engage in to get the job done.

31 | P a g e
Shared Values: called "superordinate goals" when the model was first developed, these are the core
values of the company that are evidenced in the corporate culture and the general work ethic.
Style: the style of leadership adopted.
Staff: the employees and their general capabilities.
Skills: the actual skills and competencies of the employees working for the company.

5.2 Greiner Curve (Can Do)

Fast-growing companies can often be chaotic places to work. As workloads increase exponentially,
approaches which have worked well in the past start failing. Teams and people get overwhelmed with
work. Previously-effective managers start making mistakes as their span of control expands. And
systems start to buckle under increased load. While growth is fun when things are going well, when
things go wrong, this chaos can be intensely stressful. More than this, these problems can be damaging
(or even fatal) to the organization.

The "Greiner Curve" is a useful way of thinking about the crises that organizations experience as they
grow. By understanding it, you can quickly understand the root cause of many of the problems you're
likely to experience in a fast growing business. More than this, you can anticipate problems before they
occur, so that you can meet them with pre-prepared solutions.

32 | P a g e
Understanding the Theory
Greiner's Growth Model describes phases that organizations go through as they grow. All kinds of
organizations from design shops to manufacturers, construction companies to professional service firms
experience these. Each growth phase is made up of a period of relatively stable growth, followed by a
"crisis" when major organizational change is needed if the company is to carry on growing.

Dictionaries define the word "crisis" as a "turning point", but for many of us it has a negative meaning
to do with panic. While companies certainly have to change at each of these points, if they properly
plan for there is no need for panic and so we will call them "transitions".

Larry E. Greiner originally proposed this model in 1972 with five phases of growth. Later, he added a
sixth phase (Harvard Business Review, May 1998). The six growth phases are described below:

Phase 1: Growth through Creativity

Here, the entrepreneurs who founded the firm are busy creating products and opening up markets.
There aren't many staff, so informal communication works fine, and rewards for long hours are
probably through profit share or stock options. However, as more staff join, production expands and
capital is injected, there's a need for more formal communication. This phase ends with a Leadership
Crisis, where professional management is needed. The founders may change their style and take on
this role, but often someone new will be brought in.

Phase 2: Growth through Direction

Growth continues in an environment of more formal communications, budgets and focus on separate
activities like marketing and production. Incentive schemes replace stock as a financial reward.
However, there comes a point when the products and processes become so numerous that there are
not enough hours in the day for one person to manage them all, and he or she can't possibly know as
much about all these products or services as those lower down the hierarchy.

33 | P a g e
This phase ends with an Autonomy Crisis: New structures based on delegation are called for.

Phase 3: Growth through Delegation

With mid-level managers freed up to react fast to opportunities for new products or in new markets,
the organization continues to grow, with top management just monitoring and dealing with the big
issues (perhaps starting to look at merger or acquisition opportunities). Many businesses flounder at
this stage, as the manager whose directive approach solved the problems at the end of Phase 1 finds
it hard to let go, yet the mid-level managers struggle with their new roles as leaders. This phase ends
with a Control Crisis: A much more sophisticated head office function is required, and the separate
parts of the business need to work together.

Phase 4: Growth through Coordination and Monitoring

Growth continues with the previously isolated business units re-organized into product groups or
service practices. Investment finance is allocated centrally and managed according to Return on
Investment (ROI) and not just profits. Incentives are shared through company-wide profit share
schemes aligned to corporate goals. Eventually, though, work becomes submerged under increasing
amounts of bureaucracy, and growth may become stifled. This phase ends on a Red-Tape Crisis: A new
culture and structure must be introduced.

Phase 5: Growth through Collaboration

The formal controls of phases 2-4 are replaced by professional good sense as staff group and re-group
flexibly in teams to deliver projects in a matrix structure supported by sophisticated information
systems and team-based financial rewards. This phase ends with a crisis of Internal Growth: Further
growth can only come by developing partnerships with complementary organizations.

