Current Realities of Strategy Today
The Mom & Pop store had ruled retail in rural America throughout its founding. Truly a fragmented industry that Sears & Roebuck first capitalized on with their catalog. Still most rural town stores were locally owned.
After early success with a 5 & dime store, Sam Walton opened the first Walmart in 1962 in Rogers, Arkansas. He placed his focus on cost leadership of offering the lowest prices to attract customers. This gain of new customers led to more stores and the ability to lower prices even further. Cost leadership requires aggressive cost-efficient systems and processes. While Walmart is famous for their roll back prices, what really makes them special is the continuous improvements that they achieve. Their systems and processes are lean putting them on the cutting edge from supply chain and restocking to advertising and employee management. Their ability to trim all the fat to give back to the customer in discounts is, cost leadership.
This strategy was able to expand new stores throughout America using their economies of scale and resources to out compete locally owned retailers. By 2020 Walmart operated in 27 countries with $520 Billion in revenue. They owned 56% market share of Grocery sales in the US and turned a fragmented industry into nearly a monopoly.
There can be numerous goals of a strategy. This work will focus on the business side of strategy where typically the leadership focuses on gaining market share. Share of the market represents increased revenue and typically margin. These all equate to profit potential that is measured in terms of long run return on invested capital. Simply, the longer life of an organization the better.
Strategy consists of three main elements. The first being anticipation or predicting what the future will look like. Next comes premeditation which is the act of planning in preparation of the anticipated future. Lastly comes the design of coordinated actions. At a minimum, a strategy must encompass all three of these elements.
Linked to the three elements of strategy are the three types of strategies. While there are numerous ways for an organization to separate themselves from their competition, there are typically only three approaches. The first being differentiation where the strategic intent is being unique in comparison to your competition. Think of Jack in the Box’s offering of fast food available 24-hours a day. The next strategy is focus where you are designed for a specific customer segment. Examples include Mercedes-Benz that specifically sell premium cars to higher end automobile owners. Lastly we have cost leadership where a company’s main strategy is to have the lowest prices. Southwest Air has maximized this strategy of being a no-frills airline where you can travel at a significant discount.
We discussed earlier that there are three approaches to build a strategy. Many organizations pay enormous sums of money to bring in large consulting firms. Other companies engage with smaller or boutique consulting firms paying a moderate amount. Or some companies try to do it themselves for free.
Most large enterprise companies work with the “Big 5” consulting firms when developing their strategy work. These are the firms that recruit the top talent out of MBA programs and have deep levels of industry and market insights. Using these firms is considered a low risk option for executives because following the advice of a Big 5 firm typically leads to progress and “no one ever got fired for following the advice of the Big 5.” The drawback is that all the firms are conducting similar analysis and seeing the same thing. Big firms tend to copy each other and point to a direction with little variation. While in times of transition, the standard advice of consultants is to adopt the strategies of competitors, but following the herd comes with a significant future cost to organizational viability.
Medium and small businesses tend to adopt the approach of using small boutique firms to guide their strategic process. This provides a structure but limits the analysis used in the process. It can also open your business to charlatans that sell you on their ability to craft a strategy when in fact they only want to discuss dream like visions of the future.
Small businesses or large firms that have hired full time strategy professionals rely on a do-it-yourself approach at times. However, mostly this results in an annual planning exercise. Inevitably, the team misses an outside perspective and the end goals turn into annual revenue goals that are not a strategy but a financial plan. Opportunities and challenges don’t come along in nice annual packages, strategy is episodic.
Mentioned in my introduction I discussed the fallacy of the Mission, Vision, & Values exercise. Running hundreds of these exercises to help craft these statements, the realization is that these events work great in a new hire class. If a seasoned executive does not understand the purpose of the organization nor are they deft enough to socially conform to the organizational culture, there are much larger problems then the company strategy.
Vision exercises are great for ideation. They are better used for self-actualization of getting the most out of oneself. However, they typically don’t take into consideration current market realities and competition. At the end of the process the result is an inspirational statement that looks great on a poster. Don Mattingly looked great on a poster in my room as a kid, but that didn’t mean I made it to the major leagues.
Vision statements tend to be hollow words. Statements that look great on a calendar. “Life is short, live it to your fullest.” Corporate strategic plans “seek to be a leader” just say, do a good job. Visions can be interpreted as a sign of strategic incompetence.
The fallacy lies in that will alone lead to victory. The delusion of thinking you’re unique in terms of attributes, assumes that willpower and skill are equivalent. Doctrine that one can impose one’s vision and desires on the world by force alone is appealing yet displaces critical thinking. As with the French in World War I by believing that their espirit de corps would lead them to victory, only resulted in the loss of nearly two million n French soldiers.
Visions typically miss the core of strategy work. What is the field of battle? Where are you strong and your opponent weak? How do I discover the critical factors to success and design a way to focus actions on it.
Good strategy is more than a focus on a vision, it honestly acknowledges the challenges being faced and provides an approach to overcome it. Consisting of a solid self-assessment with no window dressing. There is an absolute to understand the obstacles to overcome for the strategy to be effective.
Make no mistake strategy is about the future and how to position oneself for the future. This is knowing where the market is going and what you must do to meet that demand. This enables the process to figure out the gap and what you must do. If you have an inaccurate assessment to start, you’ll come up short.
The strategy process is never a onetime process. For long term sustainability it is an ongoing process. Obviously, the better the strategy the less it will cost you in the long run. The more strength you waste the easier it will be for your competition to turn the tide on you. You’ll have misses on predicting the future but applying the process repeatedly will increase your odds of long-term success.
In 2010 the business world saw the growing shift of remote and travel workers. Working from home became the norm for many. Some of these digital nomads shared thoughts that there were elements of the office environment that they missed.
Along came the charismatic Adam Neumann with the solution of building a networking hub for independent workers. A home for the drifter. His vision was to build offices around the world bringing these workers together. Providing a desk or an office, printers and whiteboards, and the chance occasion to riff ideas with like minded individuals.
Neumann’s persuasive pitch landed him multiple rounds of capital and building space throughout the United States. He hired amazing people and built an incredible brand. On the surface it was just a real estate company but a tech company that was revolutionizing the office of the future.
As with most companies, WeWork planned on going public, to cash in on this massive investment. Early projections had their valuation around $47 billion dollars before the rug was pulled out from their feet. The IPO (initial public offering) began to expose flaws in the company. Ethical concerns of relatives in leadership positions, the company leasing office space from buildings that Neumann owned, the corporate hard party culture. Most importantly was the discovering that the supposed tech company held no real technological intellectual property. The process led to Neumann being ousted as the CEO and ballooning losses. The original IPO projection of over $47 Billion ended with an actual valuation of $2.9 Billion and an unrecoverable brand embarrassment.
Current Realities of Strategy Today
Current Realities of Strategy Today Current Realities of Strategy Today
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