What makes a corporate strategy fit for the future? And which approaches to strategy development actually work in today's competitive environment? This article addresses both questions and shows how agile strategy development can be embedded continuously into day-to-day management. Until the 1970s, markets and industries were relatively stable and homogenous. Over the past 50 years, that changed fundamentally. Technology, rising mobility, and a growing number of market participants on both the supply and demand side produced significantly more complex conditions and volatile markets. This has had deep effects on how companies operate and are managed. As business cycles shorten and the pressure to adapt intensifies, agile strategy development has become a decisive factor in long-term commercial success. Companies that continuously pressure-test their strategy and can adjust quickly to changing conditions are the ones that will hold their ground.
Insights:
3 Hypotheses for effective strategy development
What does "strategy" mean, and how does it affect business success?
What are the typical challenges in strategy development?
What are the particular challenges with growth strategies?
What does the process of developing a sustainable growth strategy look like?
3 Hypotheses for effective strategy development
Strategy development comes in many forms. Based on our experience, three elements are decisive for defining an effective strategy.
1. Growth always starts with a strategy.
2. Three factors have the greatest impact on strategy development.
3. OKRs help execute strategy.
1. Growth always starts with a strategy.
A good strategy creates clarity on what needs to be achieved and how. That requires a solid analytical foundation: market dynamics, trends, competitive landscape, technologies. Beyond that, strategy formulation tends to involve a recurring set of components.
In our work, we consistently find it useful to think about strategy definition and execution as one integrated process, not two sequential steps.
A clear example of strategy definition is strategic objectives.
Strategic objectives must be simple and measurable. After all the analytical groundwork, formulating goals that are simple and measurable is one of the most important steps. That means a limited set of objectives with clear ownership and deadlines, backed by concrete initiatives. This sounds straightforward, but in practice it is not: organisations carry many dependencies and competing views. Getting to a limited set of well-defined strategic objectives takes significant work and alignment.
Measurability is what allows you to track whether you are actually making progress toward the goals you set.
2. Three factors have the greatest impact on strategy development.
1. The team should be part of strategy development.
Their knowledge is needed to address complexity and as many employees as possible should understand the strategy, not just be informed of it.
2. There must be clarity on both the current and the future business model.
That means mapping what already exists and what needs to be built. An incremental mindset is not enough: strategy requires clarity on technologies, processes, and structures.
3. There must be a vision and a set of clear, communicated strategic objectives.
Purpose and vision define the guardrails. Within those guardrails, employees should be able to make decisions independently.
These three elements enable effective execution and continuous adaptation of strategy across the organisation.
3. OKRs help execute strategy.
OKRs stand for Objectives and Key Results. The framework is well suited to translating a defined strategy into action, particularly in fast-moving and complex environments.
Execution does not happen top-down in a single pass. OKRs allow the right people across the organisation to set priorities continuously and locally. In environments where conditions shift quickly, a purely top-down goal-setting process is often too slow and too rigid.
Used correctly, OKRs improve prioritisation, transparency, and alignment.
What is "strategy" and how does it affect business success?
The word "strategy" comes from military vocabulary, where it described a commander's ability to organise resources for maximum effect. The underlying principle transferred readily to business: Alfred DuPont Chandler Jr., in his 1962 work Strategy and Structure, defined strategy as "the determination of the basic long-term goals of an enterprise." The term has been part of management thinking ever since.
Corporate strategy: the "how" on the path to success
A corporate strategy defines the approaches and methods a company uses to reach its long-term goals. Strategy development means finding answers to three questions:
- What values and principles should the strategy reflect?
- What resources are available, and how should they be deployed?
- By when should strategic goals be reached?
A coherent corporate strategy creates clarity on what needs to be achieved, how, and by when.
Strategy development accounts for external competitive factors
Building a strategy that holds up over time requires looking beyond the company itself. External factors that can shape or constrain a strategy include:
- Political, legal, and regulatory conditions in the company's operating markets
- The competitive landscape
- Current and potential customers
- The company's own strengths and weaknesses
Careful analysis of these factors is the foundation of any serious strategy process.
What are the typical challenges in strategy development?
A sound corporate strategy builds on existing strengths, core competencies, and competitive advantages. At the same time, it looks ahead and gives leadership a set of options for different scenarios over a medium to long time horizon. The central challenge is running both in parallel: protecting and optimising what works today while building toward what the business needs to become. Strategy development that takes this seriously addresses the following:
- How is the current business model structured?
- What drives long-term growth?
- What needs to change to execute the model well now and in the future?
- How might the competitive environment shift, and what would that mean for the business model and competitive position?
