Elaboration of a business development strategy with the participation of a consulting company

Elaboration of a business development strategy with the participation of a consulting company
Why is the problem of strategy development so urgent now? What are the approaches to its solution?

Vladimir: The company's business development strategies are elaborated every five to seven years. The need for understanding of what is going on in the markets depends on how developed a company is. In recent years the development of business management systems and business process optimization have been demanded. This is due to the fact that many companies were experiencing a crisis and were stagnating. They had to optimize their costs. It was not about elaborating development strategies, but rather about operation and efficiency improvement. Now the situation has changed, and their objectives have changed towards development. What causes that? Firstly, the certain cycles in the Russian economy. Secondly, the new goals set by the President of the Russian Federation, with the main reason being the development of export. Companies need to keep up-to-date with those changes and be flexible enough to effectively adjust to the new environment. A strategy is never “bashed out”, regarding the organization of strategy elaboration processes. There isn’t an advisor or a manager who could just create a company’s development strategy. This process requires several conditions to be met:

  1. Participation of managers from all functional areas of the company.
  2. In-depth study of trends in the development of the given industry (or sector of the economy) and factors impacting success in the market. This requires time and the participation of experienced specialists in the research.
  3. Forecasting financial and economic and building a financial model of the company's functioning. The financial model must be linked to the existing accounts and budgeting system.
  4. Development of strategic targets and setting performance indicators reflecting the performance relative to the claimed goals. The goals and performance indicators should become the basis for the formation of management reporting systems and staff motivation.

This way, there should be a team of three to five people working on the elaboration of a development strategy. Different key managers of a company’s functional areas should be constantly involved in the process as well. It takes two to four months on average.

What are the challenges for a modern business?

Vladimir: In the recent years, the problem of import substitution has abruptly become very popular. Mainly businesses oriented on import substitution have been receiving government support. The demand for domestic goods perked up. Thus, this encourages domestic businesses to pick up and operate with greater confidence on the market. At that point their potential future performance is determined, not least, by export opportunities. Russian companies, basically, encountered the same challenges as their foreign competitors. Due to the growth of the global economy, certain prospects for the development of some industries emerged. This includes the raw materials, chemical and food industries and consumer goods sector. At the same time trade wars arise, which have a particularly bad impact on some secondary sector production, such as metallurgy.

In such conditions companies are left with questions such as:

  1. What is the competitiveness of our production?
  2. How can we increase our profits by means of exporting? What countries should we export to?
  3. How should we present our company and our goods on the global market?
  4. Which development strategy will meet the regulatory and institutional requirements best, in Russia and abroad?
How long does it usually take for a strategy to be realized?

Vladimir: A corporate strategy is usually created for five to seven years. A strategy is not a stable document. It is necessary to annually clarify the parameters of market development and make decisions on the expediency of adjustments to the strategic document, revising the initial assumptions. The process of strategic planning is never stopped. A development strategy in the form of a document will not be enough for an effective company. It is necessary to organize its operations in such a way that this document is implemented. Therefore, systems of goals and performance indicators and their corresponding organizational structure should be developed along with the strategy itself. In accordance with those goals and objectives of the strategy, both production and management processes should be adjusted. The final section of the development strategy contains a goal tree and performance indicators that are justified, ambitious and recognized by the company's employees. This allows each of them to see where the company is aiming, what goals the shareholders expect to achieve. The goal trees and performance indicators can serve as a communication tool between management department and shareholders, as well as between management department and middle managers when setting priorities within the framework of business planning of current activities. It is possible that based on the results of the analysis of the goal tree and a refined analysis of individual aspects of the strategy it turns out that there are no certain divisions in the company, which would be necessary to achieve the goals outlined in the strategy. In that case, a decision is made to adjust the organizational structure and to clarify or redistribute responsibility for business processes. All of that is called to be strategic management. It is a system allowing to make correct management decisions on strategic adjustments or needs to use new management tools meanwhile the information is being received and analyzed

Who should control the development of a strategy within a company?

Vladimir: Monitoring the process of elaborating a development strategy and monitoring its implementation are two different things. As for the development of a strategy, it is exclusively of a project nature. A team of three to five people could be assembled, and a document would be created in the project mode. It is much more important to organize monitoring of the strategy implementation and achievement of the set strategic goals. It is necessary to provide access to feedback in the interaction of all production and management levels of a company, which would allow getting reliable information about the strategy performance. This responsibility can be assigned to the CEO’s advisor, who would exclusively monitor indicators and their decomposition. This duty could equally be performed by several employees from a specially created division of the strategic development department, depending on the scale of the company. But in any case, such control should be carried out on an ongoing and systematic basis, it cannot be sporadic or initiated situationally.

What about those companies whose resources for strategy development are limited?

Vladimir: There are two ways. Either to hire skilled employees or contact consultants. Workers can be employed either for a permanent job or as external (freelance) consultants. Recruitment involves certain costs. First, such employees must be found. Then the qualifications of the candidates are carefully analyzed. The company takes the risk of matching the freelance employee to the given task. If a worker is hired for a long term, the employer should plan their further workload. Our experience shows that working with consulting companies is a more effective alternative to such approach. It turns out to be cheaper to hire a consulting company than full-time labor, if the costs of taxes, office and long-term benefits are calculated. Moreover, involving consulting companies allows some staff to quickly gain useful knowledge and competencies sufficient to answer strategic questions of concern to the management and shareholders of the company.

