Strategy Will Set You Free: A True Story (Part II)

Part II: Time to Face Your Fears

Starting from where we left off in Part I, I was mentioning how the CEO got her own strategy wrong. She was completely off, in fact, she was so off, that by the time strategy implementation had taken place, the company's existing long term partners had started shopping for new ones in the market. A move like that, unplanned or accounted for can be devastating for any organization.

When I look back at my team’s plan (my manager, and his manager) I see that we were on to something, we were right. Our plans and tactical activities could have been integral parts of a sound strategy. Our experienced CEO, could have taken that and developed something robust. We had more of a "Managerial Agenda" that covered one year, which was definitely not a strategy. A strategy should cover a period of somewhere between 3 - 5 years; anything beyond that is a vision, anything below that is a plan. Time, Transformation, Positioning, and Objectives, are keywords that should be considered when developing a strategy. And, as mentioned in Part I, a strategy is the whole exercise, it's not a statement, not a goal, not a means, not a series of analyses, not a budget, and most definitely not a forecast. It is a collection that might include some of those, all of those, or others as well. It is a favored position and the means to get there....and everything in between!

Her strategy for growth as it turned out, was to acquire dealerships for new brands, and grow the top-line by sales of extremely, high-ticket items leading to almost immediate effect on the top line (once a transaction is complete, of course!), with no consideration to implications what that might have down the road. There are a few justifications to why I say so. Those new high-ticket items, which would usually take 3-6 months to pull off, would eventually lead to a complete change to the company’s value proposition, of being the go to place for high value items (price/value balance). She ended up wasting resources and losing the new brands and some of the very important old brands. Brands that have been part of that company for decades. That happened after a few years, but this is exactly what an off-strategy will get you. It will get ramifications that will catch up with you, sooner or later. No one can escape time! I don’t mind transformation, but I do mind losing long lasting partnerships as opposed to voluntarily removing them from one’s portfolio. It reflects helplessness, sends a very bad message to the market, and ends up costing more, way more than ending those partnerships on your own. 

There are some valuable lessons from what that CEO did, I will walk you through these points one by one, but first I would like to add some context using the image above! I'll stray a bit (again!). That confused-looking individual wearing the red tie is all over the place, because he is wondering how will he water his newly purchased farm. He is thinking Farming could be a profitable business to get into and believed that by investing capital in a farming land would be a smart investment, and he would probably be right. Not only would the land appreciate in value, but down the line he would be able to generate income off sales of produce, dairy, cattle, whatever (even though they are very different businesses and differ tremendously, but that's not the point). However, "red-tie" there, is facing a dilemma. He is ready to open shop, but there's something missing, resources! A key resource for that particular business which is water. He just realized, there isn't a water source in sight. Concluding verdict: purchasing that particular land was a terrible decision. This very simple example is only to highlight that the exact same thing - even though sounding ridiculous - happens with numerous, much more complicated businesses. However, CEOs end up doing the exact same thing. The exact same thing!

As previously mentioned, the CEO decided to bring on new brands into the company and embark on a whole new journey. Terrible decision. However, that exact same decision with those exact same brands could have been ideal for another company. But, at the time it proved to be the wrong one for this company. Here's why:

• The CEO failed to truly assess the resources and capabilities of the company and her troops. This is a crucial step in understanding what your company lacks and what it is capable of doing in order to be able implement the strategy decided upon. OR, to realize that at the time, it is not capable of implementing any of it, so probably it's best to work on a different strategy that would enable the company to implement the initial desired strategy. Just like chess, you move a pawn so you set up the bishop.
• The CEO failed to understand the positioning of the company. The coordinates of its being. Where does it stand in comparison to its peers on the price/value map or perhaps by needs of its clients. There are many other ways to know the company's X&Y in the universe. Going back to the main point from Part I, the basic definition of Strategy, is the deployment of one’s resources to establish a favorable position (Grant, 2013), while a tactic or a plan are merely activities or a scheme to execute a specific action. The Leadership Team working on developing a strategy must utilize a series of strategic analyses (frameworks, models, matrices...etc) to fully grasp the firm’s current position. I am a strong proponent of The Positioning School when developing a strategy. I also add a bit from The Configuration School. Henry Mintzberg, in his book "Strategy Safari" has them divided into 10 schools. I follow a mix, but my main school is the positioning one. From experience, I believe it is the most suitable one for local, family-owned businesses. I believe that Knowing an organization’s position is the most important part of Strategy Development. So, resources and capabilities from the first point is a very important analysis. Please do not even mention SWOT! Because simply put, points and attributes can be visualized in a way that can be both a weakness and a threat at the same exact instance! It is a complete waste of time. (No disrespect towards those who use it!)
• An internal audit looking at the company's Key Success Factors, as well as an audit of the company's Marketing Ps, while deciding on the desired position of each will guide leadership to shape a strategy. The CEO failed to do that as well. Consultants usually recommend Mckinsey's 7S model for internal auditing. I am not a fan of the 7S model because it's one that aims to cram everything into one exercise, it's exhausting and could lead to missing key elements. And, just like SWOT, a strength in any of the Ss can be a weakness as well. Don't get me wrong all Ss are important and should be looked at. But, breaking down analyses into smaller, and manageable exercises helps uncover a lot more of one's organization and is more comprehensive. Edit: The 7s framework/model is an excellent model to showcase all the findings obtained from all the analytical frameworks previously mentioned (among many others not mentioned). It is a comprehensive representation to be referenced between leadership during implementation. But I do not find it helpful to be used as an analytical framework.
• The market as it stood back then had so much room for the company to grow in. Understanding clients' needs and the company's location on the price/value map could have helped the company grow while preserving plenty of its financial resources (organic growth). The CEO failed to accompany the sales teams on sales\field visits to get a sense of what is required. I always say that it is imperative to involve those on the front line while developing the long term strategy. Obviously, I do not mean everyone, but key leadership positions from the front lines make a big difference. The front line is the company as far as the customer is concerned. They should be well informed and taken care of.
• The CEO failed to communicate (internally) the big plans she had developed. Needless to say, the CEO would have never implemented the strategy herself. She needed troops to acquire new ground (territory). Those troops need clear instructions and objectives. Never orders. It does not work. Fails every time.

