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Strategy in times of rapid change

April 12th, 2012

A typical definition of the word strategy is a plan of action designed to achieve a vision, the two key words being “plan” and “vision”.  I’ve been talking about strategy a lot lately because I believe the lack of a coherent strategy is the barrier that prevents firms from achieving their full potential.  They either lack a vision, they lack a plan of action or they lack both.  In other words they lack a strategy.

Following a post that I called Strategy Evolves (April 2012) I got a call from a member who asked the question “in times of rapid change such as those we’re experiencing now, and are likely to face at an accelerated rate in the future, does it make sense to invest time in planning when the future is so uncertain?”

That’s a good question. But I think it’s the wrong question.

It’s wrong because strategy should not be confused with planning.  Strategy is the process of identifying a customer need and then configuring the activities needed to meet those needs at cost that enables the firm to achieve a premium profit.  Premium profit in this context meaning higher-than-average for the industry.

Strategy is concerned with what the businesses is attempting to accomplish and how it will do that by defining its business model.  Planning on the other hand is concerned with the sequencing of actions that are involved in the implementation of the strategy.  Plans may need to change in the face of new circumstances but the essence of the strategy should continue.

Jim Collins, in Good to Great, recites numerous examples of how the “great” companies changed their plans but held firm to their strategies.  The great Jack Welch also understood this important point … “Our businesses need to be number1 or number 2 or they are to be fixed, sold or closed.”  And so did the equally great Steve Jobs he said … “we must focus and simplify” …  “Deciding what not to do was as important as deciding what to do.”  That strategic insight was the core of several business model iterations that re-defined four industries and resulted in the most valuable company in the world.

Throughout history it has NEVER been possible to predict the future so there’s really nothing new there.  The fact that we can’t predict the future is what makes life interesting and gives business leaders who understand the true purpose of strategy an unfair competitive advantage!

I say “unfair competitive advantage” because they’re taking advantage of their rivals’ ignorance … is that too hard a phrase?  If so I apologize but I do feel strongly about this.  Good strategy leads to good decisions and through that to good outcomes MOST of the time and that’s as good as we can possibly hope.

The essential purpose of strategy is to give decision makers a framework that will define the direction they have chosen to take their business–it is not rendered irrelevant because of change, on the contrary, it is essential because circumstances change.  If you were to subscribe to the idea that you don’t need a strategy, that’s like saying you simply rely on luck to succeed. Give that advice to an elite athlete!

The success of your business does not depend on circumstances but on how you react to them.  That in turn will depend on the strategic framework you have determined for what you need to do to get to where you want to go.  Strategy helps you decide what’s important because you know what customer needs you’re attempting to meet and what activities are required to deliver that outcome.

Having a strategy will make it far more likely that you make consistent decisions and therefore you can expect to experience consistent (if not always good) outcomes.  In saying “not always good” I’m acknowledging that sometimes things don’t work out the way we want but if you quickly see that, you’re able to make necessary changes; in other words, your actions may change, your plans may change but your strategy remains firm unless and until you find it no longer gives you a competitive advantage which is always its purpose.

 

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