Defining strategy so your organization can soar
We had this difficult conversation with a client CEO recently:
Amphora: We are having a hard time getting anyone on your leadership team to articulate your strategy.
CEO: Why do they need to know?
Amphora: We would think that strategy should be guiding their decision making.
CEO: My team understands that we win by being first to market with new product features and delivering best in the category customer support.
Amphora: Yes, but no matter how great those new product features are, they eventually get copied and margins start to go down.
CEO: Right, so then we have to find the next feature or customer segment where we can win.
Amphora: And how do you do that?
CEO: Well we’ve always been able to do it before.
Amphora: And what will the next opportunity be?
CEO: I don’t know today, but I’ll know it when I see it.
Many mid-sized companies become successful based on the intuition and experience of the CEO (often the founder) and sometimes one or several members of the Senior Management Team. Oftentimes they understand particular customer problems well and have developed offerings that uniquely solve these customer problems. Growth in the business comes from; growing the customer base within their target segment and expanding their share of wallet among customers in the target segment by expanding the scope of the solutions.
The company is served well in this model because through history and experience the management team has developed an empirical understanding of what works and what does not. Over time, through hard work and sometimes trial and error, they refine these understandings and can be extremely effective and successful driving a business based on the experience base and understanding of the CEO and/or core Leadership Team.
However, as companies grow to a certain size this approach to running the business is often no longer sufficient: 1) The company’s success leads it to expand to the limits of the customer set and scope of problems available to it, further growth is outside of its “intuitive strike zone”. 2) The company becomes big enough that the resources of the core Leadership Team become strained by the sheer volume of decisions to manage. 3) and sometimes, There is a market disruption (new technology, new entrant) such that the experience and intuition of the management team no longer reflects the current market realities. It is in these circumstances where a well-articulated strategy becomes an important tool to augment the talent of the CEO/Leadership team.
It is true that there are counter-examples of larger companies that , have been guided by visionary CEOs who have intuitively connected offerings and customer needs in ways that revolutionize markets. But these are few and far between (usually in B2C) and, ‘it has always worked before’ is no guarantee that it will work in the future. Even the genius of Steve Jobs which brought us iTunes and the iPhone, was also responsible for the Lisa, the Newton, the Apple III and the long-forgotten Pippin gaming system.
So, companies above a certain size eventually need to articulate their strategies, not just have it in the leader’s head. This is the premise that led to the name of our book, “Grassroots Strategy.” Specifically, we believe that good ideas can come from anywhere, so with more people looking for the next opportunity you are more likely to find it. At the same time, not every idea can be turned into good business, so you need a framework to guide and evaluate this ground-level strategic thinking. In fact, this is one of our definitions of strategy: “a framework for allocating resources that produces more than the sum of marginal decisions.”
It would seem to be straight forward to explain the strategy of the business yet in our experience many companies still struggle creating a well-articulated strategy. We believe there are a number of reasons:
- First, strategic thinking requires a different skill set than instinctively running a business. Just like the best players often make horrible coaches because they cannot articulate what seems like second nature to them in a way that is helpful to others, the same is true for many entrepreneurial leaders.
- Second, as companies mature or change ownership, there is a natural tendency to focus on financial outcomes. “Our new private equity owners want to double EBITDA in four years” may be a good objective, but it is NOT a strategy.
- Third, for many entrepreneurs, the idea of focus can be scary. Focus means ruling out options, declaring things that you will not do. This can sometimes feel like it is constraining and consciously or unconsciously, some leaders fight it.
- Fourth, many company leaders believe that their business and their strategy is too complicated to explain to others (perhaps even including their board and some of their functional teams) Yet in our experience, if you can’t explain your strategy you probably do not really have one. We are reminded of the ‘mother-in-law test’: if you can’t explain what you do in words that your mother-in-law would understand, then maybe you don’t really understand it yourself.
- Fifth, declaring a strategy for others to execute may feel like a loss of control. Many entrepreneurs whom we have met have an amazing capacity to remember details – reminiscing about every customer interaction, the way you remember the milestones in the life of your own child. Delegating some of this interaction and judgment to others can feel like a personal loss.
When business leaders explain to us that, “they will know it when they see it,” we can’t help but be reminded of the famous quote by Supreme Court Justice, Potter Stewart writing in 1964 on determining whether a movie was obscenity or protected speech, “I know it when I see it.” Just like that decision was a cop out that has led to decades of legal decisions constantly redefining that boundary, it is inadequate when it comes to a definition of strategy.
To be successful at the next level, executives have to learn to articulate their strategies – getting them out of their heads and onto paper, so they can become tools for the rest of their organization to adjust and improve. While not exhaustive, below are some thoughts that might help in this transition:
- Recognize that the essence of strategy is choice – specifically how will we make trade-off decisions where reasonable people might disagree. Developing a framework that clarifies what we will do and what we won’t do, and why this might be different from our competitors’ view, can go a long way to clarifying your strategy.
- Don’t get overly focused on objectives – yes goals are important but setting financial targets too early in the process can actually inhibit strategic thinking, or worse create distractions and inefficiency to meet some arbitrary goal. Your strategy should be built around making the most of the hand you have been dealt, not meeting some arbitrary quantified goal.
- Understand that you can’t please everyone – allocating a few resources to every plausible idea may seem fair, but it is likely far from optimal. Picking the handful of initiatives that are most likely to succeed and doubling down on them may not make everyone happy, but it is almost always a better way to maximize results.
- Live the strategy – recognize that every strategy has some ‘gray area’ and how you make decisions around these boundaries will form the ‘case law’ that impacts how your organization interprets the strategy. Not long ago, we were working with an industrial equipment company on a strategy to shift scarce technical resources to new product development and away from supporting low margin legacy products. Specifically they decided that supporting the nearly 50 year old Model 400 series products was on their ‘won’t do’ list. About two months into the roll-out of the new strategy, a customer called and wanted technical support on their Model 400 machine. Not wanting to say ‘no’ to a customer, the CEO relented – technical resources were diverted and their strategic initiatives suffered. Worse yet, the organization learned that it is ok to work on Model 400 machines as long as a customer asks, putting the credibility of the entire strategy at risk.
As we have said elsewhere, for these reasons, doing strategy well is hard work. It requires stepping back from the unrelenting pace of day-to-day judgments and practicing a different way of thinking. It requires exploring what could be, not just the customers and opportunities that are visible at the moment. Yes, it can be difficult and lead to some awkward conversations. But in our experience, it is almost always worth it.
Further, strategic thinking is a learnable skill – just because an organization has not lived through a real strategy exercise before does not mean it is impossible. With grounding in our “Grassroots Strategy” principles and a little coaching, organizations can make tremendous progress, creating a strategy that aligns the organization, focuses resources, and accelerates results.