What's the big deal about strategy?

Most organizations treat strategy as if it's scary, secret and important. It's thought to be made up of a lot of complicated theories, concepts, analyses and equations. This idea is fueled partly by the fact that the people who participate in it are often senior members of the organization. It's also encouraged by the fact that strategy has been for many years the capstone course in most MBA courses and the people who do it tend to be paid a lot of money.

Well this is partly right. Strategy really is important. It is the biggest lever available to move the whole organization. Strategic choices and decisions drive all kinds of smaller choices and decisions. So it's vital that an organization is clear about what its strategy is and how everyday actions can become acts of implementation. And because of this you can't afford for your strategy to be a secret from the very people who are going to implement it in the business units. Nor can you afford for it to be a tiresome chore for them; an empty obligation to the corporate office. People in the business units usually know more about what's going on with competitors and with customers anyway - so they should be directly involved in making the strategy in the first place. They need support and encouragement to do this for their own sakes

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Corporate & business strategy

Part of the reason strategy can be scary, is the confusion between corporate and business strategy.

The basic unit of competition is the 'business unit'. You can define a business unit in a number of ways, but essentially it's a revenue stream and a cost base attached to some physical assets in the form of machinery, real estate and people. In other words, it has a balance sheet and a profit and loss account and people working together towards a common goal. The big question for the business unit is 'How do we win?'

Business strategy is the engine of competition and developing it should be participative, action-oriented and motivating. It may require some different ways of thinking about things, but it shouldn't be complicated or exclusive. The clay for making strategy is what people do every day and the only way to change strategy is to change those actions. So strategy development should be relevant, practical and exciting.

Corporate strategy on the other hand, moves the business unit pieces about. It mixes and connects the business units to create a corporation of many business units that works better together than the sum of the separate parts. (Few organizations actually achieve this.) This is where the complex value equations can come into play and where the more difficult theories of portfolios, complementary cashflows and business interrelationships are developed.

The big question for corporate strategy is 'Which businesses or industries should we be in?' Of course, the answer to this question often depends on how well the managers in the business units perform or how well the corporate strategists judge the business unit potential.

Corporate strategy is a more analytical, financially based activity than the development of business strategy. While it's an important part of developing a complete strategy, it too often displaces the development of competitive business strategies and makes strategy seem inaccessible to most employees. It isn't and it shouldn't be especially at the business level.

Corporate strategy is also largely a corporate office responsibility, although here too a more participative process can improve the outcome by forestalling the business unit/headquarters politics that emerge too often at the intersection of the two levels of strategy. We help companies with both business and corporate strategy, increasingly helping develop clients' corporate strategy capabilities by successfully growing via merger and acquisition and other corporate moves.

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Developing strategy is about making choices

There are numerous definitions of strategy. Fighting over the definition is a great way to waste a lot of time, so it's best avoided. Any definition can start the conversation though. Here's how we think about it.

There are two main conditions that drive the need for strategy - limited resources and competition. 'Limited resources' means you don't have all the money, people, capacity or time in the world. So you have to start with what you have. Competition means there are other organizations that want what you want, whether in the form of the resources or the goals you seek. So no outcome is certain without a struggle. If either one of these conditions is lacking, there is much less need for strategy. But most organizations live under these conditions, so having a strategy is essential.

The most important output from a strategy development process is clear choice. There are a number of things in strategy that require choice. They include products, sectors, customers, technologies, distribution channels, mode of competition, scope of operations, timing, purpose, risk and so on. Choices must be as clear as possible. That means they shouldn't be couched in fuzzy terms, or come with a series of 'if's' and 'but's'. The clearer the choice, the more focused the organization, the more vivid the risk, the more intense the implementation. And to the extent that an organization's choices can be seen to fit with each other, so they can be said to form a whole strategy.

In one way, the strategy development process is an organizational decision-making process, which is why it can be so difficult, so conflict-ridden and, often, so futile. Getting an answer to your business problem is much easier than getting the organization (or some critical mass of it) to agree on the answer and implement it. Remember, every organization is perfectly designed to get the results it's getting. So if you want to change those results you're going to have to change what the organization is doing. That's the hard part.

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Starting the strategy development process

But you have to start somewhere. So here are six questions that should help focus your thinking about what your strategy development process should address.

1.  Are you winning? How well is your organization doing?

1. Financially?
2. Operationally?
3. Competitively?

There are all kinds of indications in the performance data, whether taken over a year, a decade or a week that will give insight into what's happening in your organization. Think about what the organization finds easy to do and what it finds difficult. Study your organization's performance hard and from many angles. Are there clear indications as to what you should be focusing on?

2.  What do you know?

1. Do you know your markets, economies, industries well?
2. Do you know yourselves well? The good AND the bad
3. Do you know your competition well?

While the answer to who is your competition might be 'everybody' in global terms, this isn't a useful answer. There are some key competitors that you should know everything about. Who are they?

Good strategy requires a deep understanding of your own company and the environment. Well researched, structured information is the life-blood of the strategy development process and is the most time-consuming element to create. Data gathering and analysis (knowledge management as it's become known) should go on all the time. It's best to make the periodic data-gathering binges that you undertake for strategy development purposes some part of the ongoing responsibility of managers. Or make it a key piece of your Intranet planning.

3.  Do you keep coming back to the same issues and choices?

If so, you're either:

1. not making clear choices or
2. not making choices that stick.

Which probably means the choice you're trying to make is either:

1. the wrong one, or
2. especially difficult, or
3. the organization is secretly divided over what should happen, but you haven't opened up the debate yet.

How good is your organization at making choices and sticking with them? Have you underestimated how big a choice you're trying to make? Are you allowing enough dissent before you decide to implement so that implementation is more than just half-hearted?

4.   How clear is the strategy to people in your organization?

1. Do people know what the organization is going to do?
2. Do they know what it's NOT going to do?

This isn't just a question of communicating what's going to happen. It reflects the clarity of what the organization knows about itself and how focused organizational action is.

5.   Do ALL your choices fit?

When the strategy has worked its way deep into the organizational DNA, everything you do manifests it. The choices you make at operational levels reflect the strategy not because they are bolted on to the strategy in a crude way, but because the strategy is internalized in the minds of employees.

Which of your choices seem to conflict with what you say you intend to do?

1. Do you claim to be empowering the workforce, but the quality teams budget is being cut?
2. Did you decide to focus on one part of the market, but the expensive new production equipment you're installing can make everything?
3. You're going to be flexible and dynamic, but you just appointed a second team to review the first team's customer service audit?

6.  Are you learning?

1. Is the organization more skillful this year than last?
2. Is the organization's understanding of itself and its industry better than it has been in the past?
3. Are the tools you use to understand things (your performance, the market, your customers) better than they were last year?
4. Are you pulling ahead of your competitors? Catching up? Or are you dropping back?

Exploring these questions will help you start to identify what your strategy development agenda should look like. You may need to generate a whole raft of new information. You may decide that you have enough information but that not enough people have been exposed to it or been invited to use it and determine direction. Or you may decide that most of what you have is sound, but the strategy hasn't really taken hold in anywhere but the marketing department - which means it isn't really being implemented on an organizational level. Or you may feel there is a particular choice that your senior management group has made, but action doesn't seem to follow and that maybe you need to revisit the choice more intensely.

Whatever thoughts these questions stimulate, strategy is a live process not a sterile, theoretical exercise. It needs constant not intermittent attention, and only when you can see it alive in the decisions and actions that managers and employees take every day, can you say that it's being implemented.