In 1997, Apple was struggling: declining sales, inefficiencies, and loss of customer interest. Steve Jobs has just re-joined the company as a consultant. During one of the product review meetings, frustrated by endless product presentations, he took a marker and drew a two-by-two grid. “Desktop/Portable” by “Consumer/Pro”. Job’s advice was to create ONE great product for each quadrant and to kill the rest. What he was essentially doing is framing Apple’s product strategy. This is just one of the examples of the efficient use of strategic planning frameworks for sustainable business growth.
In this article, we will look at various models, understand how and when to use to them and illustrate their application with case studies.
Who needs strategic planning?
A company needs a plan when it makes key decisions: grow, re-structure, or pivot. Strategic planning frameworks facilitate management decision-making. They help to structure relevant information in a visual, easily digestible way. Thus, management can analyze the existing situation and evaluate strategic options for the future.
Large corporations make strategic plans regularly, normally on a yearly basis. It is mainly driven by the need to reassure shareholders, investors and top management about the company future. Smaller companies may not need to do it that often. Here are some instances when an organization should engage in a strategic planning exercise.
- Changes in the External Environment. This includes major market shifts due to:
- Important competitive moves
- Regulatory changes
- Geopolitical and macroeconomic issues
Recent examples include global Covid-19 pandemic with countries lockdowns, supply chain disruptions, and temporary regulatory shutdown of certain industries (restauration, entertainment etc.). Other than that, evaluation of external circumstances is also useful when assessing company’s plans to enter a new market.
- Setting of Internal Priorities. This includes changes in the internal focus such as:
- Turn-around of underperforming company operations
- Product portfolio streamlining
- Business development plans
- Changes in the business model
It is important to remember that such priority setting could happen only if a company is clear about its external environment. Businesses do not exist in a vacuum. So any internal initiatives must factor in the market environment in which the company operates.
Which strategic planning framework is best for you?
You get what you measure. So identify your objective before choosing a concrete strategic planning tool. For your convenience, I have listed below use cases, advantages, drawbacks and concrete examples for each framework.
#1. Porter’s 5 forces: Airline Industry
Useful for: entering new or adjacent markets, evaluating changes in market dynamics (player consolidation, new entrants).
Advantages: well-rounded insight into who has the power and what risks and opportunities exist in the market.
Drawbacks: requires a fair amount of research.
Case study: Let’s use airline industry as an example of this framework application.
On the Supplier side, there is a high consolidation of aircraft manufacturers, with Airbus and Boeing holding together close to 90% of the market. Their products are unique and often delivered under multi-year contracts. The same is true for sub-suppliers such as engine and other aircraft components manufacturers. Likewise, aviation fuel is also a vital supply component. Its price depends on the global oil market dynamics that are highly unfavorable at the moment. Thus, we can conclude that Supplier power is definitely high.
On the Buyer side, prior to the pandemic, passengers enjoyed relatively high power. Thanks to the low-cost airlines, plane tickets became more affordable, flights – abundant, and distribution channels – diversified, including direct sales from airline own websites and apps. However, post-pandemic, airlines are struggling to cope with heavy losses. Hence some flights are cancelled, reducing passenger choices, and driving fares up as airlines are passing on increased costs. There is still an important regulatory protection of passenger rights in case of delays and cancellations, especially in Europe. However, it is fair to say that Buyers power is currently moderate.
As for the Threat of New Entrants, it is definitely low. Airline industry is very capital intensive and highly regulated in all aspects of operations. Hence entry and exit barriers are high, and economies of scale are significant.
Substitutes are not a factor of concern either. It is true that since 2020 regulators have restricted many flights operations. However, lockdowns and quarantine measures have also affected alternative travel means due to border closures. Moreover, prolonged period of isolation left many passengers craving for the speed of air travel. Thus, not much have changed or is expected to change on the substitutes side.
Last but not least, let’s look at the level of rivalry among the airlines. Spectacular growth of low-cost airlines in the past years contributed to the increased competition within the industry. For short and medium haul flights, many airlines such as Swiss adjusted their business models. They became essentially similar to the low-cost ones: affordable fares but lots of paid options (meals, speedy boarding, hold baggage). For the long-haul, traditional airlines like United, Air France/KLM, British Airways, Qatar, Emirates, Singapore, ANA had to differentiate to woo the customers: newer planes, Wi-Fi connectivity, loyalty programs & perks. But pandemic-inflicted demand uncertainty suggests that high level of rivalry among the competitors is here to stay.
