The Balance of Strategic Choices

What Choices?

Strategy is first and foremost about the Strategic Choices to do some things that we already do, but do them differently, or do other things than we do today. But Strategy is also about which things we will not change. So, choices and counter-choices. In his book The Three Box Solution, Prof Vijay Govindarajan goes one step further and suggests that Strategy is also about what we must forget, or not do anymore, releasing resources for the new things we want to do, or do differently. Here is a quick 3-minute reminder, if you need to revisit his theory:

Then, Strategy is about Strategic Gaps, or about what denies us the possibility to turn our Strategic Choices from intention to reality ... by tomorrow morning. Or, in other words, about what is missing or not done as required for fully supporting our choices. That is why Strategy, and mostly Strategy Execution, is about closing gaps (process gaps, organizational gaps, external partners gaps, cultural gaps, etc.), something that will certainly not be possible overnight. Month, or rather years will be required to close all those gaps.

Ok, enough with the theory about what Strategy is, or what it is supposed to be. Let us focus on the choices that define our Strategy. They are of two kinds of choices:

Choices about Where-to-Play

The two dimensions of Strategy: Where-to-Play and How-to-Win, have been defined by Prof. Roger Martin and A.G. Lafley, the former CEO of Procter & Gamble, and described almost ten years ago in their book Playing to Win. The Strategy is defined by our choices along these two dimensions.

On one hand, we must choose what categories of customer Jobs-to-Be-Done (JTBD) are we intending to best serve on the first dimension of our Strategy. This is the dimension about customer needs, about JTBD Arenas. The Penta Model Alpha is grouping our possible choices on this dimension, guiding us on picking from several alternatives rather than scratching our heads about possible alternatives every time we must make decisions along this dimension. You can find out more about the Penta Model in the article What Strategic Choices Do We Have?

Want to dig a little deeper into these Where-to-Play choices categories? Take a look at the Penta Model Alpha - Level 2 Strategic Choices categories of this dimension, as they add more details to the alternative choices available to us:

Choices about How-to-Win

This is the second dimension of our Strategy. It defines the solutions that we must design to best solve the customer JTBD that we have selected on the first dimension. It is about what characterizes our intended Value Proposition, which we hope that our customers will prefer against the competing ones, pulling our product or service into their lives for solving their needs. Evolving from the theory created 12 years ago by Prof. Arnoldo C. Hax and described in his book The Delta Model, the Penta Model Beta is grouping our possible choices alternatives on this dimension.

As in the case of the other dimension, we have available a Penta Model Beta - Level 2 that details the alternatives of the Strategic Choices categories available to us on this second dimension of Strategy:

Choices and Counter-Choices in Balance

In Prof. Vijay Govindarajan's Three Box Solution theory, there is a tension between the last two boxes: (a) Box 2: The Past - Abandon ideas, practices, and attitudes that could inhibit innovation and (b) Box 3: The Future - Convert breakthrough ideas into new products and businesses. That tension is mostly driven by the fact that our resources for growing the company are usually limited. So, we must reshuffle some resources from one side to the other.

Let us clarify this a little bit. Strategy is not about doing the same things as before, but better. That's the job of Continuous Improvement for Operational Effectiveness, which is not Strategy. Strategy is about doing things differently, or doing different things.

Prof. Michael Porter says:

"Operational Effectiveness means performing similar activities better than rivals perform them. However, that is not a strategy, it is a necessity."

Therefore, the first box in the Three Box Solution, (c) Box 1: The Present - Manage the core business at peak profitability, is about Continuous Improvement for Operational Effectiveness. This takes it out of the strategic tension inter-play between (a) and (b).

Now, from all the above considerations, we may understand that our Strategy must be very clear about what to do (+) and also about not to do, or no longer do (-). In other words, for each choice we make about doing something, as part of our Strategy, we must pick a choice about what not to do, or a counter-choice. Or, the sum of our choices must be balanced by the sum of our counter-choices.

Therefore, our choices of doing must be accompanied by other choices of not doing, or in Prof. Govindarajan's words, by other choices about what to forget, in case those were our choices before, as part of our former Strategy cycle.

