Demystifying strategy through action
posted 13.10.09 by Damon Hurst
Is it just me, or is "strategy" one of the most over-used terms in the modern language?
I'm trying to think of a sentence, particularly in a business context, where inserting the word "strategy" as a prefix would be baulked at. It has become a coded word, implying a higher level of thinking, and in my opinion used so often as to be somewhat meaningless. Examples in my recent experience include:
"It's a strategic meeting, you must come." So if it's not a strategic meeting, then it's not worth going to?
"...delivering the football down the vacant left flank...(deeper voice)...on strategy." How would the commentator know what their strategy is?
"I know it's classified as operating expenditure, but it's really a strategic spend so it should be added back." All operating expenditure should contribute to building the business - that doesn't justify adding it back.
According to the Collins dictionary, the word originates from 17th century Greece and is defined as "the art of planning a war". In a business context, the idea first started gathering momentum in the USA in the late 1930's. Its link to competition can be traced to academic economist Joe Bain in the 1950's, who ironically, with an anti-trust orientation, was trying to stop USA's biggest companies from making too much money.
In 1979, his anti-moneymaking perspective was turned on its head when the Harvard Business Review published How Competitive Forces Shape Strategy, by Michael E.Porter. This ground-breaking paper became the blue-print for the emerging "science" of strategy: how to define an industry and make money from it. For many of us, our first experience of this type of model is a SWOT analysis.
In 2009, some thirty years later, Porter's Five Forces model remains highly regarded, even if it is, like all models, flawed. In Thirdman's experience, it's a great conversation starter in a workshop environment, and we use it extensively for the purpose of defining strategic development options. There you go, stuck "strategic" in that sentence without any context!
So what is strategy? The definition Thirdman relies on is "an integrated set of actions designed to create a sustainable advantage over competitors" (1). All of the key words within this definition are important, particularly an "integrated set of actions", which means doing rather than navel gazing. So how do you get there?
The starting point is answering the question, "Who are my competitors?" The answer requires that the industry be defined - an outside-inside perspective - and a task we suggest is made easier using the Five Forces model. The goal is to define your company's Value Proposition. I know, "Value Proposition", yet more hackneyed business jargon! Nonetheless, it's an efficient phrase to describe your offer, and how it differs from competitors from a customer's perspective - reinforcing again the outside-inside view. For example, a business offering the cheapest price is unlikely to be simultaneously offering the highest quality.
In designing your strategy, it is worth noting the terms "Value Proposition" and "Competitive Advantage" are interchangeable. The key in either case is that the defined value/advantage has to be sustainable. That is, even if a competitor can work out what you do, they shouldn't be able to easily replicate it. If they can, industry participants will compete on price alone, in a race to zero with all profits passing to the customers.
Once the Value Proposition is defined, it's then just a matter of rolling it out across the business system as an "integrated set of actions". In the real, fast-changing world we live in, this objective is far easier said than done.
By way of an example, let's stay with the strategy of offering the cheapest price and look at the hugely successful Australian business Super Cheap Auto Parts. They would need to ensure their "super cheap" mantra is implemented across their entire business system, which would include the following headline elements: technology, product design, manufacturing, marketing, distribution, sales and customer service. As such, one might expect a limited range of cheap goods, stacked on pallets in a self-serve environment.
If their marketing team developed packaging that allowed positioning alongside premium competitor products, the result might be higher dollar-value sales, but lower unit sales and increased distribution costs. Either way the business system would be clearly out of alignment with the business strategy, resulting in a confused message to the customer and probably internal conflict as staff sought to execute strategy from their differing perspectives. At Thirdman, we do a lot of work assisting clients to re-align their business.
Strategy obviously gains complexity as an industry scales. A cursory review of Super Cheap Auto Parts corporate profile today, after 35 years of growth, discloses annual sales of $800+million and equity valued at $500+million. The "super cheap" starting strategy is now dissected on their website across the following differentiators:
Products and Innovation: identifying and launching innovative value products, services and concepts quicker than our competitors whilst maintaining the relevance of our core range.
Learning and Development: providing development programs and career-long learning opportunities that attract, develop and retain loyal and passionate team members.
Customer Focus: having a clear understanding of our customers' requirements and delivering friendly and informative customer service through whichever channel our customers choose.
Core Systems: leveraging our core systems and infrastructure to provide efficient and cost effective multi-channel solutions.
Speed and Discipline: executing our plans with speed and discipline to ensure we achieve our objectives.
So why did Super Cheap Auto Parts move from a strategy of simply "super cheap" to a relatively complex set of differentiators?
The answer is reflective of the many changes to its industry over 35 years. This could be effectively analysed via the Five Forces prism, but what this analysis won't tell you is the "science" of strategy is very different to its real-life implementation, primarily because humans are involved!
An opportune moment to recognise another classic strategy model, The Balanced Scorecard, designed in 1992 by R S Kaplan and D P Norton, specifically for the purpose of turning strategy into action and taking the human factor into account. For many of us, our first experience of this model is Key Performance Indicators (KPI's).
The Balanced Scorecard illustrates the importance of four interrelated strategic perspectives: financial, customer, internal process, and learning and growth. Compare this theory to the Super Cheap Auto Parts differentiators listed above and there is an obvious overlap, particularly in the area of finding and motivating people to make it happen.
As with the Five Forces model, The Balanced Scorecard can lead to complex analysis. There have been many imitators and refinements to these models since inception, including a focus on cause & effect relationships via "Strategy Maps" and "Value Trees". We use both of these classic models extensively in workshop environments for the purpose of exploring, defining, and ultimately turning strategy into action.
So there you have it, strategy demystified!
(1) Definition of strategy attributable to the McKinsey Corporation. I have relied on their resources generally in writing this article.