A Complete Guide to Strategy Modelling

4 years ago

The term strategy model appears in a variety of contexts. Though the specifics of a strategy model vary greatly depending upon the nature of the model, the basic definition of such a model remains the same in all industries and sectors. Small businesses benefit from the implementation of a handful of strategy model types, depending upon the nature of the business in question and the type of strategy model required by that business.

What is Strategy Modelling?

A strategy model is an individualised, visual representation of the major driving forces behind the success of a business; represented as such in a visual and easily comprehensible format. At first glance a strategy model can appear to be a complicated and detailed affair, yet in reality the best strategy models rely upon basic fundamental elements to achieve their primary goals.

Such a strategy model might focus upon the marketing side of the equation, touching upon such vital strategic elements as product mix, price points, the effective conversion of leads into tangible sales and so forth. At its core, many strategy models are built upon straightforward fundamentals with mathematical precision.

The reason that the best strategy models are so effective is that they provide a framework upon which a business owner can build a solid business model. This business model can facilitate success within the confines of the realm which the model itself dictates. Such strategy models are akin to advanced algorithms in that they provide a set of conditions which can be implemented from within a business to achieve maximum success.

What is the Function of Strategy Modelling?

The considerations of the aforementioned strategy models eliminate the need for the traditional strategic planning models which were popular in the past. These models often called upon the business owner to deal with financial statements, market analysis and much more. It is not that these aspects should be ignored, but rather that they are just better placed within the remit of a more comprehensive business model.

Instead, a strategy model focuses upon the overarching essentials required to achieve business success. By doing so it not only eliminates a great deal of the unnecessary detail included in traditional business models, but can also eliminate a great deal of the need for excessive labour on the part of the business owner.

Now, even if the business owner chooses not to engage in the formulation of his business model based upon a strategy model, it is certainly useful to have a working knowledge of what would go into such a model. Not only does this give the business owner an idea of the areas within which they should be looking to improve their business, but it also gives an idea of the kind of strategies they should be looking at in the completion section.

Key Elements of Strategy Modelling

The manner in which a strategy model takes place and the details of the same depend upon the model itself. However there are a few key elements of such models which are of prime importance and should be agreed upon by all parties involved. These are:

Each of the aforementioned elements are important factors in the formulation of a strategy model, yet they are all based upon the primary components of any strategy model. Once the business owner has established with their chosen advisor the strategical elements which they will focus on first, they can then proceed to establish the actual structure of the model.

This is the process by which the raw data included in such a model will be turned into visual depictions to be included in the model itself. The first of these depictions will be a single image as an overview of the business model which it represents; in other words the ‘product’ of the model.

This is the image which is the first visual impression of the overall model and it is therefore of paramount importance that it is composed in such a way as to best represent the model and its key core elements. Once an overview shows the model as a whole, the individual sections of the model can then be divided up and examined in more detail.

In this section, a functional depiction of each section of the model is employed to the fullest benefit of the business owner by allowing them to understand the minutiae of their business plan. Such functional depictions can include:

Many of these aspects are obvious, such as the actual financial accounts and the structure of a business’ supply chain. Others are arguably less relevant to a business owner, such as an algorithm which connects the many aspects of the model together. However these are all part of a comprehensive model and would therefore be important to include.

As a final step, the financial aspects of the model would be sectioned off and presented in a more traditional financial format to help with the evaluation and analysis of the model as a whole. It is vital that a strategy model remains a representation of a business model in as clear a manner as possible and by including traditional financial statements the fundamental clarity of such a model is not compromised.

Planning and Delivering Strategy Modelling

“When all is said and done, action is character and life itself”

Robert M Pirsig

In order to achieve a business success, an effective strategy is paramount. Yet the development and implementation of such a strategy does not always mean the final end of the process. Businesses that employ strategy modelling as an integral part of their business management structure can expect a number of benefits from such a model. And, as always, it is better to be explicit rather than implicit with regard to the inclusion of such an important part of any business strategy. Consideration of the following points will ensure that your business is structurally and strategically sound from the ground up.

It can be said that any business which hopes to achieve the level of success it desires should have an effective strategy in place from which all other processes are developed. It can almost be said that a plan is static and should always be a living document to be worked on, while a strategy is the culmination of the stated plan. The strategy practically and bluntly outlines what is to be done, while the plan puts into action the various aspects of the strategy to be used.

Ultimately, the strategy model is as elegant and simple as it is complex because it is a combination of the plan with the strategy itself. By including the plan, it ensures the future direction of the model, while including the strategy ensures that the model remains effective and efficient.

A complete business model should be able to be read by any business owner, yet should be capable of being digested, understood, and acted on by the business owner and their core team. Therefore, it is key that the structure of such a model is as efficient and effective as possible.

The best strategy models include as close to the core values of the strategy, and it is therefore useful to keep the model as succinct as possible. However, such models can often include a great deal of information and those responsible for the combining of such information should be proactive in keeping the writing clear and brief.

In an ideal world, the model is simple, understandable, and as efficient as possible. It is important that there is clarity surrounding the model’s purpose as to not leave anyone confused as to what information they should be looking out for.

Perhaps one of the key advantages of such a planning model is that it is practically an enterprise’s plan for the future. It acts as a distraction free zone in which business owners can examine and study many of the fundamental issues facing their business without distractions. Ideally, every business owner should have access to a realistic and accurate model to help them make well thought out decisions for their business.

The issue of distractions should be questioned, however, because a certain level of ongoing transparency between the business owner and the advisor is always beneficial. This transparency ensures that the business owner gets the most out of their model, as they can invite further discussion and considerations pertaining to the completion and optimisation of their model.

