Most strategic concepts are:
- Selective rewriting of history of some successful companies
- Better at describing the past than predicting future
- Based on a few simple truths.
Most corporate strategy is formulated the same as most corporate budgets: last year’s budget and strategy is the best predictor of next year’s budget and strategy. Both will change, incrementally. Only a few companies actually change strategy significantly.
Because most businesses do not change strategy fundamentally, the demand for deep strategic thinking from managers is not high. Nevertheless, it helps to understand strategic thinking. This means the following:
Understand the strategic relevance of your own activities
All managers have to be able to answer: “How can my actions and decisions support the goals of the organisation?” It requires understanding the goals of the senior leadership team. Many managers fail this obvious test. They are so consumed with meeting their immediate goals that they forget to think about the broader context in which they are operating. Managers do not need to be great strategists to think and act strategically: they need to understand the real needs of the organisation and to support those needs in their areas.
A simple test to strategic activity is this: will these actions get noticed at executive committee level? If they are relevant at that level, you are probably acting on matters that have strategic relevance. If not, you may still be making a useful but less visible contribution.
Know how to think strategically
The best strategic thinking is very simple: clever people make things complicated, while really clever people make things simple.
Many of the most successful organisations have very simple strategies. Although they are very simple strategies, they are competitively devastating. For instance easyJet: by starting with a zero cost base and avoiding all the frills and complexity of full-service airlines, they achieved cost per mile and fares, which the full service airlines cannot reach with their legacy and infrastructure. They created clear competitive distance against the incumbents.
Now consider how their strategy changes over the years. They have essentially the same strategic formula. Great strategies rarely change.
Play the strategy game
The real purpose of this game is to show that you can think in a structured and strategic manner, and the actual answer is unimportant. To succeed, you do not need to know the right answer. You need to know the right questions. An effective strategy discussions will look at the issue from a series of different angles:
- What capabilities do we have?
- What are the market prospects? Is it growing? Is it profitable? What are the pricing trends? Critically, you need to look at individual segments of the market. Which ones are underserved? What needs are unmet?
- What does the competition look like? Look at underserved market segments.
- What are the economics of the market from a customer’s perspective?
- What are the economics from the manufacturer’s perspective?
As you go through the game, you should keep in mind a checklist of questions and perspectives you need to cover:
- Capabilities of the firm and its rivals
- Market prospects, by segments – size, growth, profitability and cyclicality
- Customer needs, by segment – remember product, price, positioning questions
- Competitive position, by segment. What is our value proposition? Do we have any sustainable advantage, barriers to entry?
- Economics, relative competition, the customer and us. What are the effects of scale across the value chain? What is the value chain?
Keep asking these questions until you find convincing answers. Quite often, you will find that just one critical insight develops out of all the questions. It takes some questioning to get that simple outcome.
Understand the nature of strategy
Strategy is spoken in two different languages: the classical and the postmodern.
Classical strategy is about cause and effect. “If x happens, then y is the result.” It is a strategy in the true tradition of the Enlightenment: finding universal rules to apply to all situations. This strategic approach sheds light and provides some insight into complex situations. However, it is also extremely dangerous. If everyone uses the same tools and the same analyses, they come up with the same answers. These types of decisions can be smart individually, but collectively, they build a house of cards that falls down and lead to major problems. Following the herd can be very dangerous.
Post-modern strategy is a process of discovery in which you create the future, rather than react to the present by analysing the past. This is a process-driven view of strategy much more than an analytical view of strategy. It does not pretend to have all the answers: it challenges organisations to discover and create answers themselves. It leads to much more creative outcomes and engages the organisation more deeply. However, often it is not practical. This strategic approach seeks radical strategic change, but most large organisations either do not need radical redirection, or are not capable of achieving it.
The classical approach to strategy suits established firms best. New entrants and start ups use the post-modern approach, but are too small to realise that they are doing so.
Owen, J., 2006. How to manage. Pearson Education.