The Deeply Integrated Strategy

We see today many discussions about how Strategy is not Planning. About how Strategy, once formulated, needs to get done, or about how Strategy needs to be clarified before it gets executed. Most of these discussions are in fact examples of the disconnect between the two core processes and inter-related cycles of the Strategy Management: Strategy Formulation and Strategy Execution. Of course, some people prefer the terms design instead of formulation, or deployment instead of execution, or other such variations, but that's mostly semantics, as they mean the same thing.

We have discussed a lot about the integration between these two processes and their inter-related, mutually-feeding cycles. In the latest article (The Game Inside Strategy ), and in other previous articles and posts, we have explored a dual-cycle process that covers the whole Strategy Management process, called The Strategy Clockwork, from which we have borrowed the title of this newsletter series.

However, some of us might need to go beyond the nice general diagrams and better grasp the deep integration between Strategy's formulation and execution processes. This article is an attempt to clarify how this deep integration is performed.

I have already given the proper recognition to several fundamental theories that have guided our strategic thinking during the last couple of years. To mention just a few:

• The Product/Market Fit concept that we owe to Andy Rachleff . The core of Rachleff’s idea for PMF was based on his analysis of the investing style of the pioneering venture capitalist and Sequoia founder Don Valentine
• The Zone to Win framework that integrates the Three Types of Innovation theory of late Clayton Christensen and McKinsey's Three Horizons of Growth . We owe this framework to Geoffrey Moore , the author of Zone to Win .
• The Execution Premium Process (XPP) that represents the evolution of the initial Balanced Scorecard framework that we owe to Prof. Bob Kaplan and Dr. David Norton , a six-stage advanced and field-tested methodology for Strategy Execution, first time described in The Execution Premium that they have co-authored.

These theories contain the seeds of the deep integration between the Strategy Formulation and Strategy Execution processes. We just need to connect the dots. Let's start.

The Competitive Advantages

We all know, more or les precisely, what the Competitive Advantage is. But why use the plural? Because, as Prof. Rita McGrath explained in her The End of Competitive Advantage , the Competitive Advantages travel in transient waves that come and go in an evolutionary cycle illustrated by the image below:

This shouldn't be difficult to understand, but how do we pass, as a business, from one Competitive Advantage to the next? And where do these Competitive Advantages come from? That's the interesting part. We owe the deep understanding of this process to the Zones to Win framework, which reshuffles the Three Horizons of Growth in this special sequence:

1. We must first defend our Current Competitive Advantage by focusing on improving our Performance and Productivity. That's our Horizon 1 and our first two Zones to Win that we should focus upon.
2. We must Incubate the solutions that will potentially support our Next Competitive Advantage through research and experimentation. That is our Horizon 3 and the next Zone to Win that we must finance with a percentage of the resources gained from the first two zones.
3. Once we have successfully incubated a commercially-viable solution (or a Minimum Viable Product - MVP, if you like), we must Transform it into the Value Proposition that will provide us the Next Competitive Advantage. That is our Horizon 2 and our last Zone to Win that we should focus upon, at the right moment.

Confused about McKinsey's Horizons of Growth reshuffling? This image might help:

(click the image to enlarge)

What might not strike us immediately as obvious is that we should focus in parallel, most of the time, on all our Zones to Win, although they relate to two different Competitive Advantages, supported by at least two different Value Propositions. Due to our always limited resources, this is not an easy thing to do.

Here is the chip of understanding that must fall in place, at this moment in time:

Our Strategy must focus in parallel on both our Current and Future Competitive Advantages and consider in parallel three Strategic Horizons.

Which Strategic Horizons? The ones depicted in this diagram that shows how our two Competitive Advantages (Prof. Rita McGrath's waves), are overlapping in time.