Phase 6: Growth through Extra-Organizational Solutions

Greiner's recently added sixth phase suggests that growth may continue through merger, outsourcing,
networks and other solutions involving other companies. Growth rates will vary between and even
within phases. The duration of each phase depends almost totally on the rate of growth of the market
in which the organization operates. The longer a phase lasts, though, the harder it will be to implement
a transition.

34 | P a g e
 6. Strategic Prioritization
6.1 BCG Matrix (Must Do)

The growth–share matrix (aka the product portfolio, BCG-matrix, Boston matrix, Boston Consulting
Group analysis, portfolio diagram) is a chart that was created by Bruce D. Henderson for the Boston
Consulting Group in 1970 to help corporations to analyze their business units, that is, their product
lines. This helps the company allocate resources and is used as an analytical tool in brand marketing,
product management, strategic management, and portfolio analysis. Analysis of market performance
by firms using its principles has recently called its usefulness into question.

To use the chart, analysts plot a scatter graph to rank the business units (or products) on the basis of
their relative market shares and growth rates.

Cash cows is where company has high market share in a slow-growing industry. These units typically
generate cash in excess of the amount of cash needed to maintain the business. They are regarded as
staid and boring, in a "mature" market, and every corporation would be thrilled to own as many as
possible. They are to be "milked" continuously with as little investment as possible, since such
investment would be wasted in an industry with low growth.
Dogs, more charitably called pets, are units with low market share in a mature, slow-growing industry.
These units typically "break even", generating barely enough cash to maintain the business's market
share. Though owning a break-even unit provides the social benefit of providing jobs and possible
synergies that assist other business units, from an accounting point of view such a unit is worthless,
not generating cash for the company. They depress a profitable company's return on assets ratio, used
by many investors to judge how well a company is being managed. Dogs, it is thought, should be sold
off.
Question marks (also known as problem children) are business operating in a high market growth, but
having a low market share. They are a starting point for most businesses. Question marks have a
potential to gain market share and become stars, and eventually cash cows when market growth slows.
If question marks do not succeed in becoming a market leader, then after perhaps years of cash
consumption, they will degenerate into dogs when market growth declines. Question marks must be
analyzed carefully in order to determine whether they are worth the investment required to grow
market share.
Stars are units with a high market share in a fast-growing industry. They are graduated question marks
with a market or niche leading trajectory, for example: amongst market share front-runners in a high-
growth sector, and/or having a monopolistic or increasingly dominant USP with burgeoning/fortuitous
proposition drive(s) from: novelty (e.g. Last.FM upon CBS Interactive's due diligence),
fashion/promotion (e.g. newly prestigious celebrity branded fragrances), customer loyalty (e.g.
greenfield or military/gang enforcement backed, and/or innovative, grey-market/illicit retail of
addictive drugs, for instance the British East India Company's, late-1700s opium-based Qianlong

35 | P a g e
Emperor embargo-busting, Canton System), goodwill (e.g. monopsonies) and/or gearing (e.g.
oligopolies, for instance Portland cement producers near boomtowns),[citation needed] etc. The hope
is that stars become next cash cows.

6.2 Porter’s Value Chain (Should Do)

How does your organization create value? How do you change business inputs into business outputs
in such a way that they have a greater value than the original cost of creating those outputs?

This isn't just a dry question: it's a matter of fundamental importance to companies, because it addresses
the economic logic of why the organization exists in the first place. Manufacturing companies create value
by acquiring raw materials and using them to produce something useful. Retailers bring together a range
of products and present them in a way that's convenient to customers, sometimes supported by services
such as fitting rooms or personal shopper advice. And insurance companies offer policies to customers that
are underwritten by larger re-insurance policies. Here, they're packaging

36 | P a g e
these larger policies in a customer-friendly way, and distributing them to a mass audience. The value
that's created and captured by a company is the profit margin:
Value Created and Captured – Cost of Creating that Value = Margin

The more value an organization creates, the more profitable it is likely to be. And when you provide
more value to your customers, you build competitive advantage.

Understanding how your company creates value, and looking for ways to add more value, are critical
elements in developing a competitive strategy. Michael Porter discussed this in his influential 1985
book "Competitive Advantage," in which he first introduced the concept of the value chain.

