The first step is to understand the strategic context, and then to project how that context will change over the strategic planning horizon. So, what about the context, should strategy makers seek to understand? Clearly, they can’t seek to analyze every detail of the industry, including intimate details of customers, competitors, suppliers and others in the value network, related technologies, internal capabilities and critical stress points, and so on. But just as clearly, they need to understand enough about all of these to find the difference that makes the difference, and make informed tradeoffs and choices about what path to take the company on to achieve that differentiation, win customers and make profits.

Assembling a great strategy team is vital, for the right people can bring many of the information ingredients into the room, saving work in surfacing the information. But also these are the people who have the experience to differentiate useful information from information glut. Further, they are the people who will be able to synthesize information in useful ways from a strategy perspective.

We strongly advocate inclusion of the chief enterprise architect on the strategy team. As the person responsible for the business capabilities architecture, she will have valuable insight into internal capabilities and business opportunities. If she has a business background, then the chief IT architect should also be included. The reason for this is that technology has become a very critical component of business capabilities. Indeed, some business capabilities are entirely acquired through the purchase of a technology solution. Others are strongly enhanced by the technology that supports the business process (or activities, in more recent Porter parlance, see Porter, 1998). At the same time, innovations in technology are moving at such a rate that keeping up with opportunities to leverage technology to create differentiating capabilities is a job in of itself! This is, in particular, the job of the senior IT architects on the Enterprise Architecture team. Similarly, in a product development setting, we recommend that chief architects from the product groups be part of the strategy process.

With the right people in the room, the strategy information gathering and integration process can proceed quite rapidly using graphical facilitation. Graphical facilitation is an excellent technique for quickly getting a group of people to collaborate effectively, as it creates a shared, visible "mindspace" for the group’s work. We learned graphical facilitation from the world leaders at Grove Consultants International. We cannot recommend strongly enough that architects who want to be brought to the strategy table enhance their skills through Grove training and the use of Grove’s Graphic Guides^® (see http://www.grove.com). We have no direct relationship with Grove. They simply are the best we have encountered in this space, and we believe we do you a valuable service in pointing you in their direction. The Grove Guides that we find most valuable at this point in the process are the Graphic History, Industry Structure Map, Context Map, SPOT Matrix (some call this SWOT), and Stakeholder Map. We also add our own Strategy Action Guides™, designed along the lines of Grove Graphic Guides^®. For example, we have our own Industry Structure Action Guide™, a Technology Roadmap Action Guide™ that we leveraged and adapted from Gerrit Muller (2003) at Philips, and Context Map Action Guide™ that we adapted from Grove’s Context Map to suit our purposes somewhat better.

The basic models we work with are

• a model of our industry: industry context and the value network, identifying the players and their value propositions, relationships and value transformations, and what we believe to be the value sought by customers in key segments. In the absence of this understanding, we could do something that is quite different from what our competitors are doing, leverages our capabilities, but entirely misses the mark in terms of what our customers value or what the channel can deliver. 
• a model of our competitors: identifying value competitors deliver, and capabilities they leverage. In the absence of this understanding, we could create a strategy that is perfect for our customers, works with our channel, and leverages our capabilities and investments, but is identical to what our competitors are doing and fails to differentiate us. 
• a model of our own business: our current business capabilities architecture. In the absence of this understanding, we might pick a direction that would require too much of a leap given our current set of business capabilities. Much as we might like to regenerate our company every time our strategy changes, we have to take into account our limited resources, and recognize that it is most unlikely that we would be able to radically change our capabilities in very many areas all at once.   
• roadmaps and projected scenarios shedding light on trends and directions in the industry, among our competitors, and for our own business, and highlighting opportunities and threats. 

We use this understanding to illuminate what we believe to be essential success factors over the planning horizon, and find opportunities to delight customers and add shareholder value (or at least slow the bleed in today’s economy). These models and the insights they shed, together with the creative energy that is borne of great collaborations, form the precursor to formulating an inspired strategy. We also use these models once we have created our strategy, to validate our strategic themes. Further, they are used to help communicate the strategy in terms of forward-looking stories that will enable everyone in the company to interpret the strategy consistently, given a better understanding of the insights that motivated the strategy.

