What is Strategy?
And how do you get one, anyway?
Today I want to talk about the most basic question in the strategic realm — what is strategy anyway? I’m also going to give you the highest level view of how to develop a strategy and introduce you to some of the most common tools used in strategy work.
So let’s start with that basic question. What is Strategy? You’ve probably heard the word and variants of it lots of time, so you probably have some sense of what it means. I know this is an awkward way to start an article, but before you scroll down to continue reading, I want you to think about that question. If we were sitting face to face and I asked you, what is strategy, how would you answer?
What Is Strategy?
Hopefully you gave some thought to what Strategy means to you. Don’t worry, there isn’t one right answer. Strategy is a concept that’s used in many different ways, and defined using different words, so I wanted you to think about some of those ways and words before I started putting my own words into your head. I think that will help you engage better with what I’m about to talk about.
When I do have the chance to talk to people live about strategy, there are a few words or phrases that often come up and I want to start with those. Maybe the internal dialog you just had with yourself included some of these.
Vision is a word that I hear a lot when talking about strategy. As strategists, our role is not only to see a future vision for the world and our organization, but to imagine a world that we can help create in which our organization can capture and deliver tremendous value.
Direction is another word that I hear a lot. One of the most helpful outcomes of a successful strategy is to clearly define the direction forward. If an organization lacks an agreed upon “True North” to which everyone is navigating, chaos, conflict, and inefficiency are what you should expect.
If the sales and marketing organization is positioning a company as a cost leader, but the product organization is building a “gold-plated” widget, then it will be nearly impossible for the company to grow profits. If the customer care organization is planning headcount reductions based on new, more efficient systems, at the same time that the IT organization is cutting the budget for completing those new systems, then customer satisfaction will plummet, customers will flee to competitors, and the company’s brand will be damaged.
Perhaps worst of all, without a clear direction forward, decisions will be made based more on the charisma and personal power of leaders than on what is best for the company. The most persuasive sales leader will get the resources necessary to pursue the prospects in their region. The most powerful product leader will get the funding and developers needed to bring their product to market, even if it’s not the best for the company’s future or even the one that the prospects being pursued want. And no matter who wins, much more time will be wasted in debates and deadlocks before any decisions are made.
Vision is important and direction is essential, but if the company does nothing to move in the right direction towards the envisioned future, then you don’t really have much of a strategy, so a Plan is another important aspect of strategy.
A strategy is not a single fixed action plan, or else it would fail as soon as you experience the unexpected. But, a good strategy clearly identifies the most important changes required in the business. Most of us are good at developing plans once we know what must be accomplished, so a good strategy enables a variety of plans to be developed, all working in concert to implement the strategy.
Communication is yet another critical aspect of good strategy. Our strategy should impact every decision made by every team member in the organization. It’s not enough to have a strategy; a strategy must be bundled up and communicated in a digestible fashion to everyone in an organization, so it can serve as that True North for every department in their decision-making.
Most of us can relate to Dilbert. I recently searched dilbert.com for the word strategy and found 175 matches. Most of those cartoons reflect the unfortunately common reality that the corporate strategy is not shared with employees (it’s secret), is meaningless or confusing, or has no connection to reality. The reason we laugh at these cartoons is because we recognize how common it is for strategies to be worthless because of these mistakes.
Finally, sometimes I hear the word Decision when I ask what strategy is. Developing a strategy will likely involve making some very important decisions. More importantly, a good strategy helps us with the decisions we need to make.
Which leads to my definition of a strategy…
A strategy is a framework that makes hard decisions easy! (or at least easier)
Breaking this down just a little… A strategy is a framework. It’s a combination of elements that work together to provide useful structure and strength.
Second, strategy involves hard decisions that require sacrifice and foregoing some opportunities to pursue others. Strategy is not the answer to decisions, but rather the framework that makes all of those decisions as easy as possible.
Unfortunately, you can’t anticipate all of the decisions you will need to face, but a good strategy will help when making even these unanticipated decisions. As Prussian General Helmuth von Moltke is famously quoted as saying, “No plan survives contact with the enemy,” so a strategy that tries to answer all the known questions in advance will ultimately fail when (not if) the unexpected happens.
So, to hit on all the things we’ve talked about so far, a strategy:
- Is a framework with depth and dimensionality to deal with uncertainty
- Provides long-term vision
- Defines the goal being pursued
- Sets a direction forward
- Identifies critical near-term objectives
- Communicates all of the above clearly and coherently, and therefore
- Enables decision making
I’ve used the word framework a couple of times, and there may be frameworks that you use in your work, but most of them may not have much to do with strategy, so what do I mean when I say framework?
