Defining Strategy

Over the past six months, I have been in the process of refining how I work from a strategic viewpoint.  What brought this to the forefront of my thinking are the great changes that managements wants for the company.  I generally use this line of thinking to figure out what the projects I work with are trying to accomplish.  In addition, I use it to get a handle on how competitors go to market and to see if they are actually competitors or just in the same field.

The process

The strategic process should dictate everything about corporation’s business work. It is a simple cost benefit process weighed against expectations of philosophical beliefs. Without one, a company governs based on the whims of the strongest executive personalities or worse, their competitors.

The main benefits are twofold. Firstly, it allows greater insight into the business. The company can apply their financials to the value chain and note what is working. Secondly, it forces each person to be accountable for the success of the company. Additionally, it enhances empowerment as employees know why the come to work each day.


Chain of Accountability

Strategy Diagram


Centralized companies should work from a unified strategy down to the tactic level, while flat and decentralized companies might need to have a handful of strategies rolled up into a overarching philosophy.

Level explanations in the chain of accountability

Philosophy

A company’s view of the world and how it fits within it. There should be only one philosophy per company as it the lens in which you view the world. Once set, this view should not change often as it leads to confusion. Therefore, it is vital to make it broad enough to weather changes in the marketplace.

Pitfall #1: Not communicating the philosophy. Leaders can create a great philosophy then marshal the resources needed to execute it. Without constant communication, employees default to working within the system because the unifying message is unclear. This is the Iron Law of Bureaucracy.

Questions at this level:

  • What do well? How are we different from our competitors?
  • What do we want to do well in the future?
  • Where can we grow?
  • Does everyone understand what we want to accomplish?

Strategy

This is the physical manifestation of the philosophy. It is the lens used to evaluate tactics and gauge success. While it is possible to have multiple strategies, a company needs to track benefits gained and effort expended separately. Do not pool resources between strategies because it will lead to organizational conflict.

A strategy needs two things to be successful:

  1. It needs to be actionable.
  2. It needs to be attainable given the time horizons, the resources (people) available and accessible capital. This is the Iron Triangle.

Pitfall #2: Mistaking a philosophy for a strategy. Take the philosophy; grow households. It sounds good on paper until someone wants to act. How does the company want to grow households? Maybe lower prices or expand product line or entering new locations? A strategy needs to actionable.

Pitfall #3: Creating a strategy without resources. Until a strategy has resources, it is a dream. A strategy needs resources in order to work.

Questions at this level:

  • What are we trying to accomplish?
  • What does success look like and how do we apply it to our goals?
  • How long is this going to take?
  • What resources do we need to accomplish the goal?
  • What will we give up to succeed? Highly important = organizational change

 

Positive goal

At a high-level, it is what the strategy hopes to accomplish. Goals are the quantifiable piece of a strategy.

Pitfall #4: Cost center thinking. Without a positive goal, groups seem like cost centers to be minimized. This often happens in service and IT areas. It is important that everything be subject to both the positive and negative goals.

There are no questions at this level since strategy work addresses any questions.

 

Negative goal

What the company is willing to surrender to reach the positive goal. This goal is very important as it allows the company to know its limitations.

Pitfall #5: No negative goal. Without a negative goal, there is no expense management and ability to stay within the strategy’s purview. This often leads to bloat (scope creep.) It also makes it impossible to figure out what tactics are successful.

Again, there are no questions at this level.

 

Metric goal

Amount of benefit you gain per effort spent. It is the lens to evaluate ideas and gauge the success of both tactics and overall strategy. For tactics to be effective, you need some way to pit them against one another. Not all programs will necessarily have same metrics, but all need an objective metric based on the strategy goals.

Pitfall #6: Vanity metrics. These are many metrics not tied to a strategy. While some may have valid micro or diagnostic uses, they should not be confused those that make or break a strategy. Vanity metrics are easy to spot, think Facebook Likes, since they do not have negative goals.

 

Tactics

Execution of the strategy. Every tactic, however mundane, needs a direct line to the overall philosophy through its metrics and strategy.

Pitfall #7: A tactic with no strategy. These tactics are easy to spot because they do not have a Metric Goal. Without this tie, there is no accountability, no ability to empower people to work toward strategy, and employees will not feel engaged.

Questions at this level:

  • What do we want to do?
  • When we rank various tactics, which ones bubble to the top based on our strategy metrics and ability to execute?
  • Do we want to continue, expand, or terminate this tactic based on the results?

Remember: Strategy = F(x){tactic #1 metrics, tactic #2 metrics, tactic #X metrics} – All corporate efforts need to be included in the strategy.

 

Example: Putting it all together

Say a CEO of an offline luxury futon-company wants to go online in order to better service clients. To be worth their while, they need to ramp up sales in this channel too. Because it is hard to find funding for this venture, the company shifts resources internally to build out its web presence.

Philosophy

Since our customers are shopping online more, we want to capture these sales while improving our customer service to bring in more repeat buyers. This benefits the company because it is cheaper to sell online and we will be able to learn more about our customer’s preferences.

Strategy

Over the next four years, we want 1 in 5 new clients to come from the online channel. These clients should have client satisfaction scores similar to our offline clients. To do this, we will move $1 million a year and utilize 10 FTEs from our offline efforts to succeed.

Goals

Positive:

  • 20% sales (20,000 a year in Year 4)
  • 80% client satisfaction score for these clients

Negative:

  • $4 million spent
  • 40 FTE equivalent (100,000 person hours @ $50/hr.)
  • Implicit: spend less on the offline sales channel

Metrics

  1. $100 or less online cost per sale in Year 4
  2. 5% profit margin based on COGS in Year 4
  3. 80%+ client satisfaction score

Tactics

  • Year 1-2: Online system improvements (metric 3)
  • Year 1: Test marketing messages (1 and 2)
  • Year 2: Campaign and advertising roll out (1 and 2)
  • Year 2: Additional online customer support (3)
  • Year 3: Increase product availability (All)
  • Year 3-4: Mobile app (3)

Notice how each step relates to the one above and below it. This is by design to and allows accountability from management level to program directors to the lowest employee. With this hierarchy in place, the company can begin to assign bonuses for meeting the goals or change tactics based on well-defined strategic criteria.

Change is inevitable and a good strategy will have the flexibility to meet this need. Maybe this company does not need to create a robust mobile app since the web site is mobile enabled. They then can shift resources to marketing. Conversely, if satisfaction is high but sales low, the company could shift its efforts from online customer support functions to increasing product availability or advertising.