Strategic management process: the definition stage

When the going gets tough, the tough get, well, strategic! Let’s face it, that’s not the normal reaction of companies that are performing below average. The normal reaction is to start cutting costs. However, while cost improvements without sacrificing quality are always welcome, they are rarely the answer to putting companies on the path to sustained growth and profitability. For that, companies must think and manage more strategically. More specifically, they need a strategic management process.

An effective strategic management process can be defined as having four main stages:

• Definition Stage, which culminates with the selection of a market strategy.
• Translation Stage, which deals with business philosophy.
• Construction Stage, whose focus is the design of performance measurement systems.
• Operational Stage, which creates an environment of continuous improvement.

The purpose of this short article is to review some of the most important elements of the first stage, or Define Stage, of a strategic management process. Although all stages of the process are important, the first stage is perhaps the most exciting, because within it, companies define their market strategies. That provides visible evidence that companies are at least starting to think strategically.

Market strategy

Many companies believe that once they have defined their market strategy, their strategy process is complete. Of course, nothing could be further from the truth. However, there is no doubt that having an effective market strategy is vitally important for success. So what makes an effective marketing strategy? There are two attributes that must be in place.

Perhaps the most important attribute is differentiation. A company’s market strategy must clearly differentiate it from the competition. The emphasis here is on “clearly”. It will clearly and uniquely identify a company in the eyes of all stakeholders, such as customers, suppliers, employees and shareholders.

Second, an effective market strategy must be based on a company’s core strengths. New fortresses can be built or acquired, but it can take quite some time before those new fortresses are credible in the market. An effective market strategy will highlight strengths that are already perceived and accepted by stakeholders. In essence, a company’s market strategy and its core strengths are strongly linked, both externally and internally, supporting and strengthening each other.

Natural customer base

An effective go-to-market strategy must strongly appeal to a customer base large enough to support a company’s financial goals. There are cases where it strongly appeals to an entire broad-based market. However, those cases are really rare. Most likely, a business will need to conduct a market segmentation analysis to identify the customer segment(s) that will adopt the business’s market strategy and become the business’s natural customer base. The segmentation analysis must be deep enough to identify all of the various market segments, along with the demographic attributes associated with each segment.

purchase factors

Buying factors can be thought of as “triggers” in the buying and selling process, encouraging customers to buy or discouraging them from buying. Many companies never really address the buying factors. That is an error. It takes a lot of work to come up with an effective marketing strategy and to identify a natural base of customers who will adopt that marketing strategy. That hard work can go to waste if companies don’t understand the factors that can cause customers to make positive or negative purchasing decisions. Often times, buying factors can be obvious extensions of companies’ go-to-market strategies and natural customer bases. However, it is important for companies to recognize and understand these buying factors and adjust their approaches in the market based on them.

While cost reductions can relieve stress for companies that perform at a lower level, strategic management is the answer for them to achieve long-term growth and profitability. Defining an effective go-to-market strategy, along with a natural customer base and buying factors, is the first step on the path to sustained better performance.