Strategy is a word of our time, a word that is frequently tacked on to ordinary decisions and activities to convey an impression of importance they don’t deserve. Strategy is overworked and misapplied. Overuse has helped reduce the idea of strategy to the ranks of the everyday. This paper sets out to help redress the balance by outlining what strategy is and providing practical guidelines for its development.
In order to be effective strategy has to be simple. Simplicity, however, is very difficult to achieve. The only point of managers setting strategy is to provide clear guidance to everyone, themselves included, who needs to take action in order to secure its implementation. Strategy provides the overall decision-making framework for those whose job it is to deal with the day-to-day tactics. That doesn’t just make strategy important, it makes it vital. If everyone involved does not have a direction and purpose clear in their minds how can they be expected to decide what action to take in the heat of the daily battle? And if that view of direction and purpose differs from one to another, there is little hope for mutually consistent implementation.
Several academics and businessmen believe that companies are good at strategy, but bad at implementation. David Kearns and David Nadler take that view in their book ‘Prophets in the Dark’ that chronicles the rescue of Xerox from virtual bankruptcy. They say, “One of the shortcomings of American corporations is that they have focused far too much on good strategy and not nearly enough on good implementation. There’s often plenty of strategizing, but no hooking that strategy to what’s do-able.” Undeniably, Kearns and Nadler are correct in their claim that good implementation is essential for strategic success. Indeed, implementation is where 90 per cent of the time will be spent. In contrast, developing good strategy takes 90 per cent of the thinking. However, I believe that Kearns and Nadler are mistaken in their view that there is too much focus on ‘good strategy’. Companies may appear to focus on good strategy because they may appear to do a lot of it, but quantity never did signify quality. There is an awful lot of strategy apparently being done, or rather, a lot of awful strategy. Almost inevitably, if the strategy is poor it cannot be rescued by implementation, however good.
Part of the reason for strategy failure is simply a lack of understanding of exactly what strategy is. This lack of understanding is made worse by confusion about the terms used: a common language is vital to ensure a productive dialogue, a point to which this paper returns. These problems are compounded by a reluctance on the part of some managers to make their intentions clear. A lack of clarity, whether deliberate or accidental, kills the chances of developing useable strategy and may increase complexity and cause confusion. If complexity and confusion reign, it is much easier for anyone to justify that their actions are reasonable.
If we look at the bland statements which are frequently presented in annual reports as the company’s vision and mission, we can be fairly sure that if these accurately reflect what the senior executives think, then the company has no clear direction. A statement of strategy ought to represent the distillation of complex business realities into a few relevant, concise, clear and simple phrases capable of being written on one sheet of paper. Of course this is difficult to achieve and the process for arriving at an agreed and generally understood position can be tortuous. However, the fact that it is difficult should not prevent us from making the attempt.
At its heart effective strategy has to have a single, non-financial objective and single strategy which is both necessary and sufficient to achieve that objective. This singularity of view results in a focus that can help achieve extraordinary results. These notions would not be news to military and political strategists of the past and indeed, to military strategists today. However, in business we seem to have lost sight of the fundamental need to do sufficient work and to think hard enough to make strategy simple. The basic ideas and concepts of strategy have been known for many years and proved highly effective in the political and military domains. The distillation process required to produce an agreed, understood and actionable strategy may be time-consuming and difficult, but is essential if the result is to be successful in guiding the business forward.
This paper presents a framework of questions for the practical development of effective strategy. These questions help to focus the strategic thinking of those responsible for strategy development. The framework can be used in the early stages of the strategy development process where it can be used to create a working hypothesis which provides guidance for subsequent investigation and analysis. Following this initial stage, a second iteration, using this framework, based upon additional information will considerably improve the quality of the emerging strategy.
Coping With Everyday Pressures
The pressures on company managers and boards from corporate parents, banks and the stock market are both immediate and considerable. Observation suggests that under pressure, organisations frequently throw the baby out with the bath water and abandon any serious attempt at thinking strategically. True, a downturn in a sector focuses attention on the short-term. For companies under real pressure immediate survival is sometimes the sole aim. There is, however, considerable danger that actions taken under short-term pressure may make long-term success difficult or even impossible. Ironically, the relative failure of strategic planning and the vicissitudes of economic cycles make strategy even more important. In good times, short-term strategic mistakes can frequently be overcome fairly easily, but in bad times they may well prove fatal. Good, clear strategic thinking is essential to sustained success. Potentially damaging short-term measures can be resisted if there is a clear, consistent, sensible and generally well understood strategy. Even while they are absorbed in the short-term crisis, managers need to keep in mind the ultimate objective in order to minimize possible damage.
