An unbeatable strategy in 5 Steps

(Value in 60 Seconds or Under 3 Minutes #8 - As with last week, probably closer to 5 to 8 minutes. But again I'm told by my trial readers it's worth the read.)

For thousands of years, expert strategists have considered strategy as much an art as a science. There is no doubt that experience paired with intellect, divergent thinking or creative problem-solving skills, and a disciplined commitment to the effort required to make things simple make the process of creating an effective strategy easier. That said, anyone with the right definition for what a strategy is, a straightforward methodological approach, and a willingness to ask the right questions can create an unbeatable strategy in 5 easy steps.

Step 1: Know What a Strategy Is!

You must be perfectly clear about what a strategy is and what differentiates it from a plan. No matter how familiar you think you are with strategic thinking, it is worthwhile to review what defines a strategy versus a plan and in particular understand what defines an effective strategy. For more details on what differentiates an effective strategy from a poor one, read Strategy is More Important than Ever Not Less. In summary, to qualify as a strategy, we must describe a focus for activity and an implicit or explicit set of conditions for an end state that, when successfully executed, guarantee the organization will achieve its desired goals irrespective of any reasonably foreseeable competitive activity or likely change to an arena. In addition, good strategies manifest several key characteristics. They are (1) easily understood and explained and (2) are a pragmatically useful tool in decision making and resource allocation, without being so detailed as to restrict how teams and leaders choose to execute, they make it clear how to prioritize competing tasks or demands on resources as well as what not do.

Surprisingly, I find this definition and these characteristics of an effective strategy cause even experienced senior management consultant and professional strategists to reconsider before getting started. It’s not hard. Nor is it complex. It just requires objectivity and a willingness to set aside preconceived ideas. To maximize your probability of success, you need to craft with clarity.

Step 2: Be 100% Clear on your Objective. Literally what defines success.

To create an effective strategy, an aligned system of operational capabilities, and a clear basis for prioritizing and making effective decisions, you must first have clarity about your organization’s objective. This is not a short-term goal such as “make a profit next year.” You can succeed at that and still fail for a host of reasons from cash flow to haemorrhaging customers to a superior competitor. Nor is this an airy, non-specific purpose such as “Make the world a better place.” The Allies in WW2 had a very clear definition of success: “The unconditional surrender of the Axis powers.” Apple’s objective under Jobs was to create a self-sustaining organization that accumulated an ever increasing number of irrationally loyal customers and sufficient profits that it could keep creating truly great products. These are specific, but generally not time-based objectives.

If you are not clear about what your ultimate goal is, and what parameters define it, you can not create a strategy to achieve it. Especially not in a volatile and ever-changing world. As much as this might sound like a no-brainer, many organizations miss this step. Instead of defining strategies that guarantee they succeed in achieving their ultimate goal, they define plans for achieving transient steps or short-term cosmetic representations that have some commercial value but ultimately do not represent their true objective as an organization. This mistake is regularly expensive and often fatal (for more on this see Confusing your plan for a strategy is an expensive mistake!).

Step 3: Map the Commercial Ecosystem

The next step is to holistically define the commercial ecosystem of exchange within which you will be operating. You need a detailed map of all the players and forces that define this ecosystem. What is the magnitude of financial flows between which players? What are the ultimate and proximate needs driving exchange? What non-monetary forms of value are exchanged or created? Consider status, novelty, belonging, mastery, and others (for non-monetary forms of value see Motivational Drive Theory (MDT) and the book A Deeper Truth). In some industries status in the form of prestige or the safety of a decision are more important than any economic analysis. In other decision processes, novelty is more important. What other forces or influences of what magnitude impact the decisions of the real people involved whether consumers or organizational customers? What is the size of the total market, what is the size of the obtainable market both in terms of discrete customer numbers and dollar values? Importantly, define these markets by ultimate needs not current offerings or the cosmetic characteristics of customer groups?

To do this effectively, it is imperative to ask and objectively determine what the ultimate and proximate needs are that underpin and drive the exchange between parties. Ultimate needs tend to remain the same irrespective of changes in social norms and technologies. Proximate needs, however, represent a current method for satisfying a need or component piece of a need that is a byproduct of the environment, the state of technology at a point in time, what is possible, or simply accepted paradigms for considering a need and how it might be satisfied. A double entry ledger book and bookkeeping software such as Intuit or Xero for small businesses are both good examples of products that address a proximate need. The small business operator has a set of related ultimate needs including complying with local tax legislation and understanding their profitability. The ledger book or bookkeeping software are simply a means to an end and proximate needs. An alternative solution that better fulfills the ultimate need will eventually replace bookkeeping software just as it has largely replaced the double entry ledger book. To do this objectively you must be aware of the paradigms of thought that influence or bias perception of needs, how customers are defined by their needs, why current solutions are chosen, and what forms potential solutions might take. (The difference between ultimate needs and proximate needs is covered in detail within A Deeper Truth: the new science of innovation, human choice and societal scale behavior.)

