Strategic Alignment Model
What are the main elements of an effective business strategy? TIAS professor of Strategic Leadership Ron Meyer presents an insightful tool to kickstart your thinking: Strategic Alignment Model.
Key Definitions
A strategy is a course of action being taken to achieve a specific purpose. As there are never limitless resources available, strategizing requires the selection of those actions that have the highest chance of success. In other words, setting a strategy is about making choices.
Strategies can be developed for different levels of aggregation – for individuals, teams, units, etcetera, all the way up to entire countries and the world. Business level strategies are made for organizations or units engaged in one specific type of business in one particular type of market. If an organization is involved in two or more businesses, they also need to formulate a corporate level strategy.
Conceptual Model
The Strategic Alignment Model gives a complete overview of the elements that are relevant to determining a business level strategy. These are the key variables that strategists can decide to change to achieve their purpose. Central to the model is the notion that all variables need to be aligned into a coherent whole. In this system’s view, changes in one area will need to be translated into adjustments elsewhere to ensure overall alignment. The model consists of three main systems, that each need to be aligned internally and with one another. This entire business level system is inherently dynamic, sometimes driven by the choices strategists make, but often also by autonomous developments.
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Key Elements
The three main systems that need to be aligned are the following:
1. Market System. A market is a place, real or virtual, where supply and demand for specific products and/or services are brought together. A market system is broader, encompassing all actors and influencing factors that have an impact on the seller-buyer interaction. The market system map, incorporated into the left panel of the strategic alignment model, outlines the 11 key categories of actors (described in more depth in Meyer’s Model #31). The strategic choice that needs to be made is which segment of buyers to focus on, as each will come with its own array of rivals, suppliers, complementors, etc. This choice is called market positioning and sometimes summarized as the question “where to play?”.
2. Business System. A business system is how you make something that buyers will value. It is how resource inputs are effectively and efficiently transformed into attractive outputs – how you work to create added value. As input-output process, each business system consists of three ‘layers’:
a. Value Proposition. The output of a business system is a product and/or service that will be offered to prospective buyers. This valued product/service is usually wrapped in an envelope of appealing distribution, information, reputation, and payment attributes, making the whole value proposition package extra enticing.
b. Activity System. To create the value proposition, a wide array of value adding activities need to be undertaken. Next to primary activities such as production, marketing, and sales, these also include support activities such as HR, finance, IT, facility management, R&D, and procurement.
c. Resource Base. To run the activity system requires extensive inputs. Besides tangible resources such as machines, buildings, money, and materials, it is crucial to have access to intangibles such as relational resources (e.g., reputation and contacts) and competencies (e.g., knowledge and skills).
The strategic choice here is how to configure the entire business system into a coherent whole so that the value proposition will have a competitive advantage vis-à-vis industry rivals and revenues will be significantly higher than the costs of the activities and resources. This choice of business model is also called the question of “how to play?” or “how to win?”.
3. Organizational System. An organizational system is a group of people working together towards a common goal. These organizational members usually have formally assigned tasks and positions vis-à-vis one another, but informal linkages tend to grow over time, while a shared culture also emerges (as will be described in more depth in Meyer’s Models #34). The strategic choice here is how to keep aligning the organizational system into a coherent whole, so it has the capabilities need to run the business system effectively, or even offer distinctive capabilities to innovate the business. This choice of organizational model is also called the question of “who should play?”.
Key Insights
• Strategizing involves mapping three systems. Every strategist needs to analyse the current state and the main developments in three key systems: the market, business, and organizational systems. Forgetting the latter is an often-made foolish mistake.
• Strategizing involves answering three questions. Once mapped, three questions need to be answered: given the market potential, do we want to reposition (where to play), adapt the business model (how to play) and/or adjust the organizational model (who should play).
• Strategizing requires alignment. Effective strategizing demands that each system is internally aligned, while at the same time the three systems are also aligned with one another. Constant changes, intended or autonomous, require ongoing realignment.
• Strategizing can go in two directions. The three systems can be aligned from left to right (repositioning leads to changing the business and organization), which is called outside-in strategizing. But it is also possible to align from right to left (using core competencies to develop new businesses and markets), which is called inside-out strategizing.
• Strategizing is similar in the public sector. The terms market and business might not directly resonate with public sector strategists, but the logic is the same, only the market is called the task environment and the business is called the operating system.
Inspired by this kickstart?
The six-day Masterclass Strategic Leadership will teach you how to make well-informed strategic decisions and effectively manage the organization developing its vision. This will help you grow as a strategic thinker and leader. During this masterclass, you will work on solutions for a problem that you bring in from personal experience. In addition, you will reflect on the functioning of your management team and organization and thus help your organization to grow effectively.
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Strategic Alignment Model is part 32 of a series of management models by prof. dr. Ron Meyer. Ron is managing director of the Center for Strategy & Leadership and publishes regularly on Center for Strategy & Leadership.