A value chain is a set of activities that an organization carries out to create value for its customers. Porter
proposed a general-purpose value chain that companies can use to examine all of their activities, and see
how they're connected. The way in which value chain activities are performed determines costs and affects
profits, so this tool can help you understand the sources of value for your organization.

Elements in Porter's Value Chain

Rather than looking at departments or accounting cost types, Porter's Value Chain focuses on systems,
and how inputs are changed into the outputs purchased by consumers. Using this viewpoint, Porter
described a chain of activities common to all businesses, and he divided them into primary and support
activities, as shown below.

37 | P a g e
Primary Activities

Primary activities relate directly to the physical creation, sale, maintenance and support of a product
or service. They consist of the following:

Inbound logistics – These are all the processes related to receiving, storing, and distributing inputs
internally. Your supplier relationships are a key factor in creating value here.

Operations – These are the transformation activities that change inputs into outputs that are sold to
customers. Here, your operational systems create value.

Outbound logistics – These activities deliver your product or service to your customer. These are things
like collection, storage, and distribution systems, and they may be internal or external to your
organization.

Marketing and sales – These are the processes you use to persuade clients to purchase from you
instead of your competitors. The benefits you offer, and how well you communicate them, are sources
of value here.

Service – These are the activities related to maintaining the value of your product or service to your
customers, once it's been purchased.

Support Activities

These activities support the primary functions above. In our diagram, the dotted lines show that each
support, or secondary, activity can play a role in each primary activity. For example, procurement
supports operations with certain activities, but it also supports marketing and sales with other
activities.

Procurement (purchasing) – This is what the organization does to get the resources it needs to operate.
This includes finding vendors and negotiating best prices.

Human resource management – This is how well a company recruits, hires, trains, motivates, rewards,
and retains its workers. People are a significant source of value, so businesses can create a clear
advantage with good HR practices.

Technological development – These activities relate to managing and processing information, as well
as protecting a company's knowledge base. Minimizing information technology costs, staying current
with technological advances, and maintaining technical excellence are sources of value creation.

Infrastructure – These are a company's support systems, and the functions that allow it to maintain
daily operations. Accounting, legal, administrative, and general management are examples of
necessary infrastructure that businesses can use to their advantage.

38 | P a g e
Companies use these primary and support activities as "building blocks" to create a valuable product
or service.

6.3 Mullin’s Seven Domains Model (Should Do)

Can you imagine buying a car without first taking it for a test drive? Or buying a home without first
inspecting every room? In everyday life, it's instinctive to test products and to look at them from
different angles before parting with your money. This helps you confirm that you're making the right
choice. The same should be true before you start a business, or launch a new project or product. You
need to look at it thoroughly, and examine it from a number of different perspectives. After all, you
could be about to invest several years of your life into the venture, and it would be heart-breaking if it
failed for reasons that you could have foreseen at the outset.

Mullins' Seven Domains Model helps you explore the impact of seven key factors – or "domains" – on
your planned venture. In turn, this helps you think about whether the idea is viable.

The model separates your proposed new venture into seven "domains": four that look at the small-
scale (micro) and large-scale (macro) aspects of your market and industry, and three that focus on your
team. When you look at each of these domains and ask key questions about each, you'll have a clearer
idea about how likely your business idea is to succeed. You'll also identify possible challenges that you'll
need to address when you write your business plan. This is especially important if you need outside
funding for your business.

39 | P a g e
Looking at the Seven Domains
Let's look at the seven domains, and explore how you can use them to analyse your potential venture.

Market Domain/Macro Level: Market Attractiveness

This domain looks at market attractiveness from a macro (large-scale) perspective. Look at the whole
market. How big is it, in terms of the number of customers, the value of sales, and the quantity of units
sold? Then, look at trends within the market. Has it grown in recent years? If so, is this growth likely to
continue?

