Why do businesses need to develop and implement good strategy?

23. November 2018 11:48 by Selina Stewart in

 

Seems like an easy question, yet when I ask business leaders this question there is a long pause followed usually by a discussion around how they develop a strategy in their business and not why.

So why is it important to ask the why question? There is no legal requirement to develop or implement the strategy. I was recently talking to a business leader at a networking function who proudly told me he had never done a business plan and his business had been quite successful. My response was to wish him well, but if you are going to use luck and hope, they will run out eventually.

In this blog, we examine the three key reasons why developing and implementing strategy is important.

Key reason #1 - The business remains competitive

A strategy is all about positioning. If we don’t nail a unique position, then we are just one of the pack. To position a business well, we need to be clear about two things. Firstly, who are our competitors, and how well does our positioning beat them and secondly does our positioning provide a clear value proposition to our customers.

If you can answer yes to those two questions, congratulations your business has a competitive advantage in your chosen market. If you can’t answer yes, then the market will decide what happens to your business, and not you. You would then rely on the strategy of “good luck” to survive. Good luck with that one!

Key reason #2 – Your business will be fit to deal with any dark clouds that could destroy the business

You know what we mean by dark clouds. We have all dealt with them. Losing a major customer, a product or service loses its market attractiveness and sales drop, cash flow crises caused by external events. The list goes on. One of my favorite questions, is “How could I destroy your business?”

Developing strategy allows us to identify both looming threats and be “match fit” to deal with them. A company that failed to do this, and now, no longer exists was the Australian airline Ansett. In the 1980s it was one of the best airlines in the world. By 2001 after 9/11 it had collapsed. Those responsible had no real strategy for a cash-strapped business for a number of years, so when external threats such as the 9/11 airline shutdown actually occurred, Ansett was highly vulnerable and collapsed. It wasn’t fit.

Key reason #3 – Your business needs to identify its strategic opportunities to grow and prosper

In 2016, the life of a viable, robust business model is getting shorter by the day. Previously in strategic planning, business could look 3, to 5 to 10 years out with a bit of confidence. Most business leaders I am talking to are only going out three years as the world is changing so rapidly.

We need good strategies to understand where the next growth opportunities are going to come from. Are there new markets we should be chasing, either geographic or demographic? Are there any innovative opportunities either with new products and services or for operational improvement?

Finally, with change occurring more quickly, businesses need to not only identify these opportunities but also ensure they are rapidly implemented.

Key reason #4 – A well-documented strategic direction unites a team

It’s important that a team is united on where a business is headed. A disparate team working on disparate issues leads to a confused business. Adelaide Steamship was an Australian company that had over 50 different interested ranging from freight through to departments stores to food processing. There was a long-held view when the banks stepped in and began liquidating assets in 1991, that the company had too many fingers in too many pies and lost its focus. On the contrary, the global packaging giant Amcor has always had a clear plan, focus, and direction, and for decades has continued to provide a good return to shareholders in a very competitive market.

Key reason #5 – A clear strategy provides a good filter for decision making

Every day, business leaders are faced with many decisions to make. What do we say yes to/ what do we say no to? Without a clear strategy, everything is up for grabs. We run the risk of saying yes to everything and becoming at best an average business.

We can use a clear strategy as a great filter in decision making giving business leaders absolute clarity in what to say yes and no to.

The Disney Corporation was a great example of this. There were some a potentially hostile takeover offer by Columbia studios in 1982.  The Disney board felt that the company would lose the founders purpose “to bring happiness to millions” if it sold out.

The board said no and the rest is history.

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