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August 13,2019 Strategic Planning

Strategy

Strategy

Introduction

Webster’s defines strategy as a plan of action or policy designed to achieve a major or overall aim (Mirriam-Webster Dictionary, 2016). The business version is the plan that dictates where the company will be in the future and a signal of where to shift resources. A strategy is truly a multi-level process of how an entity can determine where they are in comparison to their competitors, where they can take a competitive advantage, and how they can win in the future (Gaddis, 2018). Above all, a strategy is the creation of something novel and unique. Napoléon Bonaparte wasn’t the first to apply strategic thought on the battlefield, but he was very close to mastering it during his numerous campaigns. While he was famous for dividing armies to make easier to conquer, his most effective strategies centered on building powerful alliances to suffocate his adversaries (Roberts, 2015). The first point to understanding strategy is to understand what a strategy is and how it is different from tactics. Tactics are knowing what the next move is when it’s obvious, a strategy is knowing what to do when the path is not obvious. Another great maxim on strategies is to ask oneself if everyone is going in the same direction, that wouldn’t be a strategy then, it would be common knowledge.

No matter how a person defines strategy, its importance is unmistakable as it is the heartbeat of the organization. The lifetime of companies continues to shrink as new ideas that turn into successful products hit the market only to be followed by new and cheaper competitors. Where a product in the past would be able to carry a company for decades, companies are now lucky to get a few years of consistent revenue growth before they are squeezed out of the market. This puts the creative tension on a company to continue to innovate and reinvent their strategy instead of stagnating by remaining consistent and dying off.

Current State of Strategy

Strategy can be described as a have and have nots in the corporate world. Large corporate enterprises can use one of the “Big 5” consulting firms that tap into their industry experts. The consultants can perform deep research and analysis of where the company is positioned, where the opportunities are, and inside information about their competitor’s strategy. Taking this information, they can tell the company where to go and how to invest their resources. Unfortunately, the consulting processes have little variation and all produce trends that have little variation. This results in the advice that a company receives do not vary much from the same advice their competitors get. This leads to a marketplace competitive stalemate.

Smaller organizations run into different strategy issues that center around resources. In many instances, they struggle to keep up with day-to-day operations and do not have the capacity to go through a formal strategy process. Many of these firms also cannot afford the astronomical price of “Big 5” consulting or even boutique consulting firms. When these businesses do develop a strategy, they tend to be pieced together on gut feel and intuition instead of analysis which leads to a half-baked strategy.

“It is not enough to be busy. So are the ants. The question is: What are we busy about?”

 

Henry David Thoreau

There are numerous problems that reside in the strategy process with one of the most common issues being that the strategy is nothing more than an annual financial plan. The main issue being that strategies are never bound to a routine cycle and the outcomes of these events are neither strategic or innovative. The opposite issue is that strategic plans are aspirational and are not actively worked or funded. This is the curse of having too many great ideas and too many initiatives which lead to the organization to stay in its current routine (Hollister, 2018). Lastly, the third main issue with strategies is that they create a rigid and inflexible plan that is invested heavily into. Later when market conditions change, the organization is unable to adjust to match the dynamic nature of the market. This white paper discusses the 9m Strategic Model which was designed to address these issues by providing the framework that could be applied in a large or small organizational setting with the important key that it is a combined creation effort with the client providing the industry expertise and the consultant facilitating the process.

Phase I: Diagnosis

The process of strategy begins with understanding the current state of the organization and a diagnosis of the current conditions. This begins with reconfirming what the value proposition of the organization is. What product or service they provide, who is the customer, what value they provide to the customer, and why are they different from the competition. Starting with a value proposition an understanding of what value the organization provides. A prime example is that of Hewlett Packard which provides technological solutions to small-to-medium business that helps then efficiently run their business. Unlike technical services from Dell, HP provides dedicated consultants that partner with small companies providing a free IT service to a capital limited organization.

Following the definition of value, is redefining the market place. Where does the organization play in terms of other businesses? Do they sell to consumers or to businesses? If they do sell to businesses, what types of businesses and what do they do with the products. This leads to where is the marketplace and where do they sell the products. Is it a company of consultants that sells at conferences, do they sell tangible products online on an eCommerce platform, do they have a brick and mortar store, or do they do both? Does the company only sell to distributors or channel partners and don’t even interact with the end-users? These are the basic questions that businesses know and have infrastructures in place to operate in this manner, it is key to revisit these topics during strategic sessions as they may provide insights into new routes to market and possible beneficial opportunities.