- Which new markets, customer segments, or product categories are worth pursuing?
Several factors are consistently relevant to answering these questions well:
- Vision, mission, and long-term objectives
- Core competencies and competitive advantages
- Markets and customer segments
- Supply and value chains
- Strategic positioning
Vision, mission, and long-term objectives: the guardrails
The corporate mission and vision hold everything together. Vision gives direction and meaning; values and norms set the boundaries for how the company operates. When this identity is reflected in the products and services a company offers, it creates recognition and emotional resonance with customers - a reliable foundation for long-term success.
Corporate vision – Identity, Purpose, Orientation
A corporate vision describes a desirable future state. It is deliberately general, but gives normative direction. Audi's "Vorsprung durch Technik" is a well-known example: concise, it conveys ambition, technical creativity, and the idea that pushing into unknown territory is itself a competitive advantage.
Mission – Compass on the way to the future
The mission is more concrete. It typically defines the company's:
- Field of activity
- Competences
- Values
Audi, for example, formulates its current mission in its "Vorsprung 2030" agenda, conveying the following core message: e-mobility is at the heart of the company's strategic objectives. The associated transformation of the corporate structure is to succeed by drawing on the existing expertise of employees in the field of e-mobility. From the resulting collective intelligence, Audi expects continuous technical innovation and, as a result, a lasting competitive advantage in the still-young segment of electric vehicles. In addition, the "e-mobility" mission conveys values such as environmental and climate protection through clean energy generation and use.
In addition to questions of strategic direction from the company's own perspective, the corporate mission ideally also answers the following questions, among others:
- How should the company be perceived by customers and other stakeholders?
- What qualities and values do customers associate with the company's products and services?
A well-formulated company mission is therefore not only focused on economic success, but also takes into account the qualitative expectations of the company's target group when defining its strategic objectives.
Core competencies and competitive advantages: the backbone of strategy development
Sales and logistics are what people associate with Amazon; electric mobility and AI-driven driver assistance systems with Tesla; technical innovation with Apple. Core competencies are often the decisive reason for competitive advantage. They therefore regularly form the backbone of a corporate strategy. The underlying business model is already in operation and has proven itself a solid starting point. The strategic challenge, however, is to maintain or extend the lead over competitors and ensure lasting differentiation.
Business areas, markets, and customer segments: recognising and capturing potential
Looking only at the company itself is not sufficient for thorough strategy development. External factors such as regulatory requirements, climate conditions, shifting consumer behaviour have repeatedly caused otherwise sound strategic concepts to collapse. An important part of strategy development is therefore careful analysis of the following::
- Political, legal, and regulatory conditions
- Relevant business areas, products, and services
- Current and potential competitors
- Pricing levels and trends
- Supply and demand dynamics
- Customer expectations
Continuous analytical work in these areas provides clarity on where the company is positioned from a macroeconomic perspective. It also allows trends, dynamics, and shifts to be identified early, giving the company time to adapt, adjust, or extend its business model accordingly. The strategic challenge is to align the company's internal structures and processes so that the given macroeconomic conditions can be used to best advantage.
Supply and value chains: often strategic stumbling blocks
Strategy development tends to look forward toward the end customer. The backward view toward upstream supply and value chains is often just as important. Time and again, companies fall short of their goals not because of strategy failures but because they cannot produce or deliver at the required volumes or within the required timeframes. Common causes include:
- Unavailable raw materials
- Unavailable intermediate products
- Shortage of skilled personnel
Building and maintaining reliable, diversified supplier networks has become an important component of strategy development and implementation across many industries. The same applies to qualified employees and specialist staff. Companies generally have limited resources and capital available. These scarce capacities are often most efficiently deployed where the ratio of effort to value creation is most favourable. The structure of the value chain also plays a decisive role in terms of dependency and negotiating power. It is therefore important for strategy development to examine which parts of the value chain are generated internally and where the company depends on external suppliers and partners.
Strategic positioning: a three-dimensional balancing act
A company's strategic positioning reflects how it combines and weights the following three dimensions:
- Growth
- Profitability
- Risk
The mix of these three dimensions is of decisive importance for strategy development. If the corporate strategy is oriented toward achieving cost leadership in existing markets with existing products through efficiency gains, comparatively low growth rates are to be expected. The entrepreneurial risk, however, also remains at a low level, while the prospects of sustainably improving the company's profitability with this strategic orientation appear promising. Aldi, IKEA, and Ryanair are examples of companies with a strategic orientation toward cost leadership. If a company instead wants to take the risky step of entering an unknown market with a new, innovative product, strategy development must be structured in an entirely different way than in the case of a targeted cost leadership position. New, innovative products certainly have the potential to generate new demand and thus revenues with high growth rates. On the other hand, this so-called diversification strategy not infrequently carries the risk of a total loss of the initial investments made. Amazon is probably the best-known example of a company representing a diversification strategy. Starting out as nothing more than an online bookseller, the company today is a supermarket, streaming provider, film producer, publisher, cloud platform, and much more.
