Posted: June 1, 2016 by Robert Craven
The failure of many strategies lies in the failure to understand whom the strategy is for.
Strategy is a subject that people like to refer to, but often they don’t really know what they mean by the word. We should not be surprised that many people find it difficult to actually think strategically when they are unclear about what strategy is all about.
Commonly asked questions include:
Before talking about the actual ‘doing’ of strategy, let’s be clear about some of the ‘strategy’ issues, and why strategy can go wrong. There is a requirement to do things in a different way from the old way. After all, if you keep doing what you have always done, then you will keep getting the same (not better) results; and to expect a different result from doing the same thing is a definition of insanity!
The main complaints about the strategy process are:
In a nutshell there are three reasons why strategy does not work.
Managers often fail to differentiate between business unit strategy and what is referred to as ‘corporate centre’ strategy. The reason for this is that business schools and consultants normally talk about big business/corporate centre strategy when they are talking about strategy.
Business unit strategy is for single product/market players or ‘strategic business units’ of conglomerates; corporate centre strategy is for conglomerates that are planning the future and the relationships between the centre and its various subsidiaries. The distinction is crucial; this is where so much of the confusion comes from.
To misquote Orwell,
business unit strategy, good; corporate centre strategy, bad.
Business unit strategy, good – it gives you insights into where and how you need to do things differently. It helps you to see the business through the customers’ and through the competitors’ eyes, both today and tomorrow. It shows you your strengths and weaknesses and where and how you should be expending your efforts. We will come back to this later.
There are instances where corporate centre strategy is beneficial. Examples include where there are global economies of scale, brand benefits, regional or global economies of scale, overcoming technological barriers and so forth. You only need to think of Apple, Coca-Cola, Microsoft, Sony and Toshiba. But this type of thinking is pretty irrelevant if you are running your own business, or a business unit employing say 500 people.
Moreover, for the multinational or conglomerate, the ability of the centre to generate strategies that have little to do with the needs of specific business units is awesome. Couple this with the centre’s (and the board’s) lack of contact with the territories and you can see the potential for disastrous decisions. Corporate strategies constantly frustrate and bamboozle the managers of regional business units.
Put simply, business strategy is planning while being aware of the business environment. So, who should be involved? Consultants? The Senior Team? The Whole Team? Well, this depends on the level (and size) of the organisation that you are talking about.
Strategic thinking is not the same as strategic planning. In fact strategic planning is an oxymoron like ‘friendly fire’, ‘fun run’ or ‘fighting for peace’ – planning and thinking are totally different activities requiring different skills. Strategic thinking is the role of the strategy team – those beneath them should carry out the (strategic) planning.
Strategic thinking must be used to improve understanding of the environment and the options available to the business. Any analysis must help the decision-making process. There is no room for using models that are simply intellectually attractive. The task at hand is to shed light on options and directions and find evidence to support decisions about the future.
At business unit level, the tools of analysis are relatively straightforward. The only real barriers to a successful strategy are intimidation by the so-called ‘professionals’ and their jargon. Rogue management consultants have been known to blind their clients with science; BCG matrices, Value Chain Analyses and differential equations bully the innocent client into agreeing to a strategy that they may not fully understand or appreciate but are too timid to admit their ignorance. Despite this, the manager may well understand their business and industry with a clarity and perspective that the models are unable to detect.
It is most notably at the corporate centre level that the jargon takes over and so often the process turns into Frankenstein’s monster – you have a much more sophisticated list of tools (product portfolio analyses, discounted cash-flow, BCG matrices, three-dimensional modelling). A whole industry has grown up around corporate strategy – it is here that the business school hype runs amok – ‘Long live the emperor and his new clothes!’
More complex is almost always worse, and yet the corporate centre has a propensity to complicate things!
Most of the models of analysis, some good and some bad, are over thirty years old; few people in business honestly know how to use them effectively and appropriately. For today’s entrepreneurial business, the relevance and value of the models must be questioned.
In order to work, the whole strategy process must be effective and practical; highfalutin theory is not the order of the day! Participants need to start the process with no axes to grind.
Strategy can be likened to ‘seeing’; that is seeing behind, above, below, beyond, beside, ahead and through the future. To be effective, strategic thinking tools must satisfy the following conditions:
The right people rarely work on strategy development.
For business unit strategy, each of the Operating Managers should be involved; for corporate centre strategy, the Chairman, CEO and a few close colleagues should be involved. In both instances, a cross-section of Operational Managers should be involved to influence, double-check and approve the thinking process.
The next-best solution is to involve a firm of Management Consultants. You must choose carefully otherwise they will bring over-complex tools and theories. You need to be able to stop them from doing that by giving them a clear brief of what you want. A good relationship will pay dividends as they can facilitate the process or give you the right tools to work out the way forward.
If strategic thinking is a creative process then the best place to start is with where you would like to be, and work backwards to where you are now. Then you can work out how to get there.
If strategic thinking is a systematic analytical process then start with where you are now and work out where you think you can get to. The snag with this second approach is that constant use of linear thinking stifles your creativity. If you believe that 10% growth in sales is realistic then you will plan away the idea of faster growth and the need for more unusual approaches to achieve a truly stretching goal.
In reality, you need to combine both approaches.
You need to know what target market groups (segments) you work in and how profitable they really are. Only then can you focus on what you do effectively and cut out the deadwood.
These are the crucial questions that you need to be able to answer:
1. What business are you in?
This question is not as straightforward as it appears – what business do your customers and competitors believe you to be in? And, what do you believe your business to be? Manchester United is no longer just a football team; the merchandise side of the business means that branding is more important than ever. Starbucks is not simply selling coffee; it is selling an attitude to life.
2. Where do you make the money?
What parts of your organisation contribute the most value to the whole? Where is the real value being added? What parts of the industry generate the highest profits? This follows on to a series of external issues:
The external analysis can be followed by internal analysis so that you can establish:
While this article is not aimed at the big corporations, it is useful for readers who work in them to be clear that corporate centre strategy is flawed because the centre rarely represents or reflects the needs of the outposts. The centre has a life of its own. Few corporate centres are small. Most do not add enough value to justify their cost. Most destroy more value than they add.
Corporate centre strategy must be approached with a great deal of scepticism and caution.
It is imperative that the strategy process is not seen in isolation of other processes. Strategy is not a ‘black box’, a one-off activity, carried out at annual awaydays – to think strategically is an art form.