Weekend Reading – A Corporate Operating System: Part 2- Strategy

“However beautiful the strategy, you should occasionally look at the results.”

 — Sir Winston Churchill

Dear all,

In the previous WR, I introduced my thoughts about the elements of a “corporate operating system” as the enablers of success and resilience in today’s VUCA world:

1. Purpose — Know your WHY!
2. Strategy — Consciously choose WHAT to do!
3. 1st Principles Thinking — Resist proxies and processes!
4. Objectives and Key Results (OKRs) — Stay focused and track outcomes!
5. Evidence-Based Decision Making — Observe and orient!
6. Leadership — Go beyond managing!

After some discussions, I have added:
     7. Systems Thinking — Mind the impact!

 Having discussed “Purpose” in the first installment of the mini-series, this week’s post is about

Strategy

Noted strategist and former Dean of Rotman Business School Roger Martin describes strategy as follows: “Strategy is not a long planning document; it is a set of interrelated and powerful choices that positions the organization to win.”

A strategy spells out WHAT an organization bets on to fulfill its purpose.

Formulating a coherent strategy and executing it can save significant resources and be vital to a company’s survival. Strategies provide guardrails and act as guiding lights for decisions across the organization, helping to give clarity on what- and — more importantly — what not to do.

Numbers about the impact of a strategy are hard to come by. Still, research across 49 management teams published in the HBR blog 2017 shows what happens when companies have no discernable strategy or fail to execute it well. These management teams, performing poorly on the strategy-to-execution metrics, “…spend an astounding 83% more time fire-fighting and dealing with issues at a tactical rather than strategic level.”

There is a perception that strategies are complex and hard to understand. The opposite should be true. Strategies need to be clearly stated and easy to communicate to have an impact.

One of the boldest strategies of recent has been Tesla’s. Here is how Elon Musk laid it out in a blog post more than 16 years ago (August 2006):

“… As you know, the initial product of Tesla Motors is a high performance electric sports car called the Tesla Roadster. However, some readers may not be aware of the fact that our long term plan is to build a wide range of models, including affordably priced family cars. This is because the overarching purpose of Tesla Motors (and the reason I am funding the company) is to help expedite the move from a mine-and-burn hydrocarbon economy towards a solar electric economy, which I believe to be the primary, but not exclusive, sustainable solution.”

to continue later in the text

“…unless you understand the secret master plan alluded to above. Almost any new technology initially has high unit cost before it can be optimized and this is no less true for electric cars. The strategy of Tesla is to enter at the high end of the market, where customers are prepared to pay a premium, and then drive down market as fast as possible to higher unit volume and lower prices with each successive model. …”

Musk’s post continues into detailed efficiency calculations for the proposed roadster and a comparison to the then most efficient production car, the Toyota Prius.

In these few sentences, Elon Musk relates his strategic choices “start with the Roadster for high-end customers prepared to pay premium” to Tesla’s overarching purpose “move from mine and burn hydrocarbon to solar electric economy” and longer-term goal “build a wide range of models.”

As the example implies, a strategy needs to combine the following:

• An overarching goal expressed as vision, mission, and targeted business impact — ideally related to a purpose
• A choice of targeted markets and segments
• A set of outcomes believed to be necessary to win in the targeted arenas
• A choice of bets and tactics to pursue the outcomes

Elon Musk’s post also illustrates that strategies should be grounded in facts or plausible and sound assumptions to yield results. Developing a strategy, therefore, requires a rigorous approach that goes well beyond stating some loosely formulated goals.

Broadly sharing and explaining Tesla’s strategy in a blog post, in addition, addresses the challenge that, in many companies, a strategy already dissipates in middle management: “Only 55% of the middle managers we have surveyed can name even one of their company’s top five priorities.” (D. Sull et al. in HBR 2015). In our experience, this is particularly true when strategies are not well-integrated and more of a collection of unrelated goals and objectives.

„Some 60% of organizations do not link their financial budgets to strategic priorities. Incentives aren’t aligned, either…” Kaplan and Norton noted in 2005. From our observations, nothing much has changed since. To make an impact, though, elements of a strategy need to be synergistically interrelated and well-integrated.This also means there is no simple linear process to generate a strategy. The details of the strategy have to be developed iteratively and in the interaction between different functions and levels of an organization, often requiring prioritization and hard choices, as resources are usually finite.

Successful strategies are a coherent blend of commitments (goals, arenas, targeted outcomes) — providing focus — and flexibility (tactics and bets to achieve the goals), allowing for adjustment to changing circumstances and learnings. As the Prussian military strategist Helmuth von Moltke already observed in 1871: “Only the layman believes that in the course of a campaign he sees the consistent implementation of an original thought that has been considered in advance in every detail and retained to the end.” 

It may be a coincidence, but most of our clients’ strategy presentations we get to look at, depict their respective strategies as either pyramids or greek temples. These visualizations imply solidity and stability, but strategies are ultimately hypotheses that may prove false in our fast-changing reality.

Columbia University’s Rita McGrath (author of the groundbreaking “The End of Competitive Advantage”) concludes in her blog: 

“As rates of uncertainty increase in the environment, a new perspective on strategy is emerging. … It embodies the sense that strategies themselves must adapt in an agile manner. It recognizes that when the landscape is very uncertain, … a directionally correct strategy that emphasizes learning may be the one to adopt. Leading indicators, not lagging ones, become more important.”

Therefore, strategies need to be embedded in strategy management heuristics like, e.g., OKRs (Objectives and Key Results) or NCTs (Narratives, Commitments, Tasks), or software-based strategy management tools like gtmhub or Cascade that suggest a regular review and adaptation of the strategy when circumstances change.

My brief post can not cover all aspects. Here are some resources that dive deeper into the subject:

Are you sure you have a strategy?

Donald C. Hambrick and James W. Fredrickson’s comparably old article emphasizes how essential it is for a strategy’s elements to form a unified whole.

Click to view!

Enjoy your weekend!

All the best,
Godehard