At the heart of strategy is the ability to create a plan of action which will lead to victory – whatever victory is thought to be in this instance. But, before the strategy is created a more basic question needs to be asked. ”The strategist’s method is very simply to challenge the prevailing assumptions with a single question: Why? and to put the same question relentlessly to those responsible for the current way of doing things until they are sick of it,” explains Kenichi Ohmae in The Mind of the Strategist.
Before setting off it is worth returning to first principles and asking some vital questions. Like these:
1: Where are you?
The starting point must be a solid understanding of where you are starting from and the dilemmas you face. If organizations are not in touch with the reality of their situation — however depressing this may seem — they have no hope of moving forward.
2: Where do you want to be?
If you don’t know where you want to be you are unlikely to get there.
In pursuit of this starting point organizations throughout the world have developed mission statements. “Most companies do have a mission statement. About 99.9 percent are useless,” observes Costas Markides of London Business School. Mission statements are also, confusingly, known by a variety of other labels (strategic intent, core objectives, visions, etc.) but the end-result is usually remarkably similar. Blandness does not differentiate or motivate.
Mission statements are, or should be, a pithy explanation of why a company is in business, what it intends to achieve and by what methods. The exercise of distilling an organization’s raison d’etre into less than 100 words is often useful in itself. However, the results are often fatuous in the extreme. Mission statements have become meaningless PR exercises, pinned on noticeboards, printed on corporate keepsakes and generally ignored by the people they aim to influence. “Many managers misunderstand the nature and importance of mission, while others fail to comprehend it at all,” concluded Andrew Campbell and his co-authors in A Sense of Mission.
Though they might help to encapsulate an organization’s goals, mission statements are not strategy. They are more accurately described as the potential end-result of strategy, the objectives of the organization. Indeed, Henry Mintzberg defines strategy as the embodiment of a company’s visions.
Mission statements should be bold, but achievable, goals. It sounds straightforward, but the means of identifying these objectives is clouded by controversy.
3: What do you want to achieve?
Any statement of intent relies on some knowledge of what it is you wish to achieve. Michael Porter argues that what every company should aim to achieve is competitive advantage. It must be better than its competitors in some way.
This has led to the elusive and almost mythical notion of sustainable competitive advantage. (One of the most important strategy books of the past decade, by Columbia Business School’s Rita McGrath, is entitled The End of Competitive Advantage.) In reality, any competitive advantage is short-lived. If a company raises its quality standards and increases profits as a result, its competitors will follow. Businesses are quick to copy, mimic, pretend and, even, steal.
The logical and distressing conclusion is that an organization has to be continuously developing new forms of competitive advantage. It must move on all the time. If it stands still, competitive advantage will evaporate before its very eyes and competitors will pass.
The dangers of developing continuously are that it generates, and relies on, a climate of uncertainty. The company also runs the risk of fighting on too many fronts. This is often manifested in a huge number of improvement programs in various parts of the organization which give the impression of moving forward, but are often simply cosmetic.
Constantly evolving and developing strategy is labeled strategic innovation. The mistake is to assume that strategic innovation calls for radical and continual major surgery on all corporate arteries. Continuous small changes across an organization make a difference. “We did not seek to be 100 percent better at anything. We seek to be one percent better at 100 things,” said Jan Carlzon when he was CEO of the airline SAS.
4: What needs to change?
Even major surgery has its compromises. More realistic than most, the Japanese strategist Kenichi Ohmae, says that a good business strategy “is one, by which a company can gain significant ground on its competitors at an acceptable cost to itself”. He believes there are four principal ways of doing this:
- Focus on the key factors for success (KFSs). Ohmae argues that certain functional or operating areas within every business are more critical for success in that particular business environment than others. If you concentrate effort into these areas and your competitors do not, this is a source of competitive advantage. The problem, of course, is identifying what these key factors for success are.
- Build on relative superiority. When all competitors are seeking to compete on the KFSs, a company can exploit any differences in competitive conditions. For example, it can make use of technology or sales networks not in direct competition with its rivals.
- Pursue aggressive initiatives. Frequently, the only way to win against a much larger, entrenched competitor is to upset the competitive environment, by undermining the value of its KFSs — changing the rules of the game by introducing new KFSs.
- Utilizing strategic degrees of freedom. By this tautological phrase, Ohmae means that the company can focus on innovation in areas which are “untouched by competitors”.
“In each of these four methods, the principal concern is to avoid doing the same thing, on the same battleground, as the competition,” Ohmae explains.
5: What are you good at?
The phrase core competencies has now entered the language of management. In layman’s terms, core competencies are what a company excels at.
Gary Hamel and CK Prahalad, who made the term famous, define core competencies as “the skills that enable a firm to deliver a fundamental customer benefit”. Hamel and Prahalad argue that strategic planning is neither radical enough or sufficiently long-term in perspective. Instead its aim remains incremental improvement. In contrast, they advocate crafting strategic architecture. The phraseology is unwieldy, but means basically that organizations should concentrate on re-writing the rules of their industry.
6: What is the context?
Nothing in the corporate world exists in a vacuum. Formulating a mission or any set of objectives must involve a plethora of people, as well as consideration of the broader forces at work in and on the organization.
This process was neatly summed up by Peter Drucker in a 1994 Harvard Business Review article. Drucker argues that every organization has a theory of business — the assumptions on which it has been built and is being run. To create a “valid theory of business” requires four elements:
- The assumptions about environment, mission and core competencies must fit reality.
- The assumptions in all three areas have to fit one another
- The theory of the business must be known and understood throughout the organization
- The theory of the business has to be tested constantly.
Along similar lines, Kenichi Ohmae argues that an effective strategic plan takes account of three main players — the company, the customer and the competition — each exerting their own influence. The strategy that ignores competitive reaction is flawed; so is the strategy that does not take into account sufficiently how the customer will react; and so, of course, is the strategic plan that does to explore fully the organization’s capacity to implement it.
7: How do your achieve your objectives?
Implementation is where most strategies fail. Success relies on matching an organization’s resources, culture, structure and people to the strategies which emerge from consideration of an organization’s core competencies and the environment it exists in.
Of course, no list of questions provides a foolproof answer or set of answers. The challenge for any organization is to develop its own culture of asking questions and interrogating reality. Passive acceptance is the route to failure; robust, continual questioning the path to strategic success.
Gary Hamel & CK Prahalad, Competing for the Future, Harvard Business School Press, 1994
Costas Markides, Diversification, Refocusing and Economic Performance, MIT Press, 1995
JI Moore, Writers on Strategy and Strategic Management, Penguin, 1992
Kenichi Ohmae, The Mind of the Strategist, McGraw Hill, 1982
This was originally published in What we mean when we talk about strategy by Stuart Crainer and Des Dearlove (Infinite Ideas, 2016).