Is Your Strategy Distinct Enough?
By Eric HansenWednesday, February 24th 2016
If you got the top 20 leaders of your company together in a room and asked “what’s our company’s strategy” you already know to fear how many different answers you’d receive.
We are often on the listening end of the 20 different explanations of a company’s strategy. During our organizational diagnosis interviews, leaders will reference a strategic plan but as we probe we learn one of two things: 1) there is actually some semblance of strategy, but not everyone understands or agrees with it, or more commonly 2) elements of a strategy exist but they are insufficiently specific to inform decision making, resource allocation, or drive daily business actions. Rather than a distinct position that enables the business to win, the following are poor strategy substitutes:
Mission and Vision Statements: These are components of a strategy, but they are inadequate by themselves. Mission and Vision are statements of aspiration, defining the higher purpose for the business; but, they offer no specific choices about their target consumer or how they will differentiate themselves to succeed.
Benchmarking Studies: These provide helpful comparative insights, but too often are focused only on generic industry capabilities. Unless the benchmarks are derived from substantive discussions about differentiated positioning and building out distinctive competitive muscles, the organization defaults into optimizing the status quo and ultimately settling for mediocrity.
The Annual Operating Plan (AOP): Like Mission and Vision, financial targets and budgets are necessary but also dangerously insufficient because they are derived from a backward glance, considering last year’s performance over emerging opportunities and expectations. They are insufficient because they largely ignore larger discussions about and potential positioning against emerging opportunities. Ultimately, such an approach downshifts the organization into low-cost provider mentality, and blind to broader competitive dynamics.
Token Innovation: While innovation is a vital part of a growth plan, we find too often that it serves as a hollow promise against the future. By default, the actual strategy is one of “stay the course” with the base business, while the “innovation” project serves as a mirage of a thoughtful distinct plan. Without a true innovation strategy, the probability of having the right capabilities in place to meet the requirements of delivering the innovation is limited. By default, the strategy remains status quo.
While each of the above has its place, defining a true strategy means creating a baseline for trade-off decisions. These trade-off decisions have consequences. To de-cide (like its sister word homicide) means to kill off options. It makes sense then that making the tough calls about where to invest disproportionately is emotional and can feel personal. Most teams avoid it altogether, or barter in backrooms, “satisficing” or settling for suboptimal performance. The result: no distinct competitive position or advantage at all. It makes sense that everyone would like to believe that their project, function, or role is most vital to the success of the business. However, real value is only defined by how directly it contributes to bringing the strategy to life. In other words, its not just enough to have a distinct strategy, it needs to create distinct decisions and actions.
In his seminal HBR article, Michael Porter explained that, “A company can outperform rivals only if it can establish a difference that it can preserve.” And, “the essence of strategy is [manifested] in the activities—choosing to perform activities differently or to perform different activities than rivals. Otherwise, a strategy is nothing more than a marketing slogan that will not withstand competition.”[i] Herein lies the fun and challenge of organizational leadership: translating a well-defined competitive position into an well-integrated configuration of people, process, and actions that will sustain success over the long-term.
In our practice we use the following strategy map tool to take executives through a strategy clarification exercise that creates focus and links the strategy to specific actions:
The objective is two-fold: Articulation and Alignment. The tool is simple and straightforward, but it generates passionate debate, and ultimately results in an executive team’s ability to uniformly and succinctly state and support its position.
We think about each piece of the tool this way:
Clear Mission and Vision statements for the business are elements of a well-articulated strategy. A Mission answers the question, "Why does this business ultimately exist?" It defines the higher purpose or reason for being the organization. For example, Patagonia® is much more than outdoor gear, it’s in business to find and implement solutions to the environmental crisis. A vision statement is also future-based, but answers: "What will our business become? "Amazon wants to be the “…most customer centric company; to build a place where people can … discover anything they might want to buy online." Such a statement forms the basis of a value proposition: who is served, how, and what their experience will be versus choosing competitors.
Operating Principles define the foundational values and behaviors that others should expect when dealing with each other. These principles also set expectations for how business will be conducted and what external parties can expect when they are in a relationship with you.
Defining Market Differentiators pushes an executive team to concretely state the basis of the business’ competitive prowess. Differentiators are meaningful only in relationship to a clearly defined set of competitors and are the evidence of clear positioning and form the foundational argument or “reasons to believe” that customers will choose this business model.
Organizational Capabilities are the direct translation of differentiators into their organizational form and are distinct from competencies. The former belong to organizations and the latter to individual people. Organizational capabilities result from the deliberate configuration of core work processes, roles and competencies, and the deployment of supporting technologies that, in combination, directly deliver the business’ value proposition and create sustainable advantage. You cannot be world-class at everything, but you must have world-class, differentiated capabilities. For example, consider Amazon’s logistics capability that sets it apart and directly satisfies the expectations of its Prime subscriber base.
Key performance metrics are derived directly from the capabilities and provide the basis for the broader corporate scorecard. These focus on outcome metrics tied to leading indicators that enable executives to monitor the health of the critical competitive muscles of the business.
Finally, we push executives to assess and define the set of 18-24 months strategic objectives that will be resourced in support of business growth. These usually focus on strengthening the core capabilities.
So, the next time you bring your top leaders together, challenge them to articulate your strategy together. If they struggle, lead them through the exercise to get aligned. Allow them to vigorously debate, clarify, and decide. When you do this, fear will be replaced by confidence, and most importantly, your leadership actions will more consistently and uniformly support your strategic intent and increase the probability for sustained success.
[i] Michael Porter, “What Is Strategy?,” Harvard Business Review, Nov-Dec, 1996, pp.3