All in all, we can conclude that airline industry is difficult to justify as an investment target. If we consider the strategies for the existing players, the focus is on horizontal axes. On one hand, there is a benefit in developing closer relations with suppliers, both commercially and through partnerships. On the other hand, it is crucial to create a pipeline of new products to differentiate quickly when the demand picks up.
#2. 4 Corners competition strategy: Cola wars
Useful for: understanding of competitor’s strategy and likely future moves
Advantages: unlike SWOT, it is a dynamic model that takes into account underlying factors
Drawbacks: is assumption-based, thus, requires strong competitive intelligence capabilities
Case study: Let’s take an example that we can all relate to: Pepsi vs Coca-Cola. In late 70s, Pepsi was a challenger aiming to steal the market leadership in the soft drinks market. The “Cola wars” lasted for nearly two decades. During that time, Coca-Cola strategy could be described as follows.
In the Drivers corner, its goal was to maintain the leadership position, leveraging a flagship Coke brand. Management Assumptions were correctly based on the high brand value and loyalty. There was one flip triggered by Pepsi Challenge: in the blind test, people clearly prefer sweater Pepsi. To combat that, Coca-Cola went on to modifying the original taste of its product. However, this move backfired, as “new Coke” sales were disappointing. So the company’s leadership courageously admitted a mistake and went back to the original taste of Coke. At the end, in nonblind tests, people usually preferred the Coca-Cola brand.
In the Strategy corner, apart from leveraging brand value, Coca-Cola established successful distribution partnerships with bottlers that enabled it to scale quickly. At the same time, in the Capabilities corner, the company enjoyed financial strength, renown products and outstanding marketing capabilities.
Thus, Coca-Cola’s future strategy was likely to maintain its focus on the beverage market. Opportunistic expansion into adjacent categories was also possible, but the company had all the benefits of focusing its efforts on defending its market leadership.
However, Pepsi decided to compete directly and after almost two decades, Pepsi lost the Cola wars. However, it learned the lesson and changed its strategy. Pepsi diversified its portfolio with over 20 brands and extended into food/snacks categories. As a result of Pepsi strategy change, it outperforms its rival in terms of revenue and profit margin. In turn, Coca-Cola’s consistent strategy enables it to enjoy impressive soft drink brand value that amounted to over $30bn in late 2021, roughly a double of Pepsi analog.
#3.VRIO competitive advantage: AirBnB
Useful for: evaluating company’s own competitive capabilities
Advantages: simple and easy to use
Drawbacks: requires additional tools to design mitigation or implementation plans
Case study: I use AirBnB pretty often as a guest. As a strategist, I am also fascinated by its success story. When in 2008 its two founders started the company, the on-line rental market was already filled with the names like Homeaway, VRBO, BedandBreakfast etc. Thus, it was important to differentiate and that’s what the company did. First, being millennials themselves, they focused on that customer segment. They knew that young professionals had a problem of finding affordable places for short stays in the cities (conferences, job interviews, weekends with friends). Finding that specific niche was already a smart strategic move. However, despite being valuable and rare, this strategy was quite easy to copy. So instead of selling a product, Chesky and Gebbia, the founders, started to offer a unique experience of human connection between the hosts and the guests. Small gestures like showing the guests around the city, offering them water and some goodies in the fridge, providing local insights such as booking at trendy estaurants quickly created a loyal customer base. “Don’t Go There. Live there” became a brand promise for AirBnB guests to immerse themselves in the local culture. That was unique and hard to copy in the commoditized market focused on “operational efficiency”. AirBnB digital platform was a critical organizational capability that enabled multiple touch points with the guests and the hosts. It later became an opportunity to create a community that shares the experience/appreciation on-line. That ticked all the boxes of the VRIO framework and enabled AirBnB’s outstanding growth trajectory.
At the same time, the company understood that this competitive advantage could be copied over time. So it invested in developing its host network and incentivizing the best hosts to stick with the platform. This supplier relation strategy protects AirBnB competitive advantage and supports company’s continuous growth.
