Strategy Development: Process, Methods, Practice

tl;dr

• Strategy development is the systematic process by which a company determines its strategic direction — from diagnosing the central challenge through formulating options for action to coherent action planning. The strategy development process in practice begins with leverage point analysis as its starting point: Which bottleneck is blocking the system?
• Without strategy development, a company merely reacts to the market instead of shaping it — the result is fragmented individual measures that neutralize each other.
• Those who master the strategy development process can connect diagnosis, method and implementation so that analytical clarity becomes actionable decisions — strategy development in brief: Understand, Decide, Act, Learn.

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What is strategy development?

Strategy development is the systematic process by which a company determines its strategic direction. It combines analysis (Where do we stand?), creative thinking (What paths exist?) and decision-making (Which path do we take?) into a coherent action guideline. Leverage point analysis as the starting point means: Before methods are chosen or workshops planned, the strategy development process identifies the central bottleneck in the system — the one point where a change will produce the greatest impact.

Richard Rumelt states in “Good Strategy Bad Strategy” (2011) the core question: “A great deal of strategy work is trying to figure out what is going on. Not just deciding what to do, but the more fundamental problem of comprehending the situation.” Strategy development begins with understanding, not with goal-setting.

Henry Mintzberg describes in “Tracking Strategies” (2007) the tension: “If deliberate strategy is about control, then emergent strategy is about learning.” The strategy development process in practice combines both — deliberate analysis with the ability to learn from emergent patterns and adapt the strategy.

Strategy development vs. strategic planning

Strategy development is the creative-analytical process that generates a new strategic direction, while strategic planning is the programmatic process that translates an already defined direction into actionable steps. Mintzberg warns in “The Rise and Fall of Strategic Planning” (1994): “The very forces that encourage formal planning tend to drive out strategic thinking.” Planning programs — strategy development discovers.

What are the 7 steps of strategy development?

The strategy development process can be structured into seven phases. The phases are not strictly sequential — in practice there are feedback loops and iterations.

Phase 1: Situation analysis — Where do we stand?

The situation analysis captures the starting position: internal strengths and weaknesses, external opportunities and threats. Tools like SWOT analysis and Porter’s Five Forces from “Competitive Strategy” (1980) structure the information gathering. The situation analysis delivers data — but not yet a strategy.

Phase 2: Diagnosis — What is the central challenge?

The diagnosis is the decisive step that many companies skip. Rumelt: “If you fail to identify and analyze the obstacles, you don’t have a strategy. Instead, you have either a stretch goal, a budget, or a list of things you wish would happen.” The diagnosis transforms the data from the situation analysis into an understandable problem. Lou Gerstner diagnosed at IBM in 1993: The problem was not integration, but the failure to leverage the integrated capabilities — the same facts, a different diagnosis, a fundamentally different strategy.

Phase 3: Target vision — Where do we want to go?

The target vision defines the desired state — not as a vague vision, but as a concrete strategic position. What comes first, goals or strategy? Rumelt argues: The diagnosis comes first, then the guiding policy, then the goals as concretization. Goals without diagnosis are wish lists.

Phase 4: Develop options — What paths exist?

Option development generates alternative strategic paths. Igor Ansoff structured the four basic directions in “Corporate Strategy” (1965): market penetration, market development, product development and diversification. Kenichi Ohmae emphasizes in “The Mind of the Strategist” (1982): “Successful business strategies result not from rigorous analysis but from a particular state of mind” — option generation requires creative strategic thinking, not just analytical frameworks.

Phase 5: Evaluation and selection — Which path is best?

The evaluation tests each option for feasibility, risk and strategic fit. Scenario planning following Pierre Wack (Shell) tests strategies against alternative futures. In the 1970s, Shell rose through scenario planning “from seventh to second on the profitability league table of oil companies” — because the company was emotionally and operationally prepared for the oil price shock that the scenarios had anticipated.

