An overview of strategy formulation
Formulating a comprehensive strategy sounds like a herculean task.
But it doesn’t have to be like that.
You just have to gather the right information and write a plan with a bias towards action. Let’s get into more details.
What is strategy formulation?
Strategy formulation is the process of developing a plan to overcome a challenge or outline a measurable and concrete course of action to achieve certain objectives. It’s the process companies follow to develop a strategy that will bring them closer to realizing their long-term vision.
Developing a coherent strategy is essential for every organization because it enables the use of all of its resources in a unified effort towards a shared goal.
Without it, a company’s efforts are fragmented, scattering its resources and underexploited opportunities.
What are the steps in strategy formulation?
- Understanding your strategy level
- Conduct internal & external research
- Build the plan backward
- Review progress regularly
- Take the first step: Implement
What strategy consists of
Every effective strategy, when broken down into its fundamental structure, consists of 3 things:
- Goals: The objectives, targets, and aspirations it serves
- Metrics: A way to track your progress towards the Goals
- Actions: The specific way you choose to make that progress
The bigger your organization is, the more complex its strategy can get. That means it will have more crucial to its success parts. However, if it lacks any of these three things, it will fail spectacularly.
Tip: Categorize your strategy’s elements according to these 3 things and detect which category needs more work.
The three strategy levels
Depending on the size of your organization, you might need to formulate different plans for each level of management. That way, you’ll be able to make decisions according to the appropriate context.
For example, your resource allocation decisions are very different at your corporate level, where you approach business units as a portfolio than when formulating a business-level strategy. You might have to shift significant resources to pursue a certain opportunity that will starve other business units.
Here are the three strategy levels:
What is the difference between strategy formulation and implementation
This is a bit of a trick question that leads you into a big trap.
In theory, strategy formulation is the development of your strategic plan, while strategy implementation is the process of putting the plan into motion.
Here is the trap with this distinction. You separate strategy from daily operations. As a result, strategy becomes a distinct entity, detached from reality with an intrusive role in people’s work. So, instead of people focusing on organizing their activities around the company’s strategy, they are concerned with it once per week at best and twice per year at worst.
It’s simple, people don’t implement strategy because it doesn’t fit into their schedule.
Operations become business as usual with no strategic references.
Why strategy implementation is more difficult than strategy formulation
It’s not. At least not always.
Strategy implementation becomes difficult when formulation doesn’t take it into account.
It’s that simple.
When the plan doesn’t identify and accommodate the organization’s reality, it’s impossible to implement it. When only the top executives are involved in developing it, nobody else will feel invested in it and thus won’t care to implement it. Strategy implementation is harder than formulation when you believe the 3 myths of strategy:
- Strategy is a conceptual exercise living outside the organization’s daily activities.
- Top-level leadership owns strategy and employees should not be concerned with it.
- Strategy is about planning. Execution will take care of itself.
What makes a good strategy
A good strategy addresses the right challenge and is executable.
Identifying the right challenge determines the strategy’s long-term efficacy. It’s one thing to say Sam Walton broke the conventional wisdom and another that he redefined the meaning of the “store.” Lululemon didn’t just make high-quality products, it created a new category by targeting a very niche market in the beginning. It’s not the wide variety of high-quality drinks that is responsible for Starbucks’ success, but its redesign of the coffee shop experience.
Successful challenge diagnosis considers all of the organization’s reality, from resources and internal culture to market forces and competition moves.
Successful strategy implementation separates laggards from market leaders. Even with the best diagnosis, the competitive edge will elude you if the plan doesn’t meet your organization’s capacity to bring it to life. The most important factors are your culture and your resource allocation.
The former follows this rule: If strategy opposes culture, it loses. It will never get traction. The latter speaks to speed and effectiveness. With poor allocation, execution will move slowly and its results will meet an insurmountable ceiling.
The 4 steps of strategy formulation
Strategy formulation is not a complicated process, but it should include the four high-level steps below to ensure success:
1. Conduct internal and external research
Research is the first step in strategy formulation.
