… Vision is different from purpose. A purpose is similar to a direction, a general course. A vision is a specific goal, a picture of a desired future. Purpose is abstract. Vision is concrete. Purpose is “to advance man’s ability to explore the heavens.” Vision is “a man on the moon by the end of the 1960s”. Purpose is “the best I can be, excellence”. Vision is “to run a mile in less than four minutes. — Peter Senge, 1995
What is a good strategy and why is it important
The first step to a strategy starts with finding yourself as an organization. This includes
- Identity: who we are, what we want, what we stand for
- Perception of the situation: how is our environment
- Based on that, you can develop a strategy: What is our mission, our goals, our direction
Strategy and execution are inextricably linked, and both are important. They are also interconnected and mutually dependent.
This requires two other necessary components:
- Setting up the system of rules and activities that anchors the strategy in the organization in real terms and enables implementation.
- A concretization of the strategic intent to link it to the activity system.
In sum, this means that strategy begins earlier and is more deeply rooted than one might initially suspect
Incidentally, in terms of strategy and strategy implementation, a clear definition of the enterprise architecture can add value by ensuring traceability of the strategy to implementation and by performing the analysis to derive the strategy.
There are countless schools, sources, and definitions of strategy, so each choice is a conscious decision. The following three sources seemed to me to be the most useful, so a brief introduction to them:
- Porter: About Strategy
- Rumelt: Good Strategy, Bad Strategy
- Martin: Playing to Win
Porter: About strategy
Porter’s concepts have had an immense impact on the discussion of strategy development.
In Competitive Strategy (The Free Press, 1985), he introduces the concept of three generic strategies – (cost leadership, differentiation, and focus).
He goes on to name five influencing factors (forces) that are important for the development of a strategy:
- Barriers to market entry
- Buyer power
- Power of the provider
- Threat from substitutes
He proposes a catchy approach to strategic positioning based on the two basic concepts:
- Selection of one of the generic strategies. This is an important step because it is a prerequisite for many other informed decisions.
- Prioritize. Prioritization is an indispensable prerequisite for successful goal-oriented action
- Consider the five influencing factors. Consider what your own position is (or was) – and determine the target position and how a strategy will impact the business.
- Stay firm. Compromise will both dilute action and worsen communication.
Positioning is about distinctiveness and therefore requires a set of tailored activities, which always depends on the differences on the supply side, and perhaps but not necessarily on the customer and demand side.
What is strategy?
Strategy is thus the creation of a unique and valuable position, which includes a number of different activities. If there were only one ideal position, there would be no need for a strategy. Companies would face the simple task of winning the race to discover the ideal position and get ahead of it.
The essence of strategic positioning is to choose activities that are different from those of competitors. If the same set of activities were best suited to produce all varieties, satisfy all needs, and reach all customers, companies could easily switch between them, and operational efficiency would determine performance.
Strategy should not be equated with ambition, leadership, vision, or planning; rather, it is coherent action based on an argument.
Rumelt has a clear opinion about the scope a strategy should cover and how to distinguish a good strategy from a bad one.
In the second part, Rumelt gives practical handouts on this, on elements of a strategy and how to develop a strategy.
Characteristics of good and bad strategy
A good strategy is a combination of reflection and implementation with a basic structure, which Rumelt calls the “core.” This core strategy contains three elements:
- Diagnosis: the recognition of the critical sides of the situation. According to Rumelt, most strategic changes are brought about by changing the way the company perceives its situation.
- Guideline: an overall approach to addressing or overcoming the identified barriers. It defines a method of coping with the situation and the selection of possible actions. It provides direction to coordinate or focus actions.
- coherent actions: The coherence and coordination of implementation measures, resources, and policies.
In contrast, a bad strategy is more than just the lack of a good strategy. A bad strategy has many goals but little policy or action. Rumelt names four manifestations of bad strategy:
- Fluff: a form of gibberish, slogans, and grand pronouncements that masquerades as a strategic concept to create the illusion of high-level thinking.
- Blindness: the lack of insight into the situation, the inability to face the challenge or deal with the underlying obstacles and problems. For example, filling in boxes – with boxes for the vision, mission, core values, strategic goals, strategies for each goal, and initiatives – in an annual ritual, with no real reference to the purpose of the strategies.
- Confusing goals with strategies: visions presented as strategies, such as “Think big, think bigger!” or “20 percent increase in sales and profits.”
Why is there so much bad strategy?
Good and bad strategies should be easily recognizable by these characteristics – why are there so many bad examples of strategies?
Rumelt has a clear opinion on this: he says the most common reason for so many bad strategies is that leaders actively avoid both the hard work of crafting a good strategy and the pain that comes with making tough decisions. He denounces the “template-like” strategy of filling in the blanks as a substitute for the hard work of analysis.
Rumelt then suggests a number of levers that can be used to effect effective change. For me, the two most important statements about good strategy are:
- A new strategy is a hypothesis: it is an educated prediction about how the world works – and its implementation is an experiment. Depending on the results, good leaders learn more about what works and what doesn’t and adjust their strategies accordingly.
- Critical thinking: deciding how to approach a problem, avoiding hasty conclusions, and analyzing how you think about it – reflection on your own thinking – is a personal skill that is after more important than any strategy concept or framework.
Lafley and Martin: Play to Win
In Play to Win, Lafley and Martin develop the Strategy Choice Cascade, a tool that helps develop a strategy in a systematic and organized way that achieves organizational goals.
The cascade was developed at Procter & Gamble (P&G) by former P&G CEO A.G. Lafley, working closely with strategy consultant R. Martin, and is linked by the authors to impressive P&G successes.
The cascade is composed of five key elements:
- The successful goal and a strong commitment to that goal (winning aspiration). This involves determining what the company should achieve and what would make it successful. It is important not only to formulate a goal, but also to commit to it.
- The playing field (where to play). The playing field on which you will compete. Focus and concentration of forces are essential for success. This builds on a commitment, because hard decisions often have to be made here (e.g. what not to do)
- How to win. In doing so, the concept builds on a decision for one of Porter’s generic positionings.
- Capabilities (capabilities). The activities, available to implement the strategies to gain a competitive advantage.
- Management systems. Metrics and systems that drive the capabilities and decisions that implement the strategy.