Phase 6: Action planning — What do we do concretely?

Action planning translates the chosen strategy into coherent steps. Coherence means: The measures work together, not against each other. Rumelt: “The coordination of action provides the most basic source of leverage or advantage available in strategy.” A company that simultaneously cuts costs and wants to improve customer service quality, without clarifying how both goals fit together, does not have a coherent strategy.

Phase 7: Implementation and learning — How do we adapt?

Strategy development does not end with formulation. Lawrence Hrebiniak documents in “Making Strategy Work” (2013): “Strategy formulation is no easy task. As difficult as strategy making is, making strategy work is even more difficult and challenging.” Strategy implementation is a process in its own right — but the strategy development process must consider implementability from the very beginning.

Mintzberg shows with the Honda example how emergence works: Honda did not go to the USA with the intention of selling small family motorcycles. The company discovered the market “almost inadvertently.” But: “Once recognized, it was made deliberate.” The best strategy development combines deliberate planning with the ability to recognize and leverage emergent patterns.

What does a good strategy need?

A good strategy needs three elements — Rumelt’s strategy kernel:

1. Diagnosis: The central challenge is named and understood. Not the symptoms, but the cause.

2. Guiding Policy: A principle that sets the direction and simultaneously excludes a thousand options. Like guardrails on a highway: providing direction without prescribing every meter.

3. Coherent Actions: Steps that work together. Not a catalog of measures with 47 “strategies” and 178 action items — but few, coordinated levers.

Michael Porter warns through Joan Magretta in “Understanding Michael Porter” (2012): “The worst mistake — and the most common one — is not having a strategy at all. Most executives think they have a strategy when they really don’t.”

Methods of strategy development

Analytical methods

SWOT Analysis is the most widely used strategy tool: strengths, weaknesses, opportunities, threats in a matrix. Its strength is its simplicity. Its weakness: SWOT without diagnosis remains a stocktaking without a directive for action.

Porter’s Five Forces analyzes industry structure: competitors, supplier power, buyer power, substitutes, barriers to entry. The analysis shows how attractive an industry is — but not what an individual company should do within it.

Ansoff Matrix structures growth directions: market penetration, market development, product development, diversification. Ansoff himself showed in “Corporate Strategy” (1965): “Explicit strategy formulation produces significantly better financial performance than an unplanned, opportunistic adaptive approach.”

Creative methods

Scenario Planning following Pierre Wack develops alternative futures and tests strategies against them. Not prediction, but preparation: “The purpose of scenarios is not to predict the future, but to enable better decisions today.”

Blue Ocean Strategy following Kim and Mauborgne seeks new market spaces instead of competition in existing ones. The focus is on value curves that break through the industry logic.

Engpasskonzentrierte Strategie (EKS®) following Wolfgang Mewes concentrates all forces on the minimum factor — the one bottleneck that limits growth. Friedrich, Malik and Seiwert explain the magnifying glass principle in “Das grosse 1x1 der Erfolgsstrategie” (2002): “Die gleichen Sonnenstrahlen, die gerade mal dazu ausreichen, innerhalb von zwei Stunden einen leichten Sonnenbrand hervorzurufen, werden mithilfe eines Brennglases zu einer Kraft, die innerhalb von Sekunden ein loderndes Feuer erzeugt.”

With or without a consultant?

The question of whether strategy development should happen internally or with external support is itself a strategic decision. Both paths have clear advantages and disadvantages.

Internally: The company knows its market, its customers and its capabilities. Strategy development stays close to reality. Risk: operational blindness — those who have worked in the same system for years overlook systemic patterns.

With a consultant: An external strategy consultant brings methodology, cross-industry experience and an independent outside perspective. The consultant can recognize patterns that insiders cannot see, and takes over process management. Risk: The consultant knows the company less well than its own employees.