Well, it’s probably easiest to show some examples of different frameworks that I think can work to provide the kind of guidance necessary in the face of uncertainty.
One good one comes from the book Built to Last by Jim Collins and Jerry Porras. They used the yin/yang symbol for two symbiotic elements of strategy that they referred to as Preserving the Core and Stimulating Progress, and the specific elements within the framework are Core Purpose, Core Values, a Big Hairy Audacious Goal (BHAG), and a Vivid Description of the Envisioned Future.
In Competing for the Future, Gary Hamel and C.K. Prahalad talk a lot about strategic architecture, but they don’t spell out very clearly what exactly they mean by that phrase. The pieces that they do talk about that I think make up a framework of sorts are three layers: strategic intent — your envisioned role in the future, core competencies, and strategic levers that enable you to go from that current core to that future intent.
In The Advantage, I think Patrick Lencioni presents a strategic framework in the form of six questions:
- Why do we exist?
- How do we behave?
- What do we do?
- How will we succeed?
- What is most important, right now?
- Who must do what?
In Playing to Win, A.G. Lafley and Roger Martin introduce a framework by that same name, “Playing to Win,” which involves an integrated cascade of choices a business makes in establishing their strategy.
The final one I’ll mention is not surprisingly my favorite. The Purpose Pyramid is a tool I’ve developed, with help from many I’ve worked with over the past 20 years, based on work begun at TeleChoice. There are four layers. At the top is the Purpose — why do we exist. At the bottom are what I call the non-negotiable Principles that guide everything we do. The second layer from the top are three Pillars — these are things that must be true about us if we are going to accomplish our Purpose. And finally, for each Pillar, what are three Plans — things we must do right now to make that Pillar more true and more stable in supporting the Purpose.
So, with these different frameworks, hopefully you get a sense for how they provide clear direction. When we face hard decisions, these frameworks can guide us in choosing between options to make sure that we are moving in the right direction.
How Do You Develop Strategy?
Okay, so now we have a better idea of what a strategy is, but how do you get one? For now, I’m going to keep this super high level, at the 10,000 foot level.
Inertia vs. Intention: It is amazing how many organizations develop their strategy based on inertia — “We’ve always done it this way” is a phrase I hear from too many clients and partners. Often, their process is best described as incremental to what was done before, just updated for this year. That might work for a few years, but firms have a real opportunity to reassess their approach to developing strategy each time they do planning. It’s amazing how many just continue the path that’s been set before. Hopefully this article will introduce you to taking a more intentional approach to strategy development.
Scope: Decisions, Metrics, Goals, Stakeholders: But before starting any strategic planning exercise, it’s critical that you clearly define the scope of the effort. What decisions will be made as part of the strategy, what future decisions will be enabled, and how will you measure the success of the strategy? Are there specific goals that the strategy is intended to achieve? Who are the key stakeholders that need to be involved in the planning process? Understanding these factors can help ensure that the strategy effort will involve the right people, pursuing the right answers, to achieve the right goals.
Perspective: External, Internal: Strategy is not developed in a vacuum. It’s important to have a realistic perspective of the current situation.
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Externally, what has changed? Think about the market environment (how customers behave). What trends are impacting how customers buy? Have there been any major disruptions? Are there new opportunities that are emerging?
Think about the competitive environment (how competitors behave). Are there any major trends? Have there been any new entrants or consolidation? Any radical or disruptive new offers? And how might competitors react if you pursue different strategic directions?
Internally, it’s important to have humble self-awareness — an honest sense of your organization’s strengths and weaknesses. Consider your assets and your capabilities. Do you have what you need to pursue emerging opportunities?
When you think about the capabilities that customers care about, how do your capabilities compare with competitors’? For each capability, would you say that it’s competitive? Industry leading? World class? Best in the world? Have you introduced new capabilities that no one else in your industry has?
Are the improvements that you are introducing incremental (a percentage improvement) or order of magnitude (several times better) improvement over competitors? Will competitors be able to easily match your improvements, or will it require re-architecting how they operate?
Outside-In vs. Inside-Out: Strategic planning can begin either from an outside-in perspective or from an inside-out perspective. Either starting approach is perfectly valid, but in the end, the right strategy has to make sense both from the outside-in and the inside-out.
Outside-in strategies are driven by external opportunities and threats. For example, the recognition of changes in customer needs may spark a strategic planning exercise. Or perhaps, a gap in competitors’ capabilities and offers is identified, leading to a strategic initiative to capitalize on the opportunity.