The next evaluation factor is competition and who the company is fighting with. There are three key competitions. The first being the perfect competition where there are numerous small firms battling for market share but there is not an individual firm that has significant power in the market nor can any firm influence pricing (The Four Types of Market Structures, 2019). Modern-day examples would be the restaurant industry where there are too many separate entities to control the market. The second competitor is the oligopoly where there are a handful of firms that dominate the market. In this model, the firms use their power to increase pricing and maximize profit margins (Defining and measuring oligopoly, 2019). Modern-day examples would be Home Depot, Lowes, and Ace Hardware in terms of home improvement shopping. The last competitor is the monopoly where a single firm owns the entire market and can control how the market pricing is set (Monopoly, 2019). Modern examples would be Google and their dominance of internet search.

The goal of an organization is to have a blue ocean monopoly with a revolutionary product that has no equivalent or competition, but this is rare (Kim & Mauborgne, 2015). The key elements of evaluating competition are understanding their business in-depth. What are they strong at, where are they weak, and what gaps are there between their offering and what their consumers want. If they are a publicly-traded company, their annual reports will provide a level of understanding of what their strategic direction is. If their direction is understood the company is able to either beat them to their goal or to attack the new gaps that are opened when they shift directions.

The strategy team will start to understand potential vantage points in the strategy based on the analysis of the competition. This analysis is then bolstered by available resources or what is required to make money. Resources can be all-encompassing from talented people and capital to assets and natural resources needed for production. These will represent dependencies that either can be leveraged or mitigated in terms of what the strategy will be. For example, if a potential strategy is to maximize automation development throughout the organization but there is a limitation with being able to hire software developers, this may make the strategy unrealistic until the resource issue is fixed.

The last evaluation area in organizational diagnosis is culture. Culture is a combination of four intersecting areas that define the organization. It begins with the environment where work is completed, the values of the organization, how people are treated, and the overall mission of the organization. The second evaluation area is the operational flow of how work gets completed, how raw materials are transformed and sold to its consumer. The third area is the team dynamic of how the individuals in the organization treat each other, how they work together, and how inclusive they are. Lastly, leadership behaviors are evaluated to understand the organization’s decision-making processes and how much control is exerted throughout the organization.

Phase II: Forecast

The completion of diagnoses moves the team to the second phase which is attempting to predict the future. Futurist trends highlight the first analysis area in trying to determine what the future will look like and understanding how the world will work in the future (Freedman, 2013). This will drive the insight into how consumers will behave, what drives them and what they will fear. This will unlock the understanding of what the consumer will want to purchase in the future and how the organization’s product can morph to match their desires (A Guide to Strategic Planning Environmental Analysis, 2017). These insights can be combined with understanding the market trends on where it has been, where it will be tomorrow, and how to position the company for the future.

The second analysis starts by using Michael Porter’s 5 Forces Analysis. Starting with the threat of new entrants and how easy it would be for new competitors to enter the market place. Second is the analysis of the threat of substitute products and how easy would it be for a competitor to replicate the offering or product. The third is the bargaining power of buyers and how easily could consumers drive prices down. Fourth is the bargaining power of suppliers and how much leverage do your suppliers have in increasing their prices. Lastly evaluated is the competitive rivalry and attempting to understand the competition at a micro-level (Porter, 1998).

Now that the organization’s competitors are analyzed at a micro level, the key highlights will begin to self-identify. It will be understood what their strategy is and if they are moving in the same future direction that other competitors are moving. Other highlights include their positioning in the market and how others compare against them. The end result should be an understanding of what makes the competitor special and will they have that same unique specialness after making long term bets on the future.

The final analysis section for forecasting is understanding the gaps in the market. If the competition moves in a new direction, would your organization be able to match their offering head to head or would you be able to counter to a new-found weak point? Following the best practices of competitors will make an organization average and the typical market will move in one direction and ignore another sector. Military tactics and business acumen both point that a war of attrition is started by two opposing forces matching their strengths against one another, while the quickest path to victory is by attacking weaknesses (Keegan, 1988). If a competitor has shifted its strategy, they have exposed new gaps in the market that can then be exploited.

