Achieving Business Excellence with John Spence

The Key Elements of Strategy

Facebooktwittergoogle_plusredditpinterestlinkedinmail

I have been giving the topic of business strategy a great deal of thought lately and wanted to share a few key ideas that have risen to the top. Likely you already know these things, but I thought putting them down in one concise note might be of value.

 

At the end of the day, it is critical to keep in mind that all strategy and strategic planning is based on… guessing. There is no way to know the future, but strategic planning still plays an important role in attempting to shape the future and make the sort of decisions that will allow you to move towards your desired outcomes. It’s a guess about the future, but it’s a guess that helps you create the future.

 

In business, the ONLY goal of strategy is: Sustainably Superior Results. That is, the only goal of strategy is to create long-term profits that are greater than your competition. That is it! (please see the comment below from Charles Green — he corrected me here – and he is right!)

 

The essence of an effective strategy is: Valued Differentiation  X  Disciplined Execution. An effective strategy, a successful strategy, is one that is based on creating highly valued differentiation for your key target customers and then consistently executing on that value proposition.

 

One of the most important things an effective strategic thinker/leader can do is to figure out what to say NO to. What products we will not produce, what markets we will not enter, what customers we will not serve, what features we do not offer… focused differentiation that is highly valued by your target customer is a critical factor in running a successful business.

 

Is important to remember that there are both external strategies and internal strategies. External strategies look to the marketplace and revolve around things like: differentiation, branding, pricing, distribution, guarantees, financing options, marketing initiatives, promotions, design, value chain management, cash management, capital investments, partnerships, divestitures… whereas internal strategy focuses on things such as: talent, culture, accountability, pace, execution, vision, values, mission. It is typically only the senior executive team that makes the major decisions around top level external strategies… however, managers and leaders at all levels throughout the organization make key decisions around internal strategy – sometimes at the departmental or team level – other times at the organizational level. It is important to understand which level of strategy you impact so that you can focus your efforts on the appropriate levers to pull for the strategy level you are pursuing.

 

In highly stable industries it is possible to create a one, three or possibly even five year strategic plans – in rapidly changing industries it is more reasonable to make six month, one year or 18 month plans and revise them often. Although the core idea of strategic planning is to proactively shape the future you want to create for your business, the reality is that often times strategic plans are highly reactive to the marketplace and are an attempt to stay just a few steps ahead of the customer and the competition.

 

When done correctly, the goal of strategic planning is not simply to beat the competition at their own game, but to create a totally new game that offers more value to the customer in a way that ONLY your organization can deliver.

 

When looking at the trade-offs and scenarios presented in a plan, I use the two factors of probability and impact to decide when it is necessary to actually sit down and create a scenario plan.

  • If there is a high probability that the strategy could fail, but a very low impact if it does… spend little time on it, or delegate it to someone else.
  • If there is a high probability the strategy might fail and it would have an extremely negative impact on the organization – if possible, do not pursue this strategy – it is likely too risky.
  • If there is a low probability that the strategy might fail, but a very high impact if it does – this is the time to spend significantly more energy and effort on the plan and possibly create a number of realistic scenario plans.
  • If there is a low probability that the strategy will fail, and a very low impact if it does, this is another place to simply delegate that part of the strategy away, or question as to whether it is even worth the effort of pursuing that particular strategy.

 

I believe that one of the major reasons that many strategic plans fail – or at least fail to meet expectations – is lack of execution. Therefore, I believe that it is essential that the planning team spend a nearly equal amount of time looking at execution of the plan. If it is a two or three-day strategic planning retreat – 40 to 50% of the time should be on how to build the systems, processes, procedures and accountability to ensure that the strategic plan is effectively executed going forward.

If the goal is to create strong strategies and become a good strategic thinker, it is essential that after every strategy is deployed you spend the time, energy and effort necessary to do a full post-mortem once the strategy has been fully executed – whether it was successfully executed or the execution failed. Learn from both your triumphs and your mistakes.

