A strategy has two main components: principles and policies. The principles are a set of statements that define the way an organisation should act or behave. They are guiding and usually generalised but the policies are specific, proscribing precisely how the principles should be acted on. The purpose of these is to facilitate the delivery of tangible business benefits that collectively comprise the long-term objectives of all the stakeholders in the business for whom the strategy has been formulated. The stakeholder group will be drawn from those constituency groups, outlined in “Who owns a business strategy?”. They form the group that owns, benefits from, or otherwise has responsibility for the business.
A strategy may choose to serve the principle aspirations and goals of all the constituency groups or a sub-set of these. First let us examine the constituency groups and establish who the stakeholders are and what their aspirations and goals might actually be.
Customers
From a business perspective customers are vital to the whole enterprise. When the business began the owners will have identified customers in the market place that were underserved, or entirely neglect, and they would have established a business plan to meet these needs at a profit. As a result the business’ strategy needs to ensure that customers continue to be served and that the products and services remain relevant to their needs. The strategy may also encompass the expansion into and consumption of products and services in other markets, as well as the addition of new products and services to serve a steadily growing community of customers. It is important to note that there may be other factors that impinge on the extent to which the market and customer base should grow. There may be detrimental affects if the business expands beyond certain limits. The important point is that the customer constituency can expand and contract and that their needs are variegated and capriccios. Careful management and responsiveness to changes will be essential to the business.
Partners
Every business will have partners whom they work with during the planning, design, manufacture, and delivery of their products and services. These are external people and organisations, whether remunerated or not, who actively contribute to the business.
Remunerated partners may have been tasked with a particular function on behalf of the business, such as operating a customer contact centre or back office. Contractual commitments and expectations will specify or constrain the decisions and changes that can be made in decision domains that directly and indirectly affect these partners.
Non-remunerated partners may be charitable organisation or another business involved in a common initiative to deliver something to the local community.
The partners constituency will tend to set limits through commitments that must be observed by the business when making decisions and changes.
Employees
Few businesses regard their employees as a product, professional service consultancies being a notable exception. They are instead a resource that is provided at cost to the business and under contractual terms. Contracts and local government legislation and regulations present the constrictions and limitations that must be observed but the employee constituency also has aspirations and goals that will impinge on the business:
- Career advancement
- Competitive pay and conditions (relative to competing businesses that also require their skills)
- Pride in the organisation and their part in the business
- Equitable treatment
- The right to representation in labour discussions, arbitration in disputes, and ultimately to withdraw their labour
Managing all of these interests presents a cost and a risk to management of the business which must have its corollary in the business’ strategy. The cost affects budgets for initiatives and the pricing of products and services, whereas the risks impose costs for mitigating them and possible restrictions on production commitments in managing them.
Contingent workers
This constituency of workers is a more commoditised staffing resource than employees. Often the contractual obligations are with an organisation that provides them rather than the worker themselves, but local legal and regulatory compliance will also set limits on decisions and changes that the business can make. They are useful to the business for managing surges in demand, both predicted and not. The balance between employees and contingent worker populations can be an important policy element to the strategy.
Owners
The owners of the business will tend to have aspirations predominated by long-term goals. These will relate to profit, or return on investment, and reputation. The later can have both a tangible and intangible value. In any business this constituency group’s aspirations are the driving force for the whole strategy owing to the fact that the primary goal of any business is to be profitable to its owners.
Government and Regulators
All businesses operate within a legal and regulatory framework which constrains and limits their activities and thus the options for decisions and changes. As well as imposing restrictions and limits that must be observed by the strategy, their is an opportunity to influence and lobby for changes to these frameworks. Often regarded as “the cost of doing business” they could also represent the cost of changing how business is done. Furthermore, membership of trade bodies and organisations that mediate with regulators and government concerning changes to laws and regulatory rules and policies, presents a strategic opportunity, at a cost, which may be instrumental in opening up new markets and changing the cost basis for the products and services that a business brings to market. The government and regulator constituency will have an interest in monitoring and legislating on matters of compliance and will likely have goals and targets for demonstrating this within their industry sector.
Competitors
Businesses generally have competitors in the marketplace, with the exception of monopolies of course, but it often makes strategic sense to cooperate to some degree. This is usually because cooperation reduces costs for generating selling opportunities. It may also be possible that a competitors products and services are complimentary and so cooperation offers opportunities that do not necessarily occur in competition.
Understanding the aspirations and goals of competitors can have a significant affect on planning and marketing, presenting strategic opportunities for reaching the business’ own goals and aspirations, the attainment of which would be frustrated if ignored.
The stages for composing a strategy
The first stage for composing a strategy is to identify the constituency groups and the specific, relevant stakeholders within each of these. It is for these individuals that the strategy will deliver benefits and mitigate against detrimental losses with regard to their aspirations and goals.
The second stage is to articulate the goals and aspirations of each stakeholder and give each a priority rating for that stakeholder. This priority may, in the final analysis, differ from its prioritisation by the strategy. Strategic prioritisation will need to be negotiated with the stakeholders.
The third stage drives out a list of tangible business benefits, or losses, that would result from attaining the stakeholders’ aspirations and goals.
In the fourth stage principles and attendant policies are defined to govern the behaviour of the business teams as they formulate and consider changes.
In order to consider these stages in more detail we might enumerate the tasks as follows.
- Which constituency groups are germane to the business domain that concerns the strategy?
- Which individual stakeholders from these groups should be included?
- What are their long-term objectives, goals, and aspirations and how will they measure attainment of these?
- What tangible, measurable business benefits would derive from successfully attaining the stakeholders’ objectives, goals, and aspirations? It is imperative to set short term (5 year) , medium term (10 year), and long term (15 year) targets that can be monitored to demonstrate progress. e.g. keeping costs under control in the manufacture and delivery functions while responding to increased demand.
- What principles need to be applied when making decisions so that the benefits can be delivered? e.g. any requirement for scaling up plant and equipment for the short or medium term must be on a service provision (i.e. operational cost) basis rather than capital investment.
- What policies need to be enforced to ensure that decisions and changes comply with the principles? e.g. any proposal for scaling up plant and equipment must be referred to and approved unanimously by a strategic change board that ensures that if it is only required for 5 to 10 years, the requirement is met via outsourcing and hire agreements, and that the cost of the provision does not exceed designated limits according to category, etc. Conversely, the decision to invest capital in a solution may pertain to capacity increases that are required for longer than 10 years and for those that are above a certain cost threshold.
Each policy will relate to one or more principles which will themselves relate to one or more business benefits. The business benefits will be relevant to one or more stakeholder aspirations. The main point to be noted here is that if there is no canonical relationship across these sets, then something is wrong: the unrelated element has no utility to the strategy, as it stands, and should not be part of it.
The final stage is crucial: the strategy must be reviewed and approved by the stakeholders. They must be in agreement that the content of the strategy is a reasonable reflection of their objectives, aspirations and goals, that any measurement criteria stipulated are appropriate and representative, and that the strategy as stipulated is a reasonable approach to governing and guiding change to deliver them. On the latter point, the strategy must contain a plan for delivering the expected benefits and governing and monitoring compliance. It must also provide an exception process for decisions that go against strategy. We will now address these aspects.