A distinction needs to be made between strategic planning and strategic thinking. Having a well thought out strategy is not the same as having an elegant strategic plan, although a well-crafted and presented document may make its proposals easier to sell to others whether they are the corporate board or the City. However, the essence of a strategy should be capable of being presented on one sheet of paper. What we are seeking is clarity and simplicity of expression based upon rigorous analysis and critical thinking that results in a fundamental understanding of the business. This, of course, takes time. Frequently, the clearest, simplest statements are the ones which have taken longest to develop. Often too, they prove to be the most enduring.
Underpinning good strategy is understanding: understanding what customers want now and what they will want in future, understanding what is going on outside the company in the various markets and legislatures or in terms of cultural and demographic shifts, understanding the nature and relevance of technological change, what competitors are doing and what the company’s real competitive strengths are. A company also needs to understand what is going inside the business and how to manage change effectively. Understanding is also vital to successful implementation. If people know what is being asked of them there is a greater chance that they will actually deliver. Above all, understanding requires that everyone involved in the strategy formulation and delivery process has a common view of what the strategy is and what it means. Such understanding is not easily acquired. Considerable skill, experience and effort is needed to collect, analyse and interpret the necessary data and present it in a digestible form. Rigorous interrogation of the resulting information is an essential element in strategy development.
Lack of clarity, lack of understanding and lack of focus bedevil managers and workforce alike. Complex and ambiguous statements of strategy are like spiders webs that ensnare unwary managers in a labyrinth of confusion.
Confusion often arises because people use different terms interchangeably. Mission, purpose, vision, objectives, strategies, plans, targets, aims; these and many more are used by different academics, consultants and managers. No common, single vocabulary exists. At best this causes needless argument; while at worst it means that managers may be using the same or similar terms whilst talking about quite different things without realising it, so confusion reigns. An essential part of the strategy-making process is, therefore, that managers have a common language that allows them to communicate effectively. In practical terms managers need to agree a set of terms to be used and agree precisely what these terms mean: common understanding cannot be assumed.
This paper sets out an approach to help clarify the strategic picture. Strategy is explained by taking the whole concept and breaking it down into its component parts. Each component is presented as a question, which if answered rigorously, clearly and consistently, will go a long way towards cutting through the fog of complexity, confusion and mystique that surrounds strategy. The answers to these questions form the building blocks of strategy and may be reassembled in any form the company chooses in order to be presented.
Once formulated, strategy should guide and inform all subsequent actions. The logic of what to do should be inescapable. Wherever a strategy is viewed from, it should be consistent. The words used are vitally important. If people are expected to take action to help implement the strategy, attention has to be paid to what is written and said. The words used must be unambiguous and not capable of accidental misinterpretation. The understanding has to be consistent and actions required and permitted should be apparent as should those actions that are discouraged or prohibited.
In this paper as few terms as possible are used to convey the meaning of strategy. The attempt is made to use words clearly and distinctly. Even so, the word strategy is used in two senses. It is used in a macro sense to mean the overall purpose and direction of the organisation and in question 8 of the framework that follows, it is used in the more limited sense of a business strategy, which is the route chosen to achieve the business objective.
A Strategy Development Framework
What follows is an attempt to define a set of terms which cover the main elements of strategy. Each term is presented as a question which needs to be answered as clearly and precisely as possible.
It is not absolutely necessary to answer every question religiously in order to develop a viable strategy. In any particular circumstance some questions will be more critical than others. However, four are regarded as absolutely essential as they represent the minimum requirements for a coherent strategy. These are questions 5, 6, 7 and 8 from the following list and they are asterisked in the notes.
The whole proposition of strategy, which is defined as the overall direction and purpose of the organisation, is divided up into three parts:
- The Strategic Context
- Strategy Development
- Planning and Implementing Strategy
The Strategic Context
The following six questions could be considered as a pre-strategy development stage in the process. They provide the context for the subsequent development of a business strategy. Generally the province of very senior management, this part of the process helps define boundaries by articulating some of the more conceptual elements of strategy development. In large, complex organisations in particular, this part of the development process is especially useful as it acts as the glue between different operating divisions.