What you're doing here is checking that the market is big enough to give you the growth you want, and
that it's growing healthily – after all, it's much easier to grow a business in a growing market than it is
in a declining one. Also, use PEST analysis to explore the large-scale factors that affect your market. Do
these look healthy?
Market Domain/Micro Level: Sector Market Benefits and Attractiveness

Realistically, it's unlikely that your venture will meet the needs of everyone in the market. You'll be more
successful if you target your idea at one market sector or segment , and aim to meet its needs fully. To
identify this segment, look at the market on a micro level. Think about the following questions:

 Which segment of the overall market is most likely to benefit from your venture?
 How is your venture or product different from others already servicing this segment?
 What trends is this segment showing? Is it growing, and, if so, is this growth set to continue?
 What other market segments could you access if you're successful in this one?

Look for qualitative and quantitative data. Talk to prospective customers to gather feedback on their
needs, and to find out how well competitors are meeting these. Then, look for data on the sector you're
targeting, for example, by reading analysts' reports and market research reports.

Industry Domain/Macro Level: Industry Attractiveness

It's now time to look at how attractive your industry is on a macro level. Mullins suggests using Porter's
Five Forces to assess which factors affect the profitability of your industry. To do this, first define the
industry that you will be competing in, and then ask yourself how easy it is to enter this industry. If it's
easy to get into, you can quickly be flooded with competitors if you are seen to make a success of your
business.

Next, look at your competition. Is rivalry in this market fierce or civilized? Are organizations stealing
ideas from others in the industry? Take time to gather intelligence about your potential competitors
to see what they're up to.

Last, look at buyers and suppliers. How much power do they have? Are they setting their own terms
and conditions because of this power? If so, how will this affect your offering?

40 | P a g e
Industry Domain/Micro Level: Sustainable Advantage

Once you've looked at your industry from a macro level, it's time to examine it close up. Start with a
USP Analysis. What can you do to build and sustain a USP? Next, explore the competencies that you'll
need, and think about how to develop and sustain these. Then think about how easy it will be for your
competitors to duplicate your product or service.

Also, what resources do you possess that your competitors don't? Do a VRIO Analysis to answer this
question, and then look at your competitors' resources. What do they have that you don't? This could
include patents, established processes, and finances. How will these affect your ability to compete?
Team Domain: Mission, Aspirations, Propensity for Risk

In this domain, located in the centre of the model, you're going to analyse commitment – yours, and
that of your team – to this idea. Think about why you want to start this business. Are you passionate
about this idea, and, if so, why? What do you want to do with this business – are you ambitious for it,
or do you want it to be a "lifestyle business"? What are your personal goals and values, and how does
this venture align with these? And are you prepared to take the risk and put in the hard work needed
to build this business?

Explore the motivations of your team, too. What are they hoping to achieve, and why? Do their
motivations align with yours? And are they prepared to work really hard to make the business a
success? Money and/or reputations could be at stake if the venture fails, so think about attitudes
towards risk within the team. Our article "Cautious or Courageous?" can help you think about your
approach to risk.

Team Domain: Ability to Execute on Critical Success Factors

You now need to identify the Critical Success Factors (CSFs) for the business, and think realistically
about whether your team can deliver on these. Start doing this by thinking about these questions:

Which decisions or activities will harm the business significantly if you get them wrong, even when
everything else is going right?

Which decisions or activities will deliver disproportionately high benefits or enhance performance,
even if other things are going poorly?

Then look at the knowledge and skills of the team that you've put together. How certain are you that
you and your team can deliver successfully on these CSFs? If you see a gap in skills or abilities, who can
you bring on board to fill this gap?

Team Domain: Connectedness Up, Down, Across Value Chain

This last domain is all about your connections and how important they are to the success of your
business. First, look at your suppliers and investors. Who do you know that can supply you with the
resources you need to pursue this venture? How good are your relationships with these people?

41 | P a g e
Next, look at your potential customers and distributors. In what ways can you capitalize on your
connections here?

Last, look across the value chain. Do you know any of your competitors personally? If so, how could
this relationship help or hinder your venture? And could these people be partners if you thought about
them differently?

