In these uncertain times, the value of strategy is often questioned by anxious executives. Is there any point in having a strategy, they wonder, when conditions change so fast and it’s so hard to be sure what might happen next? What’s the best way to make strategy? Can we still reply on the process we’ve always used, or is there some new way to go about it? Are we wasting our time on long-term plans when we’d be better off just tackling what’s on our agenda right now? Should we spend less time trying to fine-tune our strategy, and more on building our capabilities and honing our ability to flex and adapt as things change around us?
While different companies and consultants may go about developing strategy in slightly different ways, every management team needs to ask and answer three fundamental questions:
- What’s happening around us, and what might happen next?
- What are we trying to achieve?
- How shall we go about it?
To help answer these questions, firms may commission market studies, gather detailed competitor information, conduct benchmarking exercises, or create future scenarios. Many default to a SWOT exercise (but wind up listing most of the same strengths, weaknesses, opportunities, and threats that they wrote up last time around!) Some are fans of Michael Porter’s “five-forces” or “value chain” analysis. Others prefer to talk about “core competences” or “capabilities,” or about finding a “blue ocean” in which they’ll happily have no competition.
A lot of companies do much of the work internally, perhaps using off-site retreats for focused debate. Many hire consultants to do the grunt work, guide their discussions, and provide an outsider’s perspectives—and hopefully some fresh insights. Or they bring in economists, political analysts, demographers, trend watchers, or functional experts to enhance their understanding of the environment and their industry.
Invariably, the end result is some kind of document. Answers to those three questions should—but don’t always—provide the basis for allocating resources and developing budgets. (Strategizing and budgeting don’t always sit easily together!)
Of course, you might ask any number of other questions to enhance your strategy discussion. There are many tools, developed by very smart people, to help you. But these three questions are the ones that matter. If you avoid them or treat them carelessly, you’ll be sorry.
Now, let’s consider them from a slightly different perspective, and using slightly different language. Let’s look at a model that will help you shape your future agenda … and your business.
THE 3Cs OF COMPETITIVE ADVANTAGE
Almost always, when CEOs brief me for a strategy assignment, they start by telling me, “Our business is different.” Then they spell out their situation and challenges in much the same way as others in quite different firms and industries have done. So I’ve heard the same script over and over.
While it’s true that businesses are different, there are many similarities, too. There is a common story. Whether you sell hot dogs or passenger jets, luxury goods or financial services, there’s a core set of issues you just have to think about. I call them the 3Cs. They are:
- Your operating context (external and internal)
- The concepts that shape your thinking and that you use to manage your business
- How you conduct your affairs.
[1]The 3Cs are the foundations of strategy
- Your external context is largely out of your control. It’s the hand you’ve been dealt. You might be able to influence parts of it, but never all of it. But you have to fit into it, so the best you can do is adapt to what’s happening around you. Your internal context, on the other hand, is something you can mould and change. You can shape both the culture and climate in your firm. You can choose the people you hire; what processes, systems, and technologies to use; and what kind of working conditions to create.
- Concepts help us make sense of things. They help us cut through complexity and make things simple enough to understand. So we have concepts of how the world works. Of how businesses should work (business models). Of how we can make them work (management ideas, philosophies, and tools). And of what a business might look like in 3, 5, or 35 years.
- Conduct is about what we do and how we do it. It’s our behaviour—as individuals or a team—at work and towards each other. And towards customers, competitors, investors, government, unions, and other stakeholders. It also describes the processes, systems, and technologies we use, and how we deal with matters ranging from discipline to customer service, from quality and productivity to innovation and acquisitions.
MANAGERS TEND TO PUT CONCEPTS FIRST … BUT NOT ALWAYS THE MOST IMPORTANT ONES
In my experience, most companies spend most of their time thinking about concepts. But instead of dreaming up new ideas about how to compete, and designing new business models, they flail around in search of the latest tools—most of which turn out to be fads—that may save their skin. Too often, they have no idea whether they have a hammer or a saw in their hands, and no clue about using either. Besides, they fail to master whichever new “thing” they fall for, or to entrench it in their organizations. And when it doesn’t work quite as they expected, they dump it and dash after something even sexier. So it’s little wonder that they make less progress than they’d like.
Competing for tomorrow’s customers involves many factors, and management concepts (ideas, philosophies, and tools) are critical. But first you need a business concept—a point of view about how best to compete. For without a clear model, map, or blueprint, you’ll not only struggle to make sensible decisions, you’ll also fail to focus and integrate your activities. And it will be impossible to choose the right management concepts.
