More relevant today than ever before
It seems conventional wisdom is just now catching up with the idea that strategy should be dynamic - maybe that's because they've been defining it wrong all along.
It is ironic that a word with as many meanings as the word strategy is still often misused and maligned. It is even more ironic that while strategy is the key driver of business success, it is often the weakest part of business planning and execution. While academics love to look in the rear-view mirror at companies that dominate their markets like Walmart, create new markets like Apple, or find a profitable niche in a difficult industry like Southwest Airlines; most can only reverse engineer success rather than offer a formula for ensuring it. Real strategy simply gets lost among clever book titles, esoteric theories, meaningless MBA-speak, and the pressures of daily management.
The latest conventional wisdom seems to have it that strategy is now irrelevant because of factors like the globalization of capital, labor and markets; hyper competition; and accelerated technological developments. Add a world-wide recession into the mix and executives argue that there is no time for planning, meaning no time for strategy. In fact, a January 2010 article in the Wall Street Journal was entitled “Strategic Plans Lose Favor” in the current economic environment. The argument is simply that executives have to act in real time, all the time. Strategic planning, pundits conclude, is dead. They are right but they are also wrong.
Strategic planning is dead and has been for 25 years, but its taxidermic form was so well preserved it has survived beyond its usefulness. To put it simply, strategic planning is a linear process that made sense when North American companies were dominant, markets were stable and growing, and technological evolution was incremental. What was then termed strategic planning was really long-term planning. Five year goals were pretty straight forward and usually equated to market share and financial targets. The objectives defined the path to get there, and the value of the process was that all parts of the organization were working in a synchronized manner to achieve common goals. When executives argue that strategic planning is dead, they are right in the sense that a 5 year linear plan makes no sense in today’s environment.
Strategy, however, is more important than ever. To illustrate this point, it is necessary to state a few of the many definitions of strategy. One very simple but useful definition of strategy is that it enables abbreviated decision-making. One of the reasons having a strategy is important to business is that it allows decisions to be made quickly and by middle managers during the course of day-to-day activities. Ironically, this makes it easier to make quick decisions in real time every day.
If every significant decision had to go to the C-suite for an answer, very little would get done and the organization could not react quickly enough to the market. By defining a company’s strategy, leadership makes some fundamental choices about what business the enterprise is in (another important dimension of strategy), and in so doing defines trade-offs (a key aspect of strategy). Another important part of strategy is about knowing which opportunities to say no to; and by defining this ahead of time, executives in the trenches can make real-time decisions quickly and the organization actually becomes more nimble.
So, if markets and technology are changing rapidly and competition is intense, how can you develop a strategy that can be viable for more than one fiscal quarter? The first thing you do is change your vocabulary from strategic planning to strategic positioning, a key element of strategy.
Strategic positioning is about defining where and how you will compete. While it can be focused on specific markets and products which can change over time, corporate level strategic positioning should be enduring; it should define, in a fundamental manner, the business the company is in – not just in terms of products, services, and markets which can change, but in terms of core competencies that are levers of competitive advantage. Strategic positioning should define the unique way your company delivers products and services better than the competition.
Through this simple exercise we helped a Caribbean Island understand that their strategic positioning on the tourism landscape was not to be like every other Caribbean Island promoting sun, sand, and sea but rather to play up what was unique about the island; rich attributes they had previously considered as weaknesses.
Defining what business you are in also means defining the customer your serve, not just by markets and sectors, but by the need and demand you fulfill and by the value proposition you offer. The ultimate in strategic positioning is finding a true alignment between sustainable core competencies and enduring market demand. It can be argued that no matter how you define it, no market demand lasts forever and no competency can be sustained without a corresponding demand. However, the goal of defining competencies and markets in a way that makes it theoretically possible for them to endure is as important to the process of strategy formulation as the concept of infinity is important to mathematics.
