Strategy: Finding your way through the darkness.

The definition of the word strategy as per Dictionary.com is, "a plan of action designed to achieve a long-term or overall aim".

For something so important, strategy seems to be a bit of a dark art.

I have been wondering. Is there a lack of common understanding of what a good strategy looks like? Or, at least, how to articulate good strategy in simple terms?

There are numerous strategy models, some of them below, but seldom a simple answer on what good looks like. It can very subjective and this is perhaps where leaders are going wrong. When we need more of them to get it right.

Speaking more about the dark art, strategy can be seen as something only understood by the 'smartest types' or the 'biggest thinkers'. But what does this mean in reality? Apparently there is no common, accepted definition of what is meant by 'strategic thinking' however General Andre Beaufre wrote in 1963 that it is a 'mental process' that includes characteristics such as the ability to analyse and synthesise large amounts of data to formulate a diagnosis that then informs a clear set of choices for the future (more on choices later). This means that people who have a cognitive ability to think with 'full rationality' (not bound by specific beliefs - i.e. with an open mind) are likely to be stronger at strategic thinking rather than people who think with 'bounded rationality' (bound by specific beliefs). It means the former is pretty rare. It becomes even more rare as we get older and gain experience; as our neural pathways apply and re-enforce our beliefs and by virtue of this evolution we bind the rationality of our thinking.

Phew, glad we cleared that up!

I have studied this a little more and have summarised my findings into 6 points. They can be taken individually or collectively and I hope they help simplify the idea of strategy and the process faced by those with the task of creating one.

1. First off, how we talk about strategy is important.

The consistency of the way we use the word 'strategy' in our daily vernacular is a problem. You probably hear people use the word strategy when they are referring to a long-term plan, a key decision or the forging of a partnership that supports a long-term outcome. Or when people are describing capability, the way something is set-up, a goal or way of working. These might be strategic and it is true that a strategy could contain all, but all are not strategy (nor individually or collectively). It is also true that these do have to ladder up and work in a synchronous way to turn any strategy into a successful one.

It is common for strategy to be simplified and defined as the idea of thinking or planning over the long-term; i.e. typically more than one typical planning cycle. Yes, strategy should manifestly be something that builds towards the long-term but it should always result in a series of choices and subsequent actions that occur over varying time horizons. Including the short-term. It is possible for very short-term choices to be highly strategic in nature.

Another challenge of language is the way people can confuse strategy with goals or something else that is specifically measurable. In a recent Harvard Business Review article on how leaders must ensure that they Don't Let Metrics Undermine Their Business, there is a lot of research showing how leaders require metrics to understand the concept of the strategy, because metrics give it shape and make it tangible. The problem arises when those leaders then substitute the overall aim of the strategy with these metrics, which, their research shows, has the consequence of the business focusing more on the metrics rather than the strategy. This then drives the wrong behaviour as leaders use the numbers to inform choices rather than the strategy. The result being that the strategy itself is not delivered.

2. Strategy. The fundamentals.

In another Harvard Business Review article 5 Myths About Strategy the author debunks a number of myths including the one about the time horizon for strategy always being long-term. This is encouraging.

The nature of what is right in one time horizon (short-term) can be wrong in another (long term) because of the forces context (Porter's 5 Forces Model). Just because something is wrong in the long term, it doesn't mean that it should not be done at all. It should just be done consciously. It should be chosen. This means all actions are potentially valid because they can have a long-term impact on the ability to win and, importantly, to win in a way that can sustain an advantage for as long as possible.

With strategy there are typically some fundamentals as outlined in Porter’s Generic Strategy Model that remain true in our ever evolving world.

It is a simplified view in itself but in business the ‘game’ is normally won through clear differentiation, cost leadership or a combination of both. There is a lot of detail that sits below these definitions but they typically underline the psychology of why customers buy a product or service from a business. Cost focus can be an effective tool, however leaders in business should tread with caution because it can be hard to sustain on its own.

When you delve into this model, lower price is very good for customers but it is not always sustainable for the business unless the lower yield per product is offset by material scale. The latter is normally only achieved when the product offering is something differentiated, otherwise a consumer's loyalty will be lower as the market will likely be populated with numerous substitutes. It needs to be a balance because lower price is easy to replicate and can devalue a product in the eyes of a customer. This can become a problem in the future as prices are eroded to a point where no one wins as the business providing it finds the product or service to be no longer viable.

Strategy, in simple terms, should be able to describe and articulate very clearly why something - battle, war, game or business / product venture - will be won. Why is very important. Not just what. Truly understanding why is crucial to winning.

Strategy should make it simple for leaders to set a direction, create consistent areas of focus (the big blocks) and be able to drive out decisions - by providing guidance on why some decisions are good and why other ones are not.

Strategy should then be turned into clear 'strategic' plans that guide the business from where it is now to where it wants to be.

Strategy should create clarity and enable the big choices.

