Purpose, Strategy and Business Model: how to articulate them to meet the 2024 UK Corporate Governance Code (Part 2)

07/05/2024

Strategy

In Part I we looked at how to define purpose within the Annual Report as the guiding light for the whole Strategic Report narrative. In Part II, we now look at how best to approach articulating your strategy.

Strategy acts as the roadmap which translates purpose into actionable steps and goals. It encompasses a systematic approach to achieving the company’s desired outcomes by leveraging resources effectively and adapting to changing circumstances. Strategy involves analyzing the current landscape, anticipating future trends, and plotting a course of action that maximizes opportunities while mitigating risks. A well-crafted strategy aligns efforts towards a common vision, optimizing the allocation of time, energy, and resources.

Desired outcomes

The first part to address is ‘desired outcomes.’ Of course, one outcome is to make money for shareholders, but another is to achieve your corporate purpose – an equally desirable pursuit. Who are the beneficiaries of that purpose, ie your stakeholders? Customers, employees, partners, the local community, even society as a whole rank can alongside shareholders and investors. S.172 of the Companies Act requires the Strategic report to address how the best interests of stakeholders are taken into account by the Board when making decisions, so this is an important area to address.

To give some context to ‘desired outcomes’, you need an effective marketplace discussion. How big is your market? What are the opportunities? If you have a small market share, there’s plenty of opportunity for growth; but if you already have the dominant share, your strategy may be geared towards maintenance. Analysing the market and your place in it, to enable you to maximise opportunities and minimise threats, are key components in articulating strategy within your Report.

Leveraging resources & strategic pillars

How do you articulate ‘leveraging resources’ effectively? Your people, time, market knowledge, financial and market position are all examples of your resources and stakeholders will want to understand how you've deployed them to achieve your strategic goals.

Most companies have a number of strategic pillars which underpin their strategy. Strategic pillars are commonly referred to as ‘the 3-4 strategic battlefields in which your company must win, no matter what else happens.’ So for example, becoming the premium provider of your service, driving profitability at the expense of market share and becoming the best place to work are examples of pillars which can help underpin your overall strategy. How you've leveraged your resources in conjunction with these pillars forms the basis of the strategic narrative within your Report.

Adapting to changing circumstances

And as strategy is not static but dynamic, it requires continual evaluation and adjustment to stay responsive to evolving conditions, fostering agility in the pursuit of objectives aligned with purpose. KPIs and APIs help you understand whether you’re on course or not and are best expressed in the Annual Report as bar charts to show progress against previous years.

In the context of the Annual Report, risk is an equally important element in explaining to stakeholders how you are adapting to changing circumstances. A heat map or some mechanism to show how risks are increasing or decreasing compared with previous years are important pointers in addressing risk.

Taken together, these items provide a cohesive narrative against which investors and stakeholders can understand your business, its performance during the year in review, and the road ahead.

Some great examples of strategy narratives can be seen in the Mothercare, Dixons Carphone and Hummingbird Resources Reports.

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In our next article, we’ll look at the importance of articulating the Business Model.

To find out how we can help you express your Purpose, Strategy and Business Model to meet the Code requirements, chat with us today: hello@blackandcallow.com

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