Friday, September 21, 2018

What is strategy? And what isn't.

What is strategy? And what isn't.
An essential part of strategy execution is linking your project portfolio to your strategy. This translation from strategy to actual projects implementing it is one of the most important goals of project portfolio management. This concept is easy to grasp, but where I see many organizations struggle is to actually define a strategy that is clear, easy to communicate and defined in such a way that the rest of the organization can actually execute on it.

So let's start with what strategy is not.

Mission and Vision: these are elements of strategy, but they aren't enough. They offer no guide to productive action and no explicit roadmap to the desired future. They don't include choices about what businesses to be in and not to be in. There is no focus on sustainable competitive advantage or the building blocks of value creation.

A plan: tactics and plans are also elements of strategy, but they aren't enough either. A detailed plan that specifies what the organization will do (and when) does not imply that the things it will do add up to sustainable competitive advantage. When you have read my previous article on project success you will remember that the same is true for projects.

Emergent: The world is changing so quickly, some leaders argue, that it's impossible to think about strategy in advance and that, instead, an organization should respond to new threads and opportunities when they arise. Emergent strategy has become a new buzzword at many technology companies and start-ups, which indeed face a rapidly changing marketplace. Unfortunately, such an approach places company in a reactive mode, making it easy prey for more strategic rivals. Long and midterm strategy is possible in a fast changing world and it can be a real competitive advantage.

Optimization of the status quo: Many leaders try to optimize what they are already doing in their current business. This can create efficiency and drive some value. But it isn't strategy. The optimization of current practices does not address the very real possibility that the firm could be exhausting its assets and resources by optimizing the wrong activities. Optimizing has its place in business, but it is not strategy.

“There is nothing quite so useless, as doing with great efficiency, something that should not be done at all.”  ― Peter Drucker
Following best practices: every industry has tools and practices that become widespread and generic. Some organizations define strategy as benchmarking against competition and then doing the same set of activities but more effectively. Sameness isn't startegy. It is a recipe for medocrity.

So what is strategy?

Mike Porter states in his influential book "Competitive Strategy" that an organization creates a sustainable competitive advantage over its rivals by "deliberately choosing a different set of activities to deliver unique value". So strategy requires making explicit choices.

Lafley and Martin define strategy in their book "Playing to win: how strategy really works." as an integrated set of choices that uniquely positions the organization (which can be a company, a department, or a business unit) in its industry so as to create sustainable advantage and superior value relative to the competition.

It is natural to want to keep options open as long as possible, rather than closing off possibilities by making explicit choices. But it is only through making and acting on choices that you can win. Yes, clear, tough choices force your hand and confine you to a path. But they also free you to focus on what matters.

I really like the approach of the authors and I have used it with success in strategy definition and refining workshops. The rest of this article summarizes their approach and when this resonates with you I would recommend reading the book.

Lafley and Martin's main point is that strategy is the answer to the following five interrelated questions:

1) What is your winning aspiration? The purpose of your enterprise, its motivating aspiration. Simon Sinek calls it the "why?". Aspirations are statements about the ideal future. At a later stage, you can formulate these as OKRs that measure progress toward them. An organization must seek to win in a particular place and in a particular way. If it does not seek to win, it is wasting the time of its people and the investments of its capital providers. Think about this, and you will probably agree that this is valid for non-profit organizations as well. When I donate money I want that organization to win (in this case do as much good as possible). And the volunteers working for that organization want to win as well.

2) Where will you play? A playing field where you can achieve that aspiration. It represents the set of choices that narrow the competitive field. The questions to be asked focus on where the organization will compete - in which markets, with which customers and consumers, in which channels, in which product categories, and at which vertical stage or stages of the industry in questions. This set of questions is vital; no organization can be all things to all people and still win, so it is important to understand which where-to-play choices will best enable the comapny to win.

3) How will you win? The way you will win on the chosen playing field. To determine how to win, an organization must decide what will enable it to create unique value and sustainability, and deliver that value to customers in a way that is distinct from the organization's competition. Remember this is always tied to where you play.

4) What capabilities must be in place? The set and configuration of capabilities required to win in the chosen way. Capabilities are the map of activities and competencies that critically underpin specific where-to-play and how-to-win choices. For example for a SaaS company: software development, superb customer onboarding/support, scaling, analytics, and brand building.  The capabilities should support and reinforce one other. In isolations, even when the capability is strong, they will not generate a competitive advantage. But all together they are the pillars of growing the business.

5) What management systems are required? The systems and measures that enable the capabilities and support the choices. To be truly effective they must be purposefully designed to support the choices and capabilities. But in general you can say that the systems need to ensure that choices are communicated to the whole organization, employees are trained to deliver on choices and leverage capabilities, plans are made to invest and sustain capabilities over time, and the efficacy of the choices and progress towards aspirations are measured.

These choices and the relationship between them can be understood as a reinforcing cascade, with the choices at the top of the cascade setting the context for the choices below, and choices at the bottom influencing and refining the choices above.
Posted on Friday, September 21, 2018 by Henrico Dolfing