Strategy — A practical guide
Strategy — It is a sexy word. First, it resonates with leadership and gains access to higher echelons of power (aka board room, executives, etc.). Second, there is a aura of exclusivity with perceived notion that only the intellectual elite can conceive or understand strategy. Third, strategy consultants charge a ridiculously high hourly rate to deliver a concoction of PPT and PDF deliverable. This third step needs elaboration. The PPT and PDF cocktail is prepared following a typical framework of data collection — interview executives and rising middle management to understand what outcome do they expect, data analysis — start with the expected outcome as the hypothesis and more often than not force fit data to prove the null hypothesis and recommendations — add few more options and supporting data that are obviously bad choices and Voila! Final recommendation and supporting data are in sync with the expectation of the leadership. Fourth, Strategy is often based on the external factors (read competition, regulation, etc.) over which the business has no control but strategists keep the variables constant for the sake of simplicity (Do you understand what this means?)
All the above four are big barriers of a good strategy. First, more often than not, strategy resonates only with the leadership. Typically, strategy is forced top-down and there is no buy-in from the lesser mortals who will eventually have to implement the strategy. Second, to keep the aura of exclusivity, many make the mistake of making strategy complex enough that prevents the employees who are in the thick of the things from understanding, communicating or implementing it. Third, the strategy consultants are long gone before the strategy is implemented. In the rare cases where a business does not suffer from “Client’s failure to implement the recommended strategy” disease, the fruits of the effort are “strategically” placed far in to the future to be of any relevance today. Fourth, has there been any instance of competition saying “It is your turn. I will wait”? Did Google say that to Microsoft or Facebook to Google? The moment the strategy is based on external factors, all bets are off and every possible variable should be considered as dynamic as it can ever get.
So, Strategy as it is practiced today is a problem. So, what is the right approach? What should one expect from a strategy session? We will get to the right approach in a moment but if your advisers recommend an all paid exotic off-shore location for the brainstorming sessions, you can be sure that you are going in the wrong direction. So is the outcome if it involves only your top and trusted lieutenants.
In spite of the misconception, Strategy is a dirty work. It is also complex. There are many variables to consider (both internal and external). The predictions are at best an educated guess of what the outcome could be? Some have high degree of confidence and some low. It is also a two way traffic, meaning strategy not only defines the execution but should also take the executing capacity as a big input. In fact, the current execution (boots on the ground approach) is the best place to start framing a new strategy.
The beauty of strategic work is in deconstructing the complexity of the business to understand the basic building blocks that make it into a whole and reconstructing with the same building blocks (without too many changes), a business with purpose, focus and energy that would be able to accomplish a specific goal.
As this post is a practical guide, it cannot be too long for it to be useful. So here is the right approach in few simple steps
- Define a small list of unique positions that you want to achieve (This is with the assumption that all businesses are “in business” only to make money and that is maximized when the business achieves market power). For instance, 40% market share in APAC or becoming the category leader in South American market, etc. This is not a necessary step for a business with an open mind. If you have a general idea of where you want the business to go, go ahead with this step but let this not influence the rest of the steps.
- Talk to all level of employees and in all organizations to define the “attributes” of the business (Expect this to be a long list). For instance, we have the best social out reach in the market, we have the best supply chain and can move goods efficiently than anyone else, we are the best in aspirational brand, we suck at marketing our products, etc. Note that this can go to the smallest level of detail and the examples here are at a very high level.
- Define a list of possible things that the business can achieve given the attributes of the business. The trick here is to never dismiss anything as foolish too early. Write down all possible things irrespective of how sound or bad an idea is. For instance, we have 150 million active customers including their demographic information. We can become the best in the business of predicting customer behavior. Or, we have the largest supply chain partners (~2500) in US reaching 235 million customers and we can become the best in the logistics business.
- Define all the “external” factors that influence the business. Make sure to go a couple of levels deep when discussing competition and customers and list out the “attributes” of their business as perceived by you. Make sure to include regulation, other protections like patents and suppliers in the discussion. Here are couple of examples. Our competition has access to 60% of our supply chain partners and 70% of the outcome of efficiency improvements will be appropriated by them. The current regulation prevents us from using demographic information for any purpose other than as stated in the “terms and conditions”.
- Iterate and refine the above three steps to narrow down the options. Finally, quantify all the good options to see which would maximize the value (Do not be surprised if the outcome is not in sync with what you were expecting).
There are many differences in this approach to the normal strategy work we often see around us. First, it is a bottom-up approach for strategy which is not often heard of. The reason for the top-down approach could be that the leadership of a business generally have an idea of what they want to do (gut feeling) and the expectation from the strategy team is to confirm the gut feeling and gain a third party endorsement. By the way, did I mention the budget is only $3 million? Good luck with talking to all levels of the organization.
Second, the engagement with all levels of the organization gives a sense of ownership to everyone and change management becomes an easy business. Third, it is focused on the internal “attributes” of the business (after accounting for external factors) which can be controlled and directed towards a particular outcome.
Finally, in this approach, the strategy is based on what the business is made of today and imagining where the best of that collective ability can take.
Wouldn’t you love to be part of such a transformation?
This approach addresses one of the common reasons for a strategy to fail. Strategy — Capability alignment. How often have you seen wishful thinking of the leadership erode billions of dollars in shareholder value? Google bought Motorola for $12.5 Billions and Microsoft bought Nokia for $7.2 Billions only to write off a large part of that. Both Google and Microsoft are predominantly software companies with no proven ability to succeed in the consumer hardware business (except for Microsoft’s making X Box gaming consoles). Do you see the misalignment? Can you think of the attributes that would have helped them succeed?
Next post: We will take couple of companies and analyze some of their public actions and see how they are doing.