Too often, companies believe that the purpose of strategic planning is to find some magical ‘silver bullet’ that will solve all their problems and guarantee a path to profitable growth. A frustrating conversation with a client we had a few years ago comes to mind:
Amphora: What do you think of this draft strategy?
Client Executive: I don’t know, it feels like something is missing.
Amphora: Well, is there something wrong with our logic? This strategy should result in higher growth and higher profits.
Client Executive: No, but it’s based on information we already know, I was looking for a big idea.
Amphora: Yes, but this strategy is completely different than how you currently operate; it clarifies the underlying business trade-offs and forces different choices. Is there something you think we overlooked?
Client Executive: I just feel like there should be something more, like an outside-the-box idea.
Amphora: Is there any specific big idea that you think we should investigate?
Client Executive: I thought that was what you were going to come back with.
Expecting your strategic planning team to come up with the next big idea to guarantee profitable growth, is a bit like asking for a plan to lose weight without diet or exercise, or a plan to make money in the stock market without taking any risk. It would be nice if these strategies existed, but it is rarely the case.
Our experience is often the opposite – strategies are not about one big idea, rather they are a coherent set of actions grounded in a clear vision of your differentiation and how you can use it to win. The best strategies are based on defining your unique capabilities and aligning your business model around customer segments who value those capabilities. In our experience few companies do this well but when they do, the results are impressive.
Occasionally, this process produces some pretty big ideas. We’ve said elsewhere that we have a fondness for strategies that are ‘just crazy enough.’ If a new strategic direction doesn’t sound a little crazy at first, it may be that you are just describing what you do today, or worse, what everyone else in your industry is doing (of course, a strategy can be too crazy, if it requires technology that doesn’t yet exist, for example). But even these ‘just crazy enough’ strategies need to be grounded in your current situation and capabilities. If you are launching a new offering, or if your industry dynamics are changing, it may be a great time to consider changes in your business model, changes in pricing mechanisms or assumption of risk in ways that had been previously overlooked or dismissed. Selling ‘power by the hour’ is a well-known example of an idea that sounded absurd to many when it was first considered.
On the other hand, sometimes the best strategies seem obvious in retrospect: “of course that is our strategy, given who we are and the market opportunities available to us. Why wouldn’t we pursue this strategy and why would we allow ourselves to be distracted by other “opportunities”?” This doesn’t mean that a strategy is right just because it is comfortable; the underlying logic should still be robust. The process of articulating and pressure-testing your strategy may seem like hard work, and it is not as sexy as finding the next big idea, but it is usually far more effective.
If you are confused about the goal of the strategy process, there is also the risk of ‘dressing up’ a small idea to make it seem like a big idea in order to satisfy the strategy gods. Some may remember something called Efficient Consumer Response (ECR) that many packaged good companies pursued in the 1990s. The allegedly big idea was to get the product from the factory to the consumer as efficiently as possible, which leaves one wondering what the previous idea was. Too many companies used ECR as an excuse to spend millions on distribution and IT projects without addressing the root causes of the current inefficiencies, much of which was due to bad promotion policy (“loading the trade”) and had nothing to do with IT infrastructure. And, by calling ECR a “strategy,” some companies overlooked opportunities to create real winning strategies grounded in differentiation.
Yet this quixotic quest for a silver bullet strategy persists. Why is this? We have assembled a partial list of reasons:
- Hope triumphs over experience: It is enticing to think that there might be a quick answer that would solve most of your problems. As evidenced by the continuing stream of fad diets that produce best-selling books, the hope for a quick fix can overcome logic. In the business world, these quick fixes not only rarely work but can have major unintended consequences. We recall one client who cancelled all their distributors to pursue a direct sales model and two years later was trying to re-sign distributors after this strategy fell on its face because their previous distributors picked up competing product lines and largely retained their customers.
- The grass is greener: Sometimes the hope for a silver bullet is also fueled by the ‘grass is greener’ syndrome. We know all the difficulties and challenges of serving our current customers, if we could just penetrate this new market, everything will be fine. Again, this is rarely the case – the new market almost certainly has demanding customers and entrenched competitors that you just can’t see from the outside.
- Everyone else is doing it: We also find that the blind adoption of some big idea is more likely when ‘everyone else is doing it.’ Just like buying the latest diet book, some companies adopt the latest management fad and assume that it is a substitute for strategy. Adopting something like lean or agile may be a good idea, but if everyone else is doing it, by definition it is not a differentiator. Pursuing these goals may help the company improve, but at the risk of strategic drift without a proactive direction in the market.
So, what is a company to do to avoid this trap? Well first, clearly define what a strategy is. Strategy is about providing a framework for the choices you make that distinguishes what is good business for you in contrast to your competitors. Strategy is hard work, but there is no way to short circuit the basics:
- Be honest about the momentum of the business – how much of previous success was your company and how much was the market?
- Force your team to articulate what problem we solve for a clearly defined customer. Saying that everyone along the value chain is a customer may sound good, but it may also sidestep critical trade-offs that lead to important insights. When you can’t make both the distributor and the end-customer happy, whom do you choose? This is a good way to break out of “we’ve always done it this way.”
- Be brutally honest about your differentiation – what is its source and what is it worth to customers? If you have trouble identifying real differentiation, be honest about that as well, and turn your attention to where you could differentiate with focused effort.
- Look for sweet-spots where your differentiation solves (or could solve) a customer problem, ideally an unmet or under-met need, and clearly define the customer segment that has these needs.
- If possible, think about the potential for a business model flywheel that makes your differentiation more valuable and sustainable over time. What can you do with today’s customer to build scale, knowledge and/or capabilities that make you more valuable to customers in the future?
The result may not be the “big new sexy idea”, but if your logic is sound, it should be the roadmap to growth, profitability, and enhanced shareholder value. Coordinated action in a consistent direction will pay dividends: choose the right bait and drop your line in the right spot and you will catch more fish. In business, like in life, sometimes the big new sexy idea is that there is no big new sexy idea.
So, stop searching for the next fad diet and get on the exercise bike. It may not be fun or glamorous, but in B2B markets having the right strategy based on an understanding of customer value and a powerful needs-based segmentation of the market can lead to sustainable competitive advantage and that is actually pretty cool.