1 What are the values, philosophies and beliefs?
In business and organisational terms, what is it that the senior team believes in and holds to be important? Do they have a set of values they wish to communicate to the rest of the organisation and the wider community which are to be maintained as the guiding principles upon which the company will do business? This question of ‘what we believe in’ underlies the issue of culture – that system of codes of behaviour which circumscribe or direct actions. It is important to understand the culture and underlying values or philosophies of an organisation because strategy needs to work in harmony with them. It is essential that subsequent behaviour is totally consistent with explicitly stated values. Failure to maintain this consistency breeds distrust and cynicism.
2 What is it that the key senior individuals want to achieve?
An organisation will often take actions that are designed to achieve some personal goal of the CEO or important member(s) of the senior team. This goal may be entirely consistent with the interests of the organisation or maybe not, but the overriding driver is personal ambition. Sometimes difficult to determine, it is nevertheless helpful to understand whether there are any personal ambitions that might constrain or otherwise influence the strategy.
3 What is the purpose of the business?
It is sometimes argued that the only purpose of a business is to make money. If that were the case then many businesses would simply not exist. In the majority of cases people work for some purpose other than just making money. This question is aimed at getting senior members of an organisation to ask themselves why they are in this particular business and why they feel motivated to come to work. A valid answer to this question will often reflect a deeply held emotional response.
4 What is the vision?
Do the senior managers (or does the CEO) have a clear, shared mental picture of what the organisation could be? To what extent is their vision understood by others in the organisation? To be most effective, this needs to be stated in terms which are motivational and lift thoughts above the day-to-day routine of business. Ideally, the vision needs to be long-term, inspirational and capable of being communicated throughout the organisation. It needs to be viewed as ‘stretching, but possible’. The vision will generally reflect the values and ambitions of the key players in the organisation. A ‘vision’ is something to be sought after, not necessarily attained.
5* What business is the company in?
The answer to this question defines where the businesses is now: an absolute necessity before deciding where it wants to get to. The answer may be expressed in whatever terms managers find most useful. Answering this question can sometimes prove surprisingly difficult and in the attempt it might be helpful to list what activities the business currently undertakes: organisations sometimes do a collection of things for historical rather than business reasons. Frequently, at this stage in the strategy development process, the answer to this question will be in very conventional terms that tend to describe the product or service produced. Whilst this answer may not prove to be useful in the long-term it does provide a starting point for the debate.
6* What business should the company be in?
This is an absolutely critical question. Given an understanding of the external environment, the company’s capabilities, the personal ambitions of the senior team and their vision, how is the future business to be defined. In arriving at an answer to this question, it will be important to consider future demands by customers especially in terms of the needs they may have and the benefits the business intends to provide. This is an important question because the answer sets the scene for the future. Management teams really do need, therefore, to be as imaginative, creative and as clear as possible when trying to arrive at an answer. Important elements include consideration of things that the business is not doing, but probably should be doing if it is to succeed and what is not going to be done. This will either mean stopping things which are currently being done or not starting things which fall outside the new definition.
It is preferable to try and avoid defining the business in the conventional product terms of the sector such as bankers, paint manufacturers, hotel operators. Try to think about what actually needs to be done and what is being provided to customers: what is it that you do or will do, that delivers value to customers? What customer need is your product or service aiming to fulfil?
Together with the answer to questions 5 and 6, the answers to the next two questions form the core of an organisation’s strategy. The remaining questions put flesh on these bones. The answers allow an interested and informed reader to understand the intentions of the organisation by outlining its direction, purpose and market place position.
7* What is the business objective?
This is the single point to which all activity in the business is directed. Contrary to popular opinion, there should only be one objective if a business wants to be successful. Trying to go in several directions at once may be tempting and even fashionable, but it is also foolhardy. It results in lack of focus and dilution of effort. Multiple objectives also relieve management of the responsibility of making difficult choices and allows them to fudge. It avoids the necessity of setting priorities and focusing upon what is really important. Deciding what not to do is at least as important as deciding what to do.
