Overview of business frameworks
Strategic frameworks are the structure you need. However, there are literally hundreds of strategy frameworks out there, ranging from simple to extremely complicated. This makes choosing the best strategy frameworks for your organization a time-consuming challenge.
5 of the best strategy frameworks
- McKinsey’s Strategic Horizons
- Value Disciplines
- The Stakeholder Theory
- The Balanced Scorecard
- The Ansoff Matrix
What is a strategic framework?
A strategic framework is a tool that will assist you at a specific stage of the strategic management cycle, most commonly during the strategy formulation and evaluation stage.
Usually, strategic frameworks will require you to categorize your goals into a series of groupings. Choosing a strategy framework to follow keeps you focused on your goals. It inserts clarity in your strategic processes and enables you to navigate reality’s mess.
There are 3 key steps in implementing a strategy framework. We’ll go through each of these steps.
How to implement the right strategic framework
Step 1: Choose the right strategic framework
A key part of choosing the right framework is self reflection.
Where does your organization stand? What are you trying to achieve? What are your main strengths and weaknesses? All these questions play heavily into your selection of the best strategy framework.
For each of 5 the strategy frameworks below, we have outlined why they're useful. We've also provided examples of what types of organizations might use them.
Step 2: Apply the strategic framework to your strategy
As you go through and create your strategic plan, think carefully about each element.
What are your strategic objectives? How does each goal fit into your chosen framework? What do you need to measure and establish KPIs for? Apply your strategic framework to your strategy and the information you have gathered. This process will force you into thinking deeply about alignment between your goals, strategic framework and overarching vision.
Don’t constrain yourself and believe that you have to blindly commit to a strategic framework or even follow only one framework. Most organizations start with a specific framework and work it into their own way of doing strategy.
Step 3: Review your plan against your chosen strategic framework
There are other benefits to implementing a strategy framework.
For example, it helps your people understand how their own goals fit into the bigger picture. They understand the context of every decision and the company’s direction.
Tools like Cascade help you analyze your strategic plan's alignment with your strategic framework. It includes automatically calculated metrics like the percentage of goals in your overall strategy sitting in each element of your framework. This helps you determine the amount of focus you're giving each element in your strategic framework.
McKinsey's Strategic Horizons keep you focused on growth and innovation. This strategy framework requires you to categorize your goals into 3 different 'horizons':
Horizon 1: Core Business
This encompasses the activities that are most closely aligned to your current business.
Most of your immediate-revenue making activity will sit in horizon 1. If you're a retailer, this includes the day-to-day goals associated with selling, marketing and serving your product and customers. Your goals in horizon 1 will be mostly around improving margins, bettering existing processes and keeping cash coming in.
Horizon 2: Emerging Opportunities
Emerging opportunities are about taking what you already have and extending it out into new areas of revenue-deriving activity.
There may be an initial cost associated with your horizon 2 activities. However, these investments should return fairly reliably based on them being an extension of your current proven business model. Examples of this could include launching new product lines or expanding your business geographically or into new markets.
Horizon 3: Blue Sky
Your blue sky horizon 3 goals will be all about taking your business in new directions.
These may be unproven and potentially unprofitable for a significant period of time. This would encompass research projects, pilot programs, or entirely new revenue lines requiring a significant upfront investment.
Whilst there are no hard and fast rules, aim for a 70/20/10 split between the 3 horizons. Adapt these numbers based on your risk appetite and resource availability.
Why McKinsey's Strategic Horizons is one of the best strategic frameworks
McKinsey's Strategic Horizons is a great strategic framework because it keeps you focused on constantly growing your organization and creating future revenue streams. Many organizations fixate on driving their current profit margins. This is great for the short-term, but the lack of diversity introduces significant risks to your business. This may be from changes in the market, customer demand or competitive activity.
What kind of organizations might use McKinsey's Strategic Horizons
This is a very versatile framework and applies to the vast majority of organizations and industries. The framework is particularly popular among fast-growing organizations such as startups who need to maintain a fine balance between their cash-flows and their growth rate.
The Value Disciplines framework works on the assumption that an organization is most likely to excel at what it is already good at.
You choose one main value discipline for your organization and ensure that you have sufficient components in your strategy driving towards this discipline. By dividing your strategic goals into one of the disciplines below, you can make an honest assessment about whether your strategy aligns with your stated competitive advantage or focus.
