Consulting Frameworks Series: Strategy Frameworks (Part 1)
As you’ve read in the article titled “Consulting frameworks series: An overview”, there are several frameworks that can be used by consultants to bring out the best outcomes in consulting projects. While there are many categories of frameworks available, in this article, we will be looking at strategy frameworks only. Later, as we move ahead in this framework series, we’ll be looking at the other categories, one by one. But for now, we’ll be looking at strategy frameworks!
Strategy Frameworks In Consulting
Strategy frameworks are tools that help businesses think more clearly and guide them as they grow and achieve their desired goals. Strategy is the art of making choices and allocating resources to achieve the desired result (usually a financial one). In this article, we will look at how choices are commonly looked at for corporate level portfolio decision and progressively zoom in on how to perform strategic analysis at the business unit level and follow the implementation.
With a strategic framework, you have a starting point and a common terminology you can tailor to your needs or your client’s needs if you are a consultant. Moreover, there is no one best framework to pick and choose from, and thus, you may use various strategy frameworks in your client’s work depending on the situation.
And yes, strategy frameworks do help in saving time by offering a starting point for data collection and analysis, but your knowledge and common sense are the most powerful frameworks. However, it is your business insight that will eventually bring value to your client.
Types Of Strategic Consulting Frameworks
Strategy frameworks are plenty, and they can quickly get confusing, which is why we have decided to pick out only a few of them. Hence, below are some of the top strategy frameworks that can be implemented by an organization.
#1. BCG’s Growth Share Matrix
BCG’s Growth-Share matrix is a strategy for identifying which products or services a company should keep, sell, or invest in more. This strategy framework was developed by the Boston Consulting Group (BCG) to assist businesses in determining the potential profitability of various goods.
The BCG Growth-Share matrix is divided into four sections:
- Dogs: Dogs, or products with low market share and low rates of growth, are the first group in the BCG Growth-Share matrix, and they’re frequently sold because they don’t create a lot of profit.
- Cash Cows: Cash cows are products with a large market share and a modest rate of growth, which enables businesses to maximize their cash flow for as long as it is possible.
- Stars: Stars are referred to products with a large market share and rapid growth rates, which firms frequently invest in more heavily since they generate significant profits.
- Question Marks: Question marks are goods with a small market share and rapid growth that require a frequent examination to determine whether they are profitable to produce at the current cost of resources.
#2. GE-McKinsey Nine-Box Model
The GE-McKinsey nine-box matrix helps the decentralized organization decide where to invest its cash. Developed primarily for huge groups like General Electric, the corporation may evaluate all its units based on two aspects that will determine their future success. Number one, the industry’s attractiveness and number two, the unit’s competitive power within it. It’s similar to Portfolio Management but McKinsey’s Nine-Box Model focuses on business units rather than individual products or services.
The Nine-Box matrix is made up of two axes (Axis X – Market or Industry Attractiveness and Axis Y – Competitive Strength of the Business Unit). Each of them has three gradients: High, Medium, and Low.
Moreover, the model provides a variety of actions that can be segregated into three main categories such as:
- Build & Invest: These areas have a medium to a high level of industrial attractiveness but a low level of competitive strength. It is in these areas that the corporation should prioritize its investments.
- Manage: These are the areas where the corporation should concentrate its efforts on managing current and existing positions.
- Harvest/Divest: These are the areas where the corporation should reap the benefits of its efforts, while simultaneously exploring divestitures.
#3. Playing To Win (5 Choice Framework)
The Playing to Win (5 Choice Framework) is derived from the Proctor & Gamble experience and has been properly laid out in the book titled Playing To Win: How Strategy Really Works by AG Lafley and Roger L. Martin. It is a very straightforward model that defines a proper strategy through various choices established by five simple questions.
- What Is Your Winning Aspirations? – It focuses on the organization’s mission or, alternatively, a concept of “winning.”
- Where Will You Play? – This is the process of identifying the strategy and organization’s emphasis in terms of a market niche.
- How Will You Win? – While Cost Leadership and Differentiation are two common tactics, their combination can be unique to the way the business operates.
- What Capabilities Must Be In Place? – This is the link to the organization’s internal resources, and it should look at the company’s current capabilities as well as those that need to be developed.
- What Management Systems Are Required? – It helps in linking the organization’s Operating Model and examines how the organization should be structured to implement its plan.
#4. Blue Ocean Strategy By Chan Kim & Renée Mauborgne
The term “blue ocean strategy” refers to a market for a product that has little or no competition. This strategy is based on identifying an arena with a small number of competitors and no pricing pressure. The keyword for blue ocean strategy is differentiation.