Next Steps

As you work through the model, it's likely that you'll come up against problems or challenges that you
hadn't foreseen. You need to assess how critical these issues will be. If they're related to your industry
or your market, to what extent can you influence them? If they relate to you or your team, what can
you change? What will the effect of these changes be? At this point, you can make a "go/no-go"
decision. If you decide to "go," carry on to develop your business plan. The good news is that, by
properly exploring the seven domains, you will already have done a lot of the research that your
business plan needs.

42 | P a g e
 7. Executing Strategy
7.1 Mission and Vision Statements (Must Do)
Imagine going to work each day, full of purpose and conviction. You strongly believe in your
organization's values, and you are passionately committed to its mission. Because you understand the
good that your organization does in the world, you love what you do. You're happy to come into the
office, and you put your heart and soul into your work, because you know it matters. People can be
genuinely inspired if their organization has a compelling vision and a clear, worthwhile mission; and
these can be powerfully expressed in well-crafted mission and vision statements. These statements can
be highly motivating when they are expressed clearly and with intent, and when they are
communicated effectively to everyone in the organization. Mission and vision statements also express
your organization's purpose to customers, suppliers and the media, and they can have the same effect
on them, too.

Mission and Vision Statements Explained

Mission and vision statements are the words leaders use to explain an organization's purpose and
direction. When expressed clearly and concisely, they can motivate your team, or the organization as
a whole, with an inspiring vision of the future.

Purpose
Mission statements and vision statements do distinctly different jobs.

Mission statements define the organization's purpose and primary objectives. These statements are
set in the present tense, and they explain why you exist as a business, both to members of the
organization and to people outside it. Mission statements tend to be short, clear and powerful.

Vision statements also define your organization's purpose, but they focus on its goals and aspirations.
These statements are designed to be uplifting and inspiring. They're also timeless: even if the
organization changes its strategy, the vision statement can often stay the same.

Application
Usually, people write mission statements and vision statements for an organization, or for an
organizational unit or a team. You can also create mission and vision statements to define the goals of
long-term projects or initiatives.

Mission and Vision Statement Examples

Bristol-Myers Squibb Company (pharmaceuticals) – "To discover, develop, and deliver innovative
medicines that help patients prevail over serious diseases."
ConocoPhillips (gas/energy) – "Our mission is to power civilization."

43 | P a g e
Walgreens (drugstores) – "To be the most trusted, convenient multichannel provider and advisor of
innovative pharmacy, health and wellness solutions, and consumer goods and services in communities
across America."
Nike (athletics) – "To bring inspiration and innovation to every athlete in the world."
The Dow Chemical Company (chemicals) – "To passionately create innovation for our stakeholders at
the intersection of chemistry, biology and physics."

Some examples of vision statements are shown below:

Amazon (online retail) – "Our vision is to be earth's most customer-centric company where customers
can find and discover anything they might want to buy online… at the lowest possible prices."
PepsiCo (retail) – "Our vision is put into action through programs and a focus on environmental
stewardship, activities to benefit society, and a commitment to build shareholder value by making
PepsiCo a truly sustainable company."
Amnesty International (non-profit) – "Our vision is of a world in which every person – regardless of
race, religion, ethnicity, sexual orientation, or gender identity – enjoys all of the human rights
enshrined in the Universal Declaration of Human Rights and other internationally recognized human
rights standards."
Ikea (retail) – "To create a better everyday life for the many people."
The American Society for the Prevention of Cruelty to Animals (ASPCA) (non-profit) – "The vision of the
ASPCA is that the United States is a humane community in which all animals are treated with respect
and kindness."

7.2 The Pyramid of Purpose (Should Do)

Effective strategic planning is essential to the success of any business. It is the process that senior
executives use to think about how the business will win in the future. Without it, the organization is
most-likely doomed to failure. But however good your strategy is, it will fail if people don't understand
it. They won't know where the organization is going, or how to help you get there. They'll probably get
frustrated and confused; customers may feel dissatisfied; and other stakeholders may lose their faith
in your organization's ability to deliver.

So your business needs both effective strategic planning and good communication of strategy. And just
as a map is usually more effective than a list of directions, so a graphical description of your strategy
can often communicate your strategy more effectively than a weighty document. One popular
technique for communicating strategy graphically is called "the Pyramid of Purpose". It is called this
because it describes the elements of strategy graphically.