But it can be said that the term ‘distraction’ does not lead to a simple decision; rather it is about relating the core values of the business to the model itself. Distractions should be avoided which will allow the business owner to take a 360 degree look at the business model, and in this way the ability to find weaknesses and prey on opportunities within it.

This can be a difficult and seemingly daunting task for many business owners, but the importance of such an exercise cannot be overstated. The result of such a difficult session of self-examination will be a model that is as close to complete and accurate as possible, which in turn can act as a wonderful core reference point for both the business owner and the wider team.

Considering that the development of a strategy model can lead to the outlining of core values for the business in question, it is vital that a business owner deliberately sits down and works through the model and the way it will affect the specific issues of their business. This could risk being seen as an unnecessary affair, or ‘politics’, by some in a business team.

Nonetheless, the simple fact is that only through this kind of examination can the value of the business model to the business itself be fully appreciated. The results of this kind of examination may demonstrate that some of the information included in the model does not relate to the core values of the business in question. In this situation those items of information should be removed.

The point to remember with regard to this is that business strategy models are not created in a void. They are not just a tacked-on framework for the holding of information. They exist to serve an organisation, and in this way the designers of such models should ensure that they are as relevant to the business they serve as possible.

Within the wider business community, the business model has become more of a generic term and, as such, has the potential to lose its glory. Therefore, it is vital that its true nature, and the process by which it is created, is understood by those who have a vision for such a model. Turn to any group of managers and business owners, however, and you will find that those who have created a truly successful business strategy model often cite it as being a great contributor to their businesses’ successes.

This is particularly true with regard to the concept of strategy modelling as a representation of the business plan. By including the business plan in this way, the strategy model can be a powerful force for the development of the business community. This is not to say that highly effective business plans do not exist or are not effective by themselves; it is simply to say that an effective business model will cover both the static and strategic elements of the business plan, and it is therefore truly invaluable to those who see the benefit of modelling their businesses.

This is a description of the strategy model in-action.

It starts with the situation. This is the analysis of the situation. It is the current environment and can include the size, revenue, resources and structure of your business.

It then moves into the level of analysis.

This is the overall impact analysis that determines the strengths or weaknesses and their contribution to the overall strategy.

This is the strategic-level of analysis. It is the evaluation of your internal resources, your competitors and the marketplace.

The next section is the assumptions of the business model. These are the assumptions of your future abilities to compete.

Finally, the business model shows the opportunities for your business based on the current and future environment. I believe it is important to note, this is not a one size fits all strategy model. In addition, this is the strategy model I use to help analyse and make decisions for my company. Group yourself with the above experts and always continue to learn.

If you are serious about growth, you need to question and understand business models.

To find out the specifics of your business, use this strategy model and apply it to your company.

If you do this, you’ll be able to diagnose each business problem and work on an effective solution.

Creating Your Own Strategy Model

This type of model will help you face all business issues in more structured and methodical way and can be used for internal and external analyses.

To create a strategy model, you need to follow the three step process:

Step 1: Review your company mission and objectives

Step 2: Identify opportunities in the industry

Step 3: Analyze challenges to formulate business strategy

First, an effective strategy building requires an accurate, strategic statement of goals. The business plan for a company includes the mission statement that provides customers, investors, employees and others with a way to predict the company?s direction.

Second, you must identify opportunities and threats in your industry. You will recognize the opportunities and threats by the effect they will have on your business and if you are able to respond to those moments. You will make it easier with a strategy model.

Finally, you will analyze the relationship between the goals of a company and the strategies they have drawn for each opportunity and threat to create a competitive advantage. Sometimes it is a good idea to follow only one opportunity, or you may only want to face one threat.

The key is to structure a process that will help you achieve a goal. It is always important to strategize for ways your business can evolve, form new partnerships, deal with new technology, change its processes, and make a significant shift in strategic direction.

Once you decide on the target, you can start strategizing how to accomplish your goals. With a plan to do this, it will be much easier to accomplish these goals. If you have a goal or a mission and you’re not getting the results you desire, you can use this model to analyze your business and make a strategic change.

How to use this model? Use it in the following order:

  1. Conduct analysis of the Industry: The analysis of the industry should include each segment and part of business as well as your competitors and the environment you are in.
  2. Identify and analyze opportunities in the industry, ranging from the size of the market to global trends and anything else you see. Make sure to think outside the box.
  3. Make a SWOT analysis and list your strengths, weaknesses, opportunities and threats for each one. Focus on the most important ones.
  4. Establish your goal statement or mission statement. Ask yourself, “What do I want my company to achieve?” It is also important to define the key results you are seeking.
  5. Analyze your opportunities and threats. Make sure you analyze them with both short term and long term implications. Ask yourself, “How will this opportunity/threat improve or harm my business?”
  6. Determine the strengths and weaknesses of your business. You can do this by analyzing your strengths and weaknesses or create a SWOT analysis.
  7. Make a strategic choice identifying whether you will pursue the opportunities or the threats identified in your industry. You also need to determine whether you will pursue all the opportunities or all the threats.
  8. Set up your strategy, listing your strengths, weaknesses, opportunities and threats.
  9. Implement your strategic plan.
  10. Keep evaluating your plan if necessary. Perform a SWOT analysis and use the strategy model again if necessary.

This model is structured to be simpler when you follow this plan. If you need to improve on your plan, start at the beginning and follow the process the same way.

The strategy model is not a one size fits all. The process is very similar to the one just explained.

A good strategy model identifies obstacles and threats, and allows you to assess the risk versus the reward.

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