“When people are used to think about something in a particular way,
they have great difficulty in thinking about it in new ways.”
The problem compounds when the source of our thinking is confusion. Clarity of thought creates advantage in action. But the two, which in business we most commonly refer to as strategy and execution, are not one and the same. It's especially important to understand the difference when it comes to operational effectiveness.
What strategy is
Strategy is a signal that there is a future state that is desirable to a person, group, or organization and it's a catalyst for making choices and trade-offs to get there. Michael E. Porter wrote the books on modern competitive strategy for business. He says:
Strategy is the creation of a unique and valuable proposition, involving a different set of activities.
Strategy requires you to make trade-offs in competing — to choose what not to do.
Strategy involves creating “fit” among a company's activities.
In Competitive Strategies, Porter introduced the concept of generic strategies. They are cost leadership, differentiation, and focus as a simple way to define one's position at the broadest level. Vanguard is an example of a company that uses cost leadership as a strategy. IKEA and Southwest have a cost-based focus. While IKEA's value proposition is to address the needs of a specific customer group, Southwest's is to keep its service “low cost.”
When we choose a generic strategy, we need to follow through with discipline to avoid trying to go for two strategies at the same time. Focus matters to direction and mostly to execution and helps us not get into trouble by trying to be two or things to all people.
Entrepreneurs often talk about natural advantage as building a moat around one's business — for example using content to become a useful filter like American Express OPEN, innovating before anyone else like Apple, simplifying a process and keeping it simple like 37 Signals now Basecamp.
To understand the importance of strategy we should think like it as what helps us bridge the gap between present objectives and future actions. In Certain to Win, Chet Richards draws on several definitions from war, the consulting business, and everyday life.
The art and science of employing the armed forces of a nation or alliance to secure policy objectives by the application of threat of military force.
US Army Field Manual 100-5, Operations, 1986
Victory is achieved in the way of conflict by ascertaining the rhythm of each opponent, by attacking with a rhythm not anticipated by the opponent, and by the use of knowledge of the rhythm of the abstract.
Miyamoto Musashi, samurai strategist, 17th Century Japan; Nihon Services Group translation
Strategy is a deliberate search for a plan of action that will develop a business' competitive advantage and compound it.
Founder, The Boston Consulting Group
Strategy isn't beating the competition, it's serving the customer's real needs.
Kenichi Ohmae, Managing Director, McKinsey & Co. Tokyo Office
The art of the possible in a world where constraints force us to choose between unpleasant or imperfect alternatives.
Retired Pentagon official Franklin C, Spinney
The future is hard to predict, but the ancient Greeks had a much tougher and road-tested definition of strategy. Homer used the word metis , which included connotations of cunning, deception, concealment, ambush, and surprise. Anyone who's read the Odyssey, a gripping tale of a man's journey through life, or knows the legend of how Ulysses (or Odysseus) won the Trojan War can see metis at work.
It's a great story of survival through encounters with divine and natural forces during a ten-year voyage home to Ithaca after the Trojan War. It's also an individual test of moral endurance. Greeks were tough. They also had another word for strategy and that was bie, which means “violent force.” That's how Achilles operated and for that story we rely on the Iliad, the greatest war epic.
Which goes to show how abstract strategy has become in modern times. Maybe that's the reason why so many say that strategy is dead, that's it's all about execution, or big data, or innovation. But innovation is different from strategy, and big data should not replace thinking.
A good strategy delivers a natural advantage, says Richard Rumelt in Good Strategy, Bad Strategy. It “has coherence, coordinating actions, policies, and resources so as to accomplish an important end.” It's also unexpected — for example how Steve Jobs saved Apple by paring down the product line and talked Microsoft into investing $150 million in the company. Apple to the core was born there.
US Air Force Colonel John Boyd says:
What is needed is a vision rooted in human nature so noble, so attractive that it not only attracts the uncommitted and magnifies the spirit and strength of its adherents, but also undermines the dedication and determination of any competitors and adversaries.
Moreover, such a unifying notion should be so compelling that it acts as a catalyst or beacon around which to evolve those qualities that permit a collective entity or organic whole to improve its stature in the scheme of things.
