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- Defining Organizational Strategy
- Porter’s Three Generic Strategies
- Other Examples of Common Organizational Strategies
- Organizational Strategies by Business Function
- Organizational Strategy in Practice
- Next Steps
When you go into business, you’re playing to win – and to do that, you need a strategy. Organizational strategy and strategic planning aren’t just for big businesses. Even a one-person business should consider its strategy and work towards meaningful goals. The key word here is “meaningful.” There’s no point in working towards something you don’t feel passionate about.
Defining Organizational Strategy
“Organizational strategy is a dynamic long-term plan that maps the route towards the realization of a company’s goals and vision.”
This definition may sound really straightforward, but it says a mouthful! Let’s discuss some of the keywords we’ve used in the definition and you’ll begin to see the nuances hidden in one, simple sentence.
Strategy is Dynamic
Although your goals may remain the same, the strategy you adopt can change. Think of a game of chess. Your goal is to win. But to do so, you must adapt your strategy in the light of circumstances. If another player counters your opening gambit, there’s no point in continuing with the strategy, because it will fail.
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What’s more, your vision can also change as time goes on. There’s nothing wrong with that, but it does mean that you need a new roadmap to success.
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Strategy is a Long-Term Plan
How you define “long-term” is up to you. But the further ahead we look, the fuzzier things get. Most companies choose three to five-year strategic plans. This allows for greater certainty than, for example, a twenty-year plan.
But why not make the time frame even shorter than three years? The reality is that strategic planning takes a lot of time and effort. You’d probably have to start working on your next strategic plan at last six months to a year before you’ve completed all the actions you planned last time around. Without much in the way of results to progress from, shorter plans become meaningless.
Strategy is a Road-Map
Most strategic planning initiatives begin by asking the question: “Where are we now; and where do we want to be?” It covers everything from the identity of the company to its reason for existing. That’s why you will begin by formulating or revisiting your organization’s vision, mission, and values.
There are those who believe that “impressive sounding” vision, mission and values statements are the way to go. But if these statements are just there to impress your customers, they won’t benefit your business. Instead, your vision, mission, and values statements are there to define who your organization is, what it wants, and how it will achieve that. If your vision doesn’t inspire you and your staff – why work towards it? All members of the organization should be able to identify with the direction you are taking.
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Anyway ... we'll continue from where we left off above.
Once you have looked at the big picture of what you want to achieve, the next step is to look at the journey you will undertake. Just saying you want to achieve $1,000,000 in net profits, for example, won’t guarantee your success. What steps will your organization take towards that goal? Who will be responsible, and by when must they achieve results?
Returning to the roadmap analogy, what milestones will you need to reach as you progress with your journey towards a goal?
Working towards Goals to Achieve a Vision
The final keywords in the definition we’ve provided are perhaps the most important of all. Effective goal-setting has very distinct characteristics. Every goal you set should have all of the following features:
Specific: When specifying a goal, there should be no room for uncertainty. For example, “We want to be industry-leaders,” sounds great, but what, specifically does that entail?
Measurable: Measurability helps a lot with specificity. Wherever possible, use quantifiable measurements. That doesn’t entirely exclude qualitative goal-setting, but you will need to define how you will measure qualitative indicators.
Achievable: Reaching for the stars sounds great, but do you have what it takes to build a rocket ship? Set challenging goals but don’t set yourself up for failure.
Realistic: Realism and achievability are closely related. That’s why you need to look at where you are now before you can decide what you plan to achieve. Do you have the necessary capital at your disposal? If you raise funds, what will it take to cover loan repayments? Do you have adequately skilled staff? If not, what will it take to attract new talent or train your existing workforce?
Time-bound: Let’s assume you’re working on a five-year plan. You will identify several strategic priorities. Realizing these means setting a series of tasks and sub-tasks. And since you’re looking at a three to five-year plan, each task must be completed by a certain time if you are to reach your target. Naturally, the time you set must also be achievable and realistic.
For anyone who has looked at goal-setting before, we are referring to SMART goals. That’s an acronym to remind us of the four characteristics of an effective goal. The result is a SMART organizational strategy.
