Modeling Strategy
Mihai Ionescu
Strategy Management technician. 20,000+ smart followers. For an example of a strong nation, look where European cities are bombed every day by Dark Ages savages. Slava Ukraini! ????
Although the Strategy Management process is based on simple principles and theories, its methodology workflow is as complex as the organizations for which we experiment, formulate, and execute the Strategy.
Describing this process is a whole story of navigating through the causality and the hypotheses employed for grasping the uncertainty of a future that we can influence, but we cannot control. For better navigating such a journey, I have created a set of models that describe and illustrate it. Yes, a model is some sort of simplification of reality, but a meaningful and a logically-selective one. Without modelling concepts and processes, it would be so difficult to handle and manage them. It would be like walking through new territory with a 1:1 scale map!
I hope that my British readers will forgive me for using the single-L in the title, as they do in the American English ... sometimes I write it myself with double-L :-)
The Strategy Clockwork
It took me many years to reach this model that is connecting the dots of the key concepts, theories, and frameworks developed for managing the Strategy. First, I had to discover which they are, separating the signal from the noise, then learn and understand them, then figure out how they best fit, entirely or partially, with the other pieces of the puzzle.
The Strategy Clockwork model is the foundation for the live, online Explaining Strategy live course, with a fourth edition available in November 2024. Enroll on the course website in one of the three cohorts: (A) Asia-Pacific, (B) Europe, Middle-East & Africa, (C) Americas. The course uses a Fair Pricing Policy (based on each country's Purchase Power Parity).
To know more about the course, the article A Course to Remember may help.
I have started from the end, from the Strategy Execution loop, already modeled and tested by the Kaplan-Norton BSC-based Strategy Execution framework. I have also tested it in practice myself. With every revision of it, I had to understand what works and what doesn't by working with real people in real organizations.
The Stage 1 (Develop the Strategy) was the weak part, but that is normal. In the early days it wasn't even part of the framework, so whenever the Palladium consultants were asking the client "What is your Strategy, so we can implement it using our framework?" they got all sort of imagines, ideas, and constructs of various shapes, forms, and depths. That's why the Stage 1 appeared: as a way to focus on what was necessary to be inside the Strategy, so it could be translated into a BSC-based Strategic Plan.
To strengthen that part, I had to do something myself, although most work was done by the Palladium team of consultants, at that time. I have read many books about Strategy Formulation theories, concepts, and frameworks, I have attended courses and presentations, I have watched online those that I couldn't reach in person, and then I have tested the result in practice, the best way I could. I still remember struggling with the SWOT analysis, or with Osterwalder's & Pigneur's BMC, or with the OKR. Some of them didn't work in effective implementations. In most cases, they didn't fit well enough with the rest of the model.
In the end, I've reached at what you can see below. The Strategy Clockwork, going from Strategy Experimentation, to Strategy Formulation, to Strategy's execution or implementation. A full cycle, sequential, causality-driven, adaptive, and based on humans, on organization's employees, as the reality has taught us.
Hmm .. looks complicated, at first sight. Ok, let's break it into smaller chunks.
The Strategic Choices
The Strategy is about doing different things than what we do today, or about doing the same things, but in significantly different ways.
That is why the Strategic Choices are the foundation of the Strategy. They are choices about Problems-to-Solve, or which customer Jobs-to-Be-Done to target, and about Solutions-to-Deliver, or what solutions can best solve those jobs.
This is a combination of Andy Rachleff’s Product-Market Fit concept, and Clayton Christensen’s and Tony Ulwick’s Jobs-to-Be-Done theory, but also of other thought leaders' Strategy frameworks.
Strategy Experimentation
The Strategy Paradox, described by Michael Raynor as the “collision between commitment and uncertainty”, exposes our Strategy to risks that are directly proportional with the boldness of our strategic vision.
How do we deal with risk and uncertainty in the endeavors of our daily life? We experiment. We prototype. We test our assumptions for validity before taking a final decisions, at least most of the time.
Unfortunately, the Strategy cannot be tested before being implemented. And we can’t really prototype it. The changes mandated by the Strategy usually take a year or more to implement. By the time we finish doing that, the prototype is the same as the final Strategy. So, prototyping and testing the Strategy does not make a lot of sense, as much tempting might be to just over-impose Design Thinking upon the Strategy Formulation process.
These being said, any parts of our Strategy construct that we can test and experiment will certainly help us reduce the number of invalid hypotheses that we will employ for selecting our Strategic Choices.