What are the particular challenges with growth strategies?
If company leadership opts for a growth-oriented variant in the course of strategy development, further challenges must be taken into account that are decisive for long-term and sustainable corporate success. On one hand, the company must continue to look after its existing current state - its current core business- and its continuous stabilisation and optimisation. On the other hand, it must also venture into new territory through the exploration of new ideas, which is typically associated with risk and uncertainty. The challenge now is to establish a balanced equilibrium between these two poles that, in combination, leads to sustainable growth.
McKinsey Three Horizons Model: to balance sheet growth in three sequences
The entrepreneurial conflict between a stable present and a flexible future, with which many companies are increasingly confronted, is addressed, among other frameworks, by the McKinsey Three Horizons Model.
The Three Horizons Model builds in its basic structure on classical strategy concepts such as those of Porter and Ansoff, and maps the relationship between the level of innovation and the resulting value gain with the time required to achieve it. The three horizons mentioned in the name of the concept are structured as follows:
- Horizon: Optimisation of existing business models
- Horizon: New business model options in existing markets
- Horizon: New disruptive business models
Horizon 1: optimising the core business as the most immediate source of growth
This category covers measures that strengthen the current core business and the associated earnings power of the company. As a rule, efficiency and productivity are increased through innovation, generating a short-term value gain that materialises in the financial results within the next 12 to 18 months. Due to the already very well-trodden paths, both the expected value gain and the associated durability are comparatively low, since competitors can be expected to replicate the measures applied and the resulting growth momentum will erode over time.
Horizon 2: growth adjacent to the core serves independence and flexibility
All the more important for a medium to long-term growth outlook is the second horizon of the McKinsey Three Horizons Model. This category encompasses measures that go beyond the company's current core business, but whose effect still plays out in the markets already being served.
Investments are typically made that extend or expand the current value chain, thereby increasing the degree of value creation generated within the company. Amazon's own delivery service is an example of such a Horizon 2 investment. The delivery service serves primarily as a supplement to established carriers and is intended to absorb their occasional supply bottlenecks and increase order and revenue frequency.
Another omnipresent example can be found in the area of distribution. Where most companies previously used wholesalers and advertising agencies to distribute their goods and services, advances in digitalisation made it relatively straightforward to build internal online distribution structures. Many companies now handle the distribution of their goods themselves and avoid the need to route sales through external distribution partners.
As a rule, Horizon 2 measures generate a higher value gain than Horizon 1 methods, but the investments made also take an average of 18 to 36 months to deliver their intended effect.
Horizon 3: disruption and renewal lead companies into the markets of tomorrow
Investments and innovations in category 3 aim to partially or fully replace the current business model, or to open up markets that are entirely untapped. Given the disruptive and far-reaching character of these measures, it often takes several years before they deliver their full effect. Such measures also always carry very high risk, since the company is as a rule entering completely new territory and can only draw to a limited extent on past experience and reference points. The associated value gain for the company, however, can be immense.
When George Lucas negotiated with production company 20th Century Fox over payment for the film Star Wars, they gave him the licensing and merchandising rights in order to save monetary costs in the form of a $500,000 higher fee. In addition, licensing and merchandising rights had until then been an insignificant source of revenue for film productions. Lucas, however, took the step and brought a wide range of Star Wars products to market - toys, video games, and more. The move by a film production into these entirely unknown markets was absolute new territory, but as is well known it was a complete success and brought Lucas and his production company billions in profit.
Balancing today and tomorrow: strategic positioning with the Three Horizons Model
Used correctly, the Three Horizons Model is a powerful instrument for growth-oriented strategy development. The decisive factor for sustainable growth is the temporal parallelism of the three horizons. They do not build on each other in chronological sequence, but are to be thought of, developed, and implemented in parallel. The methodology therefore explicitly emphasises that the optimisation of current business areas and the positioning of the company for the future must be executed simultaneously and hand in hand.
What does the process of developing a sustainable growth strategy look like?
Unlike what the term might suggest, strategy development is not a one-time act at the start of a process, but a holistic, dynamic concept that should have a permanent place in the continuous operational processes of a company.
Only when the strategic direction of a company is permanently under review and regularly adjusted to the changing conditions of the economic environment can the growth of the company be sustainably secured and extended for the future.
