Is Your Business Strategy Built on Quicksand? 4 Questions to Stress-Test Your Assumptions

How do we know the Theory of Business is valid?

At the end of the day, as leaders we make assumptions , and we make decisions. This is key. We work with uncertainty daily. This is the start of our work.

Drucker understood that clearly. Here is his simple summary of the Theory of the Business.

The assumptions about environment define what an organization is paid for. The assumptions about mission define what an organization considers to be meaningful results; in other words, they point to how it envisions itself making a difference in the economy and in the society at large. Finally, the assumptions about core competencies define where an organization must excel in order to maintain leadership.

Our assumptions about the environment matters a lot. Context mapping, Scenario planning, Foresight techniques and PESTEL approaches are all useful here. You can add big data and even AI to this. With all the information, the leader has to still make key assumptions.

As we discussed in Mission (I’m)possible , what leaders and organisations consider meaningful work and their mission is very important. More so for the social sector and government organisations. Purpose is key.

And last but not the least, Core Competencies matter a lot . What is our real unique advantage?

CK Prahalad and Gary Hamel have a lot to say about this. Here is a map of how you can find your core competencies from their 1990 HBR article. Do you know your organisation's core competence?

In their model, start with articulating a strategic intent that defines your company and its market. Identify core competencies that support that intent.

Ask:

? How long could we dominate our business if we didn’t control this competency?

? What future opportunities would we lose without it?

? Does it provide access to multiple markets?

? Do customer benefits revolve around it?

But this is not easy. As Drucker says,

Of course, all this sounds deceptively simple. It usually takes years of hard work, thinking, and experimenting to reach a clear, consistent, and valid theory of the business. Yet to be successful, every organization must work one out.

Drucker provided four specifications that enable us to understand if the Theory of the Business is valid.

1. The assumptions about the environment, mission, and core competencies must fit reality. I can’t stress how important this is. We need to be able to see reality as it is and see if our assumptions are fitting that reality. Whether Apple in the post jobs era not having a clear purpose or not able to understand the market.
2. The assumptions in all three areas have to fit one another. This is harder. How do we know that the environment, mission, and core competencies all work together? Leaders need to be constantly ensuring this happens.
3. The theory of the business must be known and understood throughout the organization. We talk about strategy or our mission being known across the organisation. And that is hard enough. Drucker suggests a higher test. The entire theory of the business is understood by everyone. Think about it. If this can happen, how different will be employees' focus, strategic thinking and decision-making.
4. The theory of the business has to be tested constantly. Drucker suggests that the theory is not written in stone. It is a hypothesis.

And it is a hypothesis about things that are in constant flux—society, markets, customers, technology. And so, built into the theory of the business must be the ability to change itself.        

Going through the previous articles on Apple and Microsoft, can you see how and where both these organisations succeeded in these four questions and where did not?

Look at CoPilot+ PC from Microsoft (chips, hardware, software, AI).

Look at Apple (Crush ad fail, struggling with AI, Car project is dead, sales in China are struggling).

Can you see how if you can answer these four questions, it can make a huge difference?

Drucker’s words: Hypothesis. Assumptions. Constant Flux. Change.

Current language: Lean Startup. VUCA. Emergent Strategy. Change.

As we explore the next steps, I am keen to update some of the language, approach and how we can design and take decisions as leaders.

Have you ever witnessed a 'Theory of the Business' failure? Share your stories in the comments below!"

“You can’t use an old map to see a new land.”

– Gary Hamel