All posts in Strategy

Every business executive recognizes that strategy is important. However, it is also challenging to make predictions about unpredictable future events. Roger Martin, in a recent Harvard Business Review article (Jan/Feb 2014), offers some advice on the three most common mistakes in creating a business strategy.

First, business plans are not a strategy. Planning involves detailing expected initiatives and operational improvements. Business plans forecast sales and revenues for the next annual cycle. Strategies, on the other hand, may be less certain in nature and should focus on the long term. Instead of describing specific initiatives, a strategic focus will identify market opportunities.

Second, strategies aren’t perfect. Whereas business plans for the next annual budget cycle should be accurate, strategies allow room for new information. A business plan must forecast revenue and costs to help manage capital, investments, and human resource processes. Strategies look further into the future and try to envision a company’s footprint in an emerging marketplace.

Finally, the third mistake companies make is to not have a strategy at all. Logically, these firms ask, if the future is not controllable, why should we try to anticipate it at all? Of course, failing to consider the future is a recipe for disaster. Firms that fail to develop a business strategy are often short-lived.

Business strategies must focus on the long-term viability of the firm. This means framing opportunities and risks in the marketplace. Strategic outlooks will examine customer needs and satisfaction far more than cost-cutting conditions. Decisions are made based on the company’s fit and alignment in the industry rather than a quarterly metric.

Creating an effective strategy is tough work. It’s easy to fall into the trap of substituting a detailed operation plan for a strategy. Yet, focusing on tough decisions and anticipating industry trends and risks will better prepare your business for long-term success. For more information on creating an effective, long-term business strategy, please contact us.

While strategy tends to focus on long-term goals and designing a new vision for the firm, risk management is a useful tool for strategic planning. Competitive threats to a business need to be recognized and acted upon in order to successfully implement strategic decisions.

Strategy may be defined as the mission, vision, and values of a firm. Strategic planning involves a roadmap to deliver competitive products and services, new technologies, and improvements to markets and customers over a three to five year period. Risks are identified as unknown events or uncertainties that can negatively impact the firm.

For example, Russell Walker, author of “Winning with Risk Management,” identifies two categories of risk: explicit or implicit, and finite or persistent. In the former case, explicit risks are known and recognized as part of the business strategy. Implicit risks are unknown but are typically accepted as part of the cost of doing business. A finite risk is represented by a bank loan, for instance, in which a maximum loss is known in advance. Persistent risks have long-term impacts and may be quite complex in nature.

As further examples, an implicit risk is one that cannot truly be separated from the act of implementing the business strategy and conducting the business of the company. For instance, accepting the uncertainty of shipments during periods of bad weather is an implicit risk since the shipments must go on yet the direct cost to the business of delayed delivery is difficult to calculate.

Finite risks, like the category of explicit risks, are known and capped with a maximum investment. If a company goes bankrupt, a stockholder’s loss is finite and limited to the amount s/he has invested. The investment itself was considered strategic while the downside is restricted within a range of the investment. The finite risk can be managed by the amount of the investment, for example.

Perhaps most troubling from a strategic standpoint are the persistent uncertainties. These risks can linger for years and can have impacts over a very long period of time. Often, persistent risks are manifested through liabilities, such as environmental or regulatory impacts. Consider examples of asbestos and silicone implants that were strategically important innovations, but left persistent risks with companies long after production was halted.

Strategic planning should be an endeavor to find the best market path forward. However, the most competitive firms will continually analyze the markets, technologies, and customer data to manage potential risks.

Most organizations recognize that having a clear strategy clarifies the goals and objectives of the firm, leading to higher rates of success. On the other hand, many companies also struggle with fully defining their strategy.

In “Playing to Win,” a new book by Proctor and Gamble CEO A.G. Lafley and Roger Martin, strategy is condensed to four key, actionable principles.

First, an organization must identify its “winning aspiration”. In other words, what is the purpose of the enterprise and why is the company in business in the first place? Further, the authors specifically stress “winning” in defining goals and objectives. Employees and management alike become more vested and passionate about succeeding when they view the competition from a winning mentality. Participating in a market just to play the game will not lead to a long-term, profitable strategy.

Next, “where you will play” and “how you will win” are integrated and complementary strategic choices. It is important for firms to identify the customers, markets, technologies, and products for their goods and services. Equally important is a decision on where they will not play. As Harvard business professor Michael Porter has said, “You can’t be all things to all people.”

Following the key choices regarding customers, geographies, and other segments, the organization must identify core capabilities to accomplish their goals. These competencies span from technical know-how to management systems and IT that support strategic decisions. A common question is “do we invent in-house or license technology?” The answer, of course, is it depends. Competency building within a firm depends on consumer understanding and commitment to speed to market.

Finally, management systems, offer support, coaching, and mentoring for work teams charged with carrying out the strategy. Employees should be trained to leverage core competencies while the human resources department reinforces the organization’s commitments by bringing depth to the available talent pool.

Strategy is a tough subject to address and it requires an investment by senior management. The categories of choices laid out by Lafley and Martin should help any organization begin to clarify its strategic objectives.