Managers at all levels are increasingly involved in strategy development and execution. With this audience in mind, this article aims to demystify a few common misconceptions and clarify some essential truths about Strategy.
(A) “Anchors” are essential but are not Strategy
How often have you heard “our strategy is double digit growth” or “our strategic intent is to be the No.1 player”? Are these sound strategies? In fact neither are strategies at all, they are merely goals. Of course any strategy needs to be anchored in some overarching objectives. Similarly, strategy can (and should be) anchored in values (e.g. Coca Cola’s “leadership, collaboration, integrity, accountability, passion, diversity, quality”) or mission (e.g. Amazon’s “be earth’s most customer centric company”). But neither goals nor values constitute a “strategy”; they are merely its business anchors, albeit important.
(B) Strategy needs to Guide Focused Action
Strategy should guide action:
- What your business is focusing on doing.
- How it will go about doing it.
- What it is not doing.
A key requirement when formulating strategy is selecting market space i.e. which customers to target, who to compete against and in which arenas to compete. Another key requirement is being clear how you will do it, e.g. by deploying specific skills, technologies and assets in specific business processes.
(C) Good Strategy needs Differentiation which often goes Beyond Best Practice
Strategy is based on the notion of competitive advantage and differentiation i.e. how your business on the whole will be better. Good strategy derives from both realistic and relevant differentiation:
- Can your business be different in some ways from your competitors?
- Will those differences have sufficient positive impact on your business goals?
- Does that positive impact justify the cost of creating and maintaining those differences?
A common trap is thinking that “implementing industry best practices” constitutes a winning strategy. This made sense historically when a company might have had a protected advantage (patents, trade barriers, customer relationships, etc.) and the implementation of best practices served to maximise profits. But there are few sustainable protected situations anymore in today’s highly competitive information-rich world. And today’s best practices are tomorrow’s old practices – by the time you catch up, the other players currently defining “best” will have moved to the next level.
Nevertheless, best practice initiatives make convincing financial cases as the gaps are easy to quantify. Although they may not make strategic sense at all! More likely, if you are behind the curve, you will need to either leapfrog the competition or compete in an altogether new space which is currently uncontested.
Another common trap is “fact based decision making”. We should all make decisions logically rather than politically or emotionally. But that does not mean we should bias decisions against situations where there is limited or no market data.
Many dominant incumbents have been blindsided by the above traps and lost to competitors who created new market space that had no historical precedent e.g. the long dominant incumbents Sony Ericsson and Nokia lost the smartphone war to a company (Apple) that did not even sell a phone until 2007.
(D) Strategic Planning Processes are Useful but they are not Strategy
Many people equate Strategy with the annual strategic planning process and its tools such as SWOT assessments, market/competitor analyses, balanced scorecards, strategy offsites, 5-year financial projections, etc. You can have a streamlined strategy process which runs like a well-oiled machine, and yet produce poor strategy. The key to success is to focus on the quality of the inputs and creative “stretch thinking”, rather than on how many numbers are generated to great degrees of spurious accuracy.
(E) Strategy is an Adaptive Journey
Fuelled by technological advances and internet-enabled social changes, the future actions of customers, competitors, suppliers and regulators is impossible to predict accurately. The concept of “sustainable” competitive advantage is under siege. In many industries, change happens so quickly and unexpectedly now that 5-year strategic plans rarely pan out – some aspects will be better, some will be worse, and some will be just different! Investing in ever more market research or the foresight of “experts” does not help as much as we would like – some things are just not knowable in advance. The true sustainable competitive advantage comes from the ability to adapt your strategy in real time as things emerge, staying focused on the goals rather than any preconceived notions of exactly how they will be achieved. More than ever, strategy formulation and execution are increasingly merged into one dynamic continuous process. This does not imply a purely opportunistic approach – you still have to set a direction and pursue various differentiators. But it does mean that you have to navigate in an adaptive way, recovering from unexpected setbacks and seizing unexpected opportunities as they arise.
We hope the next time you are involved in a strategy process, you will bear the above five points in mind.
A version of this article was first published in ILM Edge Online