Product Concept Experiments
The mature Design Thinking methodology, initially brought into the business world by David Kelley, provides us sufficient guidance for successfully empathizing with customers on their Jobs-to-Be-Done, ideating their needs and context, imagining alternative solutions, then prototyping the most promising one, and finally collecting some early adopters’ feedback on it.
But Strategy is about more than a single new product. It is about a range of solutions for a range of customer jobs. For enabling the selection of our best Strategic Choices, we must direct our Design Works laboratory to a more comprehensive palette of customer needs and matching solutions. We need to experiment with Product Concepts instead of experimenting with Products.
Strategic Choices Experiments
Reference Cognitive Models, like the Penta Model that extends Arnoldo Hax's Delta Model, help us gain a more comprehensive view of our alternative choices on the two Strategy dimensions of Problems-to-Solve and Solutions-to-Deliver.
Why? Because our hypotheses about which Strategic Choices, out of an entire palette available, would best position our business over the Strategic Horizon considered should be based on some market feedback, or feed-forward, to be more precise. That is the role of the Choices Experiments performed by our own Skunk Works laboratory that allow us to better estimate the success chances that each possible choice type has in the real world.
Skunk Works is a pseudonym for Lockheed Martin's Advanced Development Program, a laboratory where they test new concept flying machines.
Strategy Formulation
Once we have gathered some helpful guiding information from this Strategy Experimentation process, we are ready to enter into Strategy Formulation's decision field of commitments, uncertainty, and risk.
The OODA Decision Loop
Based on his US Air Force fighter pilot experience, John Boyd has imagined an ideal tactical decision loop based on four stages:
Boyd identified the Orient stage as the “schwerpunkt” of the decision loop. It is the most critical stage for successfully accomplishing the desired outcome, in a loop performed faster and better than any opponent.
If we extend OODA to the Strategy cycle, we can see that the selection of our mix of Strategic Choices is the “schwerpunkt” of our Strategy. With one caveat: we need to have available a Reference Cognitive Model.?
The Penta Model
The Penta Model is a reference cognitive model for facilitating the selection of the best Strategic Choices that represent the foundation of any Strategy. Built as an extension of Arnoldo Hax’s Delta Model, it represents a structured way to organize our Strategic Positioning palette of possible choices. And it does one more thing: It looks along both dimensions that are essential for the Strategy: Problems-to-Solve (market) and Solutions-to-Deliver (product).
Take a look at these Strategic Choices types. The intuitive descriptions given for each of the 10 x 10 choices should be intuitive enough to get an idea of what this model is all about. By the way: Which of these choices types do you recognize as being part of your Strategic Positioning?
The whole purpose of using such a Reference Cognitive Model is to have a good analysis of which alternatives would be most beneficial for us, over the Strategic Horizon considered, given the alternative futures anticipated by the unfolding circumstances identified by our Strategic Analysis and grouped into plausible scenarios by our Scenario Planning process.
The Strategic Analysis
The decisions that we must take for long-term in both our Corporate Strategy (on multiple business lines) and our Business Strategy (on a single business line) must be based on an analysis of the trends and weak signals that are relevant for our industry or arena over the Strategic Horizons of our Zones to Win.
What is such analysis's purpose? The identification of the Paramount Challenges resulting from our current way of doing business. They are the gnarly problems linked to the anticipated failure to harvest the future opportunities and defend against the future threats, that resulted from our trends and weak signals analysis.
On the Business Portfolio side, we must decide on developing or re-creating the Competitive Advantage on our business lines, which should ideally be structured on the four-plus-one Zones to Win coined by Geoffrey Moore. That is more meaningful than just considering a BCG growth-share matrix.
The Strategic Scenarios
No Strategy should be formulated for a single version of the future. There are always multiple plausible versions of how the currently-observed trends and weak signals may unfold. Therefore, we must formulate our Strategy for multiple Strategic Scenarios. Fortunately, we have a comprehensive and mature methodology available for defining the plausible scenarios: Scenario Planning.
From decision to reality
Once we have decided on our mix of Strategic Choices, we must turn them from the drawing board into reality.
Can we do that by tomorrow morning?
Well … not. Why? Because those choices usually require new or significantly modified activities and capabilities to support them, and we can’t bring all of them up at the flip of a coin.
Actually, it often takes one year or more to create, acquire, develop, or change significantly both our Activities System (things that we must do in various Value Stream processes) and its underlying Capabilities System (a set of competencies, management systems, relationships, infrastructure, technology, information, cultural traits, and so on).
The Strategic Gaps
Our business is positioned today through certain Strategic Choices that have founded the Strategy that brought us the current business.
