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Six Criteria to Evaluate a Business Strategy
In the article “Are you sure you have a strategy?” Donald Hambrick and James Fredrickson crafted a strategy diamond to illustrate five key elements to consider when composing a strategy.
In the article “Are you sure you have a strategy?” Donald Hambrick and James Fredrickson define strategy as the “central integrated, externally oriented concept of how we will achieve our objectives.”
They crafted a strategy diamond to illustrate five key elements to consider when composing a strategy:
• Arenas: where will we be active?
• Vehicles: how will we get there?
• Differentiators: how will we win in the marketplace?
• Staging: what will be our speed and sequence of moves?
• Economic logic: how will we obtain our returns?
Whether you are running a small business or have a leadership role within an enterprise, you can grow your business without confusion if you are clear about your business strategy. What sets a business objectives and strategy in context is the mission of a business.
A mission guides business objectives. It is important for the mission to be clearly defined, embraced by the employees, and visibly maintained. Business owners and executives should also translate their mission into a set of well-defined objectives.
Redmond, Washington was recently rated number five on Money Magazine’s Best Places to Live list. My office building is located at the Redmond Town Center, and I enjoy working there (especially with four Starbucks within five-minute walking distance). Whenever I wait in line for my green tea latte, I wonder what makes Starbucks so successful.
Starbucks’ mission is “to inspire and nurture the human spirit – one person, one cup, and one neighborhood at a time.” When the mission is well defined, business objectives are derived from the mission and a strategy is put in place in order to achieve the business objectives.
What was Starbuck’s strategy to grow its business to over 16,000 stores worldwide in 2011 since it opened its first store in 1971? Is this the same strategy that accommodates a high income and coffee-loving neighborhood like Redmond?
Hambrick and Fredrickson offer six criteria to evaluate your strategy:
1. Does your strategy fit with what’s going on in the environment?
Is there healthy profit potential where you’re headed? Does your strategy align with the key success factors of your chosen environment?
2. Does your strategy exploit your key resources?
With your particular mix of resources, does this strategy give you a good head start on competitors? Can you pursue this strategy more economically than competitors?
3. Will your envisioned differentiators be sustainable?
Will competitors have difficulty matching you? If not, does your strategy explicitly include a ceaseless regimen of innovation and opportunity creation?
4. Are the elements of your strategy internally consistent?
Have you made choices of arenas, vehicles, differentiators, and staging, and economic logic? Do they all fit and mutually reinforce each other?
5. Do you have enough resources to pursue this strategy?
Do you have the money, managerial time and talent, and other capabilities to do all you envision? Are you sure you’re not spreading your resources too thinly, only to be left with a collection of feeble positions?
6. Is your strategy implementable?
Will your key constituencies allow you to pursue this strategy? Can your organization make it through the transition? Are you and your management team able and willing to lead the required changes?
Using Starbucks as an example, what do you think about their strategy relative to the six criteria?
As a small business owner or an enterprise executive, do you have a sound strategy in place to grow your business?
Learn more about the author, Hsuan-Hua Chang, PCC, LMBA.
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