How to ensure strategy goes beyond being a piece of paper with no impact
- Involvement – extended or focused? What is the total number of people to be included in the workshop? What level are these people at in the organization?
- Issues – divergent or convergent? How clearly defined should the scope of issues be at the beginning of the process? How much is left open for discussion?
- Iterations – limited or numerous? How many iterations of the workshop should there be? Over what period?
Given there is no “one size fits all,” approach it is important to keep in mind the tensions in the design choices that have an impact on delivering not only a strategic agenda but also one that leads to a commitment to the changes in behavior that are necessary to implement the strategic choices that will ultimately result in higher performance.
Our interviews led us to the following key lessons for top-team members involved in organizational strategy development:
- Assess the starting conditions of the organization: The strategic clarity and the organization’s readiness for change are two key diagnostic areas for managers to focus on even before entering the strategic development design phase.
- Make explicit choices in the design phase: Be conscious of the trade-offs being made and have upfront discussions about the consequences of certain design decisions.
- Be clear on the level of detail of the strategic change agenda you would like to create as part of the process.
Strategy design workshops should lead to a concrete strategic agenda that can be executed. If you cannot demonstrate the path to deliver on the strategy and you do not have clear outcomes for the rest of the organization, then you don’t have a strategy that can deliver the expected financial outcomes. This often requires having coordinated action plans that are quite detailed and involve the perspective of multiple units, functions and geographies. There is value in bringing people together and making them take the time to think and connect with each other, particularly when there are quality inputs and decision data that flow into the process. It does, however, mean that this might be more time consuming than previously anticipated.
Beyond strategy design, leaders must consider the importance of post-strategy governance and implementation. Organizations can only implement a strategic agenda through employee engagement, which entails individuals working together over time to achieve the intended goals. The members of the top teams we spoke with unanimously agreed that implementation of strategic change is rarely straightforward, and despite years of experience, we often heard that involvement and communication have repeatedly been underestimated. While making decisions about designing a strategy are often taken “on the fly,” they have severe consequences on the ability of an organization to be able to execute these choices. Issues around implementation are often a predictable result of the decisions made earlier in the strategy design process.
Strategy is dead? Long live strategic thinking!
Diagnostics, alternatives and choice
Take the case of Google trying to disrupt the automobile industry with Waymo, its self-driving car project. The Google platform dominates the search market collecting huge amounts of personal information, as well as providing the bulk of its profits with related advertising. It is a leader in mapping the physical environment and connecting that information back to the preferences of users. But developing the “eyes” of a car sensitive to the user is not the same as integrating those eyes into the electronics, mechanics and propulsion of a car. The opportunity is there, but the capability gap is substantial relative to a rival like Tesla.
Deciding on what capabilities to develop now to exploit future market opportunities requires strategic thinking. Yet, so many books have been written on business strategy that there is a fog of confusion about how to do it. Henry Mintzberg and colleagues tried to clarify things by taking readers on a “Strategy Safari” through the jungle of strategic thinking. This reader got lost in the thickets of ten different approaches. For practicing executives, it’s most useful to go back to the origins of strategy in the military where it was defined as a set of actions/initiatives designed to reach a longer term objective. In business the longer term objective is profitable growth. Developing the action plan involves three iterative phases of strategic thinking.
Diagnostics: Where are we?
A diagnosis of both the internal and external situation is needed. Tens of frameworks are available often masquerading as all that’s needed to develop a strategy. Internally some form of financial analysis is essential to determine where the firm is making money and where it is doing less well. Consultants have developed matrices for classifying business lines in terms of profitability and growth. Sometimes they recommend investment and divestment decisions based on how a business is classified. This can be disastrous if little further analysis is done to see what the else could be done with the business. In addition internally, some form of business model analysis is required to determine the firm’s strengths and weaknesses and how these correspond to the financial performance.
Externally, you have to look at what both current and emerging competitors are doing. One of the most popular frameworks is the Five Forces developed by Michael Porter. Originally it was used to decide how a firm should position itself in its industry. As Bill Fischer points out this perspective is grossly myopic in today’s fast moving world. However, if the Five Forces are used not to prescribe strategy, but as a dynamic perspective on what’s happening competitively, both in terms of the value chain of suppliers, partners, competitors, distributors, customers and especially in terms of new entrants and potential substitutes, it remains useful. The second essential external diagnostic is a market and customer analysis. Where are the growth opportunities? How are customer needs, wants and behaviors evolving? What kind of new market segments are emerging?
