Strategy blog - Overview and step 1 (of 5)

Part 1

This is the first in a multi-part posting about how to develop and implement business strategy. It is based on two things. The first is a method taught in a Columbia Business School executive course and documented by Willie Pietersen in his excellentReinventing Strategy. The second is simply experience in using the method. I will do my best to note points that I am simply copying from the course material or the book. Most of what follows is simply a shorter or paraphrased version of the course and book.

My experience is in applying the method for HP for geographical business strategy in various European, African and Middle Eastern counties, as well as for the Social Innovation team funded by the HP Foundation. The method is best suited for situations that should probably not be addressed only by blue skies speculative innovation. What that means is that it works best for established businesses.

First – why bother?

The purpose of a strategy of any kind is to win. That means understanding the enemy, your allies, the environment, and your own strengths, weaknesses and ability to execute. The reason a strategy is needed is that nobody has unlimited resources. There is no such thing as trying all possible solutions simultaneously, with infinite funding. As Willie Pietersen explains, chess would not be an interesting game if every time your queen was taken, you could just put a new one on the board. To risk a military metaphor, no general ever won a battle by saying “I don’t care about the weather, the season, the terrain, whether we have any weapons or not, or the enemy we are fighting, let’s just line up evenly across the battlefield and move forward one step at a time in unison. That should work. Victory will be ours!” Obviously ridiculous.

Winning in business means doing things better than your competitors, or simply doing them differently. I flew frequently in Virgin Atlantic’s “Upper Class” when the airline was new. Compared to Swissair, TWA, Lufthansa, British Airways and Air France, it was very different. Not everything was better. I absolutely loved the differences.

Strategy steps

There are five steps:

1. Situation analysis: understand what is going on now and what will happen in the future.
2. Make your strategic choices.
3. Secure the necessary investments.
4. Implement and experiment.
5. Start again.

A note of caution: never combine strategy and planning – the mixture is poisonous

“Strategy and planning manager” is a common corporate job title. It has been my title in the past. When you combine strategy and planning into a single job, only planning gets done. When you start to do your strategy work just before the budget submission is due, your working team members will quickly start to say “Forget this… just give me the spreadsheet to fill in.” Strategy is a creative divergent process. By its nature, it is about doing things you are not currently doing. Planning is a convergent process. It takes what you want to do and creates order about doing it. Divergent and convergent thinking are diametrically opposed and should never be combined. Make sure you work on strategy at a time of year when planning deadlines are not creating pressures that will prevent you doing anything other than minor adjustments to your current strategy.

Step 1: Situation analysis

Of the steps defined in Willie Pietersen’s book, this is the one where my team’s practice is closest to his design. The principal improvement is the addition of “partners” to the framework. Doing a good situation analysis takes about six weeks, no matter how big your organization is. In a large company, it the work should be done by multifunctional teams in each of the areas below. The process is the Socratic method. Groups of peers question absolutely everything. Refer to Wikipedia for a good description of themethod.

In the first step, you deeply question the following areas:

• Customers: what are their needs? How are they changing? How well do you serve those needs compared to your competitors (or to alternatives, if you are a government department or NGO)? Who are your potential new customers and how are they currently being served?
• Partners: how well do your current partners help you to reach your customers? How is their business changing? Who are their competitors and what effect are they having on your partners? How can you help your partners to be more successful and loyal to you? What is the risk that your partners will take your business? Who are your potential new partners?
• Competitors: who are your current competitors and how well are they serving their customers? What new competitors are emerging and how well can you compete with them? What non-traditional alternatives do your customers have that may kill your market or destroy you and your traditional competitors?
• Industry trends: what is happening in your industry? How is technology changing it? What trends can you identify that will be relevant over the next three to five years.
• External environment: how do population demographic trends change your market? What is happening with government regulations that could affect you? What litigation may be relevant to your business?

Meet weekly to share the progress in gaining insights. It takes multiple cycles to make the insights meaningful.

That’s it for the overview and first step. In my next blog post, I will cover how to get from these insights to making your strategic choices – choosing the three to five things that will make you win.