Developing Strategy: a Pragmatic Approach

An experienced strategist, who has been head of strategy at a major UK company, discusses the six questions and her advice on how to use them - plus many otherwise points about strategy!

Strategy involves answering six questions but, if you already have a good idea of the answer to some of the questions, you don't always have to start with question 1. In this short episode, we describe how to decide which question to start with and the different types of strategy processes that can lead to

At the end, what counts is picking the best option

All your analysis is in vain if you don't identify the most interesting options!

Question 4, defining the issue, is perhaps the most critical step in the strategy process, but it is often skipped over without sufficient reflection and debate.

Sometimes the level of uncertainty means that forecasting is not possible. Perhaps the uncertainties are hard to quantify. Perhaps there is too much uncertainty for any one forecast to make sense. This episode provides some advice on how to deal with that sort of very tricky, but common, situation.

Sometimes forecasting is not possible. Perhaps the uncertainties are hard to quantify. Perhaps there is too much uncertainty for any one forecast to make sense

Different approaches to forecasting future trends. This is the first of two episodes on how to think about the way the future might Evolve (question three in our six-question framework). There are two broad approaches depending on how predictable you think the future is. in this episode we assume that you can have a decent guess at how the future should evolve and thus you can try and make a forecast. We cover the general principles (have good data and have a good model) and the various models that you can use (e.g., linear growth, exponential growth, S curve, lifecycle, and disruptive innovation). Charlie illustrates these approaches through an example from his own experience as a strategy analyst.

The ex-CEO of the YHA, Caroline White, describes how the YHA aligned their mission, organisation and strategy

Strategy isn't just about economics and finance. Strategy also involves understanding the mission of an organisation and designing strategies that are aligned to that mission. And, when the mission and the strategy are in conflict you may sometimes need to review whether the mission is still appropriate. However, Mission is a fuzzy concept - so it helps to have a definition and framework that you can use to pick apart the elements of a mission and discuss it.

So far we have discussed strategic analysis, which tends to involve a lot of judgment and is thus prone to bias and misinterpretation. Therefore it is important to check whether your analysis is reasonable by looking at the actual performance of the organisations you have been evaluating. Typically this involves looking at some financial metrics - but which should you use?

We present three frameworks for analysing competitive advantage. A systems diagram shows how the various capabilities and positions combine to drive cost and value advantage. A cost structure comparison puts that into numbers. The third approach is my go-to tool for a quick but thought-provoking analysis.

We present a framework for understanding how capabilities and positions combine to create cost and value advantages. This framework integrates many theories about competitive advantage, which is one of the most critical concepts in strategy - even for non-profits!

Looking at your company, charity, product (or yourself) through the eyes of your customer is always instructive. We discuss one simple tool for doing so - the Value Curve, popularised by the controversial but interesting book "Blue Ocean Strategy". This bit they got right - thinking about how to improve the customer offer, not forgetting lowering price, is a great place to start with developing options. The first step is to understand your customer value proposition - a critical part of the "internal situation" and the value curve is a neat and easy way to do it.

In this bonus episode we chat to Caroline White, ex-CEO of the Youth Hostel Association, about the role of segmentation in the revitalisation of the YHA. Caroline is an experienced strategist and didn't use the structure we covered in episode 2 but whether you use a tool or a more intuitive approach, the key is to be aware of the many segments that you can and do serve, and thus the range of options on offer. At the end we discuss how the segmentation approach we described in our episode might have been used at the YHA, so you have an idea about how to use this tool in practice.

How does the the general context of an industry influence other factors, such as the five forces? PESTLE analysis is a common tool for developing a full analysis of this - PESTLE stands for Political, Economic, Social, Technological, Legal and Environmental factors.

In this bonus episode, you'll learn a bit about how an entrepreneur thinks about strategy. You'll also get a great application of the 5 forces framework to what proves to be a very tough industry, and how Daniel pushed back on those forces to earn decent margins.

One of the most fundamental ideas in strategy is that success comes (partly) by investing in attractive markets. Attractiveness for a profit seeking business is typically defined as being from a mix of size, growth and profitability. Of these, the hardest to estimate is profitability because it is of the market (rather than your current profitability - which might be more or less than the average for the market). Porter's Five Forces is a famous framework that allows you to estimate, in a qualitative way, how profitable a segment is likely to be.

Thinking of an opportunity in terms of its attractiveness (an external perspective) versus your chance of success (an internal perspective) is a good way to summarise the nature of that opportunity and the options you should consider.

Our next episode starts drilling down into how to answer the first question - what is the External Environment? The first thing you need to do to make sense of your environment is to segment it - which involves clumping the incredible range of customers, products, markets etc. into broad segments. We describe a clip from The Hunger Games to illustrate this, as well as a business example from the car rental market, and finally introduce a four step process for getting creative with segmentation.