Now consider the hard trends or certain changes that will occur over time in and to this ecosystem, its environment, relevant technologies, demographic trends, and these players and influences. What changes will definitely occur to relevant technologies? What changes are definitively predictable based on hard science and technologies already developed but simply not yet commercial? Describe the ecosystem in its future state based on these known and certain changes. For example, when Australia decided to roll out its National Broadband Network (NBN) using copper cable from exchange to the home, 4G mobile technology was out of the laboratory and 5G mobile technology was being worked on, both of which would deliver substantially faster data speeds wirelessly and at a lower cost. Not only was it possible to predict the competitive environment for broadband 5 years out it was a certainty that NBN would not be competitive. When Netflix first started streaming video, it was already known that bandwidth speeds would soon exceed every requirement for on demand entertainment. It was possible that Netflix might fail, but the success of entertainment on demand was certain. From Moore’s law in technology to various definitive trends in demographics in countries like Japan and South Korea, there are a host of aspects of the near future that are determinable now. Incorporating them into your strategic view of the holistic ecosystem is imperative to success. You want to pass the ball to where the player will be not where the player is at the moment. You want to build for what is certain to be not the way things are today.

Step 4: What will guarantee success?

Having holistically considered and defined the ecosystem of exchange, ask yourself what set of characteristics of this environment and for your organization would combine to guarantee your organization will succeed in achieving your goal? A good strategy is the simplest set of such characteristics that your organization can reasonably work toward and achieve that will guarantee you achieve your definition of success. I’ve helped dozens of companies create strategies and while this idea is always contentious, it is always achieved. For more on this step, see “How to build effective strategy even in constant change.” In thinking about what will guarantee your success, ask what forms of exchange are most valuable? What would guarantee that you secure key customers or consumer groups? What forces or influences are of critical importance because they provide substantial or total leverage over others in the ecosystem? Also considered key standard strategic points in the customer or consumer lifecycle, areas that reduce competitive risks, and activities that reduce execution risk. These include:

1. Ensuring a value proposition that delivers psychological safety to the buyer. Psychological safety in this context refers to the decision makers perception that a decision will not put at risk their existing status, sense of belonging, or self-identity. Ideally, this is done while minimizing the cognitive load required to understand, consider, and decide to adopt an offering. Ensuring the cognitive load is minimized will assist in making decisions appear safe.
2. Look for ultimate needs and desired outcomes that are seen as important by a customer or consumer population but that are currently fulfilled by offerings associated with a high degree of dissatisfaction.
3. Offer multiple forms of value in addition to utility (e.g. status, novelty, belonging, mastery, gossip, and more). In the late 1980s and early 90s, to break Kaplan’s monopoly on the standardized test preparation market, The Princeton Review adopted a successful strategy of only targeting students that did extremely well on LSAT practice tests. This gave Princeton an unprecedented advantage. It worked by leveraging the reality that consumers will do and buy what their high status and successful peers have done and often do irrespective of evidence or price. People who scored highly on practice tests were already going to be high scorers on the actual test. As a result, a disproportionate number of Princeton Review students did well on the actual admissions text and attended good law schools. This success conferred status on and was attributed to or associated with the Princeton Review even though it had more to do with the self-selected nature of the group. Because everyone wants to go to a good law school, consumers shifted from Kaplan despite its superior price point, greater convenience, and actual data on improving consumer test scores. Knowingly or unknowingly, Apple has leveraged the human need for status and belonging for decades. To consider these forms of value ask questions like, “what generates tribalism or a sense of belonging?” Think about everything from the Arkansas University Razorbacks through to Apple fanboys?
4. Create virtuous cycles. Virtuous cycles are manifest in products where each use of the product by a user increases the value they receive from their next use, where each usage by any user increases the value obtained by other users, and where each use encourages the user to make others aware of the product. Pinterest and Facebook are good examples of virtuous cycles. Google epitomizes a virtuous cycle around high-value data. Each search performed by any user adds to the value of the data on searches and results Google possess. Not only do Google users get ever incrementally better search results, but Google’s lead relative to competitors also grows.
5. Deliver unexpected delight. Unexpected delight is not exceeding customer expectations. Unexpected delight is created when you meet expectations but then provide an element to the customer experience that was both entirely unexpected and entirely positive that triggers an emotional rather than rational response. Customers are not loyal because their expectations are exceeded. Expectations are purely part of a rational economic analysis. They may perceive they received better value because their expectations were exceeded in an aligned way, but their decision next time will still be based on a value exchange. So a low-cost supplier might still dislodge an incumbent despite the incumbent's track record of exceeding expectations given the competing offer is credible and of greater value. In contrast, when users experience some form of unexpected delight, a unique and desirable value outside of the norm and in addition to satisfied or exceeded expectations, their response is emotional instead of rational. Customers who experience a track record of positive emotional responses are much more likely to suggest a supplier to others, boast about their use of a product, and stay loyal despite the provider or product only delivering comparable or even lesser rational utility compared to an alternative. A large base of customers who are irrationally loyal as a result of repeatedly experiencing strong positive emotional responses to a product or service give a company more time to respond to even disruptive changes in a market and are a tangible strategic advantage.
6. Position your organization to have substantial influence over industry standards in a way that ensures you are always out front. Such compliance standards are a barrier to new entrants. Where your organization is in a position to drive their ongoing development, you will be able to prepare ahead of their official release and ahead of others ability to make necessary changes required to comply.
7. Create a Learning Organization and maintain an Operational Tempo that is faster than the competition. Critically, these are very specific things and are independently worthy of understanding in detail (see The #1 most important thing you can do as a business leader? Build a Learning Organization!).
8. Occupy customer and consumer entry points. Get them early and keep them cradle to grave (e.g. McDonald’s Happy Meals). Ask “what product or service delivers the most points of interaction. Specifically, interactions that are expected, desired, and aligned with accepted paradigms and that either have no cost or are profitable?” The more points of interaction, the more habitual usage becomes, the more durable the relationship and the more opportunities to monetize. That said, the point is not to create interactions for the sake of interactions but take advantage of and control necessary ones.

