24 Jul 12 Tools for effective strategy formulation

Most companies undertake annual strategy planning exercises (STRAP) to lay down the plan for the coming year. They undertake market/business research and competitive intelligence to support their planning.

Some of this research is backward looking – How much did the market grow last year? What did my competitors do? Some research is forward looking – How much is the market likely to grow next year? What plans have my competitors announced? and so on. Excel spreadsheets then used for putting down sales targets, investments, expenses and so on.

Is this the best way to go about strategising and planning in the current environment ? The business environment in India (and indeed in most other geographies) today is highly competitive as economic recession has reduced the size of the global market pie that companies are fighting for.

In such a scenario, strategy formulation needs to focus on the competitors and their moves. I like the analogies Mark Chussil uses for describing strategy formulation. He likens it to playing chess. Predicting the future is like anticipating chess moves. It cannot be done using trend lines, benchmarks or spreadsheets. Similarly, meteorologists cannot predict weather or rainfall based on the previous day’s weather. They use a structural model for forecasting. Further, they cannot give you an accurate prediction, but are able to give you a range of outcomes – a 60% chance of rain, for example.

In the business context, extrapolations alone cannot be used for anticipating the future. There are other tools available such as war gaming and scenario building that yield more robust strategies. War games use role plays to anticipate what the competitors’ strategies and counter-strategies could be. Scenario building enables companies to identify the most likely scenarios and prepare for them in advance.

Companies can organize competitive strategy workshops to leverage these tools for strategy formulation and business planning.

What tools does your organisation employ for strategy formulation?