Alternatives: What might we do?
Military strategists spend lots of time analysing historical moves in battle and war to open up leaders’ minds to the alternatives available for dealing with different situations. In business, strategic alternatives usually get short shrift often being reduced to either cost leadership, differentiation, or disruptive innovation. In IMD’s online-based program on Strategic Thinking we ask participants to take three different perspectives to develop their list of strategic alternatives.
Firstly, what kind of performance moves are needed to boost the top and/or bottom line? This involves considering both incremental and radical moves like adjacent markets, new products, segments, operating excellence, portfolio restructuring.
Secondly, what kind of business models are needed to support the performance moves? These can be grouped into a series of business models involving on the one hand an increasing customization of the value proposition, starting with pioneering and moving towards co-creation. And on the other hand, an increasing scope of efficiency in the value delivery system starting with volume efficiency and moving towards eco-system efficiency. Important are the opportunities for outpacing the competition by rapidly combining a new value proposition with a new value delivery system.
Thirdly, what kind of innovative experiments are needed to give the business models a truly competitive edge? Here the open, explorative, agile innovation advocated by Fischer and Wade comes into play. However, not all possibilities are equally relevant. The pay-off to innovation is likely to be greater if it enhances/extends the performance moves and business models being evaluated. This doesn’t negate the stand-alone importance of unrelated out-of-the-box experimentation, but it does mean it will be less useful in rejuvenating the existing business.
Choice: What should we do?
Strategy is choice. Leaders have to focus the organization’s effort. They have to lead the selection of a limited number of strategic initiatives from the possible alternatives, based on value creating potential versus execution risk. Ideally there should be three sets of initiatives: performance moves for today, new business models for tomorrow and experiments to provide the competitive edge for the day after tomorrow.
Execution risk is key to this choice and depends on how the necessary capabilities and market opportunities will be developed. The challenges are usually underestimated. The culture supporting new capabilities has to be nurtured. Acquisitions have to be integrated. Out-of-the box experiments clashing with the existing culture either have to overcome the integration hurdle or be spun off. Google is set to move its self-driving car project out of the experimental lab into a stand-alone unit of its parent company, Alphabet, before possibly spinning it off as an independent firm.
So even for one of the hi-tech stars, strategic thinking is more relevant than ever.
The death of strategy
Strategy is dead! Or, is it tactics?
Without a proper middle, or end, for any initiative, the distinction between strategy and tactics blurs: tactics become strategy, especially if they are performed in a coherent and consistent fashion. Strategy, in turn, now takes place in the moment, in the form of an agglomeration of a series (or not) of tactics. Former eBay CEO John Donahoe, observed at a recent Stanford GSB keynote lecture, that: “There wasn’t one moment during the last 30 years where I was certain I was doing the right thing. There wasn’t one moment when I was in the middle of it that I felt, ‘Great, I’ve got this all figured out.’ I still don’t.” In such situations, the way you behave in the marketplace, which used to be guided by “strategy,” is now more likely to be the result of a multitude of experiments, hopefully coherent and relatively focused, or, in the worst case, possibly spastic and incoherent. Can these be developed in ways that encourage reflection, learning and progression, especially when the time-frames are so condensed? Probably not, or at least not in the way that we used to think was possible. No wonder John Hagel, of Deloitte’s Center for the Edge, can demand being spared forecasts that are more than 6 months out, or less than 20 years. In that great gulf between the immediately obvious and the structurally predictable [demographics, technologies, etc.], lies a wealth of guesses, hunches and predictions that are often more fiction that fact, and are almost always wrong. Yet, it is exactly within this phantom space that strategy has for so long prevailed. Do we even want to mourn its loss?
With tactics in the driver’s seat, everything changes: long-term vs. short-term becomes meaningless; prediction is still possible as an activity, but probably futile in its results; action beats analyzing; correctable replaces dependable. The one thing that we know is that it’s in the “learning,” rather than the “deciding,” that change will occur, and with that in mind, we can suggest some guidelines for addressing the future:
- Leadership attributes will change greatly. My IMD colleague, Michael Yaziji, has suggested that “competencies” will become less important (especially in a world where expertise becomes commoditized) and that “intentions” will gain greater influence; a finding that agrees with basic research’s traditional preference for “betting on people” when it comes to assessing far-out, blue-sky proposals.
