What the Heck is Going On?

The first part of your strategy work is a diagnosis that answers the question, “what the heck is going on?”. We distinguish four levels of analysis:

• Macro-environment

• Inter-organizational environment

• Customers

• Your organization

On the first level, you look beyond your organization and your industry. You identify the most critical trends that might affect your organization's future. On the second level, you study how your organization positions itself vis-à-vis competitors, partners, customers, influencers and other stakeholders. On the third level, you describe what your current and future customers really want and need. In some cases, this part is related to your customer assignment. If it is unrelated, you may want to use the same methods to uncover how your attributes address the benefits and values the customers are interested in. On the fourth level, you assess the organization. What is your mission and vision, what resources and capabilities do you have, and which resources and capabilities do you need to build?

Before defining a strategy, you must understand what is going on. Because too many things are typically happening simultaneously, strategists need to separate the key drivers from the noise and distinguish between the root cause and the symptoms. Analyzing and diagnosing is never clear-cut and always ambiguous. However, a strategist needs to take a point of view based on the information available.

You also have to define which strategy tools and frameworks to work with. This methodological decision is an integral part of your strategy work, and the summary by Reeves et al. (2015) can be beneficial.

Analysis of the Macro Environment

Your analysis cannot include everything that might impact your organization. We suggest that you work with an appropriate framework like PESTEL to identify which trends and developments are most relevant to your strategy.

PESTEL screens the macro environment in six categories, political, economic, social, technological, environmental and legal. You must describe here and address later the most pertinent sustainability challenges related to your organization.

You may consider the UN 17 Sustainable Development Goals and the ESG standards for your industry according to the materiality index by SABS.

Analysis of the Interorganizational Environment

When Michael Porter published his 5-forces industry analysis in 1980, the boundaries of each industry were well defined, and competitors, suppliers, customers, and substitutes could easily be identified (Porter 1980, see also). In today’s world, industry boundaries are blurring. Companies are competitors and partners simultaneously, and competition is often not happening within but between ecosystems. We suggest that you visualize your inter-organizational environment using the most appropriate format. Choose between value constellation (Michel/Duke 2022), value chain (Porter 1985), Porter’s five forces model or a more appropriate model.

Consider that strategy is always dynamic. When you describe your inter-organizational environment, elaborate on the dynamic between the different actors and companies and how these dynamic impacts your organization.

Analysis of your Customers

Most organizations can only survive if they co-create value with their customers. In case your organization or your chosen strategy is not serving “customers”, you may redefine this part and focus on your main stakeholder, which might be a “voter” for a political party or a “citizen” for a government agency.

Your strategy should be based on superior customer insights (Michel/Duke 2022). You might use the laddering approach to link attributes, benefits, and values for your customers, especially distinguishing between benefits as “relieving” or “enabling” and differentiating between the customers’ roles as the user, buyer, and payer.

We suggest that you include ESG objectives relevant to your customers in the “value” category when laddering attributes, benefits, and values.

If your strategy addresses a multi-sided market (for example, Uber’s customers are the drivers and the guests), or if you serve both end-consumers and channel partners, you may use laddering for both groups separately.

Analysis of the Organization

The next step is to assess resources and capabilities is to identify them. Resources are assets that the organization “has”, while capabilities distinguish what the organization “does”. We can differentiate between tangible, intangible, and human resources (Grant 2022). Don’t focus on equally distributed resources among competitors, but rather on resources and capabilities where competitors differ.

Resources and capabilities help you create a competitive advantage if they are valuable, rare, imperfectly imitable, and organizationally embedded (VRIO, see Barney/Hesterly 2019).

Be careful when labeling resources as “strengths” and “weaknesses”. What can be a “strength” in executing strategy A might be a “weakness” when pursuing strategy B. It would be best if you avoided a SWOT analysis when developing new strategies since you have not yet defined your strategy or strategic initiative. You might use it to assess defined strategies.

For startups, angel investors and venture capitalists are not only evaluating the business idea and technology behind a startup but consider the startup team a very important - or the most important factor - to predict success. In this section, first assess the current strength and weaknesses of the startup team concerning the business model canvas, the growth aspiration, the go-to-market strategy and the financing. Investors typically prefer a core team of 2-3 founders who have the required technical skills, selling skills, and market knowledge. Successful teams are often mixed in terms of hard and soft skills and have experience in both the market and how to successfully scale a startup. Depending on the nature of the startup, access to critical resources is crucial, for example, buyers, policy makers, investors, researchers, media, experts, etc. Investors also consider the motivation of the startup team as to whether their ambition is to become entrepreneurs with a long-term vision or to seek a fast and profitable exit. Simultaneously, the investors themselves are essential resources to a startup. They do not only provide funding, but guidance, know-how, access to networks, reputation, coaching, and more.

From analysis to diagnosis

Quite often, strategy papers and presentations provide a rich analysis in hundreds of slides of collected facts and figures. The risk is that strategists are overwhelmed by all the data and don’t focus on the few relevant insights required to formulate a winning strategy.

We must go beyond the analysis and integrate the different findings into a coherent assessment. Here is how to distinguish analysis and diagnosis:

• Analogy: Medical treatment

• Analysis: The patient shows symptoms of fever, cough, sore throat, runny nose, body aches and headaches. These are the facts.

• Diagnosis: The patient is most likely to have the flu.

Here is another example.

• Analogy: Business case

• Analysis: Revenue is declining, and competitors with lower prices win market share. These are facts.

• Diagnosis: It could be that our prices are too high. But it could also be that the competitors offer a better product, have better distribution channels, better advertising, and offer a lower price. The distinction between analysis and diagnosis is essential.

The diagnosis is your point of view on how the different dimensions are connected.

Here is another example of a consulting company: “We have expertise in strategy consulting, in organizational development, we are experts in manufacturing and have a global reach. Our profitability is shrinking because our consulting firm spends too much time on too many small projects. Each project requires a certain setup time that cannot be invoiced. Therefore, we need to focus on fewer but larger projects. The biggest challenge for our clients is the push for more sustainable products and processes. Many clients need help developing a sustainability strategy and embedding sustainability into their existing strategy. We are credible in this field and get more invitations to project presentations than our closest competitors. However, it is not clear who owns this process in the client organization and therefore, there is a lack of budget for sustainability consulting. The strategic initiative needs to address this challenge”.