Phase III: Ideation

With the insights of self-assessment and competitive analysis, the organization understands the current conditions and their capabilities. This foundation is then bolstered with the preparation of strategic innovation by the team. The team can range from an individual to the entire organization but typically more than a few individuals with vast domain experiences are needed to develop a sound strategy. The overarching goal is to engage the entire organization into the process. The secondary goal would be to build a team that has a very diverse background to ensure multiple perspectives and ideas are considered. To prime the team for their brainstorming session, it is ideal to put the team and leadership through a primer training on how to behave and interact with each other during a brainstorming session to ensure that the culture and environment that they create elicits maximum divergent thought and opportunity exploration (Watson, 2018).

Once perspective has been established and the team primed for ideation, the creative brainstorming begins. The brainstorming session can last a few hours, a few days, or even a few weeks. The intent of the process is to generate a mass of ideas. The more ideas identified has a direct link to the quality of ideas generated (Finke, Ward, & Smith,, 1992). There are a variety of idea-generating activities which should include potential vertical integrations and potential value nets.

Competent brainstorming also enables the team to determine what the potential value nets are. A value net as defined in the 1996 book “Co-Opetition” where they designed a model that evaluates potential cooperative partnerships which would make both organizations more competitive (Brandenburger, 1996). Their model of the strategy was to understand and predict their customers, complementors, suppliers, and competitors’ behaviors and strategies. This foresight would then uncover potential opportunities to strategically partner and exploit gaps in the market.

At the end of these activities is the goal to have an extended list of potential strategies and variants of original ideas. Phase two is to vigorously debate these concepts to fully vet out the merits and flaws of each strategy. A useful activity to enable this debate is to have the participant’s rank the top strategies and then to convince the opposing parties with the intent of the debate of having an inclusive process that values challenging arguments over quick decision making. Another method is to have the team build an evaluation model that will factor in cost, risk, and impact among other factors against overall payoff in revenue, cost savings, morale, etcetera. The development of the model will provide a quantitative estimate of what the strongest potential strategies are. The key to the process though is for the team to identify at a minimum three strategic hypothesizes that they would like to test over the following weeks to months.

Phase IV: Strategic Testing

Once a collection of strategies has been identified, the intent is to quantifiably test each one to determine which strategy will be the winner. This is a risk management methodology to mitigate large strategic gambles. Most strategies will be venturing into new, undefined areas where there isn’t a sound data set to determine if the strategy will be successful or not. By strategic testing, this will turn a gamble into a calculated decision.

When designing the test, the first goal is to determine the target customer on who will be the population of the experiment. This could be the current customer segment or who is projected to be the future target demographic. Ideally, the test will be able to segregate that population from other individuals to prevent false data outcomes. This same methodology should be used for the target conditions in which to run the experiment. Ideally, an organization would want to run experiments in three conditions of favorable, unfavorable, and most likely economic situations. This would provide insight into the timing of when to execute the strategy.

This may lead to also identifying what would be the barriers of entry. Being able to identify internal and external factors to entry will provide further insight into the applicability of the strategy.  Some barriers may delay or stop a successful entry, which testing prior to full commitment will highlight to the organization. This will also bring forward the unknown unknowns that have derailed numerous strategies. For example, executives had no idea that the release of the New Coca Cola in 1985 would be met with such anger and vitriol by loyal customers (Braiker, 2019). These experiments may also provide insight into competitive response and how they will react to these organizational feigns.

Moving into the design of experiments, there are several methodologies that can be applied. The key is to design a process that will eliminate bias and provide insight into if the strategy would be successful or not. The other consideration to be taken is if the test will be run without interference or if it will model reality and be action research in which mid testing adjustments can be made. Once designed and upon determination of the timings, the goal shifts to running the experiments and altering the focus from performance monitoring to what insights are gained from the process and what the learning outcomes are. Included in these insights is the speculation about how the competition will respond, what you would counter with, and what their response to the counter would be. Lastly, the team will want to perform the CARVER analysis which will then outline the risks and vulnerabilities. The CARVER analysis was developed during World War II so that bomber pilots could more effectively drop munitions on enemy targets. Later this became the threat analysis tool of choice for the Green Beret Special Forces and now more recently into the business environment (Bencie, 2018).  The analysis scores six essential areas consisting of the threat or opportunities criticality, accessibility, recoverability, vulnerability, effect, and recognizability. These scores are then weighted and provides a quantifiable insight into strategy selection.

The conclusion is the analysis portion to determine the results and outliers. Were there any anomalies in the testing conditions or was there any market volitivity that would have made a significant impact. Lastly, what would be the changes made if these tests were run again? Now that the data has been finalized the team will shift into deciding what the key choice points will be and what will determine which strategy will be selected. If testing has gone against intuition, the hope is that the quantifiable data will help sway public team opinion and will quickly enable a coalition of support to support and apply resources.