What does it mean for our Penta Model? Let us remember that we are working here with a simplification of reality, like in the case of any model. We have grouped the virtually infinite number of possibilities to chose from on the two dimensions of Strategy, into a model of 10 x 10 choices categories. Or of 20 x 20, if we consider model's Level 2.

Within this modeled world of limited choices, we must keep a balance between what we chose to do, as part of our Strategy, which is our mix of Strategic Choices, and what we must forget, or abandon, or not chose to do. We should be able to clearly state that:

Within the Penta Model, these are our Strategic Choices (+), and these are NOT our Strategic Choices (-). These are our Choices and our Counter-Choices.

Once we have been able to state that, our Strategy about what we are going to do and what not do should become crystal clear!

At this point, I have to admit that what is illustrated further below requires a certain shift in thinking, as it always happen when we are moving from the full reality to an inherently limited model. More specifically, in our day-to-day life, we are used to pick certain choices and not bother much about the choices we didn't pick. We implicitly make choices from a reduced mental model sub-set, rather than considering all possible alternatives out there.

For example, without any intention of hidden advertising, we may decide to buy a new car that is a Renault (therefore in the budget category), pick their latest model, the Arkana (latest model, always a popular choice), and from the versions available, we choose their full-hybrid model (as we decided to move to a more eco-friendly type of car). By the way, this model marked Renault's entry into the compact crossover SUVs category, otherwise dominated by the likes of BMW's X6 and Mercedes's GLC Coupé.

The fact is that we could have picked any other brand, model, or version in the world, probably giving us a virtual infinite number of hundreds or even thousands of alternatives, from which we have to pick only one car to buy. But let's be fair: we haven't picked from those hundreds or thousands of alternatives. We have created a mental model composed of (a) budget brands, (b) latest models and (c) hybrids. As a consequence of our mental modeling, we only had to pick one from probably a dozen or so alternatives.

This is how conscious or subconscious modeling works. Same goes for the Strategic Choices in our Penta Model, except that we usually pick a mix of choices, not just one.

The Balance of Choices and Counter-Choices on Where-to-Play

Probably the best introduction to this balancing act of choices and counter-choices is the illustration below, which we may call Strategic Choices Balance Canvas for illustrating our choices on the Where-to-Play dimension (Penta Model Alpha):

On the X-axis, we have the ten Strategic Choices categories (A1-E2) on the Where-to-Play dimension of Strategy. For each of them, we have defined two extremes: the top one defines how a strong focus for that choice category would sound and the bottom one defines how the opposite of that choice, or how a strong unfocus in that category would sound like.

For example, what would be a strong choice in the C1 - New Geographies category? It may be Expansion & Localization in countries or regions where we would like to expand our business and address the JTBD that we are currently addressing in today's more limited geographical area. What would be the opposite of that choice, or the counter-choice? It could be the Deeper Penetration in our current geographical area, therefore no New Geographies choice in our new Strategy.

We will pick several of these choices, and give them positive focus strength values, on the Y-axis, and also mark the other choices, as counter-choices, and give them a negative unfocus strength value. This might sound odd at first, but I trust that we'll better grasp this rationale in a minute.

What is the No-Choices Area in the middle? It represents the weak choices area on which our focus or unfocus exists but tends to be meaningless in strength for our Strategy. For this reason we should mark the chosen strengths values in the +2 to +5 values, for the choices, and in the -2 to -5 values, for the counter-choices. It's also worth mentioning that the -5 to + 5 Y-axis scale is a relative one. You can pick a -10 to +10 scale, for example, if you like that better, for better granularity.

Does this kind of canvas look familiar to you? It should, as it resembles the Strategy Canvas described in Prof. W. Chan Kim's and?Renée Mauborgne's book Blue Ocean Strategy. It looks like this, in an example for [yellow tail] wines, in the wines industry:

Unlike in the Strategy Canvas, our canvas has Strategic Choices on the X-axis, instead of Competing Factors, and it has both positive values (choices) and negative values (counter-choices) on the Y-axis.

