Rita McGrath – Uncertain About The Future? A Well-Defined Strategy Can Help
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Rita McGrath – Uncertain About The Future? A Well-Defined Strategy Can Help

The word “strategy” has come to mean anything in an organization that is important. But great strategies drive real purpose and decision-making. Define one that is meaningful, and you can guide real-time choice-making across your organization.

Strategy, unfortunately, has come to mean just about anything that those in an organization deem to be important. Thus, we have strategic human resources, strategic finance and Lordy, even strategic procurement! When things aren’t predictable, solid strategies are essential – they help provide guidelines and act as guardrails. When well crafted, they get you past the frozen-in-the-headlights reaction many have to uncertainty.

From the military to the corner office

Strategy started as a concept in military thinking. As Patrick Marren, writing in The Journal of Business Strategy observes: “The word “strategy” comes from the Greek “strategeia”, which means “generalship”. The Greek word for “general” is “strategos”, which in turn comes from “stratos”, “army”, and the verb “ago”, which means “to lead”.” Literally translated, the term means ‘army-leading.’  

The business equivalent of the general is often equated to be the CEO, or other general manager with decision-making rights. One of the most misunderstood ideas in strategy, as my colleague Roger L. Martin notes is that decisions are made at the ‘strategy’ level and everybody else just executes. I would argue that the purpose of a good strategy is to allow smooth decision making throughout the organization, but particularly at the ‘edges’ where real information about what’s going on lives.

Here are a handful of definitions. Harvard’s Michael Porter emphasizes distinctiveness, noting that “Strategy is the creation of a unique and valuable position, involving a different set of activities.” The original McKinsey consulting formulation of the idea defined it as “an integrated set of actions designed to create a sustainable advantage over competitors”. Roger Martin offers the idea that strategy is “a set of interrelated and powerful choices that positions the organization to win”. A well-regarded textbook argues that “A company’s strategy is the coordinated set of actions that its managers take in order to outperform the company’s competitors and achieve superior profitability”. A more elaborate definition is offered by leadership thinker Michael Watkins: “A business strategy is a set of guiding principles that, when communicated and adopted in the organization, generates a desired pattern of decision making. A strategy is therefore about how people throughout the organization should make decisions and allocate resources in order to accomplish key objectives.”

Why do we need strategies?

What all these definitions have in common is that strategy is all about making choices – both of what to do and even more importantly, what not to do. There are two main reasons that having a clear strategy is helpful: the first is that resources are not unlimited, and the second is competition – for customers, for talent, for other assets and for attention.

Resource limitations mean that you can’t just try every idea that comes into your head – you need to have some way of selecting from alternatives and setting priorities. Competition means that even if you did demonstrate that a course of action led to success, others will try to copy, match or otherwise surge into the same space.

Strategy is about making choices

So here is the definition I find helpful, following a classical definition of strategy created by Don Hambrick and James Frederickson. It defines strategy as the “central, integrated, concept of how you plan to meet your objectives.” Each of these words matter.

Central.

This means that the strategy being pursued is both widely understood by key stakeholders and embraced by key stakeholders. A simple litmus test of this is whether you could ask three people working for an organization at random, “what is our strategy?” and get back relatively consistent answers.

For instance, American retailer Walmart has not wavered from its “everyday low prices” positioning, which drives most of its key decisions, for instance its recent move to blend its physical stores with its electronic commerce capability. You won’t find fancy furnishings in a Walmart building but you will find people who are intimately aware of the variations in the price of gas within a 10th of a decimal place.

Integrated.

Integrated means that the choices informing the strategy work together to form a consistent and coherent whole. Different strategies imply differences in priority and resource allocation, and the choices need to work together.

For example, ‘hard discounter’ German-based Aldi supermarkets expanded rapidly in the United States by being even more frugal than Walmart! For example, their staff don’t run around the parking lot fetching stray shopping carts – instead, Aldi forces customers to free up a locked cart with a quarter (which the shopper gets back when they return the cart). Goods are stocked and displayed on pallets, not re-shelved. You bag your own groceries, and buy your own shopping bags. In exchange, the discounter shares savings with its customers. That’s a far cry from the experience you would get at, say, Whole Foods Market.

Whole Foods (ironically nicknamed “Whole Paycheck” by long-suffering shoppers) instead built a huge growth business, with high margins, on the premise that well-heeled shoppers would pay for a shopping environment full of organic this-and-that, with packaged and processed foods shunned and a ‘buy local’ ethos. Of course, Whole Foods has now gone from a niche business to one whose competition has caught up for far lower prices, suggesting that the Amazon-owned retailer is in for a strategy overhaul.

Concept.

