The Strategy Pyramid: Developing Strategic Dynamics

More than developing a strategy, it is essential that companies make the strategic process dynamic.

The strategy pyramid was developed by Vaughan Evans in his book Key Strategy Tools to spell out key issues that must be considered when formulating and implementing business strategy, to make the strategic process dynamic and sustainable.

The pyramid is composed of nine dimensions that integrate and complement each other.

1.  Knowing your business

The formulation of a strategy must be based on comprehensive knowledge, on the part of the executives, of the environment, the company, and the business. At this stage, diagnoses, surveys, market studies, segmentation of the customer base, and the analysis of information collected are fundamental.

2. Defining objectives and goals

The next step is to define where you plan to go. This can be done by identifying a set of strategic objectives that will then be monitored through KPIs (key performance indicators) with their respective goals. These objectives are deployed from the company’s future vision.

3. Predicting market demand

This step consists of estimating the demand for your product or service. Each market has its own characteristics, and each customer, unique needs. In some companies, demand forecasting is driven by the initiatives of the marketing and commercial teams. In others, it is necessary that all areas of the organization collaborate in the gathering of information for the forecast.

4. Evaluating segment competition

Analyzing the competition is important for any and every company that wants to remain competitive. It is necessary to gather information about your competitors, identify advantages (and disadvantages!), and compare products, prices, and distribution and promotional strategies. Competitive analysis can generate relevant information for your business, enabling you to make decisions, develop strategies, and implement transformations that improve sales, revenue, and even market share.

5. Monitoring competitive advantage

Competitive advantage can be defined as the advantage or capacity that a company has over its competitors within its business segment, or the ability of a company to outperform its competitors within the segment. The company has a competitive advantage when it has the resources to take on its rivals with advantage in the fight for market share. Competitive advantage is the condition that differentiates a company from the competition. Gaining competitive advantage is key, but not sufficient; because it is ephemeral, in the face of fierce competition it must be sustained.

Sustainable competitive advantage is, therefore, the persistence of a company to do business, despite the efforts of competitors and potential competitors, to copy and/or overtake it.

6. Focusing on the strategic gap

There will always be a gap between a company’s current situation and what its strategies demand. Identifying and closing this strategic gap is critical, and this is done through strategy implementation.

7. Filling the gap through business strategy

For a business unit, there are three key decisions that leadership cannot delegated: Who are the customers that define our target market? What will the value proposition that differentiates our products and services for these customers be? What will the features that make our business better than any other in delivering on that value proposition be? These decisions constitute a business strategy.

8. Filling the gap through corporate strategy

Corporate strategy is elaborated by CEOs and senior executives. It considers three fundamental reflections: What will the capabilities that distinguish our company be? What will the comparative advantage of the company in adding value to its business be? What kind of business will the company do?

9. Addressing risks and opportunities

Last, but not least, we must pay attention to managing risks and identifying new opportunities.

Risk management in companies is becoming increasingly important for organizational success, as the company that does not manage its risks increases the chances it will face serious difficulties. With correct management of risks, it is possible to identify the probability and potential impacts; with this knowledge, mitigation plans can be developed.

To identify an opportunity, we must observe, collect and record information, analyze, and compare — but this does not guarantee that it will be a good opportunity. Good opportunities arise from the breadth of the market, the competence to exploit it, and the company’s distinguishing features.

There are several tools to develop each of the stages of the strategic process advocated by the Pyramid, many of which have already been covered in previous MANAGEMENT TIPS.

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