The very vocabulary you use to define both can mean the difference in a strategy that can become obsolete with a sudden change in the environment and one that can endure. The vocabulary also supports the trade-off decisions that illuminate the growth paths to take. Are you in the buggy whip business or are you in the leather business or are you in the propulsion business or are you in the transportation business or are you in the horse and carriage accessories business? There are many ways to define the business of today, but the choice of business definition can define the business of tomorrow.
By helping a commercial construction firm define its core competencies, we helped them resist the temptation to venture into industrial markets that happened every time there was a business boom.
The next critical definition of strategy relates to the strategic business model. In simple terms, a company’s business model defines how it makes money. But a business model has two main parts: the way a company creates value, and the way a company captures that value. A recording artist may create value by writing and recording songs, but capture it (i.e. generate revenue) through concerts, album sales, t-shirt sales, etc. The real key to a strategic business model is making sure the structure, systems, and activities all reinforce each other to add to the source of competitive advantage. This is often referred to as fit, and is more powerful than synergy.
An examination of a chemical manufacturing client’s “DNA” revealed that their competencies lay in two distinct areas: new product development built around an entrepreneurial approach to niche opportunities, and an operational excellence model of delivering certain commodity chemicals to market. The two didn’t “fit” together. We recommended dividing the organization into two companies in order to unleash the potential of both which was done with great success.
Let’s illustrate strategic positioning and strategic business model through a common consumer sector with which we are all familiar. If Publix supermarket’s strategic positioning is customer service, every activity must be structured to reinforce this, from keeping cashier lines short to friendly staff, to easy ingress and egress, to a wide variety of products. If Kroger’s strategic positioning is everyday low prices on a wide variety of items, there will be trade-offs on customer service, but the important factor is that every logistical detail of bringing products to the shelf must reinforce the wide-variety/low-price model. But it also ties to marketing such as loyalty programs and advertising campaigns. They must all be consistent and congruent. Whole Foods on the other hand, has a completely different business model built around fresh, organic and exotic foods. While the mainstream groceries may adapt to changing consumer preferences for organic foods, if they forget that their source of competitive advantage is customer service or price, they will dilute their business model and lose their competitive position rapidly.
What about no-strategy? It could be argued that some offshore competitors do not have a strategy. Chinese companies in particular often emulate industry leaders and compete largely on cost and operational efficiency. This is not a strategy per se but rather an exploitation of a temporary inefficiency in the market. To create sustainable competitive advantage, these companies will need to develop strategies. Korean companies are notorious for investing heavily into proven markets with little strategic foresight or even planning. They seem to have a unique model of reacting quickly to changing environments and making quick course corrections as they learn from their mistakes. By working very hard under centralized management, they have learned to develop strategy from experience.
However, as many of the traditional chaebols become global leaders, their approach to strategy has become more sophisticated. We have recently worked with Korean and even Chinese companies looking for professional marketing and strategy assistance that seems to validate this trend. It would be a mistake to underestimate their ability to develop more sophisticated strategies as their market position becomes stronger.
Ultimately, management that is only about execution and reaction to a changing environment is akin to Darwinism in the animal kingdom. The enlightened homosapien seeks to dominate his environment and alter his destiny. An enlightened executive should do the same.
Finally, a note about execution. Strategy is much about the synchronization of the organization. The basic accomplishment of having everyone singing from one sheet of music creates value and efficiency. An economic development board benefited greatly from a two week strategic positioning review because for the first time, everyone in the economic development business was promoting the same thing. Research has also shown that excellent execution of an average strategy trumps average execution of a good strategy every time. The key to sustainable competitive advantage, however, is doing both well. Strategy should be more than a common sheet of music; it should be a classical score played flawlessly by a talented symphony under the guide of an accomplished maestro.
As the conductor leads the orchestra, empowering employees doesn’t mean an absence of leadership; but the essence o f leadership. Reacting nimbly in real time is not the death of strategy, but the ideal application of it. In times of uncertainty - more than ever - strategy not only matters; it is essential. But it’s all in how you define it.
Geo Strategy Partners
Mark Towery is Managing Director of Geo Strategy Partners
Geo Strategy Partners focuses on market research and strategy for industrial and B2B markets