Inside-out strategies are driven by internal realities. Many successful startups appear to be outside-in (recognizing an unmet market need), but are actually inside-out (the founders’ unique expertise and capabilities are foundational to uncovering that unmet need). Internal realities, including world-class or best-in-world capabilities, deep knowledge in emerging fields, unique relationships, and even compelling passions can drive tremendous impact and success if effectively directed by a sound strategy.
Whether a strategy is initiated from the outside-in or the inside-out, it is critical that the full situation is examined and addressed. Outside-in opportunities require the right inside-out capabilities to be successfully pursued. Similarly, an inside-out passion will fail without the outside-in conditions (market demand and competitive environment) to bring it to fruition.
Big management consulting companies like McKinsey and BCG often lead outside-in strategy efforts for large companies. They spend weeks performing market research to identify attractive market sectors, then weeks more doing more market research to drill down into specific opportunities. They talk to executives across the company to try to draw out their expertise, to learn what’s been tried before and why it did or didn’t work, and to be able to present the organization’s capabilities as if they deeply understood them. They start with identifying, sizing, and understanding the external opportunity, then they probe internally to figure out whether or not the company has what it takes to pursue that opportunity (and if not, what can be done to fill the gaps). These consulting engagements typically take 3–6 months and can easily cost half a million dollars or more.
When experienced teams are looking at opportunities close to their core business, I think an inside-out strategy makes much more sense. I also find that it works best to bring the team together to debate the opportunity. I like to challenge them and they challenge each other to collectively deeply understand what they are good at and what they care about. An experienced team will also deeply understand what is happening in the market — how customer needs and behaviors are changing and how competitors are responding.
Rather than spend lots of time and money upfront probing with broad research projects, you can tap into the gut knowledge of the team to identify the market opportunities that are well aligned with what’s true about these opportunities. At TeleChoice, we developed a $50,000 3-day strategy lab that took an inside-out approach to extract the core strategic framework for clients. We recommended that they follow-up with a very focused (and therefore time and cost effective) market research effort to confirm and refine the opportunity that had been identified, but in a small fraction of the time for a fraction of the cost, the team came together and developed the right answer.
Project vs. Process: Most businesses, non-profits, initiatives, new products, and market entries start from an idea. Whether explicitly or not, in these cases a strategy is developed as a project for turning that idea into reality.
Most ideas aren’t viable, and often it’s the questions asked in the strategy development effort that make that lack of viability clear, hopefully leading to the right decision to not pursue the idea further. But some ideas are great, and through the strategy project, a way is found to make them into a reality.
Once that new thing is launched, the strategy work changes. The initial baseline strategy is set, but it needs to be worked. You need to continually monitor progress along the path. And at some point, you need to revisit and adapt the strategy to changing internal and external realities.
This is the strategic planning process.
Many organizations have an annual strategic planning process. More agile organizations have a quarterly process. That doesn’t mean that the strategy changes radically each year or each quarter — hopefully it doesn’t. But as the environment changes, and as you progress down the path towards your envisioned future, you may find that you’ve completed some initiatives and need to focus on new ones, or that you need to recast the pillars on which your strategy rests, or perhaps things have changed so radically that you need to redefine your envisioned future — set a new direction and destination. Unless you are constantly revisiting your strategy, you may miss the need to make these critical changes.
Qualitative vs. Quantitative: Much of what I’ve described as strategy sounds very qualitative. But you’ve probably guessed that there’s serious financial analysis happening behind the scenes as strategies are being developed. This is good and healthy. Organizations typically have financial objectives to which they are held accountable. Differences in the financial contributions of different strategic options can also be incredibly helpful in making strategic decisions. You just need to guard against making decisions purely on a financial basis and not accounting for all aspects of strategic alignment.
I would argue that there is no conflict between the qualitative aspects of strategy and the desire to maximize business financial success. Businesses exist at the pleasure of their customers. A sound strategy will be based upon the desires of the market and the capabilities of the organization. Supposedly financially-driven decisions that either fail to serve real market needs or that cannot be effectively performed by the organization will not deliver the expected financial results. The best numbers on paper will never become reality if what you’re trying to do really doesn’t make sense for your company.
I would argue that a good strategy will result in either better serving the customer, meaning market differentiation, or increased discipline resulting in reduced costs, or both, so strategies that qualitatively make sense will also be attractive financially.
Okay, so that’s the 10,000 foot view of developing strategy.