The Aydoo position: Aydoo uses the leverage point as the starting point in strategy consulting: Before workshops are planned or frameworks selected, the strategic analysis identifies the central bottleneck in the system. The decision remains with the company — the consultant provides methodology, outside perspective and process discipline.

Andy Grove, CEO of Intel, describes in “Only the Paranoid Survive” (1996) the critical moment: “The only way is through the process of clarification that comes from broad and intensive debate.” Whether this clarification process happens internally or with external support depends on the complexity of the challenge and internal capacity.

Common mistakes in strategy development

1. Goals instead of strategy. Revenue targets, market share targets, growth targets — these are wishes, not strategies. Rumelt documents the CEO who presented “20% revenue growth” as a strategy: “His plan, to me, was all results and no action.”

2. Consensus instead of decision. Mintzberg describes the DEC example in “Strategy Safari” (2009): Three executives wanted three different strategies. CEO Ken Olsen asked for consensus. The result: “DEC is committed to providing high-quality products and services and being a leader in data processing.” A political compromise, not a strategy.

3. Separation of thinking and doing. Hrebiniak documents in “Making Strategy Work” (2013): “Managers are trained to plan, not execute. In most MBA programs, the number of courses that deal exclusively with execution? Usually none.” Those who separate strategy development and strategy implementation create a gap between the “smart planners” and the “executors” — to the detriment of both.

4. Method fetishism. The method is a tool, not an end in itself. SWOT without diagnosis is a table. Porter without interpretation is a form. Scenario planning without decision is fiction. The method must fit the question — not the other way around.

Distinction from related concepts

Strategy development is not the same as strategic planning

Strategy development is the creative-analytical process that generates a new strategic direction, while strategic planning is the programmatic process that translates an already defined direction into actionable steps. Mintzberg: “Plans may go unrealized, while patterns may appear without preconception.” Strategy development generates the direction — planning programs it.

Strategy development is not the same as business model development

Strategy development determines the strategic direction of a company — which markets, which positions, which levers — while business model development defines how a company creates, delivers and captures value. Strategy development asks “Where to?”, business model development asks “How do we make money from it?”

Strategy development is not the same as strategic management

Strategy development is one phase within strategic management — the strategy formulation phase. Strategic management additionally encompasses strategy implementation, strategy control and strategic learning. Strategy development is the creative core; strategic management the entire cycle.

Strategy development is not the same as operational planning

Strategy development defines the long-term direction and resource allocation, while operational planning organizes the short-term execution of day-to-day business. Strategy development asks “What do we do in the next 3-5 years?”, operational planning asks “What do we do this month?”

Strategy development is not the same as innovation management

Strategy development determines the overall direction of the company, while innovation management steers the process of developing new products, services or business models. Strategy development can identify innovation as a strategic lever — but innovation management is the execution within that framework.

Conclusion

Strategy development is the systematic process by which a company determines its strategic direction — from diagnosing the central challenge through developing options for action to coherent action planning. The strategy development process in practice combines analytical methods (SWOT, Five Forces, Ansoff) with creative thinking (scenario planning, EKS, Blue Ocean) and the ability to recognize emergent patterns.

The corporate strategy determines the framework in which strategy development takes place. Strategic thinking provides the cognitive foundation. Strategy implementation translates the developed strategy into action. And the Engpasskonzentrierte Strategie (EKS®) operationalizes the leverage point as the starting point — because as Mintzberg shows: “Strategies grow initially like weeds in a garden, they are not cultivated like tomatoes in a hothouse.”