Strategy development: analysis and formulation
The foundation of successfully developed strategy always consists of thorough analytical work and its evaluation. It is of fundamental importance that strategy development accounts for both the "today" of the company and does not lose sight of the "tomorrow" appearing on the horizon. Both temporal dimensions must be brought together coherently in the course of strategy development so that a stable and consistent overall concept can emerge. In practice, it consistently proves promising when both strategy development and its execution are thought of and lived as a unified concept. Alongside strategy development and conception, the introduction of operational instruments is therefore also fundamentally important in order to establish the strategic direction within the company's day-to-day business.
Clear, measurable strategic objectives as a challenge
An important component of strategy development is the formulation of clear, simple, and measurable strategic objectives. A timeline for reaching milestones and sub-goals, as well as the distribution of tasks and responsibilities, can also be implemented sustainably and efficiently with the help of formulated strategic objectives. The measurability of strategic objectives is an important aspect in this context, since it is only in this way that it can be objectively assessed whether and to what extent a given strategic objective has been reached.
Deploying limited resources toward growth
A company generally has limited resources available. This applies both to material assets such as machinery or production inputs, and to human capital — meaning its employees. Both factors must be deployed purposefully in order to enable growth. Examples of growth-oriented resource deployment include:
- Building or purchasing additional production capacity in order to increase sales volumes adequately
- Hiring additional specialist staff to build or deepen competencies with regard to new products, markets, or customers
- Introducing and applying new management instruments or software to make workflows and processes more dynamic and flexible
- Further training and development of middle management in order to handle more complex production structures and to be in a position to lead larger departments and teams
Within the Three Horizons framework, the short-term gains achieved through Horizon 1 measures are frequently used to finance the transformation processes required for Horizon 2 and Horizon 3 gains.
Instruments for operational implementation
Just as important as the strategic concepts on which strategy development is built are the instruments and people needed to bring the results operationally to life.
Implementing strategy development at all organisational levels
For strategy development to reach the entire company sustainably and for the results to be implemented in day-to-day operations, the involvement of all employees in the underlying processes is desirable.
When all employees have understood and internalised the corporate vision and mission, and are also involved in the company's strategic direction, this generally has a very positive effect on corporate identification, communication, work motivation, and ultimately creativity and innovation.
OKRs as an innovative strategy concept for implementing modern, dynamic management
One operational concept suited to executing agile strategy development is Objectives and Key Results (OKRs). This is a management and goal-setting system developed by Andrew Grove in the 1970s that connects a company's strategic objectives with measurable operational key results. The approach also builds on a continuously repeating cyclical system and can in principle be applied at every organisational level of a company, which means that potentially every employee is involved in execution. Implemented appropriately, this operational concept enables short-term and flexible adjustment of corporate strategy to a changing market environment, and is therefore very well suited to managing the necessary strategic balance between present and future as well as possible.
Quarterly Business Review (QBR): an agile instrument for strategy execution in companies
Another very useful operational instrument for strategy development that is continuously integrated into company processes are Quarterly Business Reviews (QBR).
In the context of QBRs, relevant actors and decision-makers come together regularly to review and assess the current strategic direction of the company, and from this to develop and implement purposeful strategic and operational measures for the future. Quarterly Business Reviews are therefore, with regard to the problems and challenges of companies described in this article, a purposeful strategy instrument that addresses the concerns of the present as well as appropriately accounting for the company's future strategic direction - operating across multiple dimensions simultaneously.
A corporate strategy defines the operational approaches and methods within a company by which the long-term corporate goals are to be reached. In the course of strategy development, it is therefore particularly important to find answers to the following questions:
- What corporate mission should be reflected in the corporate strategy?
- What resources are available to the company and how can they best be deployed to reach the strategic corporate goals?
- By when should the strategic corporate goals be reached?
A coherent corporate strategy thus creates clarity on which corporate goals are to be reached, how the defined corporate goals are to be reached, and by when this should happen.
Strategy development accounts for external competitive factors
For the development of a corporate strategy that functions sustainably to succeed, strategy development should account not only for the company itself but also for external factors and dimensions that can influence it. These include in particular:
- The social, political, and legal conditions of the company's location and the sales markets in which it operates
- The market environment in which the company is economically active
- Current and potential customers of the company
- The strengths and weaknesses of the company
At the start of developing a sustainably successful corporate strategy, careful analytical work and its subsequent evaluation are therefore on the agenda.
AUTHOR
Stefan Benndorf, Founding Partner scaleon GmbH
stefan.benndorf@scaleon.dez
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