- As a result, “innovation” should be regarded as a verb that characterizes the way we work, rather than as a noun that refers to departments, expertise or projects.
- This means that everyone can be a change-agent; everyone has the right to be innovative; and everyone, perhaps, should think of themselves as entrepreneurial. There is no single place on the Business Model Canvas where disruptive innovation has not occurred!
- Small bets, many small bets, are the best way to engage with the unknown future. Intuit’s founder Scott Cook “explicitly links a culture of experimentation to empowerment. A great business experiment has to inspire the same degree of top-management enthusiasm and engagement as a great business plan.” And, he has facilitated this by creating a “Lean Experimentation Toolkit” for everyone in the organization to use.
- And, if small bets are to be the preferred method of engaging with the future, then, as Rita McGrath has told us, withdrawing from such bets might be as important as how you enter them.
- We need to take “slow” & “sequential” out of everything we do in order to become faster and more agile. Haier has done this by insisting on “parallel” conversations in order to save time in their commercialization cycle, but even more surprisingly is the revelation that the new British Chancellor of the Exchequer, Phillip Hammond, has insisted upon “much shorter briefings, delivered to him two or three times a day for rapid decisions” rather than relying exclusively upon the famous overnight reviews of the “red boxes” for policy decisions.
- In fact, simple processes, such as how you put on and take off protective clothing opened the door for “outsiders” to help contain the Ebola epidemic of 2014, with imaginative new approaches to patient care; while Airbnb’s serving of different meals on different floors to encourage “chance encounters” is a way of making serendipity, less serendipitous.
These examples are all relatively small steps, but they are in the right direction, and can lead to revolution; they are all part of changing organizational and leadership mind-sets. They are also all illustrative of activist approaches to leadership and may eventually show that the illusion of strategy was in reality more a legacy artefact of slower and less volatile times, than a science to be handed-down to next generations.
Embrace digital – make your strategy process more engaging!
A checklist of the most important elements to finding your new way of doing business
Managers said things like: “the strategic plan is time consuming, onerous and not efficient: too many iterations, too financially focused…” or “our company could do better by looking at external stimuli and sector analogies”. In addition, many complained that the link from strategy to operationalization and execution was weak, even missing: “No linkage between strategy and the incentive plan, no linkage between vision, strategy and the operational plan,” was something we heard often.
Although there are many positive exceptions, I would argue that most strategy processes completely lack engagement and that the outcome is not as good as it should be; the results are too often far below par. Boring processes produce boring results, or at least very predictable ones. So a key job to be done is to develop much better strategy processes and in turn better strategies.
Getting to good strategies through good processes is more important than ever, especially as digital disruption abounds and as digital technology opens new market opportunities. At the same time digital is giving us more communication tools and access to data than ever before, so we have no choice but to make sure it is deeply embedded during our strategy formulation.
Here are some characteristics of “bad strategies” (based on my own experience and also influenced by one of the best strategy books written, Richard Rumelt’s “Good Strategy Bad Strategy”):
- Unclear problem statement: Too often strategies feel like “homework”. It is not clear why a new strategy is required (“Our competitive environment is changing,” or “We see new opportunities,” are not concrete enough). Today we must, for example, add the new challenges and opportunities of digital, artificial intelligence, and robotics. All companies need their own framing and their own take on the digital landscape.
- Confusing goals and strategy: A financial goal is not a strategy. A strategy outlines how to reach the financial goal. And our strategy needs to craft a feasible way to our goals, otherwise it will not be useful.
- Bad objectives: We see a long list of contradictory objectives and no clear trade-offs or priorities. The strategy often feels like a “wish list” not a plan for how to reach some clear and consistent objectives. Again, digital represents one of these challenges where the specific way to tangible objectives can easily be substituted with more of the usual, i.e. we are so uncertain that we copy the objectives of other companies.
- Too many buzz words: Today all companies need to address digital. Some companies are clear in terms of what digital means to them, how they will address digital and what results it could yield. Others are simply regurgitating platitudes that could be right for any company, without any prioritization.
