McKinsey Quarterly Training: Strategy Development with Value ...
Strategy development is a broad but important part of any company, enterprise or small, and as a result, there are various business practices geared towards this business area. To start with business strategy development, you must determine your strategic challenges by defining where you want your company to be, how you can get your business there, and where you currently are. The progression from your current state to your desired end state is a matter of strategy development and execution of that strategy. Even though the ultimate goal of any corporate strategy is to maximize profitability, it involves a number of critical pieces, including defining your companys value proposition, competitive advantages, and business transformation.
Business strategy development has evolved through several key phases over the years. Shifts in strategic mindset represent an ever evolving, new business leaders, and emergence of disruptive technologies and trends. Today, the strategic development theme is on integrating strategic planning and implementation with a stress on the key concepts of core competencies, strategy planning and execution, and balance scorecard analysis. Much of business strategy is also hinged on ideas in the 1970s, where the core theme was around thinking strategically to beat competition and the business frameworks of alternative strategies, portfolio analysis, and the BCG Growth Share Matrix were developed. Strategy development started with a focus on financial planning in the 1950s, moving to sustainable business planning in the 1960s, to strategic planning in the 1970s and ultimately to a focus on strategic management in the present day.
A critical tool used in strategic planning is scenario planning. Oftentimes, the scenario planning process is performed in a workshop environment, where decision makers, management, subject matter experts, and third party consultants, are gathered in a 3 day off-site conference to decide on various future state scenarios. It is used to help businesses plan for and make flexible long term corporate plans. Scenario planning is also called scenario thinking and scenario analysis. An important task in the scenario planning framework is choosing the primary axes of uncertainty within the context of a scenario map.
Within the strategy development process, it is noteworthy to point out that your company should conduct rigorous market analysis. There are also several market place evaluation characteristics, including market development, pricing changes, research and development, market place characteristics, market force structure, and current trends. Proper business market analysis involves defining the market size and the study scale, understanding the core industry issues, and planning for the future. It is important to understand what makes a market unique, such as a high degree of regulation, high industry fragmentation, and importance of R&D. Doing proper market analysis involves the components of supply analysis and demand analysis, which includes segmentation and segment analysis, understanding consumer buying behavior, and industry analysis. There are several market environment analysis drivers, including ones that are socio-demographic, economic, legal, technological, and current trends.
There are various structural elements to the design of strategy execution. Within the category of strategic initiatives, we should evaluate our strategic priorities, championing and management, and maneuvering tactics. We should design the organization context under which the business operates. Under strategy execution, a critical element is developing the annual strategy planning and budgeting process. Strategy planning and budgeting projects include growth scenario planning, strategic planning design, and product innovation management. Strategic engagements should be diligently managed. organizational context includes such initiatives as governance, org structure, performance metrics, rewards, as well as management capabilities and cognitive frames.
Within the strategy development process, it is critical to come up with a a cohesive and definitive understanding of the market place. A market is driven by both supply and demand side analyses that impact the market, which is comprised of consumer offerings. The market environment can be evaluated by conducting the PEST analysis, which focuses on the political, legal, economic, socio-demographic, cultural, and technology components that are existent in the market. By first analyzing the market, a business can develop informed strategic options and recommendations leading to the overall strategy development. Developing a market study involves understanding the market environment, the market dynamics, and the market outlook.
Activity Based Costing analysis is a strategic framework developed to improve upon the accuracy of traditional forms of costing, so that business decisions can be performed in a way that is well informed. Whereas, in traditional costing methods, indirect/overhead costs are allocated across all product offerings based on a standard, volume-based cost allocation, which is highly inaccurate and misleading, thus lends itself to leading to misinformed business decisions. The reason that Activity Based Costing is accurate is because it follows a in depth approach of gathering cost objects, cost components, process activities, and resources drivers to understand logical cost flows. Activity Based Costing allows for logical profitability to be understood around crucial areas of product lines, customer segments, distribution channels, and other markets.
Strategy Development Process
Source: http://watchmygear.com/2011/mckinsey-quarterly-training-strategy-development-with-value-innovation/
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