“Strategic thinking rarely occurs spontaneously. Without guidelines, few managers know what constitutes strategic thinking.” – Michael Porter
Recently an executive at a company seeking my advice sent me an email with a revealing typo: “We are in the mist of our strategic planning process” he explained. I soon learned how true this was. The organization’s strategy development process was mired in a fog of complexity and confusion. Unfortunately, this story is not unique.
A global Gallup survey found that only 13 percent of employees feel engaged at work. This low level of commitment is consequential. The survey showed that companies in the top quartile for engaged employees generated 22 percent of greater profitability than those in the bottom quartile.
Strong employee engagement depends on a clearly articulated strategic vision. Research by Schwartz and Porath identified two key factors that drive employee engagement: the opportunity to focus on the most important tasks and feeling connected to a higher purpose.
In today’s disruptive environment, the ability to unify organizations behind winning strategies has arguably become the most important leadership capability of all. The problem is that more than any other business process, strategy is largely misunderstood and therefore misapplied.
It is time to clarify our thinking about strategy. Let’s examine its three vital components: The concept of strategy, the content of strategy and the conduct of strategy.
The Concept of Strategy
If we want to excel at something, we must first understand what it is. We need to think strategically before we can function strategically.
All strategic thinking flows from the inescapable reality of limited resources. In a fantasy world of unlimited resources, we would not need a strategy. We could simply hurl resources endlessly at our problems and never be defeated. We would not need to take risks or make trade-offs and competition would be irrelevant. There is no such condition in any organization or indeed any country. If an organization spends more resources than it gets back, it goes broke. The collapse of corporate icons General Motors and Kodak are stark examples as was the downfall of the Soviet Union in the geopolitical sphere.
Strategy is about harnessing insight to make choices on the effective deployment of scarce resources with the aim of creating competitive advantage.
Finite resources force organizations into a zero-sum game. Every additional thing you do subtracts energy from everything else. A choice is not a choice until you have decided what you will give up. Otherwise you are simply piling it on – a recipe for failure. Just look at how General Electric became over-extended and saw its performance drop precipitously. It is now in the process of subtraction, but is it moving decisively enough?
The Content of Strategy
Strategy is not simply a process of open-ended choice-making. To be useful, a strategy must produce a set of specific deliverables by answering four questions:
- What are our key insights about the external environment?
- In which arenas will we compete?
- What will be our winning proposition and key priorities?
- How will we implement our strategy?
Without this roadmap, an organization will be navigating the competitive environment in a directionless process of ad hoc decision-making.
The central deliverable of a strategy is the answer to question three. Strategy is about winning, not just participating. Many organizations settle for an easy answer by defining their “value proposition.” Such a bland statement is simply not competitive. Value is a relative concept, not an absolute. It is like the temperature. Customers have choices. Why should they choose you? To win customers you must define your winning proposition, not a mere value proposition. This defines the margin of difference in the value you will offer your customers that provides a compelling reason for them to do business with you.
A good example is the winning proposition for the Institute For The Future, a non-profit think tank of which I was chairman for 5 years. IFTF concentrates on analyzing long term trends in areas like healthcare, libraries, IT, etc. After a rigorous situation analysis, we developed the following winning proposition:
We are sense-makers about alternative futures to help organizations make better decisions in the present.
This proposition was based on a clear understanding of what clients valued most: crisp sense-making rather than amorphous reports, and the enhanced ability to address current challenges with the future in mind. The entire IFTF staff was aligned on producing these high value deliverables for its clients.
To focus your employees on the most important tasks, your winning proposition must be supported by the firm’s key priorities: the 3 – 5 things that will make the biggest difference to its success.
A major source of confusion is the distinction between strategy and planning. Their deliverables are totally different. Mixing them in one process makes no sense and subverts strategic thinking.
Strategy is about doing the right things. It is about insights, ideas and an external perspective. Planning is about doing things right. It is about numbers and logistics and is internally focused. Strategy comes first and planning follows. Think about running a railroad. Strategy determines where to lay the railroad tracks. Planning makes the trains run on time.
The Conduct of Strategy
What method is best for translating these ideas into practice?
In today’s volatile marketplace, the old static ways of developing a strategy no longer work. We need a dynamic process of continuous learning and renewal – a way to refresh the answers to the four questions as the environment changes. An organization’s survival imperative is Darwinian – the ability to create an adaptive enterprise.
I have devised a method to achieve this goal called Strategic Learning that has been successfully applied across a wide spectrum of commercial and non-profit organizations. It involves four steps that mirror the four deliverables – learn, focus, align, execute. These move in a cycle as shown below.
Key Features of the process
- The sequence is crucial. The essential starting point is the Learn step. The situation analysis is the intelligence system that informs all subsequent steps.
- The Focus step is the core of a strategy. The winning proposition is the central animating idea that guides all an organization’s decisions and activities.
- The elements do not work in isolation. Each step builds on the prior one and confers power on the next step.
- Strategic Learning is not only a procedure. It is a way of thinking. “Strategy is not just about what we think, but how we have thought it,” explained von Clausewitz, the military strategist.
Vital strategy disciplines
Success occurs outside the boundaries of an organization. Inside is where we mobilize our resources and count the money. A key to strategic thinking is to always look outside first, then inside, in a “sense and respond” mode.
The psychology is clear: people support what they help to build. Employees find meaning in their work when they feel connected to a cause greater than themselves and are offered the opportunity to make a difference to the outcome. A key to success is to create wide participation in the process.
Complexity paralyzes an organization. Simplicity empowers it. Define the strategy in the simplest language possible. No acronyms, buzzwords, or arcane technical terms.
A strategy document should never exceed ten pages. Anything longer will lose its audience.
The final deliverable of a strategy is not a document. People don’t follow documents: they are inspired by leaders and ideas. While it is important to codify your strategy as a frame of reference, this is not enough. The key is to translate the strategy into a compelling leadership message to win hearts and minds and repeat endlessly.
Sometimes a company will say to me, “Our industry has become commoditized. Now we must protect our profit margins through cost reductions.” This is a prophesy of doom. With ingenuity, there is always an opportunity to achieve differentiation. I believe that with rare exceptions there is no such thing as a commodity. At either end of any transaction are human beings with needs and preferences.
A good example is the US yogurt industry. By 2005 it had settled into maturity with modest growth and little innovation aside from variations in flavor, fat content and packaging that made only incremental differences. Greek yogurt comprised a meager 1% of the market and seemed to be dead in the water.
In 2005 an immigrant from Turkey called Hamdi Ulukaya who worked as a shepherd in his homeland, saw the gap and launched a new Greek yogurt called Chobani (meaning shepherd in Turkish). It differentiated itself by emphasizing its quality, authenticity and social conscience. The brand hit a nerve with customers.
In a stunning coup the launch disrupted the once stable yogurt market. Chobani overtook Yoplait as the market leader and within 10 years it reached over $2 Billion in revenue. In the process, the Greek yogurt segment surged to over 50% of the total market.
When it comes to a winning strategy, good analysis is crucial. But that is simply a foundation to build on. What ultimately makes the difference is a combination of insight, customer empathy and imagination, plus a good dose of personal courage.
Read the original piece on Columbia Business School’s Ideas and Insights blog.
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