Phase V: Transformation

Once the strategic direction has been identified, the most important factor comes to light in shifting resources to support the new direction and clarifying what the strategy needs are from each stakeholder. Historically, strategies fail due to not properly staffing the initiatives. They are added to overburdened executives that add them to their to-do list and then enlist supporters who can help in their spare time. In fairness, these are not truly strategies but tactical initiatives. A strategic change embodies a significant impact on the organization in which an impact analysis must be undertaken. Organizational structures will change to support the strategy which will also dedicate fulltime resources in making the change successful. This will also mean that some projects and initiatives must be killed to adequately pay for the new strategy. While the shift may not cost money, it will cost manpower to implement. If that manpower is stretched thin on numerous projects and priorities, the true strategy will never come to fruition.

An exercise to help the team conceptualize this change is running a change management simulation. It begins with storyboarding the change in strategy and designing the change roadmap. This will help the organization conceptualize the change and what it entails, but it will also identify flashpoints of where the strategy can be derailed. Next is to understand the stakeholders of the change of who and how these individuals will be impacted. This provides insight into the risk management mitigation strategy to help the change go as smoothly as possible. With this data, the transformation team can initiate their communication planning with the organization followed by the change announcement. This truly kickstarts the changes and the chaos that ensues. As a best practice, it is encouraged to conduct stakeholder feedback sessions and then to engage those team members into the change management planning. Applying a coordinated effort, this will enable greater accuracy in resource allocation, organizational change movement, and strategy adoption

Last to the strategic process is enabling agility. An organization will want to give the strategy an opportunity to develop and to not overreact quickly. An organization will also want to have tight monitoring of the results as to understand what adjustments will be needed to be applied during its implementation. This model resembles that of action research or of Shewhart’s Cycle (PDCA: Plan Do Check Act) (Blokdyk, 2018). This will help refine the understanding of the team on how success is defined and how score will be kept.

Conclusion

“Strategy is about making choices, trade-offs; it’s about deliberately choosing to be different.”

 

Michael Porter

Strategic theorist Roger Martin summarizes his thoughts on a strategy “If the opposite of your strategy looks stupid, you do not have a strategy.” If an organization were to say that their strategy was to become more efficient, the opposite would be that their strategy would be to become less efficient. This points to this not being a strategy, but common sense as no organization would strive to become inefficient. Strategies move an organization down a long-term path, they put the business in a position to take advantage of their competitor, and they theorize on how to achieve greatness. While the finest strategies are the opposite of their competitors, the organization will know that they had the right strategy if eventually, the competition adjusts their strategy to match yours. Then the cycle of innovation does endure.

References

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A Guide to Strategic Planning Environmental Analysis. (2017, January 09). Retrieved from Captive: https://www.captive.com/news/2017/01/09/practical-guide-to-strategic-planning-environmental-analysis

Bencie, L. a. (2018). A 6-Part Tool for Ranking and Assessing Risk. Harvard Business Review.

Blokdyk, G. (2018). Deming PDCA cycle A Clear and Concise Reference. Brisbane: Emereo Pty Ltd.

Braiker, B. (2019, May 25). NEW COKE POPS… 34 YEARS LATER. Adage.

Brandenburger, A. a. (1996). Co-Opetition. New York: Doubleday.

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Finke, R., Ward, T., & Smith, S. (1992). Creative Cognition. Boston, MA: MIT Press.

Freedman, L. a. (2013). Strategy: A History. Oxford: Oxford University Press.

Gaddis, J. L. (2018). On Grand Strategy. New York: Penguin Press.

Hollister, R. a. (2018). Too Many Projects. Harvard Business Review.

Keegan, J. (1988). The Mask of Command. New York: Penguin Books.

Kim, W. C., & Mauborgne, R. (2015). Blue Ocean Strategy. Boston, MA: Harvard Business Review Press.

Monopoly. (2019, April 12). Retrieved from Business Dictionary: http://www.businessdictionary.com/definition/monopoly.html

Porter, M. (1998). Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York: Free Press.

Roberts, A. (2015). Napoleon: A Life. New York: Penguin Books.

The Four Types of Market Structures. (2019, April 12). Retrieved from Quickonomics: https://quickonomics.com/market-structures/

Watson, M. (2018). Common Strategies and Practices Among Facilitators of Innovative Thinking in Organizations. Ann Arbor, MI: ProQuest.

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