As COVID continues to impact how we live our lives and run our businesses, many businesses are in crisis mode. As I work with business leaders on the decisions that they face, sometimes the question comes up — given our urgent issues, does strategy even matter right now?
I think that’s a fair question, but to be able to answer it, we need to step back and talk about what strategy even is.
When I ask people “what is strategy” I get lots of really good answers. Everyone has an opinion and even though the answers are different, it is very rare for me to disagree with someone’s definition of strategy. I would say, though, that the answers I hear fall into one of two different big buckets.
Some will say something like “strategy is the vision of where you want to go.” Others will say something more along the lines of “strategy is the plan of action for how we get there.” I’m sure that, ever since I first mentioned the question “what is strategy”, you’ve been forming your own answer in your head, and I’m guessing that for most of you, your answer is pretty close to those two — either it’s a vision or a goal, or it’s a plan.
And those are both good answers, and I think they both represent aspects of strategy.
My definition of strategy is a bit more nuanced. A strategy is a framework that makes hard decisions easier.
Some of you are probably thinking — how typical of a consultant — he uses a big word (framework) to make us think he’s smart but also to confuse us so that we don’t know what he really means.
So, let me help you understand what I mean by a framework.
As I recently shared at ClearPurpose, when I start working with new clients, I’m usually asking questions and listening to try to understand the answers to six really important questions:
- Why does this company exist? (For entrepreneurs, I’m really listening for two types of answers to this question. First, what problem is the startup trying to solve, and second, what drives the entrepreneur’s passion in pursuing it — what is their story?)
- What principles will you never compromise? (Some might call these core values.)
- Whom do you serve? (These are your target customers.)
- Why do they choose you? (This is your differentiation.)
- How do you make money? (Your business model.)
- What do you need to do right now? (Your plan.)
Realistically, for the past several years the business environment has been stable enough that we haven’t really had to think much about strategy.
In my framework, the first two questions, why the company exists and what principles will never be compromised, probably should never change. Questions 3 through 5, your target customers, your differentiation, and your business model, rarely change and often only when there’s significant industry disruption. So, for a number of years most companies have really only had to think hard about question 6 — what do we need to do right now — what are our plans.
Additionally, since strategy is a framework for making hard decisions easier, and since the business environment has been stable, most of us have been blessed to not have to deal with lots of hard decisions, so we haven’t had to pull out our strategy as a key filter in critical decision making.
But let me tell you a story of a company in crisis to give you a sense for what it’s like when strategy really does matter.
In 2008, I was promoted to Vice President of Corporate Strategy for Sprint.
The company was in crisis mode. The 2005 merger between Sprint and Nextel was a disaster. To give you a sense for how bad it was, in 2007, the industry was growing rapidly. That was the year that Apple introduced the iPhone. The industry as a whole added 14 million new wireless subscribers, a 7% increase, and yet Sprint lost 1.2 million subscribers. Two percent of their customers walked away and weren’t replaced with new customers.
In December 2007, Sprint replaced CEO Gary Forsee with Dan Hesse, and early in 2008 Hesse hired GE veteran Bob Brust to be CFO. In February 2008, the company announced a $29.7 billion write-down of the $35 billion paid for Nextel.
So, mid-year 2008 I was promoted to vice president of strategy. I walked into my first senior leadership team meeting to kickoff the strategic planning work. The CFO, Bob Brust turned to me and said “The last thing we need is a strategy. In fact, we have a strategy. It’s called survival!” The CEO similarly wasn’t a fan of strategy.
The company had many hard decisions to make. We cut costs. We laid off thousands of good people. We shut down product lines. We exited markets. We sold off divisions.
Those decisions were made without a good strategic framework. Sprint and Nextel had merged with one goal — to get bigger. There wasn’t a good definition of why the company existed, or which customers were most important. There wasn’t a driving definition of differentiation. And so there was no guiding framework. Every decision took way too long and involved too many people. Today’s decisions might work against yesterday’s decisions and tomorrow’s decisions might undo today’s.