Sources

• Ansoff, Igor: Corporate Strategy. McGraw-Hill, 1965.
• Friedrich, Kerstin; Malik, Fredmund; Seiwert, Lothar: Das grosse 1x1 der Erfolgsstrategie: EKS. Gabal, 2002.
• Grove, Andrew: Only the Paranoid Survive. Currency Doubleday, 1996.
• Hrebiniak, Lawrence: Making Strategy Work. Pearson, 2013.
• Mintzberg, Henry: The Rise and Fall of Strategic Planning. Free Press, 1994.
• Mintzberg, Henry: Tracking Strategies. Oxford University Press, 2007.
• Mintzberg, Henry; Ahlstrand, Bruce; Lampel, Joseph: Strategy Safari. Free Press, 2009.
• Ohmae, Kenichi: The Mind of the Strategist. McGraw-Hill, 1982.
• Porter, Michael: Competitive Strategy. Free Press, 1980.
• Rumelt, Richard: Good Strategy Bad Strategy. Crown Business, 2011.

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Frequently Asked Questions

What is strategy development?

Strategy development is the systematic process by which a company determines its strategic direction — from analyzing the current situation through identifying options for action to formulating a coherent strategy. The process combines analytical methods with creative thinking and culminates in a guiding policy for resource allocation and priority-setting.

What are the 7 steps of strategy development?

The 7 steps of strategy development are: (1) Situation analysis (Where do we stand?), (2) Diagnosis (What is the central challenge?), (3) Target vision (Where do we want to go?), (4) Develop options (What paths exist?), (5) Evaluation and selection (Which path is best?), (6) Action planning (What do we do concretely?) and (7) Implementation and learning (How do we adapt?).

How do you develop a strategy?

Strategy development begins with diagnosing the central challenge (What is really going on here?), not with goal-setting. This is followed by analysis of the current situation, development of options for action, evaluation and selection, action planning and iterative implementation. Mintzberg emphasizes: The process is rarely purely linear — the best strategies emerge from the combination of deliberate planning and emergent learning processes.

What does a good strategy need?

A good strategy needs three elements: a precise diagnosis of the central challenge, a guiding policy for overcoming that challenge, and coherent actions that work together. Rumelt states: “A good strategy has an essential logical structure that I call the kernel.” Without diagnosis there is no strategy — only wish lists or budgets.

What methods are used for strategy development?

Proven methods include: SWOT analysis (strengths, weaknesses, opportunities, threats), Porter’s Five Forces (industry structure analysis), Ansoff Matrix (growth directions), scenario planning (alternative futures), bottleneck analysis (EKS — concentration of forces on the minimum factor) and Blue Ocean Strategy (new markets instead of competition). The choice of method depends on the starting situation and the question at hand.

What is the difference between strategy development and strategic planning?

Strategy development is the creative-analytical process that generates a new strategic direction. Strategic planning is the programmatic process that translates an already defined direction into actionable steps. Mintzberg states: “If deliberate strategy is about control, then emergent strategy is about learning.” Strategy development requires both.

When do you need an external consultant for strategy development?

An external consultant is useful when the company is stuck in a strategic dead end (operational blindness), when an independent outside perspective is needed for the diagnosis, or when internal capacity for a structured strategy process is lacking. The consultant brings methodology and cross-industry experience — the decision remains with the company.

Why does strategy development fail?

Strategy development fails for four reasons: (1) Confusing goals with strategy — revenue targets are not a strategy. (2) Missing diagnosis — the actual problem is not named. (3) Consensus instead of decision — political compromise instead of strategic clarity. (4) Separation of thinking and doing — those who plan don’t execute, and those who execute weren’t part of the planning.

How long does a strategy development process take?

A structured strategy development process takes 3 to 12 months depending on company size and complexity. A focused sprint (diagnosis + guiding policy) can be completed in 4-6 weeks. Implementation and iterative adaptation is a continuous process with no fixed end.

Related Articles

• Strategy — What strategy is and why companies need one
• Corporate Strategy — The overall strategy in which strategy development is embedded
• Strategy Implementation — From the developed strategy to implementation
• Strategy Consulting — External support in the strategy process
• Strategy Workshop — Formats for collaborative strategy development
• Strategic Thinking — The cognitive foundation for strategy development
• Engpasskonzentrierte Strategie (EKS®) — Concentration as a strategy principle

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