Strategy development and review as a leadership task

Strategy consulting is increasingly coming under critical scrutiny. Confidence that external consultants can work out a unique positioning for a company is declining. At the same time, answers are needed to the question of why organisations repeatedly recognise significant developments in their relevant environments far too late to adapt to them early on in the sense of self-renewal.

Anyone who understands that organisations do not see what they do not see, and who regards strategy development as a joint leadership achievement, needs new formats for strategy work.

Strategic commitments generate the central business policy decision premises. An organisation needs them in order to maintain the necessary focus and remain capable of action under uncertain and dynamic conditions. At the same time, it is important to put precisely these decision premises to the test again and again at periodic intervals in the light of observable changes and developments in the environments.

In a strategy development or strategy review process, the existing strategy is critically examined with regard to observable developments in the environment and, where necessary, adjusted on a reasoned basis. Two core questions are central. Which commitments does the company deliberately hold on to despite signs that change is needed? And which commitments have to be changed or abandoned in order to secure business success?

This balancing between preserving and changing places considerable demands on the leadership team, above all on dealing confidently with uncertainty.

The strategy process also forms the platform for dealing with two challenges that are inherent in organisations themselves. The first: left to themselves, organisations focus their problem-solving activities on the problems of the present. Strategy development supplies the organisation with impulses for development so that together an attractive vision of the future emerges that provides orientation.

The second: organisations are preoccupied with themselves when left to themselves. The strategy process ensures that the organisation engages with its relevant environments and anticipates their requirements in order to remain able to respond to them.

Strategy is an essential element of corporate management that cannot be delegated. It deals with the difference between present and future. It gives the company a perspective on the future, creates orientation and serves to cope with existing uncertainty through joint decisions and commitments. These commitments have to be reviewed periodically.

Strategy work comprises a regular process of reflection for shaping the future and coping with uncertainty. It is a joint leadership achievement within the management system in which key people from the organisation are involved.

The result of strategy work is the strategic positioning that the company wants to occupy in the market in future. It answers five questions. In which markets does the company want to operate? Which target customer segments does it want to focus on? What benefit does it want to offer its customers? What demands do stakeholder groups make in terms of corporate responsibility? And how does it want to differentiate itself from the competition with its products and services?

A strategy also includes the key quantitative strategic objectives to be achieved with the positioning, as well as a master plan with the key levers and activities for implementing the strategy.

This results in clear needs for decisions and action that are shared with the key people. They are derived from the difference between the current strategic commitments and the developments observed in the environments regarded as relevant.

Following Nagel and Wimmer (Systemische Strategieentwicklung, 2009), this process can be described on three levels. In operational business, the strategic positioning is implemented. At the level of reflection, the strategy review takes place at periodic intervals, each time producing a reviewed strategic positioning. At the level of meta-reflection, the strategy review routine itself is subjected to a review.

At the start of the strategy process is the task of identifying the business segments, that is, the market segments in which the company operates. In doing so, the currently established ordering logic of business segmentation is critically examined.

An ordering logic can be based, for example, on products, target groups, technologies or regions. It is particularly important to work out the fundamental ordering logic that is specific to the organisation and not to allow any mixed categories.

In addition, it is necessary to observe which socio-technical developments in the infrastructural, socio-economic, ecological and political context call into question the fit and expediency of the existing, historically grown ordering logic in the target market segments. Such developments are decisive influencing factors for the organisation’s medium- and long-term strategic direction and must be taken into account.

This makes clear why every company has to work out for itself the right logic for its view of the market and the associated market development. The question to be answered is how the market is defined so that it can be optimally observed, assessed and also served.

In the next step, the strategy team takes a differentiated look at the company’s relevant environments. An organisation never has all existing data and information, and the future is and remains uncertain. Strategy development is therefore initially based on assumptions, whether one likes it or not.

It is therefore important to make assumptions about future developments explicit in the strategy team and to share them, so that decisions can be made on that basis. It must be clear that these can only ever be assumptions, which may prove right or wrong in the future.

Three core questions are worked through in a structured way in the strategy team. Which influencing factors from the environment have a decisive effect on the company? What development trends are to be expected for these influencing factors? What opportunities and threats arise from these developments for the company?

The corporate environment comprises the wider environment and the company’s specific competitive environment. The aim is to recognise developments in the multi-layered and dynamic environments and to assess their significance for one’s own company.

Three questions have to be answered in customer segmentation. Who are the customers? What different needs, behaviours and benefit expectations do they have? Which characteristic customer clusters can be formed?