An organization that focuses on operational excellence aims to provide its customers with high-quality products or services at competitive prices with low barriers to purchase. It focuses internally on streamlining processes - making as few errors as possible and minimizing superfluous services. Standardizing and increasing economies of scale are part of this procedure.
Your organization feels that its customers are the most important aspect of its business.
You would continuously work to meet the customer’s requirements and deliver bespoke and one-on-one solutions where you focus on building long-term customer relationships. Obtaining a once-only large transaction is less attractive than creating a long-lasting intimacy bond with customers. In order to excel at this strategy, you would need to use an intensive Customer Relations Management (CRM) process.
Examples of such organizations are Home Depot, Staples, Ciba-Geigy, Kraft and Frito-Lay.
An organization that focuses on product leadership will always strive for product development and innovation.
It aims at becoming the market leader of a specific product or service. It strives to create a continuous stream of innovation that is in demand with both loyal and new buyers. It invests a lot in R&D and has a flexible structure to stimulate the performance and creativity of its employees. New and innovative products are often “better, smaller, faster, trendier and cheaper” than previous iterations.
Examples of leading companies are Apple, Bang & Olufsen, Philips.
Why Value Disciplines is one of the best strategic frameworks
The Value disciplines framework is one of the best strategy frameworks out there because it provides three things.
Focus, focus and even more focus. When you apply this strategy framework, you acknowledge that you will likely only truly excel in one type of business model. You divert all of your energy into this approach - thus maximizing resources and minimizing distractions.
What kind of organizations might use Value Disciplines
This flexible framework applies to a wide range of industries and products.
If your business is already in one of the disciplines, then this model adds less value. For example, if you're a consulting firm, likely, your focus will naturally be on customer intimacy - so the additional focus introduced by the framework might be of limited value. If you're in an industry where the same product is being sold multiple ways (such as airlines), then the value discipline approach will make more sense and help you differentiate more strongly.
Though not a well-known model in the broader business world, the Stakeholder Theory framework looks at strategy slightly differently. It aims at adding value for specific groups of people. Specifically:
Group 1: The employees
It includes goals that directly enhance the well-being of employees. This could be direct financial goals such as salary increases or intangible benefits to this group such as training and facilities.
Group 2: The customers
It includes goals and outcomes that benefit customers - such as product improvements or increased accessibility.
Group 3: The community
Most organizations bring an element of community benefit, such as job creation. Others go much further and are entirely dedicated to improving the local community.
Group 4: The shareholders
Whilst this model is popular among not-for-profits, many profit-making organizations also adopt the stakeholder model. The components of their goals that directly enhance the bottom line would fall into group 4.
Group 5: The society
You could look at society as an extension of the community. Goals that will benefit the broader society (people who aren't customers and aren't in the local community) would be categorized here. This includes major technology advancements, research or environmental work, for example.
Add more groups to the list, if it makes sense - there are no hard and fast rules.
Why this is one of the best strategic frameworks
The nice thing about the stakeholder model is that it's both extremely flexible as well as easy-to-understand for employees and people outside of the organization. It's also extremely motivating to see a clear link between your work as an employee and direct benefit being realized by another human being.
What kind of organizations might use the Stakeholder Model
Not-for-profits and academic institutions do really well with the stakeholder model.
Often, the grants and funding upon which they rely are directly tied to them, demonstrating benefit to stakeholders in the real world. So this model comes in handy when applying for this kind of financial support. The model is also extremely “outward friendly” - meaning that organizations who use the stakeholder model often like to publish their pie charts and results on their public website.
The purpose behind this is to help prove what a positive impact they're having on their stakeholders.
We couldn't round up the best strategy frameworks without mentioning the Balanced Scorecard framework. Arguably the most popular strategy execution model on the planet. The balanced scorecard is built on the premise that your businesses strategy should be equally divided into the 4 quadrants below:
This quadrant is about understanding and improving your customers' satisfaction, their requirements from your organization and its product or service.
The financial quadrant includes all your goals related to improving your bottom line or other key financial KPIs (such as liquidity or margin).
Internal Business Process
This quadrant is around measuring and improving your critical-to-customer process requirements and measures internally.