Strategy Workbench
Let’s now dive down to the 1,000 foot level. I want to introduce you to some of the tools that I use in developing strategy. Some of these tools are general purpose, while other tools are uniquely applicable to specific situations or types of strategy. I could write a whole book on this, but I’m going to try to move at a pretty quick pace. I’m also not going to hit every possible strategy tool out there. In preparing for this, I made a list of tools that might be worth talking about and came up with a list of over 40, so I had to narrow that down a bit for this article! If there’s anything here that you want to know more about, or if I missed the one tool that you were really wanting to hear more about, reach out to me and we can discuss it.
I mentioned before the 3 day strategy lab that we developed at TeleChoice. Let me first run through the tools that I use when running a Strategy Lab.
A strategy lab typically involves a handful of participants from the client engaging together either virtually or in person, so as I describe these tools keep in mind that they are being used in a group setting.
One of the first tools I use in a strategy lab is a Perceptual Map. I will typically take a team through half a dozen or more possible perceptual maps trying to find the right combination of competitive factors that really capture the unique value created by the company. This is particularly helpful in business or market or product strategies where competitive positioning is really important. This is basically a 2x2 matrix showing perceived competitor performance on two factors that customers care about. You’re looking for the one map where you are in the top right and no one else is. By the way, there’s another tool called the Positioning Map which is just like the Perceptual Map, but focused on company positioning rather than customer perceptions.
The Perceptual Map is especially helpful in identifying strategic options to be considered. I then like to create a Future Snapshot for each option. I think of these like baseball cards from the future. We fill each one out with all of the key facts that will be true in the future if you pursue that option — what products will you offer, what markets will you target, what capabilities will be critical, what resources will be essential.
We then run the options through the Strategy Sieve. This typically takes almost the entire second day. Together, we develop filters that we test the options against. Typically those include passions and objectives, capabilities, constraints, and financial metrics. The greatest value from the exercise comes more from the discussions and debates that happen as we go through the process than from the actual end results. In the end, not only do you have the right answer, but everyone involved deeply understands why it’s the right answer and what it’s going to take to make it work.
I almost always use the Purpose Pyramid to capture the resulting strategy. This helps us identify what aspects of the strategy still need to be tested and what gaps still need to be filled in on the backside of the lab. I already briefly described this earlier as my favorite strategic framework.
So, those are the tools involved in the strategy lab process. Most of those are great for any kind of strategy development work.
The next group I’ll cover are some classic strategy tools.
The BCG Growth Share Matrix is often used when making portfolio decisions, such as a corporate strategy or decisions about a product portfolio. It looks at relative market share and market growth to categorize markets as cash cows, dogs, question marks, and stars so that you can make decisions and manage them appropriately.
Michael Porter’s Five Forces model can similarly be used to evaluate the attractiveness of an industry or market, but I like to use it in the form of a matrix to also think about trends and uncertainties.
Similarly, PESTLE Analysis is used for understanding the external environment impacting strategy. Again, I like to use a matrix to understand the current situation and future trends.
Both Five Forces and PESTLE Analysis are key tools for SWOT — strengths, weaknesses, opportunities, and threats analysis.
I also use them both in Scenario Analysis to evaluate potential future scenarios we should consider in our strategic planning.
Getting back to Michael Porter, his Value Chain model is a helpful way for understanding how a company creates value and the decisions that create competitive advantage.
Next, I want to mention three tools that are associated with innovation.
Clayton Christensen’s classic book The Innovator’s Dilemma introduced the Technology Trajectory Map as a tool for understanding an innovative technology’s position and trajectory relative to current technology and market needs.
The Innovation Landscape Map examines different ways to solve a problem — using existing or new technologies and existing or new business models.
The Strategy Canvas was introduced with the concept of Blue Ocean Strategy. It captures innovation in the definition of markets and go-to-market strategies.
The final group I want to introduce are tools related to startup strategies.
I believe that every startup begins with a Startup Strategy Skeleton, although the startup team may not consciously think of it that way.
Through testing and iteration, that grows into the Value Proposition Canvas, although I’ve developed a slightly modified version that I call the Customer Value Map and related to it, the Revenue Model.
After more testing and iterating and achieving Product Market Fit, the focus shifts to the business model. The Business Model Canvas is a favorite tool, although again I have my own version which focuses on the Operating Model.
That was a whirlwind tour of 20 different strategy tools! As I said at the beginning, that was simply the 1,000 foot view. You may have noticed that many of the tool names included links to other resources I’ve provided so that you can learn more about these tools.
Hopefully this article has given you a good idea of what strategy is, the highest level view of how to develop strategy, and some of the most common tools used in strategy development. If you want to learn more, or if you need any help with a strategic question or a strategy project, please don’t hesitate to reach out.