 

There are five things it takes to be a good strategic thinker:

  1. Investing the time, energy and effort to be a good strategic learner. This means being a serious student of core business acumen topics. This also means looking carefully at your industry, other industries, best practices – any information you can collect that will help you be more effective strategic thinker.
  2. Investing the time to study and explore your personal business experience at a deeper level – looking for trends, ideas and lessons that you have learned through the years that are especially relevant.
  3. Investing the time to look for patterns. Taking all of the information you have gleaned through strategic learning, combining it with your careful study of your own personal experience – and stepping back to look at the business landscape for patterns, anomalies, opportunities, threats – looking for places to create strategic advantage.
  4. Identifying strategic differentiators. As you look through the trends and patterns you will have a flash of insight – this is the hallmark of an effective strategic thinker – finding/seeing something that no one else sees and understanding how to translate that into a strategic advantage in the marketplace.
  5. Execution of the strategy. Even the best strategies in the world are completely useless if they are not effectively executed. This last and final step the strategic thinking process is critical for turning ideas into action. Good strategies must be backed up with good strategic execution – with high levels of clarity, focus, disciplined execution and accountability.

 

According to author Eric Beaudan, Creative Execution has five elements:

  1. Articulating a unique, clear strategy
  2. Fostering candid dialogue
  3. Spelling out clear roles and accountabilities
  4. Taking bold action
  5. Being visible as a leader

 

How often you revise the plan is dependent on the velocity of change in your industry, however for any plan to be effective it must be a living document that is used daily.

My recommendations for making sure that are plan stays fresh, focused and valuable is to create a very concise document – only a few pages – that outlines the major thrust of the strategy, objectives and tactics. This document should be carried to every management meeting and used as a guide post when making decisions. Is it in the plan? If not, does this new strategy/objective offer so much value that it merits changing the entire plan? If not, go back and focus on what is in the plan.

Next, I would recommend at least quarterly half day management meetings where a solid 3 to 4 hours is spent looking only at the strategic plan and how well it is currently being implemented. I think it is a good idea to have a six-month review – and then have an annual planning retreat of a full day – possibly two days. For the plan to be successful you must keep it out in front of your people, refer to it often, use it as a guide, and constantly show people how the efforts and actions of the organization align directly with the strategic plan.

 

I hope you found these ideas helpful – I welcome any questions, comments or feedback you might want to offer.  As always, if you need anything please to not hesitate to send a note, I am here to assist in any way I am able. Take good care – John

 

 

John Spence has twice been named by Trust Across America as one of the Top 100 Business Thought Leaders in America and has been recognized by that organization as one of the top 100 Thought Leaders in the world in the area of “Trustworthy Business Behavior.” Other recipients of this award include: Sir Richard Branson, CEO of the Virgin Group, Howard Schultz – CEO of Starbucks, Tony Hsieh – CEO of Zappos, acclaimed business consultant Ram Charan, internationally renowned author Thomas L. Friedman, and business authors Patrick Lencioni, Tom Peters, Rosabeth M. Kanter and Jim Kouzes. John has also selected as a leading small business influencer in America along with Malcolm Gladwell, Seth Godin and Apple.

Facebooktwittergoogle_plusredditpinterestlinkedinmail

Comments

  1. John,

    Thanks for this thoughtful piece. There’s a great deal of content here, and I agree with the vast bulk of it, but I wanted to highlight one area I’m not so sure I agree with. It has to do with your statement early on that “in business, the only goal of strategy is to create long-term profits that are greater than your competition. That is it!”

    Let me suggest, that’s not exactly right. First of all, if that statement is meant as descriptive of business, it’s demonstrably false – a great many businesses do not operate solely to make profits in excess of their competition, but rather in pursuit of a variety of other goals.

    Secondly, if it’s meant normatively – which I think you intend – then there is the case of privately-owned businesses, which are, I would argue quite legitimately, run to accomplish other goals entirely (to maximize cash flow, to pass the business on to the children, to achieve technological mastery, etc.).

