Every company develops that at least twice in its life time. We are talking about strategy – an instrument that is crucial for defining how a company will achieve its long- or medium-term goals. Since 2010, our Moscow Consulting Group has developed a strategy for over large companies in various industries.
What are the typical components of a strategy? Exhibit 1 outlines the key areas covered by each strategic project:
1. External market situation (overall trends and competition analysis),
2. Internal business assessment (business processes effectiveness, risks and growth opportunities),
3. Company’s financial prospective (financial models for various scenarios).
Types of analyses consultants perform in a typical corporate strategy development project
In this article we would like to share the most popular frameworks and tools deployed by consultants performing strategic projects. These frameworks had been widely used by management consultants of all calibers from all over the world.
We have selected the top-10 strategic frameworks that are well-known by strategy specialists. Exhibit 2 contains the areas where these frameworks are mostly applicable.
Top-10 frameworks are used by consultants to assess industry and business current state and potential during a strategy development projects
1. Porter’s Five Forces. The framework is used to assess the attractiveness and profit potential of an industry or firm by analyzing the 5 key forces active upon it.
2. Entry/ Exit barriers. This framework helps determine the strength of competition in an industry. The size of barriers to entry and to exit can help to estimate the likelihood of new entrants or of business leaving the industry.
3. Industry lifecycle. The Industry Lifecycle is a theoretical behavioral model of a typical industry. Positioning an industry along the lifecycle can help to identify the industry future trends.
4. Maturity-completive positon matrix. The framework is used to asses relative position of a firm or its Strategic Business Units (SBUs) and its available strategies with respect to industry maturity and competitive positions.
5. Competitive landscape. Construction of an industry landscape, evaluation of the degree of competition in different segments of the industry.
6. The McKinsey 7-S framework. The framework is used to evaluate an organization and its effectiveness. The basic premise of the model is that there are seven internal aspects of an organization that need to be aligned if it is to be successful.
7. Value Chain. A value chain is a sequential map of all activities within a business or an industry. The framework disaggregates a business into its ‘value’ activities. It can be used to compare industries and companies or to determine and analyze costs.
8. Value Drivers. Value drivers are the business activities or items that most directly impact a firm’s or industry’s cost structure or revenue base. Each industry is unique and has its own set of value drivers.
9. 5-C Situation analysis. This framework is used for a general company situation analysis and helps understand both external and internal factors, including market environment, customers and the company’s capabilities
10. BCG growth-share matrix. The framework is used to position different business units in the quadrants of growth-share matrix in order to develop an optimal allocation of resources and investments between them.
It’s not necessary to use all the frameworks every time you are developing a strategy. Instead choose those that will provide the best answers to the strategic questions the company is facing at the moment.
Important note: please remember that all the outlined frameworks are just tools. Their usefulness and applicability very much depend on the skills and and thoughtfulness of the people deploying them.