The term ‘business objective’ is used deliberately to make the point that the objective needs to be expressed in non-financial terms. It can normally be taken as read that a business wants or needs to make profits. Profits provide a convenient way of keeping score. They let everyone know how well the business is being managed, how efficient it is, how much growth it is getting and, therefore, how it is progressing towards its real objective.
Setting a financial objective and sending everybody off to achieve it gives no guidance about the way in which success is to be achieved. One way to achieve a 25% return on capital might be to cut R&D spending. Objective achieved, but at what cost? As a result, it may be that in five or ten years time there is no business. Strategy development and formulation should leave no-one in doubt as to the desired market place position, the issues which must be faced and the manner in which opportunities are to be assessed over the longer term. Apart from any other consideration, an objective set in financial terms is rarely motivational: making more money for shareholders or directors does not tend to inspire the troops.
With the vision in mind, the business objective defines it in more concrete terms and brings it closer and more sharply into focus. If achieved, it should be sufficient to ensure significant progress towards the vision. Although not stated in financial terms, the business objective should point the way to the achievement of whatever financial targets have been set for the business. It is the ‘what?’ of strategy development. In order to be understood by everyone, the business objective should be expressed briefly and in simple language – preferably in one short sentence of no more than 12 words, which normally starts with, ‘To ….’.
8* What is the business strategy?
This is the ‘how?’ of strategy development. It is the means by which the objective will be achieved. A useful test of the validity of a strategy is that it will be both necessary and sufficient to achieve the objective. Again, it should be stated briefly and simply so that it can be readily understood and recalled by everyone in the business. A business should only have a single strategy. Multiple strategies lead to confusion. The statement of strategy needs to inform and direct all subsequent actions of the business. If it cannot be expressed in one short, simple sentence it is not clear. Ambiguous statements of strategy are a recipe for corporate confusion and ultimately, death. A useful house rule for statements of strategy is that they should not exceed twelve words. With many management teams this is a contentious point. They often refuse to believe that a statement of strategy for a large and complex organisation can be reduced to a single sentence without being either a catch-all or absolutely bland and therefore useless. It is hard to prove this point before the event. However, experience shows that it is not only possible, but vital. It is also very time-consuming as it forces choices to be made and then expressed with absolute clarity. In order to help distinguish between strategy and objective, try starting the strategy sentence with, “By ….”
9 What is the competitive position?
This is where the company is or wants to be in the market. It is the essence of an organisation: what the market recognises as distinguishing the company from its competitors. The definition of competitive position again forces managers to make choices. By deciding the basis upon which the firm will compete, a management team is avoiding the ‘everything to everybody’ trap which leads inexorably to mediocrity. Instead, it is deliberately choosing to concentrate effort and resource where it judges they will be best used. By doing this well a firm will distance itself from its competitors and improve performance. At the same time managers are also saying what the competitive position is not and what the business will therefore not do.
A statement of competitive position needs to be based upon an objective analysis of the company’s own, and its major competitors, strengths and weaknesses and an understanding of the external environment of the business. Critical to the development of a defensible competitive position is a clear view of the market needs being served and the ways in which competitors attempt to address those needs. It is a relative position and forms the cornerstone of any marketing programme.
10 What are the sustainable competitive advantages?
In order to compete successfully over time a company needs to have, maintain and develop competitive advantages. These are the key competitive strengths which will allow the business to compete in the long-term. What other advantages could be built? What will the business have to do in order to maintain and improve its competitive advantages over time? The identification of these advantages and an understanding of the extent of advantage conferred will follow from an objective analysis of the market, major competitors and the company itself.
11 What are the organisation’s resources and capabilities?
This requires an internal assessment of the organisation in order to identify possible areas of weakness or difficulty and key areas of actual or potential strength. This analysis needs to be related to an assessment of what are going to be the critical abilities for the future. Therefore, while it is internally focused, it needs to be related to an assessment of what will be required to win in the market place of the future. It is useful to evaluate these attributes in relation to competitors as strength is a relative proposition when considered as a competitive weapon.
Since the 1990 HBR article by Hamel and Prahalad, resources and capabilities have tended to be described as ‘Core Competences’. Core competences are derived from combinations of skills, experience, knowledge and technical capability that provide a company with unique qualities. Many of these qualities are in the heads or hands of the workforce, may take many years to build and are very difficult for competitors to replicate even if they have been recognised. It is important for the organisation to consider how these competences need to be maintained and developed in future?