Step 5: Cover The Basics

Finally, consider several important questions:

1. What assumptions have you made? What experiments or research should you undertake to eliminate these assumptions?
2. Are there prerequisites of success? Are there capabilities, relationships, resources, etc. where their presence does not guarantee success but their absence makes success impossible or highly unlikely? Tragically, prerequisites are regularly overlooked or simply assumed to be available and understood until it’s too late.
3. Are you objectively aware of your organization's strengths and weaknesses and those of others who will be operating in the arena you’ve chosen? If a strategy requires it, addressing a weakness may be high on the list of prerequisites.
4. Are there bottlenecks, legislative or fixed physical barriers or limitations, or the equivalent of high ground positions in the form of specific data assets, sources of supply, specific channel partners, technologies, customer segments, etc. that give inherent advantage beyond other such positions? Think of Porter’s Five Forces, but also think beyond the influences of Porter’s points of leverage. In the modern world, occupying a position within and supporting a fast moving ecosystem can yield greater success than traditional forms of leverage.
5. Keep in mind that while efficiency through integration is great, it does not guarantee profitability. If you lose customers and transaction volumes to competitors who are executing a superior strategy, efficiencies can’t save you. Look for a strategy that delivers both.
6. Do different arenas of operations require their own specific yet aligned strategies? It should be expected that different cultural markets (sometimes defined by geography, sometimes defined by the nature of the customer population as defined by their common need) will require different slightly more specific strategies. In all cases, however, these arena specific strategies should be conceived of after a whole of organization strategy and should be 100% aligned with that organizational strategy. Where this is not the case, risk goes up.

To craft great strategies will require some time, a little effort, some creativity, and a little intellect. The right definition of strategy, asking the right questions, and a methodological approach, however, can help anyone create a winner.

For more details on useful tools and methods, a better understanding of consumer decision making, innovation success, how to remove bias from internal decision processes, craft more effective and safer incentive programs and strategies, or for more details on the science of Motivational Drive Theory, (1) read A Deeper Truth: The new science of innovation, human choice, and societal scale behavior (2) sign up and read other installments of Value In 60 Seconds or Under 3 Minutes email and blog, or (3) if you would like assistance make contact to arrange a discussion, workshops, keynote presentation, or services engagement via LinkedIn (https://linkedin.com/in/timstroh) or [email protected].

For optimal results, find and recruit ex U.S. U.K. or Australian Military personnel who are well versed in the approaches and tools used by the military services to further organizational learning, innovation, and command structures that are accompanied by rapid action cycles.

The next installment of Tim Stroh’s Value in Under 60 Seconds or Under 3 Minutes is entitled The #1 Solution to your Biggest Problem.