Strategies, fundamentally, are ideas. This is what makes them sometimes so difficult to pin down and so difficult to communicate. Strategies reflect decision-makers’ beliefs about what course of action will lead to desirable consequences. Of course, in uncertain times, some beliefs about what will lead to what are bound not to be borne out, and a host of cognitive and other biases can sometimes get in the way of making sensible decisions. Failed strategies are often a reflection of decision-makers getting the future wrong. That’s not so bad. It’s not testing assumptions and being prepared to redirect that is much more of an issue.

Short-form video platform Quibi, which went out of business in 2020 after over $1.75 billion in investment is an example. “Their mistake was in thinking the cellphone was a television,” said David Craig, a producer and professor at the University of Southern California’s Annenberg School of Communications.

Other failed strategies are similarly the victims of concepts that didn’t work but were never tested prior to someone making a corporate level commitment. Zillow’s “Offers” home flipping business, the attempt by K-cup maker Keurig to get into cocktail pods, and the slow-motion resistance of the entire German automobile sector to changes such as electrification are all possible examples.

How.

Far too many expressions of strategy are really statements of goals in disguise. “We want to be number one or number two” is a popular example. Increasing operational efficiency, targeting this or that market or becoming more or less of something are all statements of intention, but they say very little about how you plan to make the choices and the tradeoffs that would realize these goals. Good strategies, as Collis and Rukstad point out, can ideally be summarized in 35 words or less, and help every person associated with the organization understand the tradeoffs that the strategy represents.

They use as an example the strategy statement of financial advisor Edward S. Jones, from about 2008: “To grow to 17,000 financial advisers by 2012 by offering trusted and convenient face-to-face financial advice to conservative individual investors who delegate their financial decisions, through a national network of one-financial-adviser offices”.

Notice that while the statement is clear about what the company intends to do, it is equally clear about what it does not intend to do. It won’t sell to day traders. It won’t do business with institutions or companies. It will treat all customers equally, recognizing that sometimes very wealthy people do not display the trappings of wealth. And their value-added lies in the trust they create with customers who are comfortable delegating their financial decisions.

Objectives.

Good strategies are informed by clear goals, and it is often astonishing to observe how often the over-arching goals for an organization are left to chance. Without knowing what goal one is trying to achieve, it’s virtually impossible to weigh tradeoffs and make decisions – and decisions about what not to do are every bit as critical as decisions about what to do.

Consider this “To thrive as a mass merchandising company that offers customers quality products through a portfolio of exclusive brands and labels.” That was the one-time strategy statement for K-Mart, a one-time retail darling that was eventually merged with Sears, veered in and out of bankruptcy and is now undergoing what observers are calling a “slow motion liquidation.”

Strategy as a roadmap in uncertain times

Karl Weick, an American organizational theorist, points out that in uncertain and confusing circumstances, the goal of strategy is often directional, not predictive. In his book Sensemaking in Organizations (p 54), he offers a famous story:

This incident, related by the Hungarian Nobel Laureate Albert Szent GyÖrgi and preserved in a poem by Holub (1977) happened during military maneuvers in Switzerland. The young lieutenant of a small Hungarian detachment in the Alps sent a reconnaissance unit into the icy wilderness. It began to snow immediately, snowed for 2 days, and the unit did not return. The lieutenant suffered, fearing that he had dispatched his own people to death. But on the third day the unit came back. Where had they been? How had they made their way?

Yes, they said, we considered ourselves lost and waited for the end. And then one of us found a map in his pocket. That calmed us down. We pitched camp, lasted out the snowstorm, and then with the map we discovered our bearings. And here we are. The lieutenant borrowed this remarkable map and had a good look at it. He discovered to his astonishment that it was not a map of the Alps, but a map of the Pyrenees.

This incident raises the intriguing possibility that when you are lost, any old map will do….

So strategies are not about iron-clad unchanging five year plans. They are about making the best hypotheses with imperfect information, providing clarity to people and founding an environment in which people up and down the organization are at liberty to make smart choices.

Implications for leadership

As rates of uncertainty increase in the environment, a new perspective on strategy is emerging. It relies less on analysis and more on pattern-recognition than conventional prescriptions. It embodies the sense that strategies themselves must adapt in an agile manner. It recognizes that when the landscape is very uncertain, strategies may be no more precise than Weick’s map, and a directionally correct strategy that emphasizes learning may be the one to adopt. Leading indicators, not lagging ones, become more important.

A leadership model that does not presume that all information is possessed at the “top” of an organization is further essential. Instead, strategies need to incorporate deep insight into the organization’s capabilities as well as rich insight into the context in which the company is operating. Leaders today are often seen as choosing among options that the organization generates in structures that are increasingly “permissionless.”

Reference: Rita McGrath