New times – new strategy processes

In the face of new and strong forces of change, enterprises have to deal with more fundamental strategic questions and choices than ever before. Questions that entail a high degree of uncertainty and risk.

How can we develop the company from this point on? Where can we grow?

Studies show that there is much room for improvement in the way we answer questions like these. A recent survey by Implement Consulting Group of 92 Norwegian business managers revealed the following¹:

• Only 52 % of Norwegian enterprises have defined a clear, long-term vision for the enterprise
• Only 45 % have a strategy that answers the question of where their enterprises should compete
• Only 41 % have a strategy that describes the enterprise’s competitive advantages
• Only 31 % have defined what competencies and capabilities are required to realise their strategy
• Only 19 % have established sound and effective systems and procedures that facilitate successful implementation

It is not really surprising that only a third of all strategic initiatives are successful.²

In this article, we challenge the conventional strategy process and present a new approach to strategy development. This approach is in many ways a reversal of the way many people think about strategy. It is an approach that goes further in exploring the enterprise’s options in order to identify innovative strategies. It allows for greater creativity and is based on what the world might look like rather than on what it actually looks like today. The strategic choices that lie at the core of strategy work need to be repositioned at the centre of the process. Our approach is based on three concrete principles:

1. Strategy is about making clear choices with a view to winning market shares
2. Strategy work requires both creativity and rigidity
3. A strategy is not meant to reduce the risk of failure, but to increase the probability of success

What is characteristic of the processes used today?

In order to better understand the challenges many enterprises face in developing and implementing effective strategies, it may be useful to take one step back and look at why we have ended up where we are today, and which assumptions, principles and procedures govern our typical approach to strategy.

A typical strategy process usually starts with a thorough analysis of the presentday situation, addressing both external opportunities and threats and internal strengths and weaknesses. Some strategic options for the enterprise are then identified on the basis of this analysis, and a preferred direction is chosen.

In our opinion, this approach has some fundamental weaknesses and is not very suitable for the development of competitive strategies.

Firstly, most enterprises compete in turbulent markets where changes take place at an increasing rate. How the world appears today is not necessarily a good indication of what it will look like tomorrow. Letting a general and extensive situational analysis serve as the basis for future choices is therefore a risky approach.

Secondly, we believe that establishing “truths” at a too early stage can put a lid on strategic creativity and innovation. The strategy process becomes no more than a rational calculation exercise. The outcome is often a set of action plans for doing more or less of what is already being done today – only better.

The final result consists of mediocre strategies that are lacking in competitive and innovative edge. These strategies provide no clear indication of where to compete or of any real competitive advantages. Such strategies fail to establish new platforms for growth. They are strategies that few people in the enterprise know or care about, strategies that are not implemented without anybody really knowing why. Such strategies are worthless.

A new approach to strategy

As consultants, we have the fortune of being involved in many different strategy processes, at different levels and in different industries. They all have different points of departure. They take place in groups of people who are different from each other and who each have their own understanding and interpretation of what a strategy is and how the strategy process should be initiated.

To some people, strategy is synonymous with a vision of what the enterprise should aim for in the long term, without any specification of what targets or activities are needed to bring the enterprise to the desired destination. Others define strategy as detailed activity plans without linking the activities to a long-term vision. Yet others associate strategy with the annual budget process. These enterprises may have both long-term objectives and specific activity plans, but they are not necessarily interrelated.

Different reference points and perspectives are valuable in the strategy process. At the same time, we find that these different and often conflicting points of departure represent a significant challenge, unless agreement is sought at an early stage on what a strategy is and what questions the strategy process should answer.

The most widely recognised definition of strategy was coined by Michael E. Porter.
In an article in Harvard Business Review in 1996, Porter defined strategy as “the
art of choosing a group of activities in order to produce a unique combination of values”.³

Porter argues that a company can only outperform rivals in the market if it is able to establish a real difference – either by increasing the value of what it offers or by offering the same value at a lower price.

Porter’s definition sees strategy not as something mystical and complex, but as a set of simply and clearly defined interrelated activities. Strategy is about making clear and interrelated choices to achieve clarity, engagement and impact. Or, in the words of Roger Martin, another well-known strategist: “Strategy is about making clear and interrelated choices based on the following five key strategic questions”:⁴

1. What is our winning aspiration?
2. Where will we compete?
3. How will we win?
4. What capabilities must be in place?
5. What management systems are required?

In this context, the definition of strategy appears simple and intuitive. In a winning strategy, the five choices will be clearly and logically interrelated and reinforce each other. At Implement, we therefore believe that strategy must be built on the following three principles:

1. Strategy is about making clear choices with a view to winning market shares

The first step in creating an effective strategy is to focus on what the process should deliver. One way of achieving clarity is to conceptualise the strategy by using a framework such as the five key strategic questions above. Clarity can also be achieved in other ways. The most important point is to focus on the fact that the process entails making choices. Difficult choices. Choices that require us to make trade-offs. The aim is to win – always.

2. Strategy work requires both creativity and rigidity

Since strategy work became a professional discipline 30-40 years ago, a number of different methods and tools have been developed that can be used for guiding us through the strategy process. Many of these tools are useful and will be important in any strategy process, but we need to take a different view of how they should be used.

The rationale behind many of today’s approaches is that an attractive way forward will be revealed through a thorough analysis of opportunities and threats in the market, combined with an evaluation of the enterprise’s internal strengths and weaknesses. We do not believe that it is that simple.