Knowledge, Education, and Growth
This quadrant (also sometimes known as the people quadrant) focuses on how you educate your employees, how you gain and capture knowledge, and how you use it to maintain a competitive edge against your competitors.
The key to success with the Balanced Scorecard framework, and the thing which many organizations overlook, is that setting goals within these quadrants is not enough on its own. For organizations to find success using this framework, clear numerical KPIs should be created for each quadrant of the scorecard. Then, regularly track and review them. Balancing goals between the quadrants is important, but balancing outcomes is what the balanced scorecard is really all about.
Why the Balanced Scorecard is one of the best strategic frameworks
Depending on your needs, you can implement the balanced scorecard as simply or complexly as you like.
Due to its popularity, there are tons of helpful resources out there, as well as highly trained consultants that can help you implement it within your own organization. From our internal research with clients using Cascade, we see a strong correlation between the success of a strategic plan and how evenly balanced it is across the 4 quadrants.
What kind of organizations might use the Balanced Scorecard
For a long time, the business world has regarded the Balanced Scorecard as one of the best strategy frameworks around.
It is very attractive to medium size organizations and above (partly due to its popularity with consultants). Company boards are well used to seeing their strategy reported using the balanced scorecard, so usually, little explanation is required. You may find that your strategy naturally falls across these 4 quadrants as you define your Focus Areas - in which case you could implement an additional model alongside the balanced scorecard and get the benefit of both.
The Ansoff framework is specifically geared to organizations trying to aggressively grow sales volumes.
At the very least, to those who have identified sales volume as a particular Focus Area. It may be too specific for your entire business strategy, but if you have a highly targeted strategy around growth, it packs a punch as one of the best strategy frameworks.
The Ansoff matrix is divided into 4 main components:
This is all about selling more of your current product or service to a different or expanded group of people. Examples of strategies that would fit this part of the matrix would be international (geographic) expansion or new sales channels such as online channels.
In this part of the matrix, you're trying to sell more of your current product to the same people - but in larger quantities. For example, you may be more aggressive with your marketing but in the same target groups, or you may offer incentives for people to buy more of your product in exchange for a discount.
This is all about developing new products to sell to your current customer base. For example, makers of sports shoes have aggressively developed products such as sports clothing to sell to the same group of people who were originally just buying shoes.
Diversification entails selling new products to new markets and is arguably the riskiest component of the Matrix. The risk is clear in that you'll likely have little knowledge of either the product or the market. However, the possible gains in diversifying are often large.
Your risk appetite will largely dictate which components of the matrix you will attack. The order of risk (from low to high) is Market Penetration, Market Development, Product Development, Diversification. Typically, organizations would not choose to attack all 4 components without significant resources available to them.
Why the Ansoff matrix is one of the best strategic frameworks
People often see “growth” as a single part of their strategic plan. The Ansoff Matrix, however, forces you to think more deeply about exactly how you're going to achieve that growth. Arguably it also helps you focus on just one or two elements at a time.
What kind of organizations might use The Ansoff Matrix
This is one of the best strategy frameworks for organizations that want to build a strategy around growth.
It usually won't apply to startups until they enter a more mature phase. This is because each component of the matrix requires resources to execute, making it better suited to SMEs and Enterprises. Especially big enterprises nearing peak performance in a niche market or geography and are ready to take the next step.
Which is the best strategic framework for your organization?
There is no right or wrong when choosing a strategic framework.
Only what fits your organization.
And your long-term vision for it. Often you'll be able to draw a correlation between the language and tone of your vision statement (assuming you've invested the time in creating a really good one) and the best strategy frameworks for you.
Let's play a quick vision-strategy framework fit game
- If your vision statement is filled with concepts of growth and innovation - you might find that McKinsey's Strategic Horizons is the best strategy framework for you. Arguably The Ansoff's Matrix could work well also.
- If your vision statement is more about solidarity and robustness - then something like the Balanced Scorecard might be more appropriate.
- If your vision statement is more focused on a particular aspect or niche, then Value Disciplines is definitely worth a look.
- If your vision statement is grand on a societal level and more focused on people - try out the Stakeholder Model.
We're only scratching the surface of what's available in terms of the best strategy frameworks here - but in our experience of working with over 3000 companies who've tried out our strategy platform Cascade, the 5 frameworks above stand out as the best.