Advanced Tools for Determining your Strategic Direction
I worked for ten years as a business consultant, helping SMEs implement ISO standards into their operations. As a consultant, I concentrated on obtaining business certification by checking these standards, believing that I grasped the concept of determining a company’s strategic direction. The ISO management system standards explicitly mention strategic direction in Clause 4: Context of the Organization, but this phrase requires further explanation. At the time, I handled it as a routine task by completing SWOT and PESTLE tools under clauses 4.1 and 4.2 to satisfy minimum requirements.
My approach overlooked the fundamental purpose of integrating the strategic direction into the organisational goals during implementation. I treated it like a tick-box exercise, filling out SWOT and PESTLE analyses to cover clauses 4.1(Internal and External Issues) and 4.2 (Needs and Expectations of Interested Parties). In hindsight, I was missing the bigger picture, as many consultants and managers do.
Strategic direction is the “golden thread” woven into each clause of the standard. The strategic direction helps organizations identify their interested parties (clause 4.2), identify risks (clause 6.1), set objectives (clause 6.2), and determine how resources are distributed (clause 7), leading them toward growth and sustainability. Too often, in my experience, managers and consultants reduce it to a basic SWOT analysis.
I’d like to propose that a SWOT analysis, although essential, remains incomplete as a planning tool by itself.
The Education vs. Experience Debate
For many years people have debated whether a formal education provides students the skills they need in the professional world or if working jobs gives better results. Some people think business schools do not teach any practical skills while others say practical knowledge without basic principles ends in poor decision-making. Research finds that professional experience helps in making decisions in demanding situations, yet business education offers the necessary techniques to improve decision quality. [Source: Harvard Business Review].
When I took my first-year business management module at the University of Pretoria, I was flabbergasted to see how the pieces fit together. SWOT and PESTLE analyses serve as just that: analysis. These basic environmental analysis tools form part of the initial strategic formulation process. They fail, however, to show where the organization should head and how to run its businesses successfully. Proper strategic planning digs deeper by connecting business models to align organisational objectives (Clause 6.2) to the strategic direction. Furthermore, these models assist in the planning of changes (6.3) and the consequent resource planning (Clause 7).
To assist my current clients, I identified the below basic frameworks that enable them to strengthen their strategic planning that goes beyond traditional SWOT analysis:
1. Ansoff Matrix: Identifying Market and Growth Strategy (Clauses 4.1 & 4.2)
The Ansoff Matrix provides methods to decide what business strategies work best for contact with customers and market expansion. The framework groups business methods into four types: market penetration, market development, product development, and diversification. Understanding market positioning and growth plans supports Clauses 4.1 and 4.2 by making sure the strategic direction matches what customers and stakeholders expect. By applying this model, clients can not only identify which customers and industries are critical to their success, but also how their business will operate in the industry.
2. Porter’s 5-forces: Identify market threats and competition risks (Clause 6.1)
Porter’s Five Forces helps businesses understand market competition and assess market risks for more thoughtful and purposeful decisions. These forces include:
Competitive Rivalry
How intense is competition in your industry?
Threat of New Entrants
How easily can new competitors enter the market?
Threat of Substitutes
Are alternative solutions threatening your business model?
Bargaining Power of Suppliers
To what extent do suppliers have influence over pricing and availability?
Bargaining Power of Buyers
Do customers have leverage over pricing to bargain over pricing?
Organizations needing a basis for strategic direction may choose to use this model to determine their internal and external risks. These risks will influence clients’ profitability and sustainability. Businesses that misunderstand how their market influences their surroundings fail to see the necessary measures they need to implement in their management systems. [Source: Harvard Business Review]
3. VRIO: Determine if the products and services you are selling will ensure a sustainable competitive advantage
The VRIO framework lets businesses analyse if their resources and capabilities will create enduring competitive benefits.
Value
Do your resources and capabilities provide customer or operational value?
Rarity
Do competitors lack these resources and capabilities?
Imitability
Can it be easily copied or substituted with an alternative?
Organisation
Does the business have the capability to leverage it? If not, McKinsey’s 7S model can be used to organise internal resources.
In conformance with ISO9001:2015’s Clause 6.1, businesses can use VRIO analysis to identify long-term risks that threaten their success. When rivals replicate valuable present-day resources, they become less valuable for businesses. Your business needs to build plans today to keep its competitive strengths active in the long-term. [Source: Barney, J. B. (1991). Firm Resources and Sustained Competitive Advantage, Journal of Management].
4. OKRs: Develop your Strategy into Measurable Objectives (Clause 6.2 & 9.1)
By setting objectives and key results (OKRs), a business can break down corporate goals into easily identifiable measures for successful implementation. OKRs are especially helpful in the services industries and IT environments. In an IT environment, objectives relating to time spent on developing software do not necessarily determine success. The measure of success in such an instance will be a functional programme that performs its intended tasks.