Instead of immediately seeking the security of known analysis methods and tools, more free association and intuition should be used early on in the process. Creativity and intuition are essential ingredients in the process of identifying innovative and attractive strategic options, while thorough and targeted analyses are more suitable for the validation of their feasibility at a later stage of the process.

3. A strategy is not meant to reduce the risk of failure, but to increase the probability of success

Since strategy concerns making choices, it follows implicitly that we must also make trade-offs. If an enterprise decides to follow one direction, it will necessarily do so at the expense of other options. This makes strategy work an uncomfortable exercise, as the wrong choices can have significant consequences for both the enterprise and its management.

This inherent fear is evident in many strategy processes today. Laborious and rigid strategy processes are established to compensate for the uncertainty. The
primary focus is on the process rather than what it should deliver. Negotiations on compromises that all those involved can commit to take the place of a discussion of what specific choices and trade-offs should be made.

We do not believe that a series of compromises can produce a winning strategy. On the contrary, developing a winning strategy requires us to embrace risk. This can only be done if a shared understanding is established at an early stage in the process that strategy is about predicting a future that nobody knows. In the final instance, nothing is more risky than facing an unknown future without a clear direction to govern the enterprise’s priorities.

We believe that very few strategy processes take sufficient account of the three above mentioned principles, and that there is a need to radically change the way in which we organise such processes, so that this becomes possible. An alternative process may consist of the six steps shown on the right in the figure above and described in more detail in the following.

1. Define strategic challenges

This first step may seem banal, but we often find that strategy processes go wrong at the outset for the very reason that there is a lack of consensus, at the right level, on what really constitutes the main strategic challenge that the enterprise is facing, either because each individual person’s perception of reality has not been questioned, or simply because time has not been set aside to do so.

A traditional SWOT analysis lists a number of challenges but seldom has the outcome that management agree on one main strategic challenge that will govern the rest of the process.

The importance of defining the main strategic challenge at the right level cannot be emphasised enough, as it has a major impact on the opportunities that are opened up. Hence, the first stage of the process is to clearly identify the externally focused and long-term commercial opportunities or threats that the enterprise faces, and that the strategy process should address.

2. Prototype strategic opportunities

As soon as the main strategic challenge has been clearly identified, the focus should shift to the future. It is now about exploring possibilities in order to develop attractive options or drawing a picture of a future situation to envisage how the enterprise can meet the challenge.

In this phase, it is important to invite and encourage creativity. The purpose is to stimulate the development of ideas and discussions that explore different success options for the enterprise. Each option is described by answering the five key strategic questions in a clear and consistent manner.

Think of the options as strategy prototypes. The outcome of this phase is typically that we are left with 3 – 5 such prototypes of strategic options that can be further explored.

3. Specify preconditions (“What must be true ...?”)

In order to stimulate a creative exchange of ideas on the possibilities offered by different strategic options, any discussion of the feasibility of the options has been avoided until now. This phase entails a shift in focus. Creative thinking and ideas must now give way to scepticism and criticism.

All the prototypes developed in the previous phase describe attractive future visions for the enterprise. How attractive they are and which option is most attractive remain to be determined. It will depend on the preconditions. In this phase, we must reach a common understanding of and agree on the reconditions for each of the strategic options. This is done by asking the critical question: “What must be true *in order for this option to constitute a good strategic choice for us?”

4. Identify barriers to choice

The result of the previous phase is often a long list of preconditions on which each of the options depend. In this phase, the preconditions shall be ranked according to their significance and degree of uncertainty.

We will now identify which preconditions constitute real “barriers to choice”. These are the most critical preconditions associated with so much uncertainty that we need more insight before we can make a choice. The aim is for the ranking to leave us with a selection of critical preconditions that we are capable of handling and testing.

5. Develop and perform tests

A compressed list setting out the most critical preconditions for each of the strategic options is a good basis for prioritising resources for analyses and market intelligence.

Rather than investing significant amounts in general, market intelligence at an early stage of the process, like many have done before us, it is our contention that we should analyse the specific uncertainties that prevent the strategy group from choosing between the options. This will make the analyses more to the point and the results easier to interpret, as they are directly related to the problem.

Because the analyses are directly related to selected preconditions, the number and types of tests may vary. In some cases, it may be sufficient to verify an uncertainty, for example, by speaking with somebody in the company’s R&D department, while other cases may require more extensive market or investment analyses before a choice can be made that entails an acceptable level of risk. The most important point is that the group agree on how the tests are to be conducted, and that they are performed with a sufficient degree of reliability and validity so that a choice can be made on a correct basis.

6. Make choices

Choosing a group of activities in order to produce a unique combination of values
forms the core of the strategy work. The final step in the strategy process is about
making the final choice. This may appear simple in theory, but is often rather more complex in reality.

Some processes leave no doubt about which option is the most attractive, which makes the choice relatively easy in this phase. In other processes, it is less clear which option should be chosen.

No universal tools are available for dealing with such situations. There are no “choice generators”. Throughout the previous steps in the process, however, we have focused on the enterprise’s alternative strategic options. Options have been
explored, specified and improved through a systematic and creative process, and
the risks associated with each option have been clarified by using targeted attractiveness and feasibility tests.

Strategy is about making clear and interrelated choices with a view to winning market shares. There is no guarantee for success, but a good strategy process
will increase the odds considerably. Replace the traditional approach to strategy by a process that balances creativity and rigidity and that focuses on the development and evaluation of several strategic options before you make a choice. We believe without a doubt that this will put your enterprise in a better position to win customers in an increasingly tough market.