The Game inside Strategy

Imagine that we are in a 'strategy meeting' and discuss our Strategy with other executive colleagues. We debate about priorities and uncertainty, and finally conclude that we'll adopt a Strategy that will drive us to do 'this and that' during the foreseeable future. Great!

But what did we do, in fact? We hypothesized that given the anticipated constraints and uncertainties, the best course of action for our company would be to do those things. But whether those things will cause the changed context and desired events to have the best effects upon our company is nothing more than a set of statements of causality based on hypotheses. Those hypotheses still need to turn out as valid. Same for the cause-effect relationships, which are also hypotheses in their own merit at this point, we must wait and see if they will be truly confirmed by the unfolding reality.

That is how Strategy goes, as a game of hypotheses about causality, whether we are aware of playing that game, or not.

But could we get away without hypotheses? Well, no. That is because we are talking about a future that is mostly not certain, unlike the past, which is immutable and known. So, we definitely must employ hypotheses when dealing with our Strategy, with Strategic Scenarios, with the sequence of Strategic Plans for executing our Strategy, and all the rest.

Ok, that should be clear. But what about causality, how do we deal with it? I won't ask if we could get away without causality, because our Strategy will have no logic if we don't understand that it is fundamentally a cause-and-effect construct. If that's the case, we might wonder when do we need to bring causality into our Strategy and how?

Let us look at this diagram that describes the workflow of activities for formulating and executing our Strategy. We call it the Strategy Clockwork, by the way. Click it to enlarge.

The workflow stages, from 1 to 10, should be self-explanatory, but just in case (for 1 to 5):

1. Strategic Analysis: We scrutinize the environment within which we will do business, trying to figure out how will it unfold in the future, then decide on the foundations of our current and future Competitive Advantage (as Four Zones portfolio /*), on our [strategic] Success Aspirations, and we try to anticipate the Strategic Horizons, or how much time do we have for achieving the required outcomes (in terms of Competitive Advantage maturity), for each of our four Zones to Win. Then, we must analyze the drivers that have the potential to reverse trends or deviate them significantly and build the Strategic Scenarios that we will need to switch to, when that will happen. Of course, hypotheses about causalities, once again. This is also the time when we must setup our Hypotheses Register that will hold all the hypotheses that we employ for building our Strategy Models together with their embedded [assumed] causalities.
2. Strategic Choices: As our Strategy is based on choices about what will we do in the future, and what we will not do, we need to make some important decisions about them. We call them Strategic Choices and they regard, first and foremost, the two dimensions of Strategy: Problems-to-Solve and Solutions-to-Deliver. But these dimensions have to be interlaced with (a) the deep understanding of our customers' Jobs-to-Be-Done (JTBD), as well as with (b) the prototyping of the solutions that will best do those jobs. In other words, our Strategic Choices Mix must be integrated with Design Thinking process's observations, insights, experiments and outcomes. Furthermore, we need to ensure that our choices on the two dimensions are consistent with each other. Once we have done that, we must also look at our choices for Business Models components that resulted from our Strategic Choices. How will we interface with our customers, along the Customer Experience (CX) journey? What suppliers and partners will we require and how will we manage them? And don't forget that our choices must be accompanied by our Three Box /** counter-choices: what positioning will we discontinue and which things that we did until now will we abandon?
3. Required Capabilities & Activities: For achieving our desired Strategic Positioning (the mix of our Strategic Choices), at the end of the anticipated Strategic Horizons, we must possess a number of mature Required Capabilities and perform at excellence level a number of Required Activities. That is our Capabilities System without which our Strategy remains nothing more than wishful thinking. The most important of them are the Coherence Capabilities (about how well can we support the choices that we have selected /***). But we also need to be able to support the Pivoting for Resilience and the outward-looking processes defined by our Business Models. And here comes an important observation: since very few capabilities in our system are independent of each other, we must start building our causality system at this point. We have a list of required capabilities and activities. Which of them cannot work without other capabilities on which they depend upon? Therefore, which should we setup first, and which after that? Of course, we must employ hypotheses about all this, but that is how the process goes. Some of us have been used to talk about cause-and-effect when discussing driving & driven Strategic Objectives in the Strategy Map. Well, there is nothing wrong about that, but if that's the first time when we bring causality into our model, it is too late! The roots of that execution-level causality are here, in the causal interdependencies within our Capabilities System.
4. Strategic Gaps: By comparing the capabilities that we currently posses, and the activities we excel at today, with the Required Capabilities System, we should be able to identify which are the gaps between them. They are those things that deny us the possibility to achieve our Strategy ... by tomorrow morning. That's it: without an entire Capabilities System to change and re-configure, we could decide on our Strategic Choices one day, and then have them reflected in the reality of our Competitive Advantage, the next day. A one-day Strategic Horizon! :-) Pure fantasy, of course. Closing those gaps, which we call Strategic Gaps, takes months or years. That is why we need a set of Strategic Plans, executed on consecutive cycles, until our Strategy will be achieved, at the end of the multi-annual Strategic Horizon. Now, since we have identified the interdependent causality relationships between our Capabilities and Activities, they can be transferred onto the resulting Strategic Gaps. This means that we know how to sequence the closing of the Strategic Gaps, something that represents the backbone of Strategy Execution. In consequence, we can now break down the closing of the gaps on consecutive cycles, based on gaps clustering and on the causality between clusters of Strategic Gaps. Eureka! We have just discovered the anecdotal link between 'strategy and execution' :-)
5. Validation Check: We may set our Strategy upon Success Aspirations to reach the stars and we might even imagine a way to do that. But however brilliant our Strategy might seem to be, we must also be able to execute it successfully. And this is where we find the 'strategy graveyard' where many Strategies get buried into the ground. Therefore, if we don't want to try executing a defunct Strategy, we must validate its feasibility (can we make those changes?) and viability (will we survive financially, after those changes are made?). There are several validation gates that our Strategy must pass through, together with the Business Model resulted from our choices. If all the constraints can be met and we can achieve a balanced operating budget while advancing through our sequence of changes, we can launch the Strategy Execution. If not, we must 'return to square 1', which might be any of the previous stages, but in most cases are our Strategic Choices decisions in Stage 2.

