Select Core Strategies

Telling where the organization wants to be in three to five years is not sufficient for all employees to walk in the same direction, in a cohesive and complementary fashion. Even though the old adage “All Roads Lead to Rome” was probably literally true in the days of the Roman Empire, in today’s environment, a laisser-faire management, or MBH – management by hope – would not be appropriate business strategies.

In their book “Execution, the art of getting things done” Larry Bossidy, former chairman and CEO of Honeywell and RAM Charan, identify three key processes that organizations need to implement, the People Process, the Operation Process and the Strategy Process. These gurus argue rightfully that each process is linked to each other and this effective linkage makes execution a reality. Furthermore, they submit that it is the People Process that is the most important as it allows the transformation of the strategies into operation. Although we agree that the implementation of these three processes is essential to effective execution and that the People Process is quintessential to execution, we submit it is second to, and none is more critical than the Strategy Process; because it links the execution framework to the envisioned future. The Strategy Process ensures that the organization executes in the right direction and the decision made in the selection of the Core Strategies will have a direct impact on the creation of value for the stakeholders.

Through the Strategy Process, the leadership team needs to clarify four to five Core Strategies, which, if executed effectively, will lead the organization to the Promised Land and deliver the expected value to the stakeholders. Strategies will span multiple years, yet they must also have to produce measurable results, quarter after quarter, year after year. Strategies will likely change as the organization progresses on its journey and as markets evolve.

Core strategies are reflected in what an organization does and how it does it, and consequently they can be derived by observing pretty much any organization’s actions.

Core Strategies can, and should be layered at the corporate level, the business unit level or even within a business. For example, if a strategy exist at the corporate level to develop new consumer electronic devices, the business units can take that strategy and adapt it to their field of operations, such as new cellular phones for one business unit and new digital assistant devices for the other. In addition, the business units can have their own strategies on how to compete and how gain market share in their industry.

Good or Bad Money

Furthermore, in designing strategies, we have to realize that shareholder value is created based on three types of revenue: good revenue, neutral revenue and bad revenue. Good revenue is revenue that contributes to market segment leadership. Neutral revenue is income from outside the primary domain of market competition, typically the result of opportunistic sales. Bad revenue is income from outside the primary domain of market competition that has been gained at the expenses of scarce resources – in other words has taken resources away from generating good revenue.

An example in the traditional software market would look at License revenue as good revenue, Maintenance revenue and Consulting revenue as neutral revenue. That is because Maintenance and Consulting revenue are opportunistic revenue, only available as a result of generating License revenue. However, if such a software firm was to take its scarce presales engineers and put them into revenue generating consulting engagements, it might be bad revenue. That is because, these resources are typically scarce and, although they can do consulting, the organization would be much better off having them improve their presales ability, and increase their win-rate.

This is a very important discussion as any strategies that are selected will imply the use of scarce resources and should be carefully selected to ensure that the strategies are indeed driving shareholder value.

Good Strategies Create Value

Sound strategies are fundamental to success and to create value for stakeholders. Over Four hundred and forty managers surveyed indicate that “poor or vague strategy” as a major impediment to sound execution⁽⁷⁾.

To understand what makes a good strategy, we must first understand the definition of the word strategy. Merriam-Webster Online Dictionary defines strategy as “(1) : the science and art of employing the political, economic, psychological, and military forces of a nation or group of nations to afford the maximum support to adopted policies in peace or war (2) : the science and art of military command exercised to meet the enemy in combat under advantageous conditions.

The war metaphor is particularly apropos as reaching the Promised Land will not occur by accident and achieving the envisioned future needs to be a deliberate act, even an act of aggression against the status-quo.

Therefore, in our language, when we refer to four to five Core Strategies, we are inferring that the leadership team will imagine four to five themes, each identifying the major forces, stratagems, or plans that will ensure that we stack the deck in our favour. To identify your core strategies you can ask yourselves the following questions. Which political, economic, psychological, and military forces can we use to afford us the maximum chance to reach our envisioned future? What themes can we deploy to meet the competition on advantageous conditions? These will vary greatly from one organization to the next. For example, core strategies could be 1) to implement a strategic selling model in North America, 2) keep hiring the best from our competitors, 3) to strengthen our internal infrastructure, 4) to adopt a quality first mentality. Each of these topics is large, may involve several tactics over months and years and therefore represent a core strategy. None would give the expected results alone, but collectively they will.

Good strategies are based on in-depth analysis and knowledge of industry and market forces; competitors’ actual and potential strategies and capabilities; and on an in-depth analysis of you own resources, capabilities and core competencies. Good strategies contain objectives and measurable metrics, tying back to the strategic elements of the vision. Good strategies are focused on improving the organization’s financial outlook and each core strategy must then be explained in that context. Good strategies will aim at creating value for customers, shareholders, partners, employees; and the community; they will always balance between growth and performance initiatives; they will create focus⁽¹⁾.

There will be many times where the roads to take may not be as clear as hoped. Like any war campaign, the Core Strategies are based on a number of assumptions, which may or not prove true and may or not remain true over time. Research suggests that in more than 90 percent of successful new businesses, the winning strategy was not the one that was initially pursued. Leaders need to recognize that when the markets or industries are more mature and predictable, they will be able to established deliberate strategies based on a number of sound assumptions, while other times, when the markets and industries are emerging, they will have to test strategies through a discovery driven process, attempting to prove, or disprove important assumptions⁽⁸⁾. “Openness to emergent strategy enables management to act before everything is fully understood – to respond to an evolving reality […] learning what works – taking one action at a time in a search for that viable pattern or consistency”⁽⁹⁾. Once the winning strategies have become clear, the organization can formalize them as the deliberate strategies.

For your strategies to be executable, you need sound planning that delivers a clear and focused set of strategies; your strategies must integrate with one-another; you need to define and communicate the operational components of the strategies; and you need to understand the demands of your strategies will place on your organization.

It is therefore important that your Core Strategies must be revisited at least twice per year, or even three or four times per year in times of great changes and uncertainty; always accounting for the demands that strategies and change in strategy will put on the organization. This strategic recalibration should be done with caution, yet it will allow the validation of the organization’s direction and focus; and will allow the Board of Directors and the CEO to identify and focus on key battlefields and realign the resources and capital to better balance growth and performance efforts.

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Published at 20:01

11 March 2011