The ten ingredients that every strategy should have

May 29, 2020

The ten ingredients that every strategy should have

In my previous article, I asked the overly pretentious question “What Does Strategy Really Mean?” and I answered this question by giving the following definition: an organization’s strategy is its unique way of sustainable value creation. This definition tells you that a strategy explains how an organization creates value for its customers in a way that is distinct from its competitors, and so that it can maintain this for a while.

This definition gives a bit of direction in understanding and generating your strategy. It helps focusing your attention and resources on value creation and on finding ways of doing that in a unique and sustainable way. That is important and it tells us what strategy should lead to. But this is hardly enough because it doesn’t say anything about what strategy is composed of. So, it defines strategy from the outside, but doesn’t open up the black box to see what is the inside strategy.

To make strategy practical and executable that is exactly what we need to do: open up the black box and look at strategy’s ingredients. The research I did for The Strategy Handbook revealed that there are exactly ten core elements of strategy. As it turns out, with less elements you miss out on some important parts, and adding more makes it unnecessarily complex. In brief, they comprise the following:

Value Proposition: What products and services you offer, how you offer them, and what added value they have for the customer.
Customers & Needs: The organizations and people you serve and which needs of them you fulfill.
Competitors: Others that your customers will compare you to in deciding whether or not to buy your products or services.
Resources & Competences: What you have, what you are good at, and what makes you unique.
Partners: Who you work with and who makes your products and services more valuable.
Revenue Model: What you receive in return for you offer, from whom, how, and when.
Risks & Costs: What financial, social, and other risks and costs you bear and how you manage these.
Values & Goals: What you want, where you want to go and what you find important.
Organizational Climate: What your culture and structure look like and what is special about them.
Trends & Uncertainties: What happens around you that affects your organization and what uncertainties you face.

With ten elements, this is quite a list. But now you have all the key elements of your strategy. That’s it. Together, they give a much more detailed and concrete idea of the meaning of the term strategy than just a definition. As a list though, it might look still somewhat unstructured. Therefore, I’ve developed a visual tool that combines the ten elements in a structured and coherent way and which is depicted below: The Strategy Sketch.

The Strategy Sketch (source: The Strategy Handbook, Part 1 (2015)

On the left-hand side of the Strategy Sketch you find an organization’s means—its resources and competencies and its partners. These tell you what value the organization is able to offer. On the other side, we find the organization’s market—its customers and needs and its competition. These show you the kind of value that is being asked for. Together with strategy’s core element—the value proposition—these five elements show how the organization creates value.

Above the value proposition, you find what the organization gets in return for the value it creates through its combination of revenue model vs. its risks and costs. Below the value proposition, you find the identity of the organization that is doing all of this and that drives and supports the value proposition—represented by its values and goals and its organizational climate. Finally, around these nine elements, we find the trends and uncertainties that form the wider context of the organization.

By organizing the ten elements along the structure of the Strategy Sketch you get a more comprehensive and grounded understanding of what strategy is and what it takes to make one. So, now you know what strategy really means and of which ten key ingredients it consists. Happy strategizing!

This post was published earlier here on my forbes.com page.

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The ten ingredients that every strategy should have