A blue ocean can be hard to get into, but it’s not impossible. At the heart of a Blue Ocean Strategy, there is a lot of emphasis on new ideas and constant change. And because the competitive advantage doesn’t last forever, it isn’t enough to come up with a completely new product. Eventually, each blue ocean is going to turn red.
To know more about this, you can purchase the Blue Ocean Strategy book written by Chan Kim and Renée Mauborgne.
#5. Porter’s 5 Forces Model
Porter’s five forces model is a consulting methodology for determining whether or not a market is appealing. Professor Michael Porter created this tool to help businesses figure out where they stand in relation to their competition. This framework remains the reference when it comes to competitive strategy analysis. The elements of Porter’s five forces are mentioned below:
- Threat Of New Entrants: The threat of new entrants refers to the possibility of another company entering a company’s industry and causing problems, such as increased customer retention rates.
- Threat Of Substitutes: This is the risk that a company’s products or services will be replaced by those of another company, resulting in a loss of market power as a result of increased competition.
- Competitive Dynamics: Porter’s Five also evaluates whether or not a company has a large number of competitors in order to decide whether or not they have less power than others as a result of having a higher rate of client retention.
- Buyer Power: The buyer power refers to how much power the customers have in lowering the prices of an organization’s products, based on things like how many customers the company has.
- Supplier Power: Another issue that organizations can examine is the number of suppliers they have, which can help them determine whether they can quickly change where they acquire the resources for their products.
#6. PESTEL Analysis
PESTEL analysis is a tool that managers can use to assess any key external factors that may have an impact on their operations and affect their strategy. Those who use this framework can make the most of their existing circumstances while also planning for future developments that may present opportunities or challenges. The P.E.S.T.E.L analysis looks at the following six major areas:
- P for Political: The political analysis looks at how government rules and other legal factors, like tax rules, could affect trading and business.
- E for Economic: The economic analysis looks at financial issues, like inflation and interest rates, that could damage an organization’s chances of earning revenue.
- S for Social: The social analysis focuses on things like a customer’s lifestyle and education to better understand what they need to procure.
- T for Technical: The technical analysis evaluates how technological elements such as technological breakthroughs, can influence how customers respond to a new product or service in a favorable or negative way.
- E for Environmental: Environmental factors look at ecological and environmental aspects such as weather, climate, and climate change that might affects certain industries such as tourism, insurance, and farming.
- L for Legal: Legal factors pertain to the laws (such as business laws, health and safety guidelines, etc.) incorporated by the government that the organization needs to adhere to in order to continue its operations.
#7. SWOT Analysis
The SWOT analysis enables businesses to develop a strategy plan for successfully completing a project and assessing their competitive position. It considers both intrinsic and extrinsic aspects in order to generate accurate predictions based on facts and data. A SWOT analysis examines four key elements of a business:
- Strengths: Strengths are areas in which a company excels and has a competitive advantage. The presence of certain strengths, such as a strong brand or exclusive technology, can distinguish a company from its competitors.
- Weaknesses: Weaknesses are areas where a corporation can improve or circumstances that keep it from performing at its best. For instance, a high turnover rate.
- Opportunities: Opportunities are the external factors that have a significant impact on a business and provide it a competitive advantage over its competitors, such as finding a lower-cost source of supplies.
- Threats: Threats include things like an increase in competition that could have an adverse influence on a company.
#8. Balanced Scorecard
The balanced scorecard is a way for businesses to keep track of their strategy and improve their work. This tool helps them keep track of what happens when they do things and decide what to do in the future. Moreover, the following is a list of common information collected for the balanced scorecard:
- Financial Data: Businesses collect financial data, such as revenue and sales, in order to have a better understanding of their entire financial performance.
- Business Processes: Another component is an organization’s business operations, or the efficiency with which its products are manufactured. This includes determining whether factors such as waste or delays hinder its effectiveness.
- Customer Perspectives: Customers provide feedback to companies in order to evaluate how satisfied they are with current items and aspects such as price and quality.
- Growth & Learning: This element assesses team members’ ability to successfully apply information gained through training and other resources in order to generate a competitive advantage for their firm.
A Quick Round-Up
A proper strategy is an integral part of any successful business or company, and hence, the above-mentioned strategy frameworks play a key role in this regard. Successful organizations try and implement proper and effective strategy frameworks in order to increase valuation and profit margins.
As a strategy executive or as a strategy consultant you’ll for sure need to implement some of these top strategy frameworks. Good luck!
Laurent is the Chairman and Co-founder of Consulting Quest. Focused on greater value creation, and being thoroughly familiar with Consulting, Laurent has sourced and sold millions of dollars worth of Consulting over the course of his career. Prior to joining Consulting Quest, Laurent was Executive Vice President Oil and Gas at Solvay and Senior Partner Transformation at Oliver Wyman.