Porter’s Three Generic Strategies
Porter’s three generic strategies receive a lot of attention. Some say that they sum up the basic strategic directions a company can follow very well. Others argue that they are best suited to very large organizations. However, they are worth mentioning here, since they broadly sum up the strategies you can choose between.
According to Porter, companies should select one, and only one, of the following strategic directions.
Being able to offer the best prices certainly makes a company’s offering attractive to clients. However, the implications of cost leadership need careful consideration. After all, your product or service must still be profitable. At the same time, quality must still be good enough to encourage consumers to purchase what you have to offer.
In this instance, you aren’t necessarily looking to be the cheapest. Instead, you’re aiming to be the best. In most instances, this would preclude cost leadership. Think of designer brand clothes. They certainly aren’t the cheapest, but they differentiate themselves from no-name brands and box-store brands through quality and brand image.
What makes your business different from your competitors? If the answer is “nothing much,” the time is right for a differentiation strategy. There are many ways to achieve differentiation. Will you offer better quality? Will your service levels and the quality of the customer experience ascend to new heights? Will you offer features and benefits that other companies can’t match? The list goes on.
Innovation strategies can also fall under the heading of “differentiation.” In this case, you will be improving your product and service in creative ways.
Many of the disruptive business strategies we have seen in recent years could also be classed as innovations. Think Uber, Airbnb, and QuickBooks. They changed the way we look at taxis, hotels, and accounting by doing things in ways established businesses had never considered before.
Focus strategies identify and target niche markets. Niche markets are, by definition, smaller, but they can be enormously profitable for those who choose to serve them. They also allow you to target your marketing to very specific market segments.
For example, a company that makes surfboards only needs to target the surfing community. That makes its customer base easier to reach. Provided it can offer either cost leadership or differentiation it’s sure to get lots of support for its product.
Other Examples of Common Organizational Strategies
Before we move on, it’s worth looking at two other commonly mentioned categories of organizational strategy. Arguably, they could fit into Porter’s definitions, but they’re worth considering on their own.
When considering a growth strategy, you can look at several options to pursue:
- Increase sales of existing products.
- Increase the range of products and services you offer.
- Increase the size of the geographical area you serve.
- Buy out a competitor.
Remember, growth strategies are invariably costly. When choosing to adopt a growth strategy, be sure to think through the financial and personal price you will have to pay to achieve growth. Of the approaches listed above, the latter two can also be classed as “diversification” strategies.
Acquisition strategies can also fall under this heading. In this instance, the company considers buying one or more competitors in order to strengthen its position.
Rationalization is not necessarily the opposite of the growth strategy, at least, in terms of the results it produces. Sometimes, businesses that have been following a growth strategy find that they have become overly complex. It’s even sometimes possible to decrease turnover and yet make more profit – both in absolute and percentage ROI terms.
In this situation, businesses will think about discontinuing products, laying off staff, reducing their number of outlets, and generally streamlining to make the business more profitable and more focused on what it does best. Ironically, this can mean financial growth as the business becomes more efficient.
Organizational Strategies by Business Function
Whatever your overarching strategy may be, ALL the functions your business undertakes must contribute to its goals. That means your organization will have several functional strategies that all contribute to a defined result. These would include:
- Financial strategies
- Marketing strategies
- Sales strategies
- Production or service delivery strategies
- Research and developments strategies
- Purchasing strategies
- Human resource management strategies
Just to make your life even more interesting, there will be sub-categories for each of these. So, for example, your marketing strategies would look at price, distribution, product, packaging, and promotion. There might be a specific strategy for each.
HR management will have a set of strategies too. These could include recruitment, retrenchment, remuneration strategy, or training strategy. And each of these would be guided by the primary organizational strategy you’ve chosen.
Organizational Strategy in Practice
In practice, organizational strategy begins with the big picture you want to achieve and then breaks that down into various sets of activities. All of these will have a contribution to make, so they are all part of the organizational strategy.
Once you have determined your strategy and what must be done to make your goals a reality, you will need to follow up. Each task must synch with the plan – and if it can’t, the plan itself may need revision.