How to build a business strategy?

What is a business strategy?

A business strategy is the blend of activities (moves) an organization makes to create value for customers, employees and suppliers, with the scope of occupying a strategic position in the mind of your prospect.

Any business strategy should have at is core Value Creation.
The value creation should be measured from the perspective of the customers, employees and suppliers.

Creating value for customers, employees and other stakeholders means you need to have in mind all the pillars of a business. You need to find ways to raise the customer’s willingness to pay and to lower willingness to sell of suppliers and employees.

To build an integrated strategy you need to address every pillar of a business, presented in the Michael Porter’s Wheel of strategy. In the online course found at Harvard Business School, professor Felix Oberholzer-Gee talks about Value Creation as a difference between the customer’s willingness to pay and the price of that product. We can visualize this concept as a Value stick, that can help you better understand how value is created along the supply chain.

The Value stick has 4 components:

  • Customer Willingness to pay (WTP) – the maximum amount that a customer is willing to pay for your product/service.
  • Price – the price of the product/service.
  • Cost–the cost of producing that product or service.
  • Company willingness to sell (WTS) – the minimum amount for which a supplier is willing to provide the raw material needed.

To raise the perceive Added Value for your customer, find a way to raise the willingness to pay. This is usually done by creating delight for your customer. At the same time, you need to find ways to lower the willingness to sell to your customers and employees. You need to find the delight for this group of people as well.

How to test a business strategy?

The only way to test a business strategy is by implementing it in the market. No matter how many hours of analytic and strategic thinking you invest, how many data you collect, and how many theories you develop, until you stress test your business strategy in the real conditions of the market, you will not know if it is good or bad.

There are ways to find out if your strategy is ready to be brought to life. One way of testing if a Business Strategy is ready to be implemented, is proposed by Robert Simons, Harvard Business school professor, who conducted a 25 years research on how big companies build and implement winning business strategies. Robert Simons proposes 7 questions to which you need the answer before going to the market with your business strategy.

How to test a business strategy using Robert Simons’s 7 questions approach?

  1. Who Is Your Primary Customer?
  2. How Do Your Core Values Prioritize Shareholders, Employees, and Customers?
  3. What Critical Performance Variables Are You Tracking?
  4. What Strategic Boundaries Have You Set?
  5. How Are You Generating Creative Tension?
  6. How Committed Are Your Employees to Helping Each Other?
  7. What Strategic Uncertainties Keep You Awake at Night?

How to monitor a business strategy?

For monitoring a business strategy, you need to have in place the following:

  1. A data driven dynamic framework. This will help you to monitor the market condition in a real time. The different parts of the framework must be inter-correlated, in order to have a real time view of the expected outcomes, once the inputs have changed.
  2. A clear image of the Business Pillars relevant to your strategy. Using Michael Porter’s Wheel of competitive strategy, you can have permanently in plain sight what are the main pillars hat need to be monitored. You don’t need to have all of them. Depending on your business model, you can have even 3-4 main pillars that need constant attention.
  3. Have clear KPIs. You can measure the progress of a business strategy just by implementing an objective way of measure that looks at the progress of different business pillars. You can do this by establishing one KPI for every business pillar that you decided is relevant for your long-term business success.
  4. Implement a way of collecting market data. How I said earlier, a strategy is built especially on external factors that can influence your business. With this in mind, you need to find a way of constantly collecting data from the industry for all the important KPIs. That data that you collect should be periodically analyzed.
  5. Build a data driven decision making system. This way, you will keep your objectiveness and have always a clear image of the progress that your company is making.

How to scale a business strategy?

To scale a business strategy, first you need to test it on a small scale. This can be done either with a small portion of your main target audience, even in a small geographical location.

Following all the steps presented above, find out if your framework is good enough to keep up with all changes that take place in an industry. If you can test your assumptions, find ways of gathering data at scale, you can analyze that data and make data driven decision, means that you are ready to scale your business strategy.

How to scale a business strategy in 5 steps:

  1. Find ways to collect data at big scale.
  2. Extend your business in a strategic easy, one market segment at a time, one geographical location.
  3. Automate your processes and isolate the inefficiencies in the business process. Scaling your mistakes can be a way of losing control of your expenses.
  4. Keep cash reserve, to cover unexpected expenses for your expansion.
  5. Any particular industry has its own specificity and is part of global economies. You need to take into consideration the macroeconomic context. You can’t scale up a business strategy without taking into consideration the macroeconomic context.
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