Based on the understanding we synthesize from these models, we now need to formulate a high-level path toward our business vision. This is not just a matter of what direction we will take. We need to consider what we will do to overcome challenges, reduce threats, and ensure the greatest success.

This stage of the strategy process focuses first on clearly formulating a financial strategy with desired financial outcomes, and then creating a competitive strategy to achieve that financial strategy.  Our competitive strategy makes choices about how we will differentiate our business and hence our products or services. A key step entails choosing (or confirming) our target markets and formulating the value proposition that will distinguish our family of products or services in those markets. Our capabilities strategy establishes direction for building business capabilities that deliver the value propositions identified in our customer strategy. Our value network strategy identifies how the value network will contribute to our value propositions or complement our internal capabilities. 

The strategy formulation process does not proceed in a simple path down the layers of the Visual Strategy Framework, although it may be useful to work down through the layers to get started. Thus, the strategy team would work on identifying financial goals, customer value propositions that would make it possible to achieve those financial goals, internal capabilities that would make it possible to deliver those customer value propositions, strategies for supplementing that value proposition through the value network, and so on. However, this is by no means a "waterfall" process, but rather should be quite iterative. For example, if a compelling customer value proposition emerges after work has been done identifying capability objectives, that value proposition is not to be ignored just because it surfaced "out of sequence." The only issue is that there cannot be too many divergent strategic directions.  

Strategies are formulated in terms of

• approach or direction: narrows the space
• objectives: identifies the target   
• cascading objectives: establishes objectives that contribute to higher-level objectives (in the Visual Strategy Framework)
• priorities: provides direction when making tradeoffs

Strategy Maps 

Strategy Maps show how strategic objectives influence other objectives in a cause-and-effect chain, ultimately impacting the top-level financial objectives. The cause–and-effect chain constitutes a strategic hypothesis about the intermediate outcomes that will lead to the desired high-level outcome (Kaplan and Norton, 2001).

Strategy Maps and Architecture Strategy. Maps are useful for showing the links among top-level business objectives (Figure 1). They are also useful for showing how lower-level objectives contribute to higher level objectives. It is useful, for example, to show how particular enterprise architecture objectives contribute to particular strategic business objectives, and how application-level objectives contribute to enterprise architecture objectives, creating a cause and effect chain (a.k.a. traceability) from the lowest level of architecting through the various levels of architecture (and business: e.g., to product objectives, to product family objectives, to business unit objectives, to the corporate objectives).

Strategic Themes. Strategic themes should come from the vision. They unify sets of objectives, and help ensure that the whole is more than the sum of the parts. Themes reflect what the business leaders believe must be done in order to succeed. Themes are often associated with strategic initiatives, and assigned an owner to lead the initiative across the organizational groups involved.

Figure 1. Strategy Map, adapted from Kaplan and Norton (2001)

Kano Model for Strategy

The concepts that underlie the Kano model for product definition are as valuable for business strategy as they are for product strategy. Such a model indicates that we need to have in place minimum success factors as well as differentiators to delight customers. The minimum success factors are the capabilities and capability levels that are essential for doing business in our industry. The differentiators distinguish us from competitors, and it is best if these differentiators are hard to emulate. Strategy needs to take both into account. Ensuring we have the minimum success factors in place only positions us to play a role in our industry, and we would at best only be at parity with our competitors. On the other hand, if we only pay attention to differentiators, we are unlikely to succeed because we will not have the right basic capabilities in place. Both take resources and attention if we want success to be result of strategy rather than luck or heroics.

The need to think strategically, that is the need to think about where to go and how to succeed in getting there, has to contend for attention with day-to-day operational pressures. After all, we have to survive the short-term to be around for the long term. A Kano model for strategy helps us resolve the conflict effectively. It helps us identify what, in the short term, requires strategic attention because it impacts our long-term survival. By identifying the minimum success factors for our business over the planning horizon, and where our current capabilities fall short of minimum levels for competitiveness, we can set strategic direction for changes at the operational level.