(click the image to enlarge)

So, we have several overlapping stages of evolution of our two Competitive Advantages (current and next) and three Strategic Horizons:

• The Performance & Productivity Strategic Horizon, which is the timeline for focusing on our respective two Zones to Win, until we reach the disengagement stage of our Current Competitive Advantage
• The Incubation Strategic Horizon, which is the timeline that we have available for incubating one commercially-viable Value Proposition, as a foundation for our New Competitive Advantage
• The Transformation Strategic Horizon, which is the timeline that we have available for having a market-validated New Competitive Advantage, based on that incubated Value Proposition, to replace our current one.

For an easier understanding of the process, I have divided this entire timeline into four time intervals. If you like, consider each of them equal to one year. Which means that we have one three-year Strategic Horizon (Performance & Productivity), a two-year Strategic Horizon (Incubation) and a four-year Strategic Horizon (Transformation). This gives us the logic to use the plural for our Strategic Horizons.

Conclusion: Our Strategy is built upon two Competitive Advantages (current and next) and on three Strategic Horizons, one for our current Competitive Advantage (focused on increasing the performance & productivity), and two for our next Competitive Advantage (focused on a new solution incubation and on its transformation into a market-validated solution, allowing us to replace our diminishing results Current Competitive Advantage).

Strategic Choices and Required Capabilities

I assume that you are familiar with the concept of Strategic Choices along the two dimensions of the Strategy: Problems-to-Solve and Solutions-to-Deliver. If not, it might be useful to review a prior article in this newsletter series: The Balance of Strategic Choices .

Within our Competitive Advantages context, here is a nice question about Strategic Choices: Do we need one Strategic Choices Mix for each Competitive Advantage (current and new)? Well, yes. Of course, the two mixes may share some common Strategic Choices, but in principle, the two combinations of choices should be different. That is because the Value Propositions and the needs targeted (the Jobs-to-Be-Done), on which the two Competitive Advantages are based upon, are certainly different.

To achieve Product/Market Fit, every Strategic Choice that we have selected requires one or more distinct Capabilities to support its realization (moving from the whiteboard into reality). The same applies to a number of distinct Activities that must be performed in conjunction with the Required Capabilities, but for simplicity sake, we refer to both as Capabilities or Sets of Capabilities that support our selected Strategic Choices Mix.

Now, considering the two Competitive Advantages (current and new), our three Strategic Horizons and the four Zones to Win, how could we illustrate our Strategic Choices Mixes and required Capabilities Sets? Let us consider this:

(click the image to enlarge)

Several observations might help here:

• The Strategic Choices realization takes time, months or years, so we must build the Required Capabilities in stages that bring our choices to reality, step by step.
• We can start building our Required Capabilities for the Performance & Productivity Zones (Horizon 1), as well as for the Incubation Zone (Horizon 3), as soon as we kick-off our Strategy's execution. However, the Transformation Zone (Horizon 2) capabilities cannot be approached unless we have succeeded to incubate a commercially-viable Value Proposition on which our New Competitive Advantage should be based upon.
• The last batch of capabilities for our Performance & Productivity Zones (in support of our Current Competitive Advantage) is dedicated to switching as many as possible of our existing customers from the old Value Proposition to the new one. We use the singular here, but depending on the structure of our business portfolio, we might have a Competitive Advantage backed by more than one Value Proposition.
• The staging of the Required Capabilities development for the Incubation Zone usually follows the three phases of the Design Thinking process: (a) Empathize-Define-Ideate (the Jobs-to-Be-Done discovery), (b) TestA (internal)-Prototype, (c) TestB (customer testing).

(click the image to enlarge)

• The last stage of capabilities building for the Incubation Zone overlaps with the first stage of building the required capabilities for the Transformation Zone (innovators and early adopters), a zone which follows the general evolution of the technology adoption life cycle described by Geoffrey Moore in his Inside the Tornado : (a) Early Market, (b) Bowling Alley & Tornado, (c) Main Street. The overlap is necessary for allowing the capabilities within the Incubation Zone to assist the new capabilities of the Transformation Zone in crossing The Chasm.