An assessment of competences should be carried out to determine the extent to which they are compatible with the ambitions identified as they may need to be changed, developed or new ones acquired. The question of organisational fit is relevant here as is the whole question of resource-based strategy. In simple terms, organisations may be constrained by their competences or lack of them, and ‘fit’ suggests working on the basis of limited ambitions. This is quite contrary to the idea expressed in the vision question which stressed the inspirational and stretching qualities inherent in the statement. Lofty ambition requires innovative ways of overcoming obstacles and enhancing resources in order to scale new heights. It is the difference between walking and flying. Nevertheless it is very important that a management team understands the resources it has available and what additional resources it would need to develop in order to execute its strategy successfully and move towards achievement of its vision. Resource-based strategy does not necessarily mean that a firm has limited ambitions. However, there is a danger that by focusing unduly on existing resources and capabilities a business rules out innovative ventures that require new resources. And, of course, a resource-based approach to developing strategy, which is essentially internally focused, is insufficient by itself. No organisation can deny the importance and indeed pre-eminence of the market.
The questions posed above need to be answered clearly and consistently. If this is done, the answers can be interrogated to determine what actions need to be taken and where there are information gaps. This is achieved by asking another series of questions including:
- What do these statements actually mean? For example, if a company wants to be the world leader:
- how is the market defined?
- what is the market size?
- what share is implied by the ambition?
- who are the current competitors / leaders?
- what timescale is proposed and what growth rate is implied – is it achievable?
- What needs to be done by the business if the ambitions are to be realised? – specifically and in detail
- Do we have evidence to support the answers? If not, where and how can it be got?
- Are there any significant information gaps?
Planning and Implementing Strategy
Strategy development without well thought out and executed implementation is merely idle dreaming: it is interesting, fun even, but ultimately, useless. Strategy development requires good information, dedicated time and a great deal of hard thinking. However, 80 – 90% of the time, effort and resources that go into effective strategy need to be directed at making it happen. During the planning and implementation stage of the process it is vital that a robust and actionable implementation programme is prepared in order to ensure that the hard work of developing the strategy is not wasted. Short-term milestones can be identified at this stage and used to monitor performance against the plan. This helps to ensure that the process remains on track and provides the basis for a feedback process that allows all involved to monitor and assess their performance.
12 What are the tactical plans and how will they be implemented?
Tactical plans can be prepared using the same framework of questions as just mentioned, simply taking the high level strategy as the starting point. These plans translate the strategy into detailed actions. They also need to highlight milestones and measurements so that success can be charted. Tactical plans are unlikely to look further ahead than one or two years and will generally cover the main operational or functional areas of the business.
Three sub-sets of these questions are particularly important:
- what resources are needed?
- what is the time scale?
- who will be responsible and accountable?
One of the most critical elements of an implementation plan is communications. Everyone who is affected by the strategy or who will need to take action as a result of it needs to know what it is and what it means to them in their job. This may seem to be a daunting task, but strategy often fails through poor communication. As a general rule, it is impossible to communicate too much.
What Should It Do For Us?
Objectors to this approach often argue that it is too precise: it locks managers into what appears to be a rigid set of words. Their case rests upon the fact that the precision of the statements is unnecessary; it constrains people and limits their personal contribution. In practice, the opposite happens. A well thought out strategy with an ambitious and inspiring vision and objective clearly articulated, is liberating. It frees-up the creative energies rather than constrains them, by providing a framework for individuals to reveal their talents secure in the knowledge that they are contributing to the overall success of the enterprise. Also, because brevity and clarity are at its heart, it lightens the dead hand of corporate bureaucracy and encourages flexibility, which enables rapid response without the risk of going completely awry. Senior management can delegate secure in the knowledge that their subordinates know what is required. This really is delegation and not abdication and it facilitates the empowerment that many talk about, but so few achieve.
In recent years, great emphasis has been placed on taking layers out of organisations and delegating responsibilities down to the lowest possible level. Commendable in many ways, but in the absence of an understood and agreed strategy, is potentially a recipe for chaos. It is also demotivating as middle and junior managers become frustrated as their attempts to make progress are thwarted by their inability to get simple, unambiguous guidelines as to what is required. All too often they are covered by a layer of corporate cotton wool, which stifles their initiative. A well thought out, articulated and communicated strategy removes this cotton wool. Of course, this also has the potential disadvantage that it removes the comfortable cushion between ‘us’ and ‘them’.
