How do CEOs and their executive teams strategize? The accepted process amounts to coupling the two sides of an equation. On one side is the organization external environment, with all its changes and trends. On the other side is the organization with all its internal capabilities. Strategy is about how you align the two.
This analytical, even mechanical, way of “developing” a strategy is the way it has been designed and taught since the conception of corporate strategy in 1965, and it is the way strategic management textbooks present it. nowadays. As a former professor of management, I myself have been guilty of taking this approach.
The problem is that this “bilateral” approach does not produce strategy; this Explain this. To use an analogy, explaining how a painter puts paint on a canvas is not the same as creating the work of art. Managers are in the business of creating strategy, not in the business of explaining strategy. But the first one can be difficult.
For example, I recently facilitated a strategy session for a CEO and his 11 members of the US leadership team. The organization, which I will call Combine, manufactures pumps for companies in a variety of industries including food and beverage, water and chemicals. We had presentations on industry changes and trends, and they had discussed the company’s mission, vision and values.
The first sessions were noisy and the turnout was high. But when it came time to talk about strategy and future direction, the group fell into abrupt silence.
Was it because they were waiting for the CEO to speak? No, I concluded by looking around me. Was it time? No, it wasn’t that either. It became clear that this was because they had no idea how the business should position itself for future success. Then “Frank” exclaimed from the back of the room, “I don’t know why we do this every year. It always turns out it’s business as usual.
While the comment was dismissed by many in the room as “it’s just Frank” it was spot on. Developing a strategy backwards with a group of leaders is likely to be more operational than strategic, more continuous than innovative.
From development to discovery
A big part of the problem, for Combine and many other companies, is that leadership teams don’t know where to turn in the face of rapid change – the shift to e-commerce, the rise of fast-paced start-ups, the introduction of digital marketing, intense pressure from consumers via social networks and the emergence of new economic models. These were not the conditions under which the corporate strategy was conceived in 1965.
So I encourage you to change your method if you intend to break into the strategic space. Stop guessing and start educating yourself. Follow the path we finally took in Combine.
We started by listing the main stakeholders of the company in order to discover some benchmarks two. The list included end users, distributors, suppliers, employees and owners. Stakeholders, being on the outside and looking inward, are very good at providing ideas. As customers, they ask questions like, “Don’t you think they… [fill in the blank]? “,” How come they don’t have …? “,” Why didn’t they…? The answers to these questions are suggestions for strategic change. This is a resource that you can tap into.
Combine executives were then tasked with asking a series of questions to representatives of the identified stakeholder organizations. These questions were about how each stakeholder group made the decision to use Combine rather than the competition, how they defined these “strategic factors” such as product quality, how they assessed Combine’s performance on these and the changes Combine could make to improve competitiveness.
Above all, these are the executives who were assigned to the interviews. The data was not collected via a questionnaire sent by email or conducted by a market research company. This is to avoid any filtering of messages.
In my experience, very few management teams are ready to swallow their pride and do so. Instead, they want to insist on “developing” a strategy based on intuition and guesswork, afraid to admit that they don’t know what their stakeholders really want.
At Combine, the key discovery concerned its relationships with its distributors and end users. Internally, Combine’s management team felt under pressure on prices, in large part due to cheaper imports from abroad. The message distributors was that Combine had to match imports over price. Yet the product from Combine was clearly of better quality.
The research allowed Combine to interact deeply with end users for the first time. Previously, they relied on distributors to communicate end-user needs to them. To Combine’s surprise, interviews with end users revealed that price was not important to them, but the reliability (product quality) of the pumps was. As one end user put it, “the price is not critical because the cost per hour of any failure exceeds it.”
This revealing result allowed Combine with the wriggle room to educate its distribution chain on the real value of its products. He can now demonstrate to end users that by paying a little extra the reliability of the process is greatly improved by using a better quality product. It can provide a business case that shows overall profitability is better with Combine’s products than with competitor’s products. It can promote the customer service it provides in the form of technical advice and assistance. It can inform end users about its range of complementary products. And it can build brand awareness. The overall result is that end users specify Combine’s products in its contracts with distributors and, therefore, distributors stock Combine’s product line.
Time for a change of strategy?
Bringing in external stakeholders has transformed strategy development at Combine. Instead of competing to look smart and impose their ideas within the bubble, the executives at Combine began to question what they believed and came to view the world in a new way. As a result, they became more open to new ideas. They stopped seeing strategizing as paint by numbers and came to see it as a genuinely creative process.
If you are happy with the results of your strategic process, then move on. But I’m pretty sure you don’t look forward to those strategy reviews – heavy on analysis, short on creativity.
My suggestion is to change direction. Stop trying to do all the heavy lifting; it is not productive. Instead, ask stakeholders in your organization to remove some of the hard work by interviewing them. Then become a forensic pathologist to investigate your results like we did at Combine. Look for disconnections that surprise; these findings could shift your strategy in a new and successful direction.