Now, in terms of strategy, one must match the favorable position to the available resources on a long-term basis. If they don’t match, then perhaps additional resources are required, if that is not possible, then perhaps a different position. One must definitely look at how will the troops be formed and what management system will be used. Organization Structure and Management Systems are a crucial part of the implementation phase. But, how can one decide on all that?! THAT is the very cornerstone of strategic management.

I once had a long discussion, almost an hour long, with a colleague, who was a consultant (a word that is overly used, but he actually was one) about the need to set objectives before touching anything that has to do with strategy. I disagreed. I said that we needed to perform a series of analyses first. No one understood the current position of the organization to even dream of a favorable position. For example, we discussed the objective of an increase of 10% growth in revenue for the coming year. I remember thinking that it was most definitely NOT a strategic objective. Never was and never will be. That is not a favorable position, it is merely, with all respect, a sales target. The thing is, ex-multinational employees, tend to forget that with Multinationals, the whole world is aware of their position, so, when GE's Jeff Immelt says that he has set a goal of sustaining a AAGR of 8%, in organic revenue growth. That is a completely different discussion. Keywords in that goal make it a strategic goal, and in turn, have huge effects on the Grand Business Strategy. I do not agree with it, but it is one. We will cover that in detail in Part III. So, analyses in organizations like that take a different route and are broken down through different teams and are reviewed a few times, and sometimes, are recycled updates from previous years. May be a few changes here and there. However, with local family businesses, not even the owners know their position. Some do, but it’s rare and sometimes falsified by loyal employees who lost track of where they stand as an organization. Also, for owners to go through an exercise that aims to dissect their business wide open and highlight what's wrong with it; is a very stressful and terrifying experience. It is only those who will face their fears, can reap the rewards.

I keep mentioning position frequently. And, to those who are new to business strategy development, it can get very confusing. It sounds mere theory, but it's not. Allow me to explain further what I mean by position. Simply put, a favorable position, is a location. Consider it, a location you set on your maps app. But, even that very smartphone you hold, needs a couple of seconds to understand where you are currently located, before getting you to move. How will you start moving towards your location, if you do not know where you currently stand? Those two seconds in the world of strategic management, are the series of analyses I mentioned earlier. They are critical to any strategy, and very important to local companies. There is no way to - cognitively - say that you want to have an “Innovative Position” or a “Most Trusted” position, while you don’t have the muscle to conduct a simple internal survey. You must know your current position, or in other words, your height, your weight, your BMI (Body Mass Index), how much you can bench press…etc. From an organizational perspective, one must know its current position compared to its competition, one can know that by simply learning about its Key Success Factors, Resources and Capabilities, its location on the Value Map (to name a few)….etc before deciding on the objectives.

The CEO in my example had cash flow issues and needed to grow the top line. Needed it fast. A situation that countless private/family businesses (and public!) find themselves in. It's a terrible situation and I sympathize with her. I'm not celebrating her failure; I am simply highlighting lessons learned. As previously mentioned, growing the top line by acquisition can be very tricky. Growing the top line by broadening your portfolio can be trickier! Reminds me of red-tie, he got the farm but did not consider irrigation. The CEO got the new brands/products, with no planning for, training, additional hiring, add-ons (stock units, servers, ..etc), financial strain, ...etc. The list goes on. Perhaps the CEO did plan all that, but implementation was terrible. Perhaps, giving her the benefit of the doubt, she had decided to enter new territory and slowly remove herself from old territory. However, I highly doubt that because she ended up losing both.

Reza Salehnejad from Manchester Business School, explained something about growth being age dependent. "As the organization ages and climbs the experience curve it becomes more productive and grows larger" A big problem in the region and with family businesses in general, is that they don't put enough time to climb a given experience curve. They start something, don't see desired results fast enough, and end up jumping into another thing. Just as the curve starts to get wider and higher, they just move to something new. The example of the CEO is a good representation of that, but the losses there had detrimental effects.

Keep that thought of top-line growth to Part III, where we'll go over some very interesting examples, Balboa, Welch, Immelt and a very brave Bernard Looney. Stay tuned. And remember, Strategy Will Set You Free.....