Good strategies are different:
- A good strategy defines a few critical objectives and helps focus energy and resources to reach them. These objectives are “levers” for broader impact, so that we will move the company forcefully.
- A good strategy creatively looks at opportunities and risks. Again, digital requires a change of yesterday’s strategy for most, if not all, companies.
- A good strategy takes into account how we will mobilize resources to reach our objectives.
- A good strategy is also realistic about what we can predict and what requires agility, and it is clear about which elements we have control over.
In order to make good strategies we need good strategy processes.
A better strategy process:
What characterizes a great strategy process? I would argue that a few “evergreens” must be in place:
- Ambitions and purpose: We can’t make great things happen unless we have ambition and unless we know the “why”. The ambition needs to be high enough so that we cannot get away with “more of the same”. If we want to grow, say, 3-4% we can usually get there through improvement. That is great, but it is not strategy. Strategy needs to include a balance of exploration (venturing into new territory) and exploitation (doing good better). Ambition is not a product of the strategy process; it has to be an input contributed by the individuals involved in the process.
- Ask great questions to challenge the status quo: Are we asking ourselves what happens if we don’t change? Are we generating questions that “hurt”?
- Take an outside-in view of your business: What do our clients see? And our competitors? Are we differentiated in a meaningful way? Are we part of our customers’ lives, or are they indifferent to us? Do they feel that we are moving in the right direction? Do they like us? Do they want us to succeed? Do we have champions amongst our most important stakeholders?
- Get involved in events that make you discuss the future in a non-defensive way: I recently participated in a two-day session where the CEO of a major chemical company met researchers as well as representatives of NGOs and international organizations to discuss their sustainability agenda. Instead of the hostility of “us and them” the discussions turned out to be very constructive and forward looking. A similar discussion with customers is equally important. Event orchestration matters, otherwise we end up only talking “amongst ourselves”.
- Go for intensity: Too often I see management teams spend an hour on strategy at regular intervals. That doesn’t work. Key questions require that you throw away the key! We need to spend the time needed, and to get tired and frustrated. We need disagreement, worries and a real questioning of our current way of doing business. It is no coincidence that after the Three Mile Island incident that the GE nuclear reactor team came up with a service strategy during a deep dive with Jack Welch. He asked them to come back the following day with a new plan with the same growth targets but with no new reactors sold. That put the pressure on, and overnight is often better than developing it “over time”.
In addition, we should now add a set of digital and networked features:
- Map IP and M&A moves, even smaller ones. What a great way to learn about our customers’ needs and competitor moves. Today we have great tools to map IP, the moves and even the preferences of our customers and competitors. Take the example of IP mapping. By looking at the patents and IP of our competitors, we can often learn about their future commitments and planned journey. Similarly, we can use tools to map out the M&A moves within our business landscape. Often it produces surprises and new insights.
- Read the weak signals. By looking at weak signals we can see the early innovations that can change or businesses. Weak signals can be about new entrants, adjacent technologies or innovative markets. It can also be about new usage of our products, or new customer segments.
- Reach broadly for opportunities and innovation. The strategy process needs to balance richness and reach. Richness is about going deep (often in smaller groups), whereas reach is about going broad (mobilizing large parts of the organization). Going broad is important in fact finding and testing, and today we can survey and scan our organizations easily, fast and at low cost.
Other things must be in place as well. We need to analyze which business models we can move into and what that means. We also need to distinguish megatrends (which are predictable) and uncertainties (which are not). Finally, we need to make sure we operationalize what we want to do. What are the initiatives needed? Who will drive them? What should we stop doing? What are our sprints and marathons? Where do we need quick wins and what are the long term goals we can’t compromise on? These are not to be confused; they are very different.
Finally, how can we then effectively communicate the new strategy? Through a four page brochure that nobody will read and that seems to be saying “me too”? Or something different? I think we need to remember that the strategy is what differentiates us and what makes us unique. So let’s make sure that the process is tailored and that the outcome is differentiated.
Read “Four Best Practices for Strategic Planning” (2016) for a good treatment of the strategy process.
Knut Haanaes is an IMD professor of strategy.
He is co-author of Your Strategy Needs a Strategy.