Read the summary below and get the key insights in just 10 minutes!
- Why strategy matters,
- Why many companies fail at strategy,
- What components make up a good strategy and
- How to strategize.
“Elevate” Your Thinking
In business, you can’t see the big picture until you gain “elevation.” Seek an encompassing overview so that you can understand what makes your businesses tick, how the parts work together, how to differentiate it from its competitors, and how to provide value and service to your customers. Leaders must think strategically so they can make the right decisions and the best trade-offs – choices that lead to success.
This elevated view demands mental agility and the ability to sift through floods of information. Failure to think strategically can be disastrous. The Conference Board reports that 70% of the public companies that suffer a “revenue stall” will see their market capitalization drop by more than 50%. Poor strategic decisions account for most revenue stalls. When a firm’s business falters due to inferior performance, that pattern is likely to continue for at least 10 years. Many times, this leads to complete collapse.
What Is Strategy?
Strategy is defined as “the intelligent allocation of limited resources through a unique system of activities to outperform the competition in serving customers. Resources include time, talent and capital.” The GOST framework can help you maintain a separate focus on:
- Goals – What are you pursuing? A goal is a general target.
- Objectives – What do you specifically want to do? An objective is a specific target.
- Strategy – A strategy sets the path for “how” you will reach your goals and objectives.
- Tactics – A tactic provides the specific answer to “how” you will proceed.
When you plan ways to mete out resources, your strategy becomes your general allocation schematic and your tactics are its specifics. Identify the “trade-offs” you must make among “time, talent and budget” to meet your goals.
The “Top 10 Strategy Challenges”
Most executives recognize the need for smart strategic thinking, yet few know how to develop a strategy. Research with 500 managers identified the top 10 strategic challenges:
- “Time” – Managers suffer excess responsibilities, endless to-do lists, and pressure to deal with immediate tasks and problems. Most lack the time to think strategically.
- “Commitment” – Employees don’t know what a company’s strategic plan is, so they can’t get behind it. The Harvard Business School reports that 95% of employees don’t know about or don’t understand their organization’s strategies.
- “Lack of priorities” – Don’t give every concern the same weight. Make trade-offs.
- “Status quo” – Strategy implementation usually requires change. Some employees will get more resources, some fewer, and some will lose the resources they have. Those who lose resources will dislike the strategic changes.
- “Not understanding what strategy is” – Many people mistake strategy for “mission, vision, goals, objectives and even tactics.”
- “Lack of training [or] tools for thinking strategically” – Many managers lack experience or education in planning or setting strategy.
- “Lack of alignment” – Large firms have many different constituencies which often don’t operate in sync and sometimes conflict. This hinders executing a unified strategy.
- “Firefighting” – Executives can’t think and act strategically if they spend all their time putting out fires. They must adopt a reflective “let’s think about that” style.
- “Lack of quality [or] timely data and information” – Strategy requires astute interpretation and application of data. It calls for developing quality insights about creating value for customers. Information is the “core of strategic thinking.” Executives who lack access to timely data operate at a strategic disadvantage.
- “Unclear company direction” – The people at the top must set clear directions. But some executives don’t want to reveal their plans because they fear providing information to competitors. However, leaving everyone in the dark makes planning nearly impossible.
The Three Strategic Disciplines
When you find yourself too busy to think, reorient yourself to the following three strategic priorities by asking, “Am I working on an activity that is important to the execution of the strategy, or is it an urgent but unimportant issue that’s taken me off plan?”:
- “Acumen” – You have the ability to develop valuable “business insights.”
- “Allocation” – You utilize your available resources wisely.
- “Action” – You execute your strategic plans to achieve your goals.
Strategic thinking also requires practicing three disciplines:
1. “Coalesce”
The first discipline is bringing together in a unified way the ideas and data your business needs to compete. Strategic thinking demands developing quality insights, and that often demands pattern recognition – seeing the context in which a problem recurs.
Work through the six “levers” or basic issues on the “Strategy Spectrum” to identify the data you must pull together: 1) What products or services do you offer? 2) Who are your potential target customers? 3) Why do they need what you sell? 4) Where can they access your offerings? 5) When can they gain access? and 6) What activities will you undertake to bring them in?
The “Value Mining Matrix” helps you focus on your current and potential customers and the steps you take to deliver value to them. Plan your value creation, value delivery and value capture strategy on three different “time horizons”: the first 12 months of activity, the second and third years, and after the first 36 months, by which time you may need to refresh your business model.
Strategy’s single goal is to increase profits. Pursue these actions to achieve the earnings you want:
- “Differentiation” – Develop a special product or service.
- “Neutralization” – Eliminate the gaps between you and a rival product or performance.