It is important not to define the concept of customer too narrowly and to include the entire industry value chain in the analysis. One’s own business is often influenced by groups with which there are no direct business relationships at all.

For many companies, it proves useful to segment not only customers but also other influential and success-critical stakeholder groups according to their needs, behaviours and benefit expectations.

In addition, business segmentation must be distinguished from customer segmentation. A frequently observed mistake is to use the criteria of business segmentation, such as regions, products, company size or industry, for customer segmentation as well. However, mid-sized companies are not all the same. The same applies to all companies in a region or to all end consumers between the ages of 20 and 30.

The analysis of core competencies is about more than listing a company’s strengths. It is about identifying the bundles of capabilities that are deeply anchored in the organisation, have developed over several years and form an essential basis of competitiveness.

An effective core competence has to meet three requirements. First, it must lead to customer benefit, even if customers cannot trace the perceived benefit back to the company’s core capability. Second, it must lead to differentiation. A core competence must therefore not be something that can be copied or even bought in the short term. Building it up usually takes several years.

Third, the core competence must not be tied to a particular product or a particular business. It must be replicable or expandable. Deeply rooted core competencies can be transferred to different business segments or product areas.

The aim of this process step is to identify the company’s core competencies and describe them explicitly. Through discussion and communication throughout the entire process of working them out, making them concrete creates a new awareness of the company’s own capabilities. Like the analysis of the general conditions, it forms an essential basis for the later development of options.

Once the assumptions about the general conditions have been clearly described and the organisation’s core competencies identified and validated, the central strategic challenges are derived.

Central strategic challenges are the subject areas that will be decisive for viability and success in future dealings with markets, competitors, customers and other stakeholder groups. This applies to the specific competitive environment as well as to the company’s wider environment. It may be about coping with threats or about making use of identified opportunities.

Assumptions about the future development of these challenges open up a difference from the company’s “here and now”. This difference confronts the company with forward-looking strategic core questions to which sound and clear answers must be found.

On the basis of the existing organisational core competencies and the identified opportunities and threats, strategic options are then developed, oriented towards the strategic challenges. These are possible designs for the future that differ from the status quo. A framework is created for this that uses the existing creative potential, so that visions of the future outside existing patterns of thinking become possible.

In the next step, the designs for the future that have been developed are made more concrete, examined from a business perspective and assessed in terms of feasibility, prospects of success and risks. Where necessary, data from outside is fed into the process at specific points.

The concrete and assessed designs for the future form the basis for developing the organisation’s vision of the future, that is, the desired strategic positioning and the associated objectives.

In this step, the existing option designs are weighed against each other in a joint assessment and discussion process and refined into an attractive vision of the future. This happens in one of two ways: various aspects of individual options are brought together in the sense of a merger, or one of the options is selected as the desired construction of the future.

Anyone who does not want to run a company with a focus on the past must align the entire strategy process with the self-created perspective on the future. The company then no longer looks primarily at its past and its previous identity. It orients itself towards a future, attractive identity.

As a rule, the future identity differs significantly from the company’s current stage of development. Strategies therefore deliberately create differences.

The end of this process is a vision of the future constructed by the strategy team. It forms the basis for formulating objectives and deriving strategic measures.

A vision of the future in the sense of a future strategic positioning answers eight questions. Who do we want to be? Why do we do what we do? What benefit do we want to offer our customers and other stakeholder groups? In which markets do we want to operate? Which target groups do we want to focus on? What services do we want to provide? How do we want to differentiate ourselves? What objectives do we want to set ourselves?

This is about identifying the key levers for achieving the strategic positioning and the objectives, and aligning and bundling them in a strategy map. For each lever, the key measures are made concrete and summarised in a master plan. In addition, for each lever, the key measurement and steering variables for implementing the strategy, the KPIs, are pinned down.

In the overall picture, following Wimmer (Wie lernfähig sind Organisationen, 2000), the strategy process follows three steps: variation, selection and re-stabilisation.

Variation concerns the starting situation. Perspectives are fed in from outside, for example from experts, customers, stakeholders and employees. The analysis covers trends and market developments, socio-technical changes and innovations in relevant environments, market segments and their attractiveness, customer segments with threshold benefits and potential, the competition, the core competencies, the challenges and core questions, and the strategic options. It is about generating information in the system with irritation from outside.

Selection leads to the vision of the future and the strategic positioning in the market. This includes the business policy identity with the dimensions of purpose, planet, people and profit, the target markets, the financial targets, the answers to the core questions, the target customer segments, the identification of relevant stakeholders, the value propositions and the strategy map. This is where the decision on shaping the future and coping with uncertainty is made.