How Do We Assess Strategy?
It is vitally important that the answers to the strategic questions are consistent. It should be possible to trace the logic of the strategy down from the vision and up from the tactics. The strategy should then inform all subsequent decisions. If something which does not fit the strategy arises, then either it cannot be done or the organisation must revise the strategy. However, if the strategy has been well thought out then it is unlikely to require frequent change. A strategy is not immutable, but it should be robust and enduring. This does not mean that it cannot be challenged, rather that it should be capable of withstanding all but the most fundamental challenges emanating from the business environment. Most certainly, it is not something that requires changing on a weekly, monthly or even annual basis.
In order to evaluate the strategic process and the resultant strategy we can test against the criteria presented below:-
- Clear: a statement of strategy must be clear and unambiguous. It should not be capable of accidental misinterpretation. Each individual who hears or reads the statement has to understand the same message.
- Concise: statements of objective and strategy need to be brief: simple sentences of no more than twelve words each.
- Consistent: a vital ingredient in strategy formulation and implementation is consistency. Even if they are not the very best, a consistent set of ideas well implemented are likely to succeed.
- Communicated: the best possible strategy is of little value unless those who are required to operate it know what it is. Ideally, everyone in the organisation should know what the strategy is and what it means for them in their job.
- Credible: ambitious and lofty, inspiring and motivational a strategy should be, but it should also be just within the bounds of possibility. Overly ambitious strategy emanating from a poorly performing business tends to inspire derision not commitment. At every level the gaps between words and deeds are soon spotted.
- Capable of implementation: if we can’t do it, it’s no good. In part, this means that it must not be so complicated that we cannot work out how to make it happen.
- Choices: both created and forced. Good strategy forces us to make choices in its development and once developed, allows us to exercise our choice of action within its bounds. Importantly, these choices enable us to decide quite easily what we will not do. One client described this as the in-tray test, “I got back to the office and binned half of my in-tray because it was not relevant to the strategy.”
- Quantifiable: although the objective is stated in terms other than financial it must still be capable of measurement. This allows short-term milestones to be set to help monitor progress.
Another important test is, “Does it feel right?” Unscientific it may be, but it is undoubtedly valid. Experienced managers instinctively know when something is right. This is also an argument in favour of an iterative process of development that allows versions to be tried on to see if they work. No matter how clever, if managers don’t like, believe or understand a strategy they are unlikely to make it work. A client described this element in the process as, “A blinding flash of the obvious.”
A caveat: things that are important are not necessarily strategy. Many things need to be done in a business, but that does not make them strategy, it just makes them important. A classic example of this arose in the BT Payphones business in the late 1980s. BT was attracting a great deal of public criticism because only around half of all payphones were working at any time and it became vital to fix the problem and restore public confidence. In late 1987 Sir Ian Vallance BT’s Chairman, promised publicly that by March 1988 BT would have 90 per cent of payphones working. The first step was to institute an emergency programme of remedial work: essential yes, strategy no. Whilst this operational imperative was being achieved work started on developing a strategy using the approach outlined in this paper. The resulting strategy was highly successful for BT and remained in place essentially unchanged, for almost ten years until mobile telephony really started to take off in the UK.
Clear ideas simply expressed help the company’s cause inside and outside the organisation. Financial investors and analysts tend to respond favourably to straightforward statements of organisational policy. They too recognise that trite mission statements and bland, catch-all objectives are products of woolly thinking that signals an absence of rigour in the decision-making process.
Ultimately, the test of strategy is, ‘does it work?’ The only problem is that we don’t usually know the answer to that question until it is too late, so we are left with having to rely upon a robust and rigorous process, which is what this paper sets out to present.
One final point: the approach presented here may not be entirely consistent with the academic theory presented in most text books on strategy. In part, that is because the approach was not developed from existing theory. Rather, it arose from attempts over many years to find strategic solutions to real problems: it is in essence, an attempt to find a practical solution that really is capable of delivering robust, workable strategy. The acid test is does it deliver? Evidence from consulting work over the last 30 years suggests that the answer to that question is, yes it does.
© John Marti 1986 – 2017
Winchester Strategy Group