Strategy Secrets of Successful Companies, Part 1

WHY IS GOOD STRATEGY SO HARD TO GET?

Welcome to the first of four installments in the “Strategy Secrets of Successful Companies” series, designed to support you in creating good business strategy for your small business.

Let’s get something clear right up front: creating good strategy is hard. And good strategy, once created, is even harder to maintain. In fact, the failure of business owners and managers to craft good strategy and to build and sustain competitive advantage is rampant in companies large and small around the world. In industry after industry, we see companies enacting bad strategy or having no conscious strategy at all. One harmful result: they compete in the same markets in the same ways for the same customers, leading to intractable fights—inevitably on price—that no firm can win. While much has been written about the commoditization of markets, few commentators seem to notice or state the obvious: that even given globalization and ongoing technological disruption, commoditization need not be inevitable. Too often, the commoditization of markets is due to firms’ own failure to craft good strategy. That’s right: businesses bring ruinous competition upon themselves.

Today, despite decades of academic research and the rise of strategy consulting as a global industry, the daily practice of strategy by managers of the world’s organizations remains crippled by pervasive ignorance, apathy and poor communication. For example, if you were to assemble your colleagues right now and ask them to say what their strategy is, chances are you would find they couldn’t. Most would no doubt say something vague about “growing profits by delighting customers” or “winning through innovation” or simply “being the best.”  Moreover, you would find their answers to be inconsistent with each other.  So not only are they unclear, but also misaligned.

Why is good strategy so hard to get? We observe three roadblocks to managers taking on strategy as a core discipline that directs the choices they make every day to build market positions for their enterprises that are unique and valuable.

First, faulty strategy education leaves managers unclear about what strategy is, what it is not, and how good strategy is created. Managers’ lack of clarity and consistency in articulating their own strategies—a phenomenon we observe to be universal in organizations—reveals their lack of understanding of strategy’s structure and logic and deprives them ultimately of its power.

Second, managers’ chronic lack of discipline in making trade-offs leads to persistent strategy implementation errors. For example, no matter what, the strategy managers must make difficult choices about which customers to serve and which to ignore, which product or service features to include and which to leave out, which geographies to compete in and which to avoid, and which activities to do in-house and which to outsource. But what we find is that managers resist making trade-offs and end up losing focus by making choices that are strategically inconsistent. They may try to be all things to all people—the “best” for everyone —instead of being uniquely great for a select few.

Third, we observe that managers’ ability to maintain good strategy through time amid changing market conditions is undermined by a pervasive lack of strategy leadership. Strategy leadership is the ability of managers to embrace the need for change and transformation to continually create unique and valuable market positioning for their enterprises.

Managers must stay related authentically to both their organization’s external market context (i.e., changes in technology, regulation, competition, and customer requirements), and its internal conversational context (i.e., prevailing views of what is possible for the organization held by its executives, managers and employees). The conversational context may sound abstract, but it’s not; it governs both what gets discussed in meetings and how things get discussed. And not just in meetings, but in hallways, at lunch, in boardrooms, and even in restrooms.

To a large extent, the future of the enterprise is encoded in those conversations, and leaders must learn to listen for it. But staying connected authentically to the world outside the enterprise, and internally with their colleagues, is a huge challenge for managers. For example, most strategic plans are extrapolations of the past: managers take last year’s target and increase it incrementally. Meanwhile, the world may have changed and a past-based “planning” approach could be not just wrongheaded, but dangerous for the health of the business.

Furthermore, we observe managers are biased to favor or exclude strategic choices based on their interpretations of what happened with choices they made in the past: their views of what worked, what failed, who was to blame for the outcome, who got fired (or didn’t) as a result, counter-moves taken by competitors, the reactions of investors, etc. Rather than seeing their views for what they are—one of many possible interpretations—they live instead as if their interpretations are true, and they are unaware that they are so biased. This blind spot limits significantly the choices they perceive as available to them—what is in fact possible—in building market positions that are different from competitors’. And as blind spots go, it’s huge.

Part two of this series will address the need for basic strategy education and will present a universal definition and structure of strategy. The issue of chronic management indiscipline, and the challenge of providing breakthrough strategy leadership for the world’s organizations will be addressed in parts three and four, respectively.

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