Re-stabilisation is implementation. It comprises organisational design, strategic initiatives, communication, impact monitoring, learning architecture, structures and processes, empowerment, and reflection and process steering. Corporate development here arises from the difference between present and future.

The strategy process is divided into six steps. Each step involves preparatory work, defined work steps in the workshop and a result. The first three steps clarify the starting situation.

The first step concerns the general conditions, the market and the competition. The preparatory work includes a market and company check and a review of the established form of market segmentation. In the workshop, the key influencing factors from the environment and the associated trends are made concrete. The existing observation and assessment grids are reflected on in order to illuminate blind spots. It is determined which organisational units or business areas are included in the audit.

Competitive structure and competitive development are also analysed. The legal and social requirements for climate neutrality and for the ecological and social use of resources are examined. Opportunities and threats are derived from all this. The result is opportunities and threats based on the market and competition assessment. A three-day workshop with the strategy team is planned for this.

The second step concerns core competencies. The preparatory work includes a search grid for involving further key people in this step. In the workshop, the storyline is described, the successes of recent years are worked out and their causes made concrete. From this, bundles of capabilities that are directly related to the successes are identified and described as organisational competencies.

It is then examined whether these organisational competencies meet the requirements of a core competence, and the validation is planned. The result is concrete and examined core competencies. A one-day workshop with the strategy team and further key people is planned.

The third step concerns the challenges. In the preparatory work, the validation process for the core competencies is steered. In the workshop, the validated core competencies are reflected on, the identified opportunities and threats are quantitatively assessed and prioritised, and the key strategic challenges are made concrete.

From this, the strategic core questions and the associated need for decisions are derived. The result is the key strategic challenges and needs for decisions. A one-day workshop with the strategy team is planned.

The fourth step concerns the strategic options. Here, too, a search grid for involving further key people is provided in advance. In the workshop, different strategic development possibilities for achieving the objectives are developed. They are oriented towards identified trends, customer potential and strategic core questions and take into account the core competencies identified and the ecological and socio-economic requirements of stakeholders.

The options developed are then made concrete and assessed. The result is different promising strategic development possibilities for achieving the objectives. A one-day workshop with the strategy team and further key people is planned.

The fifth step concerns strategic positioning and value propositions. In advance, the strategic options developed are made more concrete and assessed. In the workshop, the concrete options are presented and reflected on. On the basis of all the insights gained so far, the decision on the basic strategy is made.

Then the business policy identity, the core services, the range of services, the target markets and target customer segments, and the values of corporate responsibility for ecological and socio-economic environments are made concrete. The value propositions are worked out for the defined target customer segments, and the quantitative strategic objectives are defined. The result is strategic positioning, value propositions and objectives. A three-day workshop with the strategy team is planned.

The sixth step concerns the strategy map, master plan and KPIs. In advance, the structures of the strategy map and master plan are individually adapted if necessary. In the workshop, the key levers for achieving the strategic positioning and the objectives are made concrete in a strategy map, structured by purpose, planet, people and profit. For the defined levers, the key measures are made concrete and bundled in a master plan.

In addition, the architecture for the change and strategy implementation process is worked out. The result is measures and steering variables for achieving the objectives. A three-day workshop with the strategy team and further key people is planned. In all six steps, the workshop design and presentation and documentation materials are part of the preparatory work.

This understanding of strategy turns away from the traditional basic conviction of plan-determined corporate management. It pursues the idea of a continuously running process of self-renewal. The company is to be constantly supplied with vital irritations, that is, learning impulses, which are used deliberately for strategic course-setting.

To this end, the knowledge of experts is fed into the strategy process as a “data donation”. The evaluation of this data takes place in the strategy team as an important process of discussion and sharing. The central question is which data, hypotheses, conclusions and theses of the external experts the strategy team adopts or modifies and lets flow into the further process.

This ensures that external perspectives are critically examined and questioned and that their essence really flows into organisational decision-making processes. The aim is to promote the targeted irritation of the organisation and to break through its self-referentiality.

The concept also takes into account the high dynamics in social systems, the self-referentiality of organisations and the associated resistance to change. It also reckons with the fact that actors in organisations pursue personal objectives alongside organisational ones and bring a high degree of self-promotion and influence into a strategy process to that end. This is regarded as natural.

This form of strategy work in the management team, with the involvement of key people, is always also a special form of team development. It happens de facto, without this objective being on the agenda. In addition, the problem-solving ability of the key people involved and of the organisation as a whole increases, so that it can also deal appropriately with ever-growing challenges in future.