    But most importantly, even in the case of publicly traded companies, I would argue this should not normatively be the sole goal.

    First, implicit in your statement (I think) is the claim that all strategy is competitive strategy. Since the days of Bruce Henderson and Michael Porter, this is been a tacit assumption, but it wasn’t true for the earlier strategists like Peter Drucker or Igor Ansoff.

    Secondly, profit maximization explicitly puts the goals of shareholders above those of all other stakeholders. The most explicit formulation of that was Milton Friedman’s, but since then eve people like Michael Porter have backed off it. There’s a variety of literature, of which you’re probably more aware than I am, that suggests a more balanced approach among stakeholders is a more desirable goal for business to be pursuing.

    I think it’s fair to say that most business thinkers now see Friedman’s dogmatic statement that “the social role of business is to maximize profit” as one-dimensional. There are other valid social roles that business plays in our society, among them employment and the distribution of health care and retirement plans.

    Thirdly, on pure arithmetic grounds, I think there may be some cause for debate. If the sole goal is to increase profits (relative to competitors), then the comparative rankings of long-term strategies will vary with relatively short-term interest rates, since the discount rate used to evaluate NPV of strategic decisions will change over relatively short periods of time.

    In a related manner, a major long-term strategic choice may be made (e.g. “move headquarters to China”) and then reversed a short time later (e.g. “move headquarters away from China”) if one really interprets long-term profitability in solely financial terms. A

    A less labored way to make these last two points is to say that significantly different long-term decisions are barely distinguished if their only form of evaluation is financial. A better use of the word “strategy” in such cases, I think, would follow the concept of Strategic Intent, formulated in the 90s by Hamel and Prahalad. The difference between moving headquarters to China and not may have profound consequences, but analyzing them in purely financial terms disguises those consequences.

    Let me end by emphasizing all the things I do agree with and find very useful in this article, e.g. the emphasis on the importance of execution, and the pragmatic suggestions for implementation. I don’t want my quibbles to overshadow that fundamental agreement.

  2. Charles, thank you for your wonderful and extremely thoughtful response. Upon reflection, I agree with you – I will need to revise the way I’ve written this!!

    I think that fundamentally – the core idea behind effective corporate strategy is “consistently superior and sustainable performance” – but I do believe that setting the goal of defining that as only being more profitable than your competition – is shortsighted. Profits are important in business – but they are NOT the ONLY thing!!!

    I believe you can run a very successful company, that is clearly profitable – without having to compete on numbers against your direct competitors. I guess I got a little too theoretical for my own good – not something I do very often, probably the reason I got tripped up on it – I usually think in a much more pragmatic and practical way – I guess the challenge of teaching this at Wharton in a few weeks got me a little to esoteric – my sincere apologies my friend and thank you very much for pointing out my error!

  3. Excellent article – and terrific comments! Nicely done gentlemen. I liked the point about strategic planning as essentially a guess about the future – and the process helps create the future as well.

    We have found that by having the future in people’s speaking, the future becomes possibility and can then get created. Simplistically, its a bit like the cognitive processes that get kicked-off when the phrase “Don’t think of pink elephants!” is heard! Thinking and speaking about a possible future helps us create the picture(s) in our minds, which is one step closer to the image becoming real.

    We have used Scenario Planning extensively in helping people do the structured guessing that creates a future. Below is a paper that is on our website, including the 4 Core Questions that when addressed, make Scenario Planning a very powerful methodology. I hope it is a useful addition to the discussion.

    Scenario Planning: A Tool For Strategic Thinking

    A philosopher of a previous generation once said, “Freedom is just another word for nothing left to lose.” Many people believe they are free yet they feel constrained by the unpredictability of events in the world. The rapid rate of technological and social upheaval leaves many of us uneasy and feeling unconfident about our ability to influence the future.

