Wednesday, June 22, 2011

Making Your Strategy More Relevant


Since the idea of a "business strategy" — a long-term plan for growth and profitability — was first developed in the early 1960s, companies around the world have used this tool to pick a competitive position and make their way closer to it.
But many business leaders seem to be losing their confidence in strategy, or at least in their own company's approach to it. This is evident in our ongoing Booz & Company survey, which asks executives from around the world to comment on the results of their strategic initiatives. With more than 2,350 responses so far, the findings suggest a high degree of disillusionment:
  • Most of the respondents (53%) don't feel their company's strategy will lead to success.
  • Two thirds (67%) say their company's capabilities do not fully support the company's strategy and the way it creates value in the market.
  • Only one in five (21%) executives think their company has a "right to win" in all the markets it competes in.
What is going on in these companies? You might say executives are reacting to turbulence: The world is changing so fast that any effort to stick to a strategy will be futile. And in some sense, companies can only profit through speed — adapting immediately to external pressures and moving rapidly to exploit new opportunities.
Yet there are some companies that have prospered for decades while essentially following the same strategy. Among consumer companies, Alberto Culver , whose long-term growth success led Unilever to acquire the company earlier this year, and Coca-Cola come to mind. In financial services, the brokerage Edward Jones (subscription needed to view article) a good example. These and other success stories suggest that the problem is not with strategy itself as a basis for decision-making.
A more likely explanation is that, in many companies, strategy has grown diffuse over time. Leaders have allowed a host of strategic initiatives to take hold over the years, each developed with the best of intentions. Some strategies were put in place to hold on to an established customer base or to maintain a longstanding profitable business. Others were started in one part of the company as it expanded into new markets. Some may represent the past direction of an acquired business. As they solidified through the years, each of the strategies established a legacy within the company, along with adherents, supporters, and functional investments.
The resulting incoherence is evident in the survey findings. Almost two-thirds of the executives who have responded so far say their biggest frustration is "having too many conflicting priorities." An even greater majority — 82% — say that their growth initiatives lead to waste at least some of the time. Experience suggests that, if anything, these results are understating the problem. For example, how many of the following strategic planning practices have you seen yourself?
  1. Running multiple strategy projects whose outcomes contradict or undermine each other;
  2. Creating strategies for independent functions like IT or sales, without clearly demonstrating how these relate to the overall company's priorities;
  3. Chasing growth as your highest priority, and thus making expensive commitments to new products or projects that turn out to be riskier than expected and that take away focus and investment from the core business;
  4. Establishing a strategy based primarily on annual budget decisions, without investing in the capabilities you need to compete;
  5. Benchmarking competitors to make strategic investment decisions, ultimately leading to a lack of differentiation (if everyone followed benchmarks, everyone would compete in the same way); or
  6. Setting an aspirational "stretch goal" strategy, without changing the company's practices or approach to execution, and thus providing no viable way of getting there.
It's no wonder that so many business leaders don't feel their company's strategy is going to lead to success — and thus end up muddling through with no overall direction.
The Value of Good Strategy
In their race for growth and their continued efforts to cut costs, many leaders forget the true enabler of profitability, value creation, and competitive advantage: a company's distinctive corporate identity. This identity, as defined by what the company does rather than just what it sells, has been built up over time; it is grounded in the company's differentiating capabilities (what it does better than anyone else) and its "way to play" (how it provides value for its chosen customers). A company with a distinctive way to play, and the capabilities to match, has a natural advantage in attracting customers, employees, and investors.
Your own strategy must therefore clearly reflect your company's identity. You need to take into account your company as it is today: What do you do particularly well? How do you create value in the markets you currently serve? Your strategy must then look ahead to your overall chosen direction. How do you expect to create value in the future? What changes do you need to make, overall as one enterprise, to get there?
This is not purely a "market-back" or outward looking approach. Nor is it purely internally focused on your core capabilities. It is both. Only when you identify what you are great at (the few most important capabilities that work together in a system that is very difficult for others to copy) and how this greatness matches with market needs do you have a value-creating strategy.
The more disciplined you can be, looking at these critical questions with an eye for your whole company's strategy, the more relevant and robust your strategy will be. Yes, the world is turbulent. And yes, growth will always be important. But responding to market volatility and the need to grow with multiple, unrelated strategy initiatives will leave you where most executives report to be today: chasing too many strategies and lacking the strength required to win in the marketplace. The only reliable way to earn your right to win is to answer the question, "Who are we going to be?" — and define the company by what it does better to deliver value to customers than any other player.

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