• Finally, it should be self-understood that the development of capabilities in the Incubation Zone do not take a break until the New Competitive Advantage reaches main street. It goes on, restarting the incubation of the next solution foundation for another future Competitive Advantage. For simplicity sake, that next incubation iteration is not illustrated fully in these diagrams..

The Strategic Gaps to Close

The deep integration of the Strategy Formulation and Strategy Execution processes is now on the right track, but the following stage is of paramount importance.

Of all the Required Capabilities developed along the three Strategic Horizons, some are completely missing from the existing Capabilities System of our business. However, we do posses some of those capabilities, although they might not have the required configuration. By comparing what exists with what is required, in terms of Capabilities (and associated Activities), we can determine the Strategic Gaps that we have to close during the Strategy Execution process.

This is an important step because now we can turn our Strategy's accomplishment into a tangible portfolio of projects aimed at building or reconfiguring a set of very well-defined Capabilities and associated Activities. And because the changes performed within our three Zones to Win are partially overlapping in time, we expect that some of the gaps-closing projects will be overlapping, as well. Their illustration would look like this:

(click the image to enlarge)

The resulting sequencing of the high-level Strategic Initiatives (projects aimed at closing the Strategic Gaps) represents a high-level Strategic Plan that is used for validating the feasibility of our Strategy's execution. It covers the full length of the Strategy's cumulated Strategic Horizons and all its multiple iterations cycles. The feasibility validation process happens with the Stage 5 of the Strategy Clockwork cycle. In case any of the internal or external constraints do not allow for performing those projects with an acceptable probability of success, the Strategy Formulation process is restarted from any of the prior four stages whose decisions have lead to breaching the constraints.

The Strategic Plans

Assuming that we have reached this far and finished the Strategy Formulation process by generating a consistent sequence of high-level gaps-closing initiatives, we can step into the Strategy Execution process, which starts with the detailed Strategic Planning for the first cycle (year).

Although the diagram below illustrates the main components of the consecutive Strategic Plans (the Strategy Maps, with their perspectives and themes), the Strategic Planning process is performed only for the first cycle (year) and, once that plan's execution is finished, it is re-started for the following cycle. This approach allows us to consider the effective outcomes of Strategic Plan's execution during the prior cycle.

(click the image to enlarge)

Several observations can help us better understand this diagram.

• The Strategy Maps illustrated are using the new perspectives format that was proposed last year (Prof. Bob Kaplan ).
• The Strategy Maps themes (the vertical grouping of Strategic Objectives) correspond to the two Competitive Advantages that we are defending or building and to the Zones to Win that correspond to the three Strategic Horizons considered.
• As a consequence of defining the Strategy Map themes in this way, we will have a variable Strategic Plan structure from one cycle/year to the next. This also leads to a variable number of Strategy Map themes.
• The Strategic Objectives are not illustrated in the Strategy Maps. Important: As a general rule, they are defined from the aggregation of convergent and common-focus Strategic Gaps to be closed. The Strategic Objectives are accomplished when their constituent Strategic Gaps get closed, as an effect of performing the Strategic Initiatives that are associated with those objectives.

Conclusion: By building the Strategic Plans around the Strategic Gaps and by having their Strategic Objectives defined by aggregating gaps to be closed, as resulted from the Strategy Formulation process, we are now able to ensure a deep integration between the two main Strategy Management processes (Strategy's formulation and execution). Please find below the full stack of this approach to a Deeply Integrated Strategy.

(click the image to enlarge)

If you would need to pick only one thing from this article, I would say that this idea is worth remembering:

Build the Strategic Plans around the Strategic Gaps resulted from Strategy Formulation and define plans' Strategic Objectives by aggregating those gaps that we must close during plans' execution.

As always, your feedback, including questions, observations or bricks, is more than welcomed.

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 Game inside Strategy

The Balance of Strategic Choices

The Corporate Balanced Scorecard

The Strategy Clockwork Newsletter

Enjoy!