What are the criteria used by businesses for choosing consulting companies?

Vladimir: To begin with, I would like to clarify that there are a lot of companies in Russia that call themselves consulting companies. There are marketing consultants, business process consultants, information technology consultants and so on. There are also "strategic consultants”, and our consulting company belongs to this category. Strategic consultants provide services for the elaboration of development strategies, but not only. They help improving management systems, optimize business processes, can develop business plans, train employess and form up a strategy for growth in a market. Why are they called "strategic consultants" and what is their difference from "narrow" specialists in their respective fields? Strategic consulting companies employ professionals who have the skills to structure and solve problems from the perspective of the company’s officers. As we know, the logic of decision-making at the top levels is somewhat different from the one at operational level. So, strategic consultants look at all the aspects of the development from the perspective of its owners and managers. They may not understand the intricacies of technological processes or have no psychological education to advise companies on human resources policies. Their aim is to form a team of qualified specialists capable of answering the questions posed by the company's management, in the interests of the company’s owners and decision-makers. In addition to said above, I would like to note that there are three types of companies in the market of strategic consulting. There are Russian consulting companies, such as our company SBS Consulting. There are foreign companies, The Big Three. They are McKinsey & Company, The Boston Consulting Group and Bain & Company. They position themselves as leading in the field of strategic consulting and their project prices tend to be above $1 million. There is also the third group of consultants – The Big Four. They are PwC, Deloitte Touche Tohmatsu, E&Y and KPMG. They tend to offer clients lower prices What questions should a client ask to choose a consultant on a competitive basis?

  1. Is the company planning to operate in Russian or foreign markets? Are they developed or developing? Is there a need for international examination?
  2. Is the company going to receive state support and build partnerships with federal and regional authorities?
  3. Is the client satisfied with the offered team of consultants that will participate in the development of a strategic document? The thing is, foreign consultants often promise a client to involve the leading experts in the project and to use foreign methods. It is not often complied. It is mainly those people who are stated in the commercial offer working on a project. Therefore, a client should definitely assess the partner and the project manager who will deal with them. They should also look at the project team, estimate whether its experience corresponds to the expected results and determine the credibility of potential employees. Any company cares for its brand image. If something in the project “goes wrong", changes in the team should be expected. The main representatives, althought, usually stay throughout the project.
  4. To what extent are the partner and the consulting company team ready to make the offered recommendations work? Not all consultants may be ready for this. Firstly, it may be very costly. Secondly, a company may lack certain needed competemcies. Our company, in contrast, is always ready to participate in the implementation of developed solutions.
  5. What is the budget for consulting? As I said earlier, involving foreign consultants can be expensive and it is not always worth it.
It's no secret that often the set of services of strategic consultants is almost the same. With that given, their range of industries is narrow. Suppose a potential client likes a consultant who has a good reputation in developing strategies, but has no experience in a given industry. What are the chances for such a conultant?

Vladimir: Good question. The importance of certain industry profecciency varies depending on the project. For example, it wouldn’t be vital for projects on the development of organizational structures or reengineering of business processes. Here it is about the accumulated experience of implementing such functional projects. The methodology is rather coherent and the specifics of a particular industry can be taken into account throughout the process itself. However, in projects with a strategic nature, the knowledge of a certain industry is necessary. A consultant with a sole experience in retail will have a hard time coping with the development of a strategy for an industrial holding. Similarly, retail has its own specifics, which wouldn’t be clear without previous experience in related projects for comanies from consumer and retail sectors.

Vladimir, you run a consulting company with more than a decade of history. Please, describe what principles become the fundament for the company’s operation? What competitive advantages can you highlight?

Vladimir: SBS Consulting employs about 40 people. This number is also typical for Russian divisions in foreign companies. We do not seek to pursue an aggressive PR policy. With that stated, we strongly believe that our subsequent sales of consulting services largely depend on the quality of previously implemented projects. We value our clients and strive to ensure that each project ends with useful outcomes for them. This approach to the organization of work has allowed us to form a number of competitive advantages. I will name three of them:

  1. There are a number of sectors of the economy, where our consultants are well versed in the specifics of the functioning. They are construction, mechanical engineering (heavy machinery, power engineering, oil and gas engineering and machine-tool construction), light industry, oil and gas industry and the consumer goods sector. We understand what we can offer our customers from these industries in addition to general trend analysis.
  2. Not only are we focused on the elaboration, but also on the implementation of our recommendations. Since our prices are lower than those of The Big Three companies and comparable to The Big Four companies, we are often invited to organize measures to ensure the implementation of the elaborated strategic solutions. We value this applied part of our work.
  3. We have a solid experience working with federal, regional and municipal authorities. We are well aware of what is happening in Russia in terms of legislations. We know what executive authorities in the Russian Federation do to support production and other sectors of economy, what decisions they make upon the country’s current account, etc. Therefore, we are often popular among those companies which plan to develop a partnership with the relevant authorities at all governmental levels.