Strategy development: from market and competition to a plan that adds up

What strategy development is, and how it differs from planning

Strategy development answers two questions for a company: where does it compete (with which offerings, for which customers, in which regions and channels), and how does it win there against competitors? Lafley and Martin call these questions “Where to Play” and “How to Win”.

Planning extrapolates, allocates budgets and schedules actions; it presupposes a direction. Mintzberg argued in 1994 that planners should not devise strategies themselves, but should supply data and help with strategic thinking. A test for your own strategy paper, based on the kernel of good strategy described by Rumelt: does it name the real challenge, a guiding policy for dealing with it and a set of coherent actions? If one of these is missing, it is closer to a plan or a wish list.

Six steps from the outside-in view to the plan

If you are developing a corporate strategy, you can organise the work in six steps. This is not a formula but a sequence that keeps a leadership team from arguing about options before it has understood the market and the competition. The first three steps establish where it is worth competing; the last three turn that into a plan for how the company wins. Our home page names four steps: diagnosis, hypotheses, implementation and measurement. The six steps here set out the first two in detail; implementation and measurement follow the decision.

Steps 1 to 3: outside-in view, competition, market size

Outside-in view and competition. The work starts outside the company: which developments are changing demand, products and channels? Region by region, because the same trend does not move equally fast everywhere. On the competition side, a benchmark shows what others do, not what you should do. It becomes useful with a positioning map that shows, on two axes that matter to customers, where competitors are crowding together and where there is room left. Both give you hypotheses, not answers: which trend matters only becomes clear once step 3 has translated it into volumes and values.

Market size. This is where impressions become a calculation. A market model works from the top down: from the total market through the addressable part to the target segment; from that follow the market value, as volume times average price, and finally the company’s own position. A figure becomes reliable only when independent routes lead to a similar result: annual reports of listed competitors, volumes derived from revenues and prices, expert estimates. A bottom-up calculation serves as a cross-check; large deviations show which assumption needs testing.

Steps 4 and 5: growth hypotheses and gaps

Growth hypotheses. The outside-in view and the market model produce hypotheses that can be tested. To illustrate: one segment grows because customers would rather outsource maintenance than do it themselves; another shrinks as soon as a substitute becomes cheaper. Each hypothesis names its drivers and barriers and is calculated in scenarios, often over five years. This turns a target curve into a forecast with disclosed assumptions that can later be measured against reality. What a hypothesis does not do: decide which bet the company makes.

Gaps. The gap analysis sets ambition and starting point side by side and asks: what do customers expect, what does the company deliver today, where are there unmet needs and white spaces that nobody has claimed? Interviews with customers and internal stakeholders reveal what no database holds. It also takes honesty internally: if the leadership has no shared picture of where it is heading, that is shown as a gap, not glossed over.

What makes a growth strategy

• Sources of growth. Where growth is meant to come from: the core business, new segments, regions or channels, new offerings or acquisitions.
• Sequence. What comes first because it funds the next step, builds capabilities or reduces risk.
• Trade-offs. What the company gives up in return: segments, products or customers that tie up capacity without contributing to the goal.
• Evidence. For each source of growth, a tested hypothesis with drivers, barriers, costs and scenarios. A revenue target on its own is not yet a growth strategy.

Step 6: quantifying the options, P&L and plan

At the end of the analysis there are usually several plausible routes. Instead of collecting opinions about them, you run the numbers: with a scenario-based evaluation model and a profit and loss statement for each segment that also includes the cost of change. The model also covers options people would rather not talk about, such as shrinking or selling a business. Five criteria make the options comparable.

The result is a decision paper, not a concept paper. It opens with the question of what exactly has to be decided and on what data. Then come the recommendation, the calculated options with their trade-offs, the assumptions and data gaps on which everything hinges, the foreseeable objections with prepared answers, and an implementation path with owners. Contested design questions are put forward as questions for decision, not settled in advance.

The strategy workshop: what it can do, and what it cannot

A strategy workshop is the format in which a leadership team sets priorities, calibrates its ambition and agrees who is responsible for what. What it cannot do: replace the analysis, settle disputed figures or force a decision that has no foundation. One working day is typically enough if the fact base and draft goals have gone out beforehand; without them, priorities turn into opinions. A possible agenda in seven blocks:

1. Decision frame. What should be decided by the end, and what explicitly not?
2. Outside perspectives. Trends, competition and the diagnosis of which challenge really needs solving (see Rumelt).
3. Fact check. For each draft goal: current value, data source and distance to the goal.
4. Calibrate the ambition. Check quantitative goals against benchmarks from competitors and from other markets.
5. Prioritise. From a prepared list of fields of action, such as customer segments, regions, service or skilled staff, choose the few that decide where the company competes and how it wins (see Lafley and Martin).
6. One-pagers. For each prioritised field of action: contribution to the goal, draft KPIs, owners and milestones.
7. Commitments. Who clarifies what by when, what gets recalculated, and when does the management team decide?

Common mistakes in strategy development

Four mistakes are typical, and there is a remedy for each:

• Breadth instead of priorities. Twenty goals, each with its own KPI, set no priority. Rumelt states that a long list of things to do, often mislabelled as strategies or objectives, is not a strategy. Better: a clear ambition and a few quantified headline goals.
• Hockey-stick plans. For Bradley, Hirt and Smit, the hockey stick is the emblem of strategic planning: the familiar dip in next year’s budget is followed by a steep rise. In one of their examples the rise never came, and the team drew a new hockey stick year after year. Remedy: keep actuals and assumptions separate, so that every kink in the curve has a named assumption behind it.
• Data gaps that count as zero. If a figure is missing and the model shows a zero, a segment looks too small or a margin too good. Gaps are named, estimated as a range and assigned to a person who closes them. A rough estimate with its quality stated is better than an empty cell.
• A paper nobody steers by. A strategy that ends as a document gets filed away and changes no decision in day-to-day business; the next section shows what helps.

After the decision: steer the strategy, don’t file it away

Whether a strategy has any effect is settled after it has been adopted. It is steered through a cascade: the management team’s headline goals, KPIs for each division derived from them, team goals derived from those and, at the end, tasks. Alongside this come a uniform KPI standard, an annual calendar with leadership’s fixed dates and clear rules for reviews and escalation. Responsibility is agreed, not assigned.

• Few KPIs. As a rule of thumb, two to three per building block of the strategy are enough, but no building block is left without a KPI, a data source and an owner.
• Measure goals, not people. The cockpit shows how far along a goal is, not how well someone is working. The benefit is more clarity, not more control.
• Test first, then scale. A pilot in a few areas shows whether the steering is workable in day-to-day use, and provides a blueprint. The management team decides on the rollout afterwards, not beforehand.

A management system wins people over when they can actually use it. That is why the decision should come with a tool rather than yet another document: a calculation model with a cockpit that shows the headline KPIs, recalculates scenarios and stays in-house. There is more on this under Strategy that adds up. If AI is part of the strategy, the same principle applies: test first, then scale; introducing AI in your company describes what that looks like.