Strategy is the implicit or explicit articulation of a deliberate set of adaptive choices made in a volatile, ambiguous, and uncertain environment about where to play and how to improve the odds of successfully accomplishing a purposeful goal having regard to the availability of resources, core competencies, culture, and management processes of a complex organization.
The key elements of this definition:
Implicit or explicit articulation
In a startup the strategy may be in the head of the founder(s) but that is not an ideal situation for a variety of reasons, one being it’s easy to forget “you’re there to drain the swamp when you’re up to your ass in alligators.” But the main reason is an implicit strategy fails to give you a sense of worthy purpose-driven direction which forces you to “think through” what you need to actually do to achieve a worthwhile objective.
This is a key to having an appealing “elevator speech” that explains what you do, who benefits, why it represents value for stakeholders, and how you deliver that value. Being able to articulate this in 20 seconds or less is the key to being able to attract and retain talent and it is also critical for attracting and retaining great customers as well as capital providers and other alliance partners.
Deliberate set of adaptive choices
Where you are today is the consequence of choices you have made in the past. You can never claim to have made the best choices but you will certainly know what have been amongst the worst. Longitudinal studies reveal that 50% of businesses fail within five years and only 10% survive until ten years—the cost to individuals, families, communities, and the nation is shocking. It is easy to say this failure rate is due to many things outside the immediate control of the founder but the over-riding reason for its poor performance is the ill-considered choices management has made which include not even thinking about what can be controlled and what can’t.
I have added the word “adaptive” as a reminder that strategy is a work-in-process that has no end. We need to make revised choices when we become aware of changing circumstances and the results of the many small on-going experiments we perform to test the efficacy, and improve the effectiveness and fit, of our activity choices. The circumstances to which I refer, apply to not only the what’s happening internally but include the state of the economy, geopolitical changes, competitor behaviour, the impact of new technologies, and changes in customer behaviour … as well as changed circumstances that are certain to occur but unpredictable as to when e.g. pandemics.
Where to play
Arguably THE most important strategic choice question is what Lafley & Martin (authors of Playing to Win) call the “where to play” choice. These are the choices in relation to your intended geographic spread, the value proposition reflected in your product or service, your intended customer avatar, what relationship you intend to have with customers, and what distribution channel(s) you intend to use amongst other things. This your strategic choice framework. It defines the boundaries within which you choose to focus you attention and resources.
Your choice of where to play also implies you are making a choice of where not to play. The where-not-to-play choice is the most important one you will ever make because it allows you to focus your attention and resources on delivering attention to the products and customers you really want, and need, to delight. The reason this is such an important point is that it is easy to be tempted into seeking apparent peripheral opportunities to grow but when they are pursued without regard to the trade-offs they demand (i.e. what you need to stop doing in order to make way for something else) but these diversions rarely turn out as hoped—as Napoleon supposedly said “hope is not a strategy.”
On the issue of trade-offs, it’s important to note that unless you have spare capacity any new project you take on will consume resources (including your time and attention) that is now being used elsewhere. Inevitably that means something will not be done or will be done poorly and while there may be a lag in the unfavourable consequences of that, it is highly likely that will be the result.
Even if you have spare capacity you face an opportunity cost when you take on a project that is outside your strategic choice framework because of what you have given up by not concentrating more effort and resources on the product or services you have chosen focus on. This manifests as the “shiny new idea” syndrome.
Improve the odds of success
You will never be able to claim your strategy is the best even if it turns out that you achieve your strategic goal because an alternative set of choices my have yielded an even better outcome. That said, you will be able to conclude that your strategy was not the “best” if you fail to achieve the desired outcome.
However, the purpose of creating a robust strategy is not to guarantee a desired outcome, it’s to improve the odds of success. This is the reason I have added the “adaptive” modifier because in a “volatile, ambiguous, and uncertain environment” the need to change over time is inevitable. The process of creating strategy and its execution are inextricably linked. When people say “the strategy was sound but poor execution was the reason expected results were not achieved,” a common so-called strategy consultant’s response, what they’re really exhibiting is the failure to understand that adapting to circumstance is the sine qua non of strategy.
Purposeful Goal
I choose to use the word “purposeful” rather than aspirational, challenging, stretch or some other lofty adjective. My reason being that it embraces a goal that has a broader meaning than maximization but if carefully articulated can achieve a multi-maximum outcome. This makes it possible to frame the goal in terms that multiple stakeholder cohorts can relate to. For example, a friend of mine, Steve Pipe, helps small business managers simultaneously set a profit goal which appeals to shareholders and, by articulating it in terms of an aspirational social goal, it appeals to customers and team members as well. He cleverly does this by connecting a profit target with a goal of providing say 1 million positive social “impacts”. When a customer engages with the business she is invited to select a social impact choice at no cost to her using a QR code and then another QR code enables her to see the impact her choice has made. The cost to the business is very small but when leveraged through multiple transaction amounts to a meaningful contribution made possible by the B1G1 philanthropic organization. Click here to see how that’s done. Needless to say it’s highly likely that the customer will return to that business and share the experience she’s just had with her friends. Purposeful goals are almost always win-win goals.
Available resources, core competencies and culture
Resources. A realistic strategy must be supported by financial, human, technological, and operational resources. Financial resources (capital, cash flow, and investment capacity) enable funding for growth initiatives, innovation, and marketing. Human resources (skills, leadership, and creative talent) drive execution that’s required for strategic goals to translate into action. Technological resources (IT infrastructure, digital tools, and insightful data analytics) support efficiency, agility, and innovation. Operational resources (supply chains, production capabilities, and physical assets) determine an organization’s ability to scale, deliver, and sustain competitive advantage. Without access to these resources, even the most well-designed strategy risks becoming unachievable or unsustainable.
Core competencies. The unique strengths and capabilities of an organization—whether technological expertise, cumulative knowledge, operational efficiencies, or customer relationships largely define its competitive advantage. These provide a framework for the choices of where to play and how to win which in turn are what improve the odds of success.
Culture. Is the “this is what we stand for and how we do it here” statement. It defines the values, beliefs (also called mindsets), and behaviours that influence decision-making, risk tolerance, psychological safety, agility, creativity, and resilience. It is said that every business is perfectly designed to get the results it’s getting which is a cute way of saying culture is the prevailing force in execution. In volatile and uncertain environments a misalignment between strategy and culture will hinder execution because culture invariably prevails.
Management process capability
Management processes provide the structure, discipline, and mechanisms necessary for both determining and executing strategic choices. An effective management philosophy and related processes is the major driver of a cultural climate that determines responsible risk tolerance, decision-making protocols, the degree of psychological safety, team collaboration, and strategic alignment.
When everyone understands the organization’s overarching strategy, leaders in subordinate business units know exactly how to design their own strategy and, at an individual level, operational choices will align with the organization’s strategy. To use a rowing metaphor: everyone on the team is rowing in swing. If you’ve never heard of ‘rowing in swing’ look it up, you’ll understand why it’s a perfect metaphor for operational excellence.
Complex organization
A complex system is a network of interconnected elements, some of which are outside the organization’s domain, that interact in unpredictable ways where small changes in one element can lead to significant, nonlinear unexpected, and unfavorable outcomes. Typically, operational challenges present as symptoms of underlying problems and if they are persistent the knee-jerk reaction is to “fix” the symptom. This short term solution may be thought to have worked because the symptom is no longer evident but because of a negative feedback loop, the action to fix it results in a different and often more significant problem elsewhere. A strategist who understands systems theory will factor this systems characteristic into the management processes as well as when deciding what choices are made in strategy formulation.