There is a failure at the heart of most businesses: they simply don’t have a strategy that works. Despite all the effort and talent that goes into a strategy process, most management teams, after months of analysis and discussion, somehow contrive to come out with something that is simultaneously incremental and unclear. It’s little wonder that fewer than 1 in 4 senior executives agree that they make strategic decisions during their strategic planning process.
At its heart, a business strategy is a framework for action and decision-making that enables you to succeed. So why is so hard to get right, and why does it take so long? There are 7 reasons why the results from many strategy processes are so anaemic:
- A focus on planning rather than strategy. Most business strategy processes are tied into the annual planning process. Unfortunately, this means that planning usually wins. A strategy process starts with a view of what kind of business you are trying to build. Your first tasks are to clarify how you can best win in the future, to agree your level of ambition for your company and to determine what size and shape of organization will enable you to make this happen. Once you have alignment on these issues, you can then determine some of the key steps you need to take to move you from your current position to your strategic future. In most planning processes, however, these questions are rarely asked. Instead, The big management discussions are not on major issues of strategy but on detailed budgetary issues, such as whether the gross margin target should be 29.64% or 29.65%. It’s little wonder that a survey of thousands of senior executives found that fewer than 25% of them said that they made major strategic decisions during their strategic planning sessions!
- Incremental Thinking. Although a planning-led approach will almost inevitably deliver incremental gains, a shift to a strategy-led approach does not guarantee that major breakthroughs will follow. Incremental thinking is driven by your own mindset as it is by a particular process you follow. A Business Week survey once found that the most important factor driving the success of many of Silicon Valley’s most successful entrepreneurs was an ability to ‘experiment fearlessly’. If you always need to be right, and you aren’t ready and willing to be wrong, you will only ever take incremental steps. You will never reach out far enough to set specific, stretching goals, never mind take the actions that would help you achieve them. I’m not suggesting that you should take reckless actions, but without prudent risk there is unlikely to be material gain.
- Putting Financials Ahead Of Ideas. A few years ago I was working with a retailer that was looking for new growth ideas. One of the ideas suggested was to target a new group of customers through a non-retail channel. The potential prize was huge – up to 50% top-line growth. There was one problem, however: the initial financial modeling suggested that the profit margins would be only half of the margins delivered by the existing retail business. For that reason – and that reason alone – the idea had been dropped. It took a proactive and persistent commercial manager nearly a full year of negotiation with the executive directors to show that, if certain changes to the new idea’s business model were made, the profitability could increase. A certain level of analysis is essential for business strategies to succeed. But without a greater focus on ideas, you will simply end up with a greater understanding of your current market position, rather than a compelling basis for driving new profitable growth for your business. Figure 1 compares analytical approaches with creative approaches to strategy. Which best describes your strategy development processes?
- All vision and no direction. A vision is not a strategy. Unfortunately, many executives believe that creating a vision can equate to setting out a growth strategy. It doesn’t. Your people may be inspired by your vision, but it won’t necessarily help them decide how they should focus their efforts. Only when you have sufficient clarity that helps determine your managers’ daily actions can you be confident that you have a strategy that is capable of becoming embedded across your business.
- A Failure To Make Trade-Offs. Making trade-offs means that you’re giving something up and, if you’re not 100% confident in your stated strategy, it is more than tempting to hedge your bets, have a look at what the competition is doing and say to yourself “Let’s try a bit of what they’re doing.” The result is that your own business spends all its time keeping up with the Joneses, rather than trying to create something that is distinctive and uniquely valuable.
- Insufficient focus on action. Few, if any strategies emerge from implementation unscathed. By pursuing your big objectives, implementing your initial plans and taking action you are likely to change, in some way, the direction you have set. It is only by learning from your actions that you can really clarify how you can best succeed in the future. The results of your actions will drive your strategy at least as much as your strategy drives your action. The critical aspect of this process is to learn as quickly and as cheaply as you can. Your ability to create competitive advantage is, to a large extent, driven by your ability to operate this cycle faster, cheaper and more effectively than your rivals. I can’t say it any better than Michael Bloomberg, the founder of the eponymous financial information and media empire, who put it like this, “We made mistakes of course. Most of them were omissions we didn’t think of when we initially wrote the software. We fixed them by doing it over and over, again and again. We do the same today. While our competitors are still sucking their thumbs trying to make the design perfect, we’re already on prototype version No. 5. By the time our rivals are ready with wires and screws, we are on version No. 10. It gets back to planning versus acting. We act from day one; others plan how to plan – for months.”
- A reliance on external consultants. As a consultant myself, you won’t be surprised, to read that I think that consultants can help you create a better strategy more quickly. But this doesn’t mean that you should delegate strategy to a consultant. On the contrary, it’s essential that if you and your team are to lead the delivery of a new strategy, you must first fully own it, and that only happens if you’ve been fully involved in all aspects of its development. As Dennis Sadlowski, the former CEO of Siemens Energy in the USA once told me, “Engagement starts with involvement, and I ensured that the executive team and key managers at the next level in the business were intimately involved in the development of our growth strategy. We didn’t rely on external consultants to tell us the way forward; we led the work ourselves, doing our own blocking and tackling to make sure we understood the detail.”
Which of these 7 reasons are preventing you from creating a clear and compelling strategy for growth, and what steps can you take to address them?
© Stuart Cross 2014. All rights reserved.