Planning the 6 A's of Strategy
Crafting a strategy starts with asking artful questions and, as with all insight, the nature of the questions asked will determine the answers received. While the 6 A's of strategy present broad questions to establish a framework, more detailed questions are required to achieve a coherent strategy. Simply, the details matter. Fortunately, the strategy literature provides excellent frameworks to address the different components of the process of crafting a strategy. Here is where the general turns into the particular, and the art of questioning turns into the science of finding answers.
Risk still exists independent of the questions asked and the answers discovered. The objective of any strategy is to minimize the risk of not achieving the mission, where mines and meteorites reflect risk types. The former addresses those risks that are possible to identify, measure, and develop a response; while the latter are those risks where identifying and measuring is not feasible. Unfortunately, risks exist everywhere in the process. The goal of strategy development is not to solve all issues, but merely to develop a coherent strategy that is less reactionary and more thoughtful through focusing on outcomes.
Assess. The beginning of any plan starts with knowing what you have and what are the expectations. Assessing the internal capabilities and resources of the firm establishes the starting point. How do the capabilities relate to the mission (e.g. knowledge of strategy and technology)? What resources are available to achieve the mission (e.g. some human and real capital)? You will need things for your journey, so you need to determine what you have.
The enterprise must also assess the external stakeholders. The most critical external stakeholders are the customers and the investors. What do the customers want (e.g. a strategy that delivers results)? What are the investor’s expectations (e.g. return of capital)? Customers determine where your product or service will go, while investors determine how much risk and reward they will accept for their capital.
The assessment phase of strategic management is primarily the identification of risks that will inhibit the realization of the mission. Here is where mines enter the discussion. With proper reconnaissance, mines are usually identifiable in advance, and their impact is well understood. What is the risk that resources and capabilities are misidentified? The needs of the customer? Stakeholder requirements? It's hard to manage risk when not correctly identified.
Analyze. To start your journey, you need to know where you are relative to where you want to go. Gap analysis determines the difference between where you are (e.g. no readers) and where you need to go (e.g. a thousand readers), and what you have (e.g. a blog) and what you need (e.g. a profitable business). The size of the gap evaluates the magnitude of the effort and the resources required to close the gap.
The enterprise undertakes the analysis by assessing its internal strengths that aid in achieving the mission (e.g. infographics) and any weakness that may detract from it (e.g. marketing experience). As with any journey, you need to know what you have and what you need to add to your backpack. Be wary though: if you bring more than you need (e.g. infographics), your pace will slow, while what you're missing permits you to travel faster (e.g. authentic voice from no marketing experience).
Before you head out on the journey, you need to check the weather. A clear day provides an opportunity (e.g. quicker travel) but comes with risks (e.g. sunburn). The threat of a storm may stop your journey along one path but provide the opportunity to explore another one. The critical dimension is analyzing how the environment may impact your mission.
In business, the external environment is like the weather and involves many aspects. Dimensions that may affect the external environment include political (e.g. will my blog be censored?); economic (e.g. how will I support the cost of the blog); social (e.g. are there standards of conduct for writing a blog); technological (e.g. how is the blog hosted); environmental (e.g. how can I reduce my environmental impact), and legal (e.g. is there any legal constraints on writing a blog).
The competitive forces in your industry will influence the enterprise. A high degree of rivalry (e.g. lots of blogs looking for readers) may exist in your industry that limits the ability to generate excess returns, while new entrants may deliver new products (e.g. new blogs). Substitute products may replace your product (e.g. blogs replacing newspapers), while buyer power will determine pricing and supplier power will determine how much your goods cost (e.g. hosting service for a blog). The objective is to identify if one of the competitive spheres is an external threat to the product or service.
The analysis phase of 6A Strategy deals with the evaluation of identified risks. The focus of the discussion is on evaluating the impact and likelihood of the mines that may litter the path of the mission and, equally critical, identifying meteorites that may alter the journey irrevocably. With the latter, the likelihood and impact are highly uncertain; however, the question is less of precision and more one of awareness.
Alternatives. After assessing your capabilities and assessing the environment, there are many choices to make in how you will undertake the mission. While it’s always good to have choices, the strategy choices include differentiation, cost, and focus. Complimenting these strategies are how to interact with the external environment with links and moves across the value chain and the industry.
Differentiation focuses on delivering a product that is unique in some fashion (e.g. strategy risk) from competitors (e.g. strategic planning and execution). The value proposition offers a product or service that is unique to the consumer by satisfying a desire. The product may be so different from what came before (e.g. iPhone) that it creates a desire that hadn’t existed. In either case, the differentiation delivers something new. The challenge, of course, is that competitors may copy the product or service and thus force the differentiator to produce a new product (e.g. original content) continually.
Cost leadership is a strategy that delivers a current product at the lowest price possible (e.g. the blog is free). The advantage deploys whatever means necessary from efficient raw material sourcing, manufacturing, delivery, advertising, and distribution, to maintain a competitive edge versus competitors. As with differentiation, the methods to achieve cost leadership may be duplicated by others, and thus, the advantage may not be sustainable.
A focus strategy involves some degree of differentiation and cost leadership. The difference is the business will have a limited market or customer scope where it operates, and thus may not be the absolute leader. The approach may not achieve the absolute lowest cost structure or differ materially from other products; however, it can leverage a unique location or relationship.
A final discussion is understanding how to link the competencies of the enterprise to other product or service areas. Links may exist that can provide an avenue for improving the scale or the scope of the operation. Further, moves into related markets may provide a means for the enterprise to grow and leverage its resources and capabilities further. The goal is to identify where the enterprise adds value and apply it to new markets by linking forward or backward in the value chain or moving into related markets where the enterprise can leverage its capabilities to its advantage.
The alternatives phase of 6A Strategy delivers the response to the mines that are along the path while understanding the risk appetite. Alternatives are a critical step of the process since the enterprise is making decisions that will determine the future path, how they will travel along it, and who will be there. Inherent in these decisions are some that are path dependent and irreversible: the result is that the enterprise is left stranded with alternatives when a meteorite arrives.
Strategy Risk. The focus of the planning phase of 6A Strategy is on identifying risks that may occur along the path of the mission and the realization of the vision. Some of these risks will have clear impacts and likelihoods (mines), while others (meteorites) are highly uncertain. The goal of the planning phase is to identify appropriate responses in the context of the firm’s appetite for risk. Fortunately, most mines are identifiable, and meteorites are rare. Unfortunately, executing a strategy brings a whole new series of risks into the discussion.
This article is the first in a four-part series on The 6 A's of Strategy, which discusses strategy as a process. Part one is found here.