Ok, we've got our canvas for Strategic Choices Balance, but how do we illustrate our choices and counter-choices on it? Here is an example:

What does this diagram tell us? First, that we have picked four choices as part of our Strategic Choices Mix, on the Where-to-Play dimension:

• A1: We'll focus on a number of mid-market segments of JTBD, providing to our target customers some highly-customized solutions. In other words, our customers' JTBD is highly specific and cannot be addressed by general solutions.
• A2: We'll focus on the high-end of the market and the most sophisticated instances of the targeted JTBD. Obviously, we won't build solutions for some simple, plain-vanilla jobs that our customers are trying to get done. They will be complex solutions.
• B2: We'll focus on distributed, indirect sales channels, extending our network of dealers, agents, or franchisees, in case we are using a franchise system. So, those targeted JTBD require some specialized assistance to be provided by the trained and specialized workforce of our local partners.
• C1: We'll focus on extending into new geographies and increase the level of localization that we offer in each local market. Obviously, we have identified that the JTBD that we are currently serving in our existing market are insufficiently addressed in our new target geographies, but they will require that we localize our Value Proposition.

So, that's where we'll play, according to our Strategic Choices, on this dimension. I hope it got a little bit clearer. What about the counter-choices? Where will we NOT play?

• B1: We won't focus on having our own locations close to the customers whose JTBD we are targeting, nor can we deliver our solutions over the Internet. However, we will need to have our own local offices in each new geography, to manage & train our new partner networks. That's why the unfocus strength for this counter-choice is -2, not -5.
• C2: We won't extend our business neither downstream (creating our own network of local stores and servicing units), nor upstream (into our suppliers' business), although we will continue to explore these choices' opportunity in the future. In other words we will retain our current Value Stream place, as part of our Strategy. No choice here, just a counter-choice, close to the maximum negative value.
• D1: We won't look into entering addressing any adjacent JTBD, and stay focus on what customer jobs we have been addressing until now. However, the specifics of certain new geographies may provide us the opportunity of limited experimentation with adjacent JTBD. That is why the unfocus strength is not at the maximum negative value.
• D2: We are not aiming to change our Value Proposition to address substitute JTBD, but possible differences in local culture and specific appetite for substitutes may provide us opportunities to explore this venue for future adaptation of our Strategy. That is why the negative strength value brings this counter-choice towards the border of the No Choices Area, with the potential to become a choice, sometimes in the future. Thus, the lower negative unfocus strength value for this choices category.
• E1: We would like to stick to addressing the mature customer JTBD that we have learned and well understood so far. However, we should not take out off the table entirely the possibility to look into some emerging JTBD of marginal customers or non-consumers, in order to understand if any simplification of our Value Proposition, or any lowering of specifications cannot expand our targeted JTBD, with significant potential benefits. So we have given this choices category a lower negative unfocus strength value.
• E2: Given the specifics of our industry / arena, the potential for the appearance of significantly different JTBD, or of completely new, unexplored ones, is reduced. However, since this is a potentially high-impact choices category, we will keep it under observation, therefore not given it the maximum negative unfocus strength value.

The Quantitative Balance

As you can see, we have followed a principle of balancing the sum of positive strength values of our four choices with the sum of negative strength values of our six implicit counter-choices. In other words, the more focus we allocate to our choices, the more should we unfocus on the other choices, which become our counter-choices.

Does it make sense? Do you like it? Has this logical exercise of choices balancing clarified our Strategy, at least from the point of view of which are our choices, our implicit counter-choices and where will our focus be concentrated, requiring the corresponding changes in our processes, organizational structure, allocation of resources, and so on, for the new Strategy cycle?

If you are at least slightly positive about this, let's move on to the other dimension of our Strategy: How-to-Win in our chosen playing field.

The Balance of Choices and Counter-Choices on How-to-Win

Similar to the one for the Where-to-Play dimension, here is the Strategic Choices Balance Canvas for illustrating our choices on the How-to-Win dimension (Penta Model Beta):

The X-axis and the Y-axis have the same meaning, except that on the X-axis we have the ten Strategic Choices categories (F1-J2) of the Penta Model Beta. For each of them, we have defined the corresponding extremes: the top one defines how a strong focus for that choice category would sound, and the bottom one defines how the opposite of that choice, or how a strong unfocus in that category would sound like.