Let us illustrate with an example. If we are a bank, we cannot compete without ATM’s. This is so basic that it should not show up in strategic planning, right? Well, what if our ATM system is 20 years old, monolithic, fragile, yet, yes, it is the lifeline to our customers? What if it takes a significant proportion of all our IT spending every year to keep this system limping along? Replacing this system is a matter of life-or-death for the business. There is the slow choke from the strangle-hold of the ossified ATM system, versus doing what is quite analogous, both in terms of cost and risk, to an organ transplant if we replace the system. Strategy has to make us pay attention to the sapping of life from the business just as much as it helps us focus attention on invigorating new directions. The choices we make are as significant to our future as the choices we neglect to make.

Strategy cannot assume we are starting afresh. It has to take into account what we need to replace (it is broken), improve (it is working), and do differently. This is not to suggest, for example, that IT portfolio planning is business strategy, but that strategy has to set the context for portfolio planning. 

By deciding where we will differentiate and where we need only to be at parity with others in the competitive space, the context is set for the next wave of strategic decisions. Direction is provided for IT portfolio planners and Enterprise Applications (Solution) Architects and Technology (Infrastructure) Architects to distinguish between areas where the company will rely on industry standard solutions and technologies, and where the business will create differentiating, value-adding systems and infrastructure. Remember that strategic decisions (impacting the high-level direction of the company, and its path to attaining and sustaining strategic advantage) can be made at any level in the company. If the executive strategy process is ineffective, then decisions lower in the organization can override the business strategy rather than align with and support it. This is true with enterprise systems. If the decision is made without any sense of where the company is trying to maintain minimum capability levels for success in the industry versus where it intends to differentiate, the selection of an off-the-shelf system will determine the best that the organization can hope for—parity, assuming successful deployment, with others that manage a successful deployment.

Strategy has to tradeoff resources (including executive attention or bandwidth) needed to meet the minimum success factors for the business against resources needed to pursue the next thrust of differentiation in response to market shifts and emerging opportunities.

Minimum success factors do not just play a role because they require resources and stewardship to keep in place. As the market shifts, the minimum success factors change. Innovations in technology and process render our socio-technical systems obsolete. As part of our strategy process, we need to update our understanding of the minimum success factors for our business over the planning horizon, and include in our strategy regaining parity with other competitors in these dimensions of essential capability.

The business strategy process has to stay many levels of abstraction above the day-to-day drama of business survival, with its quagmire of distracting detail. The Business Capabilities Architecture is an essential tool for analyzing the business capabilities and capability levels to establish the minimum success factors and key differentiators for the business over the strategic planning horizon.  

Strategy Scorecard 

The Balanced Scorecard (Kaplan and Norton, 1996, 2001) is an increasingly popular mechanism for expressing and communicating business strategy. It links strategic objectives (stating outcomes we want to achieve) and measures that allow the business to ascertain whether it is on course to achieve its objectives. Kaplan and Norton advanced the state of business thinking by popularizing the notion of establishing lead indicators that are early signals, rather than relying exclusively on traditional indicators like profit that generally lag the current state. Given the fast pace of change in today’s business world, anticipatory signals are essential to understanding if the strategy is being effective, and where it needs to be adapted.

The strategy scorecard (Figure 2) summarizes the strategic themes and their associated objectives. For each objective, there is at least one measure. A measure could have sub-measures, in which case another column would be added to the table. The measures should include measures that indicate success once it has been achieved (lag indicators), and measures that monitor progress or sense changes in the environment (lead indicators). For each measure, there should be a target level for each period in the planning horizon (add columns for each period). At least some of these targets should be expressed as stretch goals (BHAG = big hairy audacious goal). The organization cannot stretch in every direction at once, so these stretch goals have to be chosen judiciously. In the figure below, rows for the top two layers of the Visual Strategy Framework are shown. The complete Scorecard will have further rows for the Value Network, Business Capabilities, and Culture and Climate layers of the Visual Strategy Framework.

Strategic initiatives are set up to lead programs to achieve specific objectives. These should be included in the summary, as they create the critical link to execution. Initiatives assign ownership for accomplishing the target associated with the measure. The owner is responsible for leading across the organizational units that need to work in synergy to achieve the target. 

Figure 2. Strategy Scorecard Template, from Kaplan and Norton (2001)  p. 295.