Simplicity is important in business. Especially as business has become so complex. Simple Rules by Donald Sull and Kathleen Eisenhardt has a chapter on strategy. The authors look to answer the question How do you translate your broad objectives into a strategy that can provide guidelines for your employees from day to day?
We can also define a strategy for what it's not — objectives are not a strategy, and plans are not a strategy. Mission statements, company goals, these are all good things to have, but along with fluff, they are not a strategy.
Sull and Eisenhardt draw the distinction:
Developing a strategy and implementing it are often viewed as two distinct activities — first you come up with the perfect plan and then you worry about how to make it happen. This approach, common through it is, creates a disconnect between what a company is trying to accomplish and what employees do on a day-to-day basis.
The purpose of strategy is to bridge that gap between current objectives and future action.When we start with plans and actions, we have a much harder time making decisions and understanding trade-offs. We also make it very hard to focus the organization on what we're trying to do. This is why strategy is important.
There are many definitions of strategy — but at the core they all communicate a version of two key purposes of why it's a good idea to have one:
- create a deliberate course of action
- make intention explicit
Because “if you don't know where you're going, any road will take you there.” We may get to some place we didn't intend to go.
Our main purpose is to first survive in a confusing and threatening world. Porter says make it defensible, Richard says based it on your own terms, Rumelt says make it good. It's critical we choose one, and that we make it our own.
Sull and Eisenhardt also say we should make it simple. Entrepreneurs would agree. They say we can bridge the gap between strategy and implementation by following three steps:
- Figure out what will move the needles.
- Choose a bottleneck.
- Craft the rules.
Move the needles
To understand what will move the needle, we begin by making clarity around future growth plans and the critical choices management will need to make in order to drive a wedge between revenues and costs to increase profits (the difference between the two).
The key questions we ask here are — Who will we target as customers? What product or service will we offer? How will we provide this product at a profit? In other words, we should focus on value creation. For the choices we make to be helpful, we also need to be deliberate about the choices we don't make, what we choose not to do. Steve Jobs paring down the product line.
Find the bottleneck
Then following by focusing on the decision or activity that stands in the way, the bottleneck. Given that most organizations struggle with two problems: not creating the right products or services, and not reaching the right people, it is not surprising to identify a bottleneck in the product design workflow or in the sales process.
Sull and Eisenhart say the best bottlenecks focus our attention on share three characteristics:
- They have direct and significant impact on value creation.
- They should represent recurrent decisions (as opposed to ‘one off’ choices).
- They should be obstacles that arise when opportunities exceed available resources.
An example of the third one is a problem that is both good to have, but that will create a poor reputation quickly, when sales opportunities outstrip a company's ability to meet demand.
Craft the rules
“Strategy, in our view, lives in the simple rules that guide an organization's most important activities,” say Sull and Eisenhardt. They are “shortcut strategies that save time and effort by focusing our attention and simplifying the way we process information.”
This is where starting with plans or objectives is a bad idea:
Developing rules from the top down is a big mistake. When leaders rely on their gut instincts, they overemphasize recent events, build in their personal biases, and ignore data that doesn’t fit with their preconceived notions.
It is much better to involve a team, typically ranging in size from four to eight members, and use a structured process to harness members’ diverse insights and points of view. When drafting the dream team to develop simple rules, it is critical to include some of the people who will be using them on a day-to-day basis.
The authors suggest this is an ongoing process for teams, with the idea that as marketing conditions and organization's realities continue to change, the process is iterative. Which is why simple rules work, because they do three things well:
- confer flexibility to pursue new opportunities while maintaining some consistency
- can produce better decisions
- allow the members of a community to synchronize their activities with one another on the fly.
As long as we limit the rules to a handful, we make them specific to the organization that uses them, they apply to a well-defined activity or decision, they provide clear guidance while offering some wiggle room to the person in the particular situation where they need to apply them.
We hire the best people, say many companies, from there it follows trust in their judgement. In an ideal world, this is what happens. To sum it up, simple rules:
refers to a handful of guidelines tailored to the user and task at hand, which balance concrete guidance with the freedom to exercise judgement.
The reason why simple rules are not more common in business, is that the simpler things are harder to do, they take time and effort to achieve. But it doesn't have to be that way. Because once we take the time to develop a good strategy, we can mobilize the organization behind it.