But in going forward, our new or adapted Strategy needs a new mix of Strategic Choices that we must select for positioning our business at the end of the Strategic Horizons, at our Strategic Destinations.
Therefore, we must identify the Positioning Gaps between our former Strategic Choices mix and the new mix of Strategic Choices upon which our new Strategy is founded.
To achieve this, we must look at the Strategic Gaps between (a) the Must-Have Activities, Capabilities, and enabling Management Systems required to support our new mix of Strategic Choices and (b) the Capabilities, Activities, and Management Systems that we have today.
These gaps are called Coherence Gaps, because they aim to ensure the coherence between the Strategic Choices and the Activities, Capabilities, and Management Systems of our new Strategy.
Strategic Gaps causality and breakdown
This approach to the long-term planning of closing the Strategic Gaps is borrowed from the Kaplan-Norton BSC methodology , which works on Strategic Objectives (usually, on an annual planning cycle).
First of all, there is a major cause-effect relationship between the Positioning Gaps and the Coherence Gaps. Closing the former is mostly (but not exclusively) dependent on closing the later. Then, there is causality (or dependency, if we regard it the other way) between the gaps within each of the two categories.
Finally, we must break down the multi-annual horizons available for closing all the gaps onto annual cycles (planning cycles, or execution cycles), scheduling which gaps should we close each year, based on the causality relationships between them and the resulting sequentiality.
This is the foundation of synchronizing between one or more multi-annual Strategic Horizons and the consecutive annual cycles of the Strategy Execution process.
The Missing Link
A Kaplan-Norton BSC Strategy Map usually has four causality-linked perspectives that host the Strategic Objectives, which are also linked between them with cause-effect relationships.
If we place the Strategic Gaps in a similar layout, we get a map of gaps, structured on causality-linked perspectives, informing the logic of sequentially closing them.
How does this help? We can now develop the Strategic Objectives by aggregating clusters of tightly-coupled Strategic Gaps. This is the anecdotal “missing link” between Strategy and Execution, which provides us a simple (and tested) way to tightly integrate our Strategy Formulation process with the Strategic Planning. No more "A Plan is Not A Strategy" crusades that don't make any sense, isn't it? :-)
Well, you need to live in both oceans 'red' (Strategy Formulation) and 'blue' (Strategy Execution) to see this.
Strategy's Validation
Can we start closing all the Strategic Gaps on January 1st, next year? Not really. First, there is a causality-driven sequentiality and precedence for doing that. Then, we wouldn’t have the resources for the projects aimed at closing all of them, simultaneously.
To avoid overlapping resources demands, we can re-distribute the closing of Strategic Gaps between the yearly execution cycles. But even if we do that, we might still not be able to resource them all. It could be too costly overall, or require too many resources taken from Operations. Our Strategy may eventually be a nice dream, but not feasible enough to turn into reality. That’s why before entering into Strategy Execution, we need the Feasibility Gateway.
Once our Strategy is fully implemented we will have a new or transformed business that we can describe with a Business Model. It brings together all the key Value Stream processes (internal and external) with their costs or revenue implications. Would that be a viable model? That’s what the Viability Gateway must tell us.
So, what do we do is our Strategy doesn’t pass these gateways? We go back and re-formulate the Strategy in another iteration, probably less ambitious, but with a higher probability of implementation success, considering our Resources Constraints, and better viability, considering the resulting Business Model and its financial balance.
The Strategy Execution
There is no Strategy without a Strategy Execution process to turn it from an intellectual construct to the business reality of the market in which we operate.
Brought into the business practice by the Kaplan-Norton BSC framework in the 1990’s, the Strategy Execution process follows a Deming-cycle PDCA closed loop (Plan-Do-Check-Act).
The Kaplan-Norton framework has six stages. The first one is actually a summarized Strategy Formulation process. The other five are embedded into our Strategy Clockwork model, divided into:
Strategic Planning
Central to the Strategic Planning process are the Strategic Objectives and the cause-effect relationships between them, illustrated by the Strategy Map.
By aggregating the Strategic Gaps, the Strategic Objectives get directly tied to the Strategy. The “missing link” that connects Strategy and Execution.
The Strategic Objectives are linked in a many-to-many relationship with a portfolio of Strategic Initiatives that aim to accomplish the objectives by closing the Strategic Gaps that they aggregate. This is the organizational-level Strategic Plan that we usually design for an annual cycle.
Our Strategy model (Strategy’s components and their relationships) and Strategic Plan model (the Strategic Plan's components and their relationships) have been developed based on hypothesis about the future that allowed us to take decisions on each of their components.