Thanks in large part to smartphones becoming central to how we live our lives, from 2006 to 2016, the industry nearly doubled in size, growing by 78%. But Sprint’s losses accelerated. The company lost over 15 million or 30% of its wireless subscribers. Most companies can’t sustain those kind of losses for that long. By 2016 it was clear that Sprint did not have a sustainable stand-alone future. Earlier this year T-Mobile acquired Sprint and this month the company is phasing out the Sprint brand. And I attribute most of that to bad and inconsistent decisions made because the company did not have a strategy.
But that was 2008, what does it have to do with COVID?
Well for starters, unfortunately, a lot more companies are in crisis mode today thanks to COVID.
Maybe you are having to make hard decisions. Do you have a strategic framework to help with those decisions? Unless you are a big, complex, 100 year old company like Sprint, I’m guessing you know the answers to the six questions.
Why did you start this business?
What principles are non-negotiable for you?
Those two are your bedrock. Keep them front and center as you make decisions.
Who are the customers you’ve always served, why have they chosen you, and what is your business model? The answers to these questions, too, should be important as you face hard decisions.
So for starters, because of COVID more businesses are facing hard decisions, and because they are facing hard decisions, more businesses should really care about strategy.
But COVID is such a disruptive event to so many industries that COVID is also challenging another aspect of how we think about strategy. Questions 3, 4, & 5 are now in play.
Are you still serving the same customers, or do you need to focus elsewhere?
For example, if you own a restaurant, are the people picking up curbside delivery the same ones that used to come enjoy a romantic dinner in your dining room? Is there a different market opportunity that you never could reach before that now would love to enjoy what you have to offer?
Are customers making decisions the same way, or do you need to have a different reason for them to choose you?
If you own a retail store, how have customers changed how they choose where to shop? What do you need to change to be at the top of their consideration set?
Can you make money the way you always have, or do you need a new business model?
For decades, live performance has been the revenue engine behind the music industry. Until large crowds are comfortable gathering together for an intimate evening of entertainment, how will musicians and venues make money?
A few minutes ago I told you Sprint’s story. Let me tell you the other side. Let’s talk about T-Mobile.
In 2008, Sprint was in crisis mode, but so was T-Mobile. Their network wasn’t very good. They didn’t have a nationwide footprint and in the cities where they competed, they didn’t even have enough spectrum to offer 3G services. While the rest of the industry was moving to broadband speeds, T-Mobile was stuck with dialup speeds, and remember smartphones like the iPhone were moving into the center of people’s lives, so data networks really mattered. T-Mobile was also much smaller than its three larger competitors. When Sprint and Nextel merged, the combined company was the third largest mobile carrier in the U.S. with 44 million subscribers, while T-Mobile was number 4, but only had 18 million — less than half the size of #3. It got so bad that T-Mobile’s parent company gave up on them. They stopped funding them and looked to sell the company. In 2011, they entered into an agreement to sell T-Mobile to AT&T.
Regulators blocked that deal, and T-Mobile had negotiated a very favorable breakup clause with AT&T, so T-Mobile got the nationwide spectrum they needed and a couple of billion dollars in cash to build out 3G and start working on 4G. They also got a new CEO — a guy who seemed like a crazy loose canon. But behind the crazy persona, he had something that T-Mobile really needed — he had a strategy.
T-Mobile looked at the situation and decided to change their answers to questions 3, 4, and 5.
T-Mobile would be the uncarrier — challenging the unwritten rules in the industry that people hated. He eliminated long term contracts that locked people in. He eliminated international roaming charges. He eliminated hidden fees. He eliminated data caps.
T-Mobile changed their target customers, their differentiation, and their business model.
Each of these was a hard decision. But the strategic framework made those decisions much easier and because each was aligned with the strategy, they built upon each other creating tremendous momentum.
By the time T-Mobile announced that it planned to acquire Sprint in 2018, it had grown from 18 million to 72 million subscribers, a 4 fold increase, greatly outpacing industry growth and racing past Sprint into the #3 position. Last week, T-Mobile announced their quarterly results, including the fact that they had moved past AT&T to become the second largest mobile carrier in the U.S. And all because they had a strategy that made hard decisions easier.
Is your business in crisis mode? Are you saying “We don’t need a strategy — our strategy is survival?” Or are you discerning what your strategy is and using it to help make your hard decisions easier?
Let me know if you need any help discerning that strategy or figuring out how to use it to make those hard decisions. You can contact me at email@example.com.
Thanks for listening. Until next time, to God be the glory!