- “Productivity” – Make your processes more efficient so you can cut costs.
- “Waste” – Avoid any effort that does not provide “new value.”
All of these steps require innovation, but differentiation may be the most pivotal strategic need. In a study, more than 4,000 executives agreed that attaining “competitive differentiation” is their “number-one business challenge.” A survey of more than 25,000 firms showed that those with the best return on assets succeeded through differentiation, not through lowering prices.
2. “Compete”
This discipline requires assembling a strategic system that gives your firm a competitive advantage. You must know where your company stands in relation to its rivals. As former Harvard Business School professor Theodore Levitt said, “Everything is differentiable.” Determine if your organization is a “leader” – on top and focused on protecting what you have while working to expand wherever it can; a “challenger” – looking to increasing brand awareness and build the business; or a “spectator” – a reactive, “me-too” operator stuck on the fringes?
Analyze your competitors to assess your advantages. Consider how you compare in market “position,” expertise, capacity, “resources [and] activities,” clientele, the marketplace need you meet, value delivery, consumer “advantages,” and “value proposition” or “message.” Institute the necessary competitive balances among your efforts to provide “quality, convenience, cost, service” and “selection” to your targeted customers. Never try “to be all things to all customers.”
3. “Champion”
An effective strategy doesn’t help unless you can implement it, so the third discipline calls for leading your team to think and act strategically. Champion your strategy. “Fight for, protect, defend and support” it. Communicate your strategy to your employees and make sure they support it. Offer social proof – that is, demonstrate senior management’s commitment to the ideas you want employees to rally behind. Use the compelling “power of story” to present your strategy to your workforce. Secure the commitment of everyone who is part of its implementation.
Kodak, an iconic American company, demonstrated the dangers of failing to get everyone behind a new strategy. The common perception is that the photographic digital revolution swamped Kodak, a leader in film. In fact, Kodak’s senior executives saw the handwriting on the wall and redesigned its strategy so that it could become a digital photography leader instead. But Kodak’s middle managers didn’t support or implement the new strategy. They remained stuck in the past and clung to Kodak’s success with film. Their recalcitrance caused Kodak to lose its leadership position in the photographic industry, and it never recovered.
When Is It Time for a New Strategy?
Double-check your strategy when:
- You reach or adjust your goals – New goals need new paths.
- Your consumers’ needs change – Stay alert to what your customers want.
- An innovation disrupts your marketplace – Know who is delivering enhanced value to your customers and how your firm could compete or do better.
- Rivals create a new value – Now, they’ve changed the rules of the game. Catch up.
- You gain or lose capability – Either way, your firm will need a new strategy, to capitalize on your new opportunities or to deal with your diminished situation.
“The Strategy Scaffold”
To gain the elevation you need for a strategic overview, stand on a scaffold built of three planks: your company’s “purpose,” your business model and your “strategic direction.” Strategic thinking requires elevation, but don’t think about reaching for a metaphoric 30,000-foot view “to see the big picture.” Like everything else, you can overdo elevation. At 30,000 feet, all you’d see are clouds and broad terrain. For a better view, consider an elevation of 1,000 feet, where you can see “buildings, homes, bridges and roads.” Use this perspective to develop your company’s strategy.
With a new strategic initiative, conduct a “Before Strategy Launch Review.” Identify your goal. Determine your approach; determine its main challenges and how you’ll handle them. Continually monitor its results. Ask, “What went right?” and “What areas need improvement?” When you complete, adapt or discard a strategy, conduct an “After Strategy Launch Review.” Ask, “What happened? “How or why?” And, “What did we learn?”
Smart strategy requires smart tactics. Don’t spend time and money on activities that don’t move you closer to your goals. Sort your tactics within a four-box “Tactical Evaluation Matrix” with “efficacy with customers” on the horizontal axis and “differentiation” on the vertical axis. List your tactics and position them within the matrix in one of four quadrants:
- “Antes: tactics effective but similar” – These tactics, like the ante that starts a poker game, are routine, but they work.
- “Drivers: tactics effective and differentiated” – These tactics are your best bet. They differentiate you from your competitors, and they’re efficacious and profitable.
- “Waste: tactics ineffective and undifferentiated” – Don’t bother. These tactics don’t work and they’re ordinary.
- “Fool’s gold: tactics differentiated but ineffective” – These tactics make your firm stand out, but they don’t earn profits.
Strategy should not be a perfunctory, fill-in-the-blanks annual activity. Make it a regular component of your daily operations. Have your managers engage in regular “strategy conversations.” These discussions rely on candor, openness and willingness to listen to others’ opinions with an open mind. Put in the time to give strategy the priority it deserves.
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