The Scorecards include the Strategic Objectives and, for each of them, Lead (output) and Lag (outcome) measures that quantify the Performance in achieving the objectives, their Risk Exposure, as well as the Fragility induced by factors that may affect the Resilience of the resulting business.
Organizational Alignment
Strategy is executed at the lowest level of the organization, where “the rubber meets the road”. For this reason, the Strategic Plan at organizational level must be Vertically Aligned to business units, teams, and to the employees in Strategic Jobs Families (SJF). Within any organization there are “internal customers” and “internal suppliers” that depend functionally on each other. They must be strategically aligned, as well. This is the Horizontal Alignment that may also involve some Business Architecture redesign.
How are the other employees aligned to the Strategy? By adequately and repeatedly communicating the Strategy and informing them on Strategic Plan's progress. Although they don't have any specific role in the planned Strategy Execution, they take micro-decisions that can be convergent with the Strategy. These are the two lanes for the human-centric Strategy Execution, planned and un-planned, involving SJF and non-SJF employees.
Organizational Integration
The Strategic Plan provides guidance to Operations about the anticipated changes in processes, revenues, and costs along the coming annual cycle. The Budget, the Operations Plans (sales, marketing, production, etc.) and the Readiness Plans (HR, IT, infrastructure, equipment, etc.), as well as the Continuous Improvement program must synchronize with these anticipated changes and guided by them.
Strategic Plan’s Execution
This is where the action really happens, along the annual execution cycle. We focus on that slice of the Strategic Gaps that must be closed this year, as well as on the corresponding Strategic Objectives. The Strategic Initiatives are rolled-out in their scheduled sequence, with the participation of those who got in the Alignment process a share of contribution responsibility.
Some employees are included in the Strategic Jobs Families, since they are part of the Strategic Initiatives’ project teams, or are involved in directly supporting the resulting changes. But most employees do not participate in this planned Strategy Execution, they are contributing to the un-planned Strategy Execution.
These employees are included in an Open Strategy system that asks their opinion on the hypotheses employed in Strategy’s models and then targeted by the continuous Strategy Communication campaign that keeps them connected to the progress of Strategic Plan’s execution. Being aware of what’s going on, they can make micro-changes in their work that converge with organization’s Strategy.
Initiatives’ Realization
Unlike tactical actions, strategic changes seldom provide immediate outcomes. They take some time, and this is exactly why deciding on Corrective Actions within periodic Progress Review meetings is not very easy.
Once a Strategic Initiative project is finished, we can see its output effects, but the desired outcome may appear after those effects have propagated through the linked processes. This delay is tied to the concept of Initiative Realization.
For engineers, this works like a slow regulatory loop. We need to anticipate where will it stop before making intermediary corrections. That’s why the Kaplan-Norton BSC framework has introduced the combination of anticipatory (output) and result (outcome) measures in its Scorecards.
Beyond that role, the BSC measures provide us a feedback on the validity of the hypotheses employed for the decisions about the model components that are linked to them.
The Adaptive Strategy
What was called by Henry Mintzberg “emergent strategy” is in fact the “deliberate strategy”, but with Adaptive capabilities. The cornerstone of the Adaptive Strategy are the chains of hypotheses that we have used when deciding about our Strategy and about our Strategic Plan and its Alignment.
Some of those hypotheses about the future are always wrong, but we don’t know which ones. That is why we need an Early Warning System to monitor their validity along Strategic Plan’s execution.
Once we determine that certain hypotheses have turned out to be invalid, based on the correlated measured values, we need to replace them and modify or replace the models' components that depended on them. This is how we get a continuously Adaptive Strategy.?
I hope that these explanations, although rather long, have helped simplify the Strategy Clockwork model's understanding. Thank you for the time you have spend on reading this article! As always, your observations, questions or bricks are more than welcome.
Other Strategy Clockwork?newsletter?articles:
Strategy Management | Bridging Theory and Practice
4 个月I know the Strategy Clockwork is focused primarily on business strategy, but would it ever make since to apply business strategy to corporate strategy? You can think of corporate headquarters as a separate entity with its own customers (the business units). What would be the flaws in this approach?
Strategy Execution, Quality and Corporate Excellence Expert
1 年Hi Mr Mihai. I'm business excellence except and I also passed the Norton Kaplan BSC bootcamp. I'm interested to enhance my knowledge regarding strategy. I saw your posts and I really liked them. Could you please I introduce some very good resource in this regard to me?
Director of Industry Research @ Industry Knowledge Graph LLC | MBA Visit IndustryKG.com
1 年Just to contrast, here's my simplified, Porter-inspired approach: