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The essence of strategy is choosing what not to do
- Michael E. Porter
Strategy is about shaping the future
- Gary Hamel
Strategy is a commodity, execution is an art.
- Peter Drucker
Strategy entails the art of deciding on resource allocation to create value from long-term investments for stakeholders, all while being mindful of the organization's purpose.
- Fal Diabaté
A cursory search on Amazon.com reveals over 3000 books on strategy. Why the abundance of literature, articles, and persisting issues surrounding this topic? What, exactly, is strategy? In this discourse, I will share my insights on the matter.
Michael Porter encapsulates the essence of strategy as "choosing what not to do." This implies that leaders crafting strategy must initially concentrate their thoughts on which initiatives to pursue, subsequently establishing the appropriate organizational framework for success. Similarly, Gary Hamel emphasizes the long-term dimension of strategy, suggesting that strategic direction should undergo fundamental shifts only in response to existential threats. Regrettably, many leaders lack the necessary intellectual rigor to promptly identify such threats to their companies. This is why the esteemed former CEO of Intel, Andy Grove famously asserted, "Only the paranoid survive." Leaders shaping strategy must maintain a vigilant focus on value creation for stakeholders or risk obsolescence. Peter Drucker, a titan in executive management, viewed strategy as a commodity, implying that its formulation is relatively straightforward, while execution demands finesse and artistry.
The concept of strategy has permeated human endeavors for centuries, particularly in military contexts. Its application in modern business can be traced back to Alfred Chandler's seminal work "Strategy and Structure" in 1962. Chandler defines strategy as the identification of an enterprise's fundamental long-term goals and the adoption of actions and resource allocations necessary for their realization. He emphasizes the importance of decision-making and resource allocation in executing strategy effectively.
In a contemporary organizational context, strategy encompasses decisions and resource allocations aimed at creating long-term value for both internal and external stakeholders within the framework of the organization's purpose. It entails thoughtful decision-making informed by both data and intuition, coupled with judicious allocation of resources to execute on long-term commitments that will yield value in the future. Ultimately, strategy serves as a guiding principle for navigating the complexities of business while staying aligned with the company's overarching purpose.
Every individual and organization possesses a strategy, whether explicit or implicit. Even the absence of a defined strategy constitutes a strategy in itself, one that often leads to calamity. Strategy is indispensable for a multitude of reasons, including providing direction, fostering focus, ensuring alignment, and facilitating course correction towards success. However, it's crucial to recognize that strategies are essential due to the economic dynamics we face in the real world—navigating choices amidst scarce resources and abundant desires. When compounded with psychological factors such as the ego, superego, and id, often referred to as "the committee" by psychologists, the necessity of strategy becomes even more apparent, as does the risk of failure without it.
An effective strategy typically progresses through four primary phases: formulation, implementation, measurement, and renewal. These phases are intricately interconnected and should be embraced as a continuous, cohesive process.
During the formulation phase, decisions regarding what, where, and how to engage, alongside aspirations and significant investments, are deliberated upon. This phase involves rigorous thinking and decision-making, drawing upon various cognitive frameworks such as design thinking, integrative thinking, or critical thinking. Additionally, strategic analytics tools like Porter's Five Forces model, the BCG Matrix, Gap analysis, or McKinsey's 7S framework serve to fortify strategy formulation efforts. Throughout this phase, it is imperative for all involved parties to remain grounded in the organization's purpose, values, and mission. The seeds of success—comprising thorough internal capability assessments, resource allocations, and awareness of external forces—are sown during this phase, with a steadfast commitment to long-term viability.
The implementation phase is where the formulated strategy is put into action. Here, tactics are defined and executed, subject to recalibration as necessary, while ensuring every member of the organization, irrespective of their role, contributes to executing a piece of the strategy. The existing organizational culture and structure serve as the bedrock for this phase. Effective execution demands intentional investment in training and communication with all stakeholders involved in the strategy. Failures in executing well-formulated strategies often stem from inadequate planning or action in this phase. Notably, the decoupling of strategy formulation and execution ranks among the chief reasons for strategic failures. Hence, it's imperative to tightly couple these phases, as emphasized by Roger L. Martin in his book "Winning Strategy," where he outlines a framework consisting of five cascading phases: defining winning aspirations, determining playing fields, charting winning moves, identifying necessary capabilities, and establishing requisite management systems. This practical and structured approach provides a high-level roadmap for formulating and implementing successful strategies.
In the measurement phase, the periodic assessment of strategy effectiveness, tightly intertwined with formulation and execution, is paramount. A common pitfall among strategists is the tendency to gauge success solely based on financial outcomes. This narrow focus on accounting metrics, rather than broader economic indicators, distinguishes enduring, successful companies from fleeting trends. Thus, it's imperative to assess the entire spectrum of the strategy's impact. A valuable tool for this purpose is the Balanced Scorecard developed by Robert D. Kaplan of Harvard Business School and David P. Norton, president of Balanced Scorecard Collaborative, Inc. In their book "Strategic Focus Organization," Kaplan and Norton delineate a comprehensive framework for evaluating strategy, encompassing financial, customer, internal (employee), and learning & growth perspectives. They offer strategic metrics for each of these facets, categorized under "Strategic Themes," "Strategic Objectives," and "Strategic Measures." This balanced scorecard approach provides a nuanced understanding of the company's financial health, customer satisfaction, internal dynamics, and capacity for growth and innovation.
The renewal phase involves ongoing review and adjustment of the scorecard, taking into account shifts in the competitive landscape and economic environment. This constant realignment ensures that current strategies remain relevant or facilitates pivoting to new approaches as needed. No strategy is implemented with total certainty and completed information. This phase reminds us that leaders should adjust their strategies as more certainty appears and more relevant information or intelligence becomes available.
In the realm of business, strategy is both an art and a continuous process of aligning internal and external forces to create value. Successful strategies are underpinned by a resilient culture upheld by individuals embodying winning values and a steadfast commitment to execution. As a leader, it's essential to view strategy as an ongoing cycle of critical thinking during formulation and renewal phases, coupled with decisive action during execution, measurement and renewal phases. This holistic perspective enables organizations to adapt, thrive, and sustain success in dynamic environments.
Until we meet again, keep strategizing and execution
Fal Diabaté
Managing Partner, Barra Advisory Group