44 | P a g e
Understanding the Tool
There are many ways of describing strategy. One approach, which also illustrates the hierarchical
structure well, thinks of business strategy as answering the following questions:

 Why are we doing what we are doing?

 What do we need to do to fulfill our intended purpose?
 How exactly are we going to do what needs to be done?
 Who (or what) is going to make sure it's done?

Answering these questions can help you articulate your strategy very comprehensively, covering the
key ingredients that are generally needed in a strategic plan:

Question 1 – "why" – refers to your organization's values, mission, and

vision. Question 2 – "what" – covers objectives and goals.
Question 3 – "how" – refers the actions needed to realize these goals.
Question 4 – "who" – refers to the people, systems and tools which deliver these.

A hierarchy of questions emerges: In order to answer question 4, you need to answer question 3; to
answer question 3, you need to answer question 2; and to answer question 2, you need to answer
question 1.

The high level elements of organizational values, the mission and the vision (the "why"), flow through
the business and permeate every aspect. Likewise, the objectives and goals (the "what") flow down to
determine the actions and approaches that are necessary (the "how"). And these planning elements
all need certain resources (people, systems and so on), to get them done (the "who"). This can be
represented in a pyramid like the one in figure below

45 | P a g e
 The starting point for your Pyramid of Purpose is to explain the "why", which will draw on values,
mission statement and vision statement for the organization. The way you do this depends on your
audience: What exactly do you need to communicate and who to? And so you must explain each element
of your strategy in a way that suits that audience and the messages you wish to convey.

If the purpose is to communicate strategy to customers and stakeholders of your organization (an
external audience), a good place to start your pyramid is with a vision statement. For an internal
audience, the "why" level might focus on the mission statement, or indeed include both vision and
mission statements in your pyramid. Our article on Vision and Mission Statements explains the
distinction between the two, and will also help you create a vision or mission statement for the "why"
level of your Pyramid of Purpose. Once you have described the "why", the next steps of building your
pyramid must define the "what", then the "how" and finally the "who". And you need to do this in a
way that clearly explains your strategy to your specific audience.

46 | P a g e
7.3 VMOST Analysis (Must Do)
Is your team headed in the right direction? Is everyone working together, towards the same objectives?
Do your objectives reflect your ultimate vision? And will your day-to-day activities help you achieve
that vision? These questions are extremely relevant for all organizations. Yet, more often than not,
they can get pushed into the background.

It's easy to focus so much on day-to-day activities that you lose track of your original business plan.
Strategies become redundant or unnecessary, vision and mission statements lose relevance, tactics
may not lead to the results you want-and you may not even realize that you've inadvertently changed
direction.

VMOST is an analysis framework that helps you avoid this trap by checking whether the five VMOST
elements – Vision, Mission, Objectives, Strategies, and Tactics – are in alignment. The tool serves two
purposes. First, it helps you re-connect to your business vision, and highlights any problem areas that
you need to address. Second, it helps you create and evaluate plans for the future, so that you can
make sure that they're aligned with your vision of that future.

Vision – This is your organization's purpose, in terms of its values or how it goes about doing business.
It should inspire staff, and help customers understand why they would want to use the company's
products or services.
Mission – This is also your organization's purpose, but expressed in terms of key measures that must
be reached to achieve your vision.
Objectives – These are specific goals that you must meet to achieve the
mission. Strategy – This is the overall plan you'll follow to meet your objectives.
Tactics – These are specific sets of actions needed to execute your strategy.
For any organization to be successful, all five components should be well-aligned – whether you view
them from top to bottom or from bottom to top.

Looking from the top down, you need alignment because a clear vision drives the mission – which, in
turn, lets you set your objectives or goals to achieve that mission. You design strategies to meet your
objectives, and you implement your strategies with specific tactics or activities.

Looking from the bottom up, your tactical actions should fulfill your strategies, which help you meet
your objectives, which help you accomplish your mission, which, in turn, helps you realize your
company's overall vision.

47 | P a g e