Between dream and strategy

That is NOT a strategy!

Some people misinterpret the term

Some years ago, I was invited to participate in a one-day strategic workshop organized by a major company. I was a little bit confused by the duration of the event (one day), which goal was declared by the CEO as “to define a new strategy,” especially considering that more than thirty executives were invited. I believe that the formulation of a new strategy needs collecting data and many broad discussions among top managers, and one day wouldn’t definitely be enough. But I was invited as an independent observer, so I decided to accept the invitation.

The company consisted of six divisions, and the head of each took the stage for forty minutes to present a division’s strategy. All the presentations had the same structure: the current statement of a business, key goals, and arrangements a unit’s leadership intends to make to reach the goals. And the latter raised many questions from my side. Among the initiatives the leaders announced were “expanding the product range,” “winning new customers,” “cost reduction,” and “efficiency improvements.” Without questioning these measures as reasonable, I doubted that the level of detail was enough. For example, what products will a business unit bring to the market, and why? What new customers does the unit’s leadership see as the target ones, and why? But when I tried to discuss it, I was answered that these questions are “tactical”, whereas that workshop was “strategical.”

This is a trap many business leaders fall into. On the one hand, strategic documents shouldn’t be too detailed and nuanced. On the other hand, they should be coherent, that is, they must provide a cause-and-effect relationship between the goals and the way they are supposed to be reached. Otherwise, these documents are totally useless. Proclamation about the intention to launch some new products, find some new customers, or reduce some costs doesn’t convince me that top executives really know the way to a successful future. They promise to find the answer along the way, but why should one believe them?

Any business earns money by creating distinctive values for its customers. By distinctive values, I mean values that, first, fulfill clients’’ needs, and second, do it better than other solutions available in the market. And if a firm’s leadership wants to expand the business, it means that the company should make changes to its customers’ list and (or) the values it provides. No matter what industry the business belongs to, there are only six ways for strategic development:

• Create new value to cover the current needs of existing clients.
• Find new, possibly not yet revealed, the needs of current customers and cover them with the help of new values.
• Find new customers for whom existing values will be relevant.
• Find new customers, identify their needs, and create new values for them.
• Find new ways to earn money by meeting current customer needs, for example, offering a subscription instead of buying.
• Combine all the above in any order.

And when a CEO presents a strategy to a board of directors, these changes should be articulated. Of course, the CEO may not go into much detail and provide technical nuances of the products the company will launch in the future, and these details may be unknown by the moment of drawing up the strategy. But what the CEO must do is convince board members that all the planned changes, such as cost reduction and efficiency improvements, will ultimately lead to creating new customer values, which, in turn, ensure long-term development.

Strategy is not a list of good intentions disconnected from the goals; neither is a plan for increasing profit or market capitalization. Instead, it is the answer to the question — what values will the firm create for its customers to keep them loyal?

Read ,ore about strategic thinking here.

Svyatoslav Biryulin