First we reach agreement on what our own terms mean as Chet Richards says, then we make it compelling. Toyota's purpose is to “take our destiny into our own hands,” focused on the business and clearly different from the usual collection of buzzwords with a few “aspire,” “empower,” “greatest value,” thrown in that combines two differing strategies in the same statement to boot. Southwest's “we're low cost.”
Why do we get up every morning? What gets us excited? This is the stuff that goes into making a vision statement and strategy powerful and only ours.
If the essence of strategy is choosing to perform activities different than competitors do, as Porter taught us, the essence of operational effectiveness is to execute on it well. In other words, operational effectiveness is not the same as strategy.
Porter says operational effectiveness means we're able to execute well, maybe faster, with fewer errors, than competitors. Hence the problem with best practices. Put together with using a strategy only we can own, best practices can be useful information, but create parity in competitive situations. If we all do things the same way, where is the advantage of dealing with us?
Which is where we can learn a lot from Japanese businesses. In the 1970s and 19080s, Japanese companies triggered a revolution in operational effectiveness that shook the world. Pioneering practices like total quality management (TQM) and continuous improvement created substantial savings in cost and advantages in quality.
A curious fact is that only a handful Japanese companies developed strategic positions — Canon, Sony, and Sega had them, but Toyota had a purpose. Most Japanese companies imitate each other, yet were able to grow in their expanding economy and global markets.
One distinct characteristic of Japanese companies is much harder to imitate in the West, and that is a product of their culture — a deeply ingrained tradition of service that predisposes them to go to great lengths to satisfy customer needs.
Creating a better customer experience has value. Operational effectiveness increases that value by helping organizations and teams deliver on it. In the absence of a strong culture of service, companies need better data, both inside and outside the organization, to shine a light on what is creating dissonance.
We all have strong opinions on what that dissonance looks and feels like on the receiving end. Which then devalues the product or service in our eyes, not worth the hassle, or devalues the organization, we don't trust they'll keep their promises.
But at some point what happened in Japan — and hopefully in many organizations in the West if we manage to keep competitive pressure in the market, which is good for customers — they reached a point of parity. With no positions to rely on, everyone ends up looking and sounding the same.
Which is why we need both — a vision of direction and deliberate course of action to make our intention explicit — and operational effectiveness — our ability to close the gap on promises in a way that gives growth back to the business without detracting from the customer experience. This is important.
It turns out that smart, nice, and well-behaved are good qualities for a company to have. Chet Richards says a business strategy should:
- Keep our focus on the customer, with an eye to the competition and the rest of the strategic environment
- Provide our team with a continuing stream of options
- Enable rapid switching between options
- Encourage initiative at all levels — in particular, and execute-and-communicate mindset rather than one of ask-and-wait
- Harmonize our efforts to achieve the future we have in mind
Creating viable options is where company culture helps influence decisions. When an organization has a hard time getting out of its own way, we know they have developed bad habits and the environment makes it hard to see and correct them. Which is why often they need an outsider to come in and help.
Data or big data is not necessarily helpful, because it depends on how the system was created, the umber of inputs, as well as the capabilities of the system to provide unbiased information that goes above and beyond than just slicing and dicing the data. Plus today much of the data is unstructured — social comments, phone calls, click to chat and click to call buttons.
It becomes hard to create accountability when we don't know where the problem is — and when it comes to service, behaviors and culture are part of the conversation.
If we want to be more effective, we need a good strategy, and we need to get everyone on the same page, pulling in the same direction. Learning more about the differences helps with why and what. We can improve simple rules.
As for the how, we need to become more diligent in our selection of the tools we use. We can start with a simple question to evaluate our choices — are we data rich and insights poor? The answer can also be simple to use, that's the beauty of technology, better tech combines hiding complexity in the black box to make it simpler to use with better output and insights to make decisions easier.
Winning in business has become harder. It's critical we learn to ask better questions of people and technology.
Books I referenced in the article:
- Competitive Strategies by Michael E. Porter
- Certain to Win by Chet Richards
- Odyssey by Homer, translated by Robert Fangles
- Iliad by Homer, translated by Robert Fangles
- Good Strategy, Bad Strategy by Richard Rumelt
- Simple Rules by Donald Sull and Kathleen Eisenhardt