What is Strategy And What It's Not
Spoiler: It’s not another word for important
Introduction
In the last bloggish thingy/article/newsletter (I’m never quite sure what to call it - should we call it a ‘Stack’ like a ‘tweet’?), I put forward a framework that draws together, what are for me, the key elements that determine company success - the SOCCER Framework (see above). In the next few articles, I’ll dive into each element; why they’re critical and how they fit together.
‘Strategic’ or ‘Important’?
Let's clear some jargon.Strategic is becoming greatly overused and devalued in the process. It's strategic only if it helps you conquer long-term goals and failing to do so is likely to get in the way of that. Something can be important without being strategic, like getting paid (trust me, it's important but every company has a payroll).
‘Traditional’ Strategy And Its Weaknesses
I have a lot of books on strategy. Each of them has a slightly different definition of what strategy is and comprises e.g in ‘Exploring Corporate Strategy’ - Johnson and Scoles says the very basic definition might be ‘the long term direction of an organisation’.
That’s a bit vague, so they also give a fuller one. ‘Strategy is the direction and scope of an organisation over the long term, which achieves advantage in a changing environment through the configuration of resources and competencies with the aim of fulfilling stakeholder expectations.’ It's a bit wordy but I can live with that.
Other definitions are available but broadly take in elements of the following
Long term direction
What markets should we compete in or need to enter/exit?
Market fit
Resources
Competencies
Some kind of shareholder or stakeholder engagement
When I worked for ICI at the start of my career, I wrote the strategy for my business unit each year. These strategies tended to be highly specified by management in terms of the analysis required e.g. SLEPT, Porter’s 5 Forces (you can look these up) and revenue and resource budgeting.
Typically the planning window would be around 3-5 years with the next year being the budget. In a world where you have to build operational assets such as factories, warehouses etc, this sort of planning window makes sense. After all, if you make a 25 year investment production unit costing £50m, turning out 35,000 metric tonnes of product a year, those shareholder expectations are pretty high and you’d better fill that unit!
Although this sort of strategy process is seen in many big companies, there are a number of criticisms levelled against it.
Market conditions are changing more rapidly than in the past
An interconnected global economy can cause more shocks. [To be honest, years 3-5 were always a finger in the air exercise - take GDP growth, a bit of market growth, an extra bit of market share etc - to get to a number that looked sensible and was attractive enough to the Board]
It ignores ‘radical uncertainty’ (a topic that we’ll get into in the future) - ‘unplannable’ high impact risks [think COVID19]
The move from manufacturing to service economies means physical assets play less of a role in many industries [in some cases, companies may own none at all e.g. a work from home startup that rents computing power from a service like Amazon AWS]
The time taken to produce these kinds of reports vs the value and insight they bring. The numbers fed the budget but the strategies remain on the shelf until the next year
Given that I’d spend about two weeks every year writing it, I was inclined to agree with the last point. Much of the discussion was about the numbers, not what was happening in the marketplace. On the other hand, it was a well understood process and the uniformity of approach fitted the wider group and corporate needs. Horses for courses.
When I did my MBA and later became a consultant, I began to see that many companies didn’t have this approach. Some didn’t seem to have any approach at all nor did they have any appetite for a top heavy approach such as the above. ‘We’re just not that kind of company’ said one executive [They’re not a company anymore though so…]
Nowadays, I suspect many of those companies would say that they employ some kind of ‘Agile’ strategy, although what that actually means (if anything) and how well it works in practice differs widely.
‘Agile’ Strategy
Agile strategy is an approach to strategic planning and execution that borrows principles and practices from Agile methodologies commonly used in software development.
One definition I like that fits this type of strategy is Marc Sniukas’ ‘Strategy is the response to the challenges keeping you from reaching your ambitions’. It’s sufficiently differentiated from the traditional idea of strategy and fits the Agile model of an orientation to action.
The main elements of Agile strategy include:
A high-level strategy with smaller, manageable increments refined over time based on feedback and circumstances
Flexibility and Adaptability to changing market conditions, customer needs, and internal factors
Cross-functional collaboration to foster innovation and alignment
Customer-Centric and data driven decision making with an emphasis on understanding and meeting customer needs and incorporating it into strategic decision-making process
Short feedback loops to regularly assess progress and make adjustments
A culture of experimentation and learning from failures based on the idea that failing fast and learning from mistakes is a valuable way to improve and innovate
This more modern and more adaptable approach would seem to address the problems of traditional approaches. However, it comes with its own sets of challenges.
The frequent iterations and adjustments can require more resources
The lack of a clear structure can make it difficult for all parts of the organisation to feel involved and implement effectively
The focus on short feedback loops can sometimes lead to an overemphasis on short-term goals at the expense of longer-term strategic competencies and resilience
Too frequent change can lead to a lack of clarity at lower levels of the organisation
A short planning window can lead to less resilience to external factors e.g. longer term market and sociological trends
In summary, at its best, it can be adaptive and action orientated. At its worst, it becomes very easy to believe that you’re engaged in strategic thinking when really all you’re doing is short term operational planning and reacting to events.
What’s The ‘Best’ Methodology?
Methodologies in themselves are of limited value unless they are done well and lead to the correct result.Methodologies used therefore need to be context specific to the industry and markets, the culture of the organisation and personalities involved and the stage of development and funding.
Clearly if you only have 6 months runway left, then it will be a different mentality vs a company that has just secured the next round of funding or large corporations that are sitting on cash reserves. You might as well just sum up your strategy as ‘survival’!
CEOs need to consider whether their strategic processes and meetings
Are genuine reflections on the long term strategy and not just iterative short term operational planning sessions
Consider long term market trends and technology development beyond the planning window
Keep the senior team sufficiently engaged and empowered
Provide short term clarity and continuity for operational teams within the planning window
Enable functional leaders to build long term capability, operational capacity and long term resilience
If you can answer all these questions fully with examples, you’re on the right track. If you’re not, then look me up.
Next Time
We’ll come back to the relationship between strategy and operational planning. We’ll talk about why operations is the engine of growth and profitability and why, despite (or because of) modern technology, so many companies are poor at it.