Once we have reached the Stage 6, and begun our Strategy Execution process, one of the first things that we do for our next execution cycle is to group the Strategic Gaps clusters that must be closed during that cycle into the Strategic Objectives of cycle's Strategic Plan. It may sound difficult at first, but after we have done it for real at least once, we realize that it is not just easy, it is also fun to do it.

Now, can you guess what is the second thing that we do after our Strategic Objectives have been defined? If you are a Kaplan-Norton BSC practitioner, you know this very well: define the cause-effect relationships between driving and driven objectives. But hey! we already know about the causality that links the Strategic Gaps used to build our Strategic Objectives. So all we must do is to review it and the arrows in our Strategy Map will appear right away. Bingo! We have just bypassed the often stressing stage of scratching our heads and pulling in more hypotheses about the causality relationships within our Strategy Map. We don't need to do that once again, because we have already employed a set of hypotheses when we have defined the causal interdependencies between our Required Capabilities & Activities. Based on that, we have equipped the resulting Strategic Gaps with causal relationships and now we can transfer them to our Strategy Map's causality system.

There is one word that defines what is described in the paragraph above: traceability. It means that if we question the cause-effect relationships between two Strategic Objectives, all we have to do is to look what Strategic Gaps must be closed for achieving those objectives. Then, what Required Capabilities & Activities are related to those gaps and, finally ... what hypotheses have we employed when we have identified the causal interdependencies between them. Simple.

The scope of this article has been to highlight the role of causality in formulating our Strategy and the transfer of causality, along a traceable linkage, to the Strategy Execution process. It is that traceability which allows us to minimize the number of hypotheses employed for building our Strategy Models and to better control Strategy's adaptability, during its execution timeline.

I hope you liked it, but we'll judge that based on your feedback, questions, observations or bricks thrown at the author :-)

Reference literature:

/* Zone to Win: Organizing to Compete in an Age of Disruption, Geoffrey A. Moore, Diversion Books, 2015

/** The Three-Box Solution: A Strategy for Living Innovation, Vijay Govindarajan, Harvard Business Review Press, 2016

/*** The Coherence Premium, Paul Leinwand, Cesare Mainardi, Harvard Business Review, June 2010

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 Balance of Strategic Choices

The Corporate Balanced Scorecard

The Strategy Clockwork Newsletter

Enjoy!