    In an article about scenario planning, Paul J.H. Shoemaker*, wrote about the experience of the first military officer to predict the use of aircraft in ocean warfare. Brigadier General Billy Mitchell proposed that airplanes might sink battleships by dropping bombs on them. The U.S. Secretary of War at the time, Newton Baker remarked, “That idea is so damned nonsensical and impossible that I’m willing to stand on the bridge of a battleship while that nitwit tries to hit it from the air!” Josephus Daniels, Secretary of the Navy, was also incredulous: “Good God! This man should be writing dime novels.”

    Even the prestigious Scientific American proclaimed in 1910 that “to affirm that the aeroplane is going to ‘revolutionize’ naval warfare of the future is to be guilty of the wildest exaggeration.”

    Using our 20/20 hindsight to thoroughly second guess the General, it is difficult for us to see how anyone could have missed the potential of air power. However, can we predict the future any better than the defense leaders did? We are effected by the same biases. We take it for granted that some things just can’t and won’t happen; for example, “oil prices won’t change” or “Russia will always be the ‘Big Bear’.”

    As can be seen from the following quotes, smart people are quite capable of frequently making wrong assumptions about the future – with great certainty:

    “I think there is a world market for about five computers.”
    Thomas J. Watson, Chairman of IBM, 1943
    “There is no reason for any individual to have a computer in their home.”
    Ken Olson, President, Digital Equipment Corporation, 1977
    “With over fifty foreign cars already on sale here, the Japanese auto industry isn’t likely to carve out a big slice of the U.S. market for itself.”
    Business Week, 2 August 1968

    Leaders and other members of corporations who expand their imaginations to see a wider range of possible futures will be better positioned to act with confidence and take advantage of the unexpected opportunities that will surely present themselves. To take advantage of possibilities with confidence, one must be willing to look ahead and consider uncertainties. We must be willing to ask the questions: “What challenges could the world present us? How might we respond? How might others (competitors, colleagues) respond to our actions?”

    Scenario planning – something the defense leaders did not have available when predicting the future of air power – is a tool for helping people to take a long view in a world of uncertainty. It is a disciplined, structured method for imagining possible futures, using a strategic thinking process. Scenarios are essentially “educated stories” about the way the world might turn out tomorrow and how we might recognize and adapt to those changing aspects of our world – changes that we might otherwise miss or deny.

    Scenarios are not predictions. As the old Arab proverb states, “He who predicts the future lies even if he tells the truth.” Scenarios are vehicles for helping people learn by crafting alternative images of what may occur. The real value comes from the interaction among the people who are responsible to decide and act. The sought after end result is not an accurate prediction of tomorrow, but better informed and aligned decisions about the future.

    There are 4 Core Questions in Scenario Planning:
    1. What do we know for sure and how do we know it? (What people say they know frequently falls into question II. after further inquiry.)
    What political, economic, societal, technological, legal & industry trends are we sure will occur and what effect will they have on the issues / question identified? What data / evidence do we have?

    2. What do we think we know and why do we think this?
    What political, economic, societal, technological, legal & industry trends do we think will occur and how will they effect the issues / question identified? What data / evidence have we formulated our opinions from?

    3. What do we not know…but wish we did?
    What events, whose outcomes are uncertain, will significantly effect the issue / question? How could we become more certain?

    4. What do we know that we don’t know?
    What political, economic, societal, technological, legal & industry trends do we know we are completely unable to develop an information base about?

  4. Hi, John,

    I appreciate this article and the dialogue in this response section greatly. I think your point about paying at least as much attention to execution as strategy is a great one. I often say that if the path to excellent execution is not clarified, strategy sessions can amount to pure entertainment or distraction (something that passes the time and/or takes our attention away from current reality). Because of this, I often think it makes sense to think of “Execution Excellence” as the horse and “Strategic Excellence” as the cart. All too often, we dress up our carts without feeding the horse that will actually take us somewhere!

    Good food for thought, as usual, John.