While KPIs such as absenteeism rates and scrap rates are good Key Performance Indicators (KPIs), they merely monitor organisational performance as a measure of efficiency. Given that competitive advantage relies on both efficiency and effectiveness, a good practice is to use both KPIs and OKRs in your organisation. OKRs are typically tied to the organisation's mission, i.e., the strategic direction top management has decided on.
Clause 6.2 of ISO9001:2015 requires organisations to set clear measurable objectives. OKRs enable organisations to show their progress when monitoring is difficult or does not directly align with the organisation's strategic direction. [Source: OKRs vs KPIs: Key Differences Explained - Businessmap]
5. McKinsey 7S Model – Aligning Resources with Strategy (Clauses 4 to 7)
After successful strategy formulation, an organisation needs to plan the execution of its strategy and how it will align its resources in support of its strategic direction. ISO Clause 7 deals with managing resources in support of its operations.
The McKinsey 7S model can assist organisations in evaluating and improving the entire business structure and resource management system. ISO9001:2015 requires organisations to plan changes (Clause 6.3) based on the objectives (Clause 6.2) set to address risks and opportunities identified (Clause 6.1). Using the McKinsey 7S framework will ensure that:
· The strategy aligns with what top management planned for its future positioning in the market (4.1 & 4.2)
· The business structure supports operational efficiency (5.3, 7.2)
· Management systems reinforce policies and workflows (4.4, 7.1, 7.4 & 7.5)
· Shared values are reflective of the corporate culture (5.2, 7.3)
· Style reflects leadership and management approach (5.1)
· There are enough adequate staff members who hold the required professional competencies (7.2)
· Skills development and capability development align with the strategic direction (7.2)
6. Kraljic Matrix – Managing Suppliers and Outsourcing Risks (Clause 8.4)
After performing environmental analysis, strategy formulation, and strategic planning, an organisation should execute their chosen strategy. Although there are many models that are applicable, I would like to draw attention to one in particular: The Kraljic matrix. This model focusses on how we manage and interact with our suppliers and service providers. These relationships control the organisation’s ability to stay in operation. The Kraljic Matrix analyses suppliers through their danger and importance. Below are the categories of suppliers:
1. Strategic Suppliers: Suppliers of critical items pose a high risk as the items they sell are of high importance. Suppliers of patented products, for instance, will be managed more closely. The organisation should engage with key players more often and prepare contingency measures in case of disruptions.
2. Leverage Suppliers: These suppliers pose a low risk but sourcing the correct items/services are of high importance. An organisation should choose to diversify suppliers of raw materials, such as plastic and metal available from multiple suppliers. Furthermore, supplier performance can be monitored to ensure the organisation sources from its most reliable suppliers and maintain relationships with back-up suppliers. Negotiations on price, quality and delivery terms are vital to the successful procurement of leverageable items.
3. Bottleneck Suppliers: Bottleneck items pose a high risk as they are considered to have low importance, yet these are prone to cause disruptions in your production line or service delivery. For such items, it is best practice to maintain buffer stock or consider developing these products and services in-house. These measures lower dependency on unreliable suppliers.
4. Non-Critical Suppliers: Low risk items of low importance have minimal impact on an organisation’s operations. In such instances, streamlined procurement processes will reduce procurement costs. Organisations should focus on cost-control measures such as buying in bulk or sourcing from suppliers that stock multiple non-critical items to avoid transportation costs.
Although there is much more to the model, this system of categorising suppliers enables companies to design supply chain plans while following Clause 8.4 requirements and ensuring supply chain resilience. [Source: Glöckner H.-H., Pieters R., de Rooij W., 2005, Importance of the Kraljic matrix as a strategic tool for modern purchasing. LogForum 1, 1, 3.]
Conclusion
Given the wide range of business models available, organisations can develop their strategic direction to be more than a tick-box exercise. The SWOT and PESTLE tools help with environmental analysis, but business leaders must use the information gathered from such analyses to purposefully formulate, plan and execute strategy. These business models offer methods to incorporate strategic direction in risk identification, resource management, and streamlined operations. Ultimately, organisations can use such models to create stronger strategies that survive market challenges and strengthen their operations despite uncertainties.
GRC-Link can help your organisation to implement XGRC software that integrate your organisation’s strategic direction into everything you do. Conforming to all your ISO9001:2015 requirements, our solution will allow you to manage and monitor risks, manage your operations, generate statistical analysis and trends on your company’s performance, and so much more. Should you require assistance in terms of the above or any other ISO-related service, please do not hesitate to contact me directly on +27 60 538 9086 or at rynhardt@grclink.online.
