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Strategic Management Process - The Definition Stage

by

William M. McGee

June, 2010

When the going gets tough, the tough get, well, strategic! Let's face it, that is not the normal reaction of businesses that are performing at a sub-par level. The normal reaction is to begin slashing costs. However, while cost improvements without sacrificing quality are always welcome, they are rarely the answer to putting businesses on a pathway to sustained growth and profitability. For that, businesses need to think and manage more strategically. More specifically, they need a strategic management process.

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

  • Definition Stage, which culminates in the selection of a market strategy.
  • Translation Stage, which deals with business philosophy.
  • Building Stage, the focus of which is designing performance measurement systems.
  • Operating Stage, which creates a continuous improvement environment.
The purpose of this brief article is to review a few of the most important elements of the first stage, or the Definition Stage, of a strategic management process. While all stages of the process are important, the first stage is perhaps the most exciting, because within it, businesses define their market strategies. That provides visible evidence that the companies are at least beginning to think strategically.

Market Strategy

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

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

Secondly, an effective market strategy must build on a company's core strengths. New strengths can be built or acquired, but it may take quite some time before those new strengths are believable in the marketplace. An effective market strategy will underscore the strengths that are already perceived and accepted by stakeholders. In essence, a company's market strategy and its core strengths become strongly linked, both externally and internally, with each supporting and strengthening the other.

Natural Customer Base

An effective market strategy must appeal strongly to a customer base that is large enough to support a company's financial objectives. There are cases where it appeals strongly to an entire broad-based market. However, those cases are rare indeed. More likely, a company will need to do a segmentation analysis of the market to identify the segment, or segments, of customers that will embrace the company's market strategy and become the company's natural customer base. The segmentation analysis should be deep enough to identify all the various segments of the market, along with the demographic attributes associated with each segment.

Buying Factors

Buying factors can be thought of as "triggers" in the selling and buying process, that either encourage customers to buy or discourage customers from buying. Many companies never really address buying factors. That is a mistake. It takes a lot of hard work to craft an effective market strategy and to identify a natural base of customers that will embrace that market strategy. That hard work can be wasted if companies do not understand the factors that can cause customers to make positive, or negative, buying decisions. Many times, buying factors can be obvious extensions of companies' market strategies and natural customer bases. However, it is important that companies recognize and understand those buying factors and adjust their approaches in the marketplace based on them.

While cost reductions can relieve stress on companies that are performing at a sub-par level, strategic management is the answer to them achieving long-term growth and profitability. Defining an effective market strategy, along with a natural customer base and buying factors, is the first step on the pathway to better sustained performance.

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