3. Greater inclusion in strategy development equals greater buy-in.

Your strategy needs to stand up to scrutiny. Your own and that of others. This is really important and often under estimated. Winning is not easy. Strategy can often fall at the hurdle of critical analyses.

It is clear that leaders must set out a compelling strategy for how they believe their business or product can win. It is a major reason why people join and then stay with a company. It is how companies survive. Superlatives are aplenty as a necessary motivator but, as above, substance is also a motivator. Substance is important, really important.

This is where Porter’s 5 Forces competitive strategy model is useful because, in the process, it forces the developer of the strategy to take a 360 degree view:

Health warning: When using Porter's model to develop a strategy it is possible to get a negative outcome; but keep in mind that these models have been proven sometimes to not be bullet proof for all scenarios. Especially disruptive ones.

4. Disruptive ideas might not pass the Porter test. That is OK - sometimes.

An example of this was Toyota’s disruptive venture into the US in the 70s, into the mid-size car market. Despite all the Porter model analyses suggesting that the incumbent US auto-makers had the market stitched up, and that Toyota would fail, Toyota did it anyway on the basis that they believed they would win - because they believed their product was superior: more reliable, better spec’d and cheaper.

Well they were right, because, to this day, Toyota still dominate that category with US auto-makers wondering what the hell happened. For them it paid off.

A more recent example: Apple and the building of its iPod / iPhone / iPad platform with the vertically integrated iTunes ecosystem for downloading music, and the App Store for downloading its apps, was a strategic masterstroke. It means their product suite in the consumer market is almost impossible to replicate and therefore replace. They own, entirely, the end-to-end customer relationship and experience. Once the consumer picks their platform, then the ecosystem is pretty much a single shop. This is how they win.

5. Beware of blind spots in your thinking.

Blind spots in strategy development are, unfortunately, common place. Blind spots make a business vulnerable - very vulnerable. In fact, as we are seeing more and more, they can be terminal. Whilst acknowledging it is not always bullet proof, the Porter model does force the developer of the strategy to look at the competitive dynamics, the various power holdings (buyer and supplier) and the threats such as those who can replicate, replace or disrupt. The supplier power can be really important in a world where businesses are becoming more interconnected with other businesses through supplier / partner relationships. If the supplier / partner does not want to play ball or has the their own strategy that - even if indirectly - competes with your own then it could be a major decisive issue for whether your strategy will work. Any one of these can sink the strategy in its execution and stop the business or product from winning.

The Mintzberg model differs to Porter’s, in that it focuses in more detail on what is desired to be achieved and moves closer to the actual way of building an executable strategy; referred to as the 5 P’s of Strategy. It speaks more to the how and it is useful in that it will enable the developer of the strategy to outline the rationale for why and how their strategy will win, by creating clarity on where they are starting from and what the approach to moving forward should be.

6. Be clear what you want from the people who are executing it.

A significant and important thing that many leaders can get wrong or execute badly is being clear what they want from people. In the book the Art of Action by Stephen Bungay, there is a compelling perspective that traces effective use of strategy back to the Prussian army in the early nineteenth century.

Bungay says that strategy should be best informed without trying to predict, and waste time on, what cannot be known. It has to be clearly and simply articulated so that everyone understands it. It then has to be supported by a plan - one that those charged with executing have a high level of confidence in.

The plan needs to deliver on the outcomes. Otherwise revision at some level is needed. Revision, Bungay argues - by the way - should always be anticipated and therefore confidence in why it is still possible to win is of utmost importance.

Effective strategy goes back much further than the Prussian army: with reference to Chinese military general and philosopher Sun Tzu who is quoted often with memorable phrases like, "if you know yourself and know your enemy you should not fear the results of a hundred battles". In simple terms, understand who is playing, what they play with, and how they play. Then you stand the best chance of winning if you believe you can make choices that better them in one or more areas to overcome their strength.

In summary: life is rarely a zero-sum game but in strategic thinking it should be considered as such.

Leaders are well advised to develop a strategy that ultimately shows why they will win. It is this thinking, that pushes the boundaries of what leaders believe they need, or have, in their armoury to win in the game. In essence a strategy is not a strategy if it can't, in some way, answer this question.

Leaning on the Porter model a little for inspiration:

• The thinking should, first and foremost, be built from a sound understanding of what their customers want (external or otherwise). What are their needs? What job is being done? This is foundation for any innovation.
• Then, who and what are they competing with?
• What are the various competitive strengths, and also the weaknesses?
• How much power entities like suppliers have? Both now and in the future.
• The market and competitive dynamics; incl. threats over varying time horizons. So that when things change, as they inevitably will, the business will be best placed and able to respond.

Further, using the Mintzberg model, it should then be possible to bring together the why, what and the how to create something more executable - by creating clarity on the best approach to executing the strategy.

Finally, and crucially, leaders then need to make sure all the people charged with the execution of the strategy are also clear on why this strategy means their business or product will win.