For example, what would be a strong choice in the G2 - Added Value category? It may be High Added Value, including information for how to use a product (e.g. a Chinese basic recipe booklet added to a Wok frying pan), services added to the product (e.g. road-side assistance for a newly purchased car), an extended range of accessories to complement or extend product's functionality, a buy-back option at the end of product's life, and so on. What would be the opposite of that choice, or the strong counter-choice? It could be the bare-bone product, maybe with an increase in quality and/or a lower costs of production, which would command a lower sales price.

Here is an example of using the Strategic Choices Balance Canvas for illustrating our choices on the How-to-Win dimension (Penta Model Beta):

What does this diagram tell us? First, that we have picked four choices as part of our Strategic Choices Mix, on the How-to-Win dimension:

• F2: We'll focus on offering advanced set of features for our solution that targeting the identified customer JTBD. It is the core of our product leadership Value Proposition. Something similar to what Apple does in the smartphone
• H1: We'll also focus on enhancing the exclusive channel where the customers can get our products and their associated services, a channel to include our agents, dealers and franchisees, if we use a franchise system. So, we won?t be using any general online stores, hardware stores, or any channels alike. The only exception are our larger dealer stores, where customers may shop for other products, typically complementary to our own, but under our supervision.
• I1: We'll focus on developing our product line as a de-facto standard, opening up the integration specifications for our growing network of complementors, some of them involved only as partners, others also acting within our sales channel.
• I2: We'll focus on maximizing the use of our technical expertise and our product leadership, enhancing such capabilities to the top excellence level that can be found in our industry. This allows us to support the other choices in our Strategic Choices Mix.

So, that's how we'll win, according to our Strategic Choices, on this dimension. I hope it got a little bit clearer. What about the counter-choices? How did we decide that will NOT be the way we'll win?

• F1: We won't focus on cost reduction, as our solutions solve complex and challenging JTBD of out top-market customers, and this commends a premium price. An aim to achieve the lowest price position is not part of our Strategy and Value Proposition. However, some of the new technologies that we are researching may have a cost reduction effect, when being put into production, therefore the negative unfocus strength value lower.
• G1: Since most of the customer interface is managed by our agents, dealers of franchisees, we won't focus on the managing Customer Experience ourselves. However we will set the CX standards that our partners must adhere to.
• G2: We won't focus on increasing the Added Value of our Value Proposition, since that will be achieved by using the complementors aligning to our standard core product, but we will set the core platform for integrating the Value-added Services provided by our partner network.
• H2: We won't focus on building a multi-sided business platform, but focus on the direct serving the customers for whose JTBD we have built our Value Proposition.
• J1: Given our increasing product leadership position in the market, which provides a stable relationship with the customers whose complex JTBD we serve through our advanced Value Proposition, we won't focus on creating an alternative disruptive Value Proposition, for the foreseeable future. We will keep an eye on any disruptive offerings that may affect our target market.
• J2: We won't focus on building a completely different solution for our customers' JTBD, because we aim for an achievable market leadership position in the top segment of our current customers, based on the already confirmed value of our Value Proposition. However we will monitor any emerging blue ocean offerings in our business arena.

As you could notice, we have in our examples a mix of four Strategic Choices categories on both dimensions of Where-to-Play and How-to-Win, but this only a coincidence. We can have any number of choices, on any of the two dimensions. But the fewer the choices, the weaker the counter-choices will be, in order to keep a balance between what we choose to do and what not to do, as part of our next cycle's Strategy.

So, here is how we should balance our Strategic Choices, during the Strategy Formulation process. Of course, how we evaluate the anticipated Influence Factors on the Strategic Horizon considered, for selecting our Strategic Choices Mix, is another part of the process, which precedes the process of balancing our choices & counter-choices as described here.

Thank you for investing your time to read this article. Did you enjoy it? As always, I am looking forward to your suggestions, questions or bricks, the only way we can improve what has been described in this article.

Other?Strategy Clockwork?newsletter?articles:

The Strategic Alignment

Strategy Skunk Works

Don't Rely on a Single Strategy!

Without a Plan, Strategy is a Fairytale

Design Thinking inside Strategy

Beyond [static] Balanced Scorecard

The Deeply Integrated Strategy

The Game inside Strategy

The Corporate Balanced Scorecard

The Strategy Clockwork Newsletter

Enjoy!