External research
Thorough competition analysis and solid research around market trends enriched with customer insights lead to accurate challenge identification. In plain English, understand your competitors, develop a clear picture of the market’s conditions and what your customers want and you’ll have no problem developing a strategy with long-term efficacy.
Internal research
Determine internal struggles and your culture’s most powerful positive drivers. Revisit the organizational structure and the incentive system. Once you have a good grasp of your strategy, align structure and incentives with your plan to facilitate implementation.
Try any combination of the frameworks (including SWOT analysis, Gap analysis, and Core competencies analysis) in our internal analysis guide to ensure you don’t miss out on anything important.
2. Build the plan backward
Every strategist urges to choose bold and ambitious organizational objectives (see Thibault Mesqui from Heineken or SafetyCulture’s Hamish Grant).
However, ambitious goals demand aggressive action. You’ll never hit those goals if your strategic plan suggests conservative action or – God forbid – a miraculous 30% increase in production or employee productivity.
How do you determine those aggressive moves or how bold they should be?
Start with the end in mind.
Set those ambitious goals as high as you want with a respective deadline (or duration if they’re long-term goals) and then start building your plan backward. Break down your strategic horizons into smaller time increments and figure out what your KPIs and metrics should look like during each interval. Set up milestones. Ground your plan to reality from the beginning, so your actions and decisions support the bold long-term claims.
Tip: Decide on one bold company-wide move. Then allocate resources on the highest level first, so you won’t be tempted to be “fair” and instead support amply the initiatives that will contribute the most.
3. Review progress regularly
Strategy is iterative.
It’s not just about planning.
It doesn’t end at execution.
What else is there besides planning and execution? Reviewing. Strategy is continuously evolving and assessing performance is a big part of it. This is a painful headache for large corporations concerning strategy because very few tools accommodate all of the challenges that come with it.
Business intelligence tools require specialization and a great deal of time to be effective. Meanwhile, sheets and slides are tough to update and redistribute on time. As a result, managers end up spending more time tracking and updating documents than doing actual work and executing the strategy.
How can you reduce your time administrating while keeping track of your strategy’s progress?
Determine your reporting needs
Annual or semi-annual reviews don’t suffice. Depending on your organizational needs, set up recurring meetings across all your teams. Determine beforehand the metrics you’ll be reviewing and when each metric makes sense to be reviewed.
Assess lagging and leading KPIs and finish each meeting with a “next steps” discussion. Feel free to adapt your habits to your needs.
Balance the objective with the subjective
Strategy isn’t just facts, it’s also a story. Your reviewing discussions should start with metrics, objectives, and projects, but they should not be limited to those. Discuss judgment calls, decisions, and priorities.
Balance the facts with the story. Allow your people to express their views more often and you’ll acquire a clearer image of your current situation.
The most important step of strategy formulation is the last one.
4. Take the first step: Implement
Long-range planning without short-term action is a nosedive into vanity.
Most strategies never leave the port or start their engines. Because there were never any plans on how to do that. So, start your engines by focusing on the first step. Don’t let the strategy discussions die out before you get to implementation steps and, most importantly, the first one.
Why is the first step so important?
Because it builds traction. It builds momentum and demonstrates decisiveness. So, to jumpstart strategy implementation, focus on getting things done and moving things ahead. Let results and execution quality take a back seat until you build enough momentum to integrate implementation with your people’s daily activities.
Free up resources early to leave the port and sustain strategic initiatives during the long voyage of execution.
What is the best tool for the strategy formulation phase
The Cascade strategy execution platform.
We admit that we might be a bit biased. However, Cascade is the only tool that allows you to plan, manage and track your strategy in one place. It includes dynamic planning, strategy maps that let you monitor your team’s alignment at a glance, dashboards that take the struggle out of reporting, and exposes your strategy to your people, so you can have candid conversations about it.