#4. Ansoff growth matrix: Starbucks
Useful for: prioritizing business expansion activities, taking into account the risk factor
Advantages: clear definition of strategy and required resources
Drawbacks: high level approach that needs to be supported by a thorough pre-work
Case study: Starbucks is an excellent example of using strategic focus to revive the brand that was losing momentum. In early years of the 21st century, the previously coffee-centered brand began to expand in multiple unrelated categories: movies, music, books, film. Within five years, sales plummeted, stock price dropped 5 times, and almost 1,000 stores had to be closed. So the first priority was to get the basics right, i.e. to re-focus on the core business as well as the customer experience. Next came the question of how to begin growing again. They started developing Existing Market by expanding beyond traditional coffee morning rituals. In 2008, the company added desserts, snacks and sandwiches to its menu turning itself into a friendly space for casual meetings all day around. Not only it filled its under-utilized retail locations, but it also gained new customers, boosted customer loyalty and same-store sales. Starbucks also developed its Product by extending into adjacent categories for all-day experience. Starting from 2010-2012, it used acquisitions to quickly add new products to its portfolio: Teavana (tea), Bay Breads (premium bread), Evolution Fresh (fresh juices) etc. Such horizontal growth strategy allowed the company to stay focused on its core business and competencies and to maintain high brand value and loyalty. Quite understandably, for its international expansion, the company chose to maintain control over the quality of “Starbucks experience”. So instead of franchising, it grew through multiple strategic alliances with established local players (Tata in India, SSP in Europe, Corporation de Franquicias Americanas in Central America, Alshaya Morocco in the Middle East, Ai Ni Group in China, etc.).
Thus, the Starbucks’ focus on developing its core Product portfolio positioned it as a value-added business partner and enabled it to expand into strategic geographies.
#5. BCG product portfolio matrix: Apple
Useful for: streamlining product mix and resource allocation
Advantages: clear and easy criteria for classification
Drawbacks: “Question marks” are difficult to evaluate and decide upon
Case study: Let’s use an example of Apple hardware product portfolio to apply the BCG matrix. There is no doubt that iPhone remains the Star accounting for almost 60% of company’s total revenue. But in few years, it will move closer to the Cash Cow quadrant to join its Mac, McBook, McAir. iPad is a border line moving closer to iPod that occupies the Dog quadrant despite recent revamp to iPod touch. In the Question Mark space, we have a rather big crowd: Apple TV, Alexa, AirPods, AppleWatch all sitting under Wearables and Home accessories category. We could assume that with dramatic growth of AI and virtual reality, this category will produce future Stars for Apple. It is highly likely that they will integrate with the Services portfolio to provide innovative customer experience in the Apple universe.
Thus, in a couple of years, we are likely to see products shifts in the Apple product portfolio.
#6. Route Cause Analysis: Netflix turn-around
Useful for: issue identification for underperforming operations, as well as for turn-around activities
Advantages: multifactor problem authentication
Drawback: relative complexity
Case study: In order to grow, a company needs to remove obstacles that hinder their strategy. Ten years ago, Nexflix went through an impressive turn-around, so let’s use it as an example of Route Cause, or Fishbone diagram. In late 2011, Netflix faced a major problem. In just one year, it lost more than 800,000 customers and its stock price dropped by 80%. A number of factors contributed to this situation. On the Service side, the company used to have all-in-one subscription for $10 that included DVD rental and streaming services. The company decided to change the Method of delivering its services and split it into two, with $8 price tag for each and two separate websites. That caused a major inconvenience and disappointment for its users as meant an outrageous 60% price increase with no added value. On the Features side, Netflix was offering a wide range of small features, some being used by as little as 2% of the audience. That was not cost efficient in addition to being too complex for the new subscribers.
As for the Environment, Netflix new idea of sharing subscribers viewing history with their friends faced an obstacle in the form of US video privacy protection act. The law required specific user opt-in to share their rental history with others, and customers were not willing to share it. On the People side, the management was obsessed with constant innovation ignoring the failed projects as sunk costs instead of turning them into learnings. Consequently, the teams were given no timeline Measures to achieve specific business goals.
Hence, multiple components of Netflix strategy and its execution had to be taken into account to turn the company around. Fortunately, its leadership correctly identified and tackled the factors that almost drove the company out of business. The decision to split the services was reversed after management understood that the level of demand for such split was not there. A single service was much more valuable for the existing customers. Underperforming features were promptly killed, and lessons learned from failures were factored in the new product development efforts. Hence the company continued to innovate, but without forgetting the present for the sake of the future. Its desire to build innovative teams of top performers is supported by a measure called “the keeper test”. In other words, managers build their teams factoring in the question: “Would you fight for this employee?”
Thus, competitiveness became Netflix focus both externally by understanding and satisfying user preferences, and internally by creating fast-paced culture of taking responsibility.
As we can see, strategic planning frameworks are essential tools for management decision-making process. There are multiple other models that could be used: PESTEL, SWOT, Value Chain Analysis etc. When I work with entrepreneurs and business owners, we use the most appropriate tools enabling informed decisions about next steps in their business.
Get in touch if you have any questions or need help in selecting and applying the best strategic planning frameworks for your business growth.