Strategy Formulation Model by Andrew Isherwood

Building on the literature review the author has proposed the following chart (Figure – Strategy Formulation Model) to visually represent the steps and tools in both the Reconstructionist and Structuralist...

Building on the literature review the author has proposed the following chart (Figure – Strategy Formulation Model) to visually represent the steps and tools in both the Reconstructionist and Structuralist strategy creation tool boxes. This side by side comparison allows for a quick understand of the different tools used at the different stages of strategy formulisation. For strategists familiar with many of the competitive strategy tools this also give a clear like for like comparison of the tools.
This model has been limited to the creation and validation of the strategy and ends with the documentation of the Vision; a definition of where the business sees itself in the future and a Mission; how it sees itself getting there.
Figure – Strategy Formulation Model shows the steps to go through to create the Vision and Mission statements for both competitive / Structuralist / Red (right) and new market / Reconstructionist / Blue strategies (left).

Strategy Table

 

 

Step 1 – Know Thyself

The Ancient Greek aphorism “Know thyself” is also true in strategy formulisation, by understanding a company’s capabilities the strategist can take advantage of them, likewise by knowing the weaknesses s/he can steer the company away from them or find way to supplement them (Birchall & Tovstiga 2005)1 . This first step uses the same tools for both the Reconstructionist and Structuralist schools. At the lowest level this is looking at what resources are available to the strategist and what their limitations are. For any company knowing what its capabilities and disabilities are allows it to play to its strengths or identify weaknesses that need rectifying if a chosen strategy does not fit (Christensen 2000)2. See Table Internal Analysis.

Table Internal Analysis

Type Description
Resources Identifying your unique resources and core competences allows the strategist to identify what make a company competitive and what it can easily ‘do’, knowing a company has a 1000 skilled software engineers means the strategist can automatically be thinking ‘what can we do with these resources’. Porters value chain analysis within an organisation is a good tool to use
Culture It is important to understand the culture or ‘how we do things here’ of a company. Culture is not easily changed or replicated therefore having a culture that fits the strategy or even a strategy that fits the culture can ultimately lead to competitive advantage (Johnson et al 2008). A tool for doing this is the Cultural Web (Johnson 1998)
Structure The structure of an organisation should be in line with its strategy therefore knowing what the structure is again helps to either identify strategic fit or highlight were change is required for the new strategy (Galbraith & Kazanjian 1986). Organisational charts can be used to document this structure.
Finance Knowing the company’s current financial situation allows strategies to be subconsciously rule in or out. By looking at the yearly financial reports or finance book a clear position of the company can be obtained.

 

Step 2 Define the Market

Step two is to define the market where the product or service is sold. The standard competitive strategy would be to simply describe the existing market segment and obtain statistics on current market share, sales volumes and trends. However for new uncontested markets there are no direct definitions or statistics available so a creation of a strategy canvas that maps similar or substitute products / services allows a visual representation of the ‘space’ around the new product or service to be seen. Market statistics can be obtained on these substitutes; however this only gives a rough idea on market size.

Step 3 External Analysis

Step Three is to analyse the external environment, this is where the Structuralist school has many tools, however this is not just the market but all external influences on the business. Tools such as PESTLE (Johnson et al 2008)3 and 5-forces (Porter) are extremely good at documenting the understanding the external environment. The output of this analysis is a list of Key Drivers for the market.

The Reconstructionist’s however can use the BOS 6-Path technique (Kim & Mauborgne 2005)4 to identify existing market boundaries and create a number of strategy canvases to describe these as the output of this stage.

Step 4 Create a New Position

Step Four is where the positioning of the company/product/service is decided; where the business will compete and what it will stand for. This is about comparing the internal analysis with the external analysis and deciding what to do. Traditionally, the Structuralist school would use its tools here to identify strengths and weaknesses and creatively decide on market position based on the internal and external analysis; is the company is going to be a ‘no-frills’ company or a focused (bespoke) company. Tools such as SWOT and the Strategic Clock are helpful here. The output of this is the proposed strategy direction.

The Reconstructionist’s use the BOS tools to creatively put together a new strategic canvas using the rules of Eliminate, Reduce, Raise and Create (Kim & Mauborgne 2005)4 . The difference here to the Structuralist school is that this is a representation of a new market and a position within that market. The output being a strategy canvas representing this.

Step 5 Validating the Strategy

Step five is about validating the selected strategy and checking if it is actually going to be successful. Johnson et al (2008)5 suggest that there are three areas to satisfy when validating a strategy: First is it suitable; does the strategy match the organisation that will have to implement it? Secondly, is it acceptable to the stakeholders; Financial ROI, payback period, Risk… Finally, check that it is feasible from a resource / capabilities point of view.

For the Structuralist, who base their strategies on the internal and external existing structure, they are unlikely to generate unsuitable strategies. Therefore the validating of these strategies concentrates on what changes will the strategy bring to the environment and what effect will this have. Tools such as game theory allow the strategist to ‘play’ with ‘what if’s’ and build convincing cases for or against the strategy.

The opportunity and threat portion of SWAT analysis is also helpful in collecting thoughts on the strategy. Risk analysis and mitigation planning can be used to quantify the cost and likely hood of problems with the strategy. Financial prediction or forecasts are also important tools to be used to predict how successful the strategy is, e.g. if the return on investment (ROI) is too low then the strategy will not be followed. The output of this stage is to either kill the strategy or give it the green light to be implemented.

As the Reconstructionist’s aim is to create new environments then it becomes harder to validate it using the more traditional tools as there is nothing to compare it to. Therefore the Reconstructionist’s use of BOS have given them some specific tools that allow the strategy to be worked through and validated at the same time. The Buyer Utility, Pricing, Cost and Adoption tools allow this. Also Christensen (1997)6 suggests a ‘try and see’ approach to strategies with a gradual commitment of resources with positive feedback from the market. This allows a green light to be given to a strategy with the condition of continual re-assessment for further funding.

Step 6 Definition of Mission and Vision

Step Six is the pulling together of the actual Vision and Mission statements. For the Structuralist school this is based on the key drivers and the proposed strategic direction from steps three and four. For the Reconstructionist’s this is based on the new strategy canvas created in step 4.

Currently there is no literature advising on implementation of strategy from a Reconstructionist’s point of view. Therefore the model stops at this point and the implementation of the strategy is left for further research.

 

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  1. Birchall D. & Tovstiga G. (2005) “Capabilities for strategic advantage leading through technological innovation” Palgrave Macmillan []
  2. Christensen C.M. (2000) “The Innovator’s Dilemma Second Edition”, Harvard Business School Press []
  3. Johnson G, Scholes K & Whittington R. (2008) “Exploring Corporate Strategy” Person Education Limited []
  4. Kim W.C. & Mauborgne R. (2005), “Blue Ocean Strategy”, Harvard Business School [] []
  5. Johnson G, Scholes K & Whittington R. (2008) “Exploring Corporate Strategy” Person Education Limited []
  6. Christensen C.M. (1997) “The Innovator’s Dilemma”, Harvard Business School Press []

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