Today, one industry after another is being transformed by companies inventing new ways of creating and capturing value. The boundaries between sectors are blurring and even disappearing. There are overlaps everywhere. Suddenly, yesterday’s friends are eating each other’s lunch.
Executives who understand the “new normal” and the need for “business unusual,” are frantically clawing their way into the future. They’re cooking up new business models to make old ones irrelevant. And because it’s happening on so many fronts, and so fast, the shelf life of these models is shrinking—which, in turn, leads to even more frenetic activity.
Upstart firms with no baggage pose an obvious threat because they’re not encumbered by installed infrastructure, sunk costs, or deeply ingrained beliefs and habits. Their founders are usually determined to turn convention on its head, and to raise the customer service bar from day one. Their focus is on creating new concepts of business, rather than tweaking old ones with some new-fangled management tool.
Established firms can be even more dangerous, simply because they are established. They’ve survived good times and bad and periodically reinvented themselves. They know how things work in their sector, so they don’t have to figure that out from scratch. They have deep skills and valuable relationships, and their delivery mechanisms are in place. They have a presence and a reputation in the marketplace, so customers know what they offer and how to find them. And they can afford to conduct research, experiment, explore—and make mistakes.
IT’S WHAT YOU DO THAT COUNTS, NOT WHAT YOU SAY
Concepts are clearly important. You need a mental picture of how your industry works and how best to compete in it. You also need to understand what management ideas are available, which are best for you, and how to use them.
But it’s equally important to understand how your company should act (its conduct) and to make that behavior a way of life. (This was highlighted for me in a discussion with Willie Pietersen, professor of strategy at Columbia Business School. At that time I was focusing on context and concepts. He pointed out that there was a missing factor—conduct—that could make all the difference. For that, I thank him.)
Strategy does matter. In fact, it matters more today than ever. But it has limitations. The whole notion of “sustainable advantage,” the core idea in most strategy books, is under siege.
Because we live in an information age, it’s easier than ever to find out what you need to know about markets, customers, competitors, and so forth. At the same time, executives are taught more or less the same things in business schools, read the same books and journals, attend the same conferences, and network with peers in their industry and with analysts and journalists who watch it. And companies belong to the same industry bodies, hire the same consultants, recruit each other’s people, buy from common suppliers, and—increasingly—collaborate with their competitors.
The result: there are very few secrets, and even the most closely-guarded of strategies is unlikely to stay under wraps for long. Breakthrough ideas and strategic shifts in one company are quickly noted, decoded, and adopted by others. Sustainable advantage is a fine ideal, but the reality for most firms is that the best they can hope for is a series of unsustainable advantages.
Harvard strategy guru Michael Porter advises that companies should avoid “running the same race” as their competitors, and rather “run a different race.” The theory is sound, but in practice that’s mostly a pipe-dream. Like it or not, you’re going to wind up running the same race as your enemies. And it’ll happen faster than you think.
Staying ahead of the game today depends increasingly on the ability of your organization to constantly adjust its conduct to fit your changing context. Or, as I tell my clients, to run faster than the other guy.
The external environment is where companies usually focus their search for opportunities. But as I’ve already said, “in-the-box” thinking may be even more profitable than “out-of-the-box thinking. For the internal environment is where things go right or wrong, where external opportunities are captured or squandered, and where you can score some quick wins and build some long-term advantages.
THE NEW BUSINESS ARENA
Concepts and conduct deserve attention. But whatever you do in those areas will only pay off if it fits your context—your zeitgeist, or the “spirit of your time.” Without a deep understanding of the environment around you, and of the context inside your firm in which your people work, you will never design the most appropriate business model, choose the most suitable management tools, or settle on the most appropriate behaviours.
The astonishing changes that are now taking place around the world, in every aspect of our lives, have profound implications for business. This is a time to reset your strategy. To dissect it, put it under a microscope, and think long and hard about what you see. And then to make whatever changes might be needed.
But first, you need to know more about the context in which you do business. You need to understand the trends that affect you, and the players who influence your organization in one way or another. You need to review your assumptions about politics, the economy, society, technology, customers, and competitors, and other “stakeholders.” And you need to keep testing those assumptions, embracing new information and insights, and sharing them with your colleagues.
Starting today, make it an obsession to understand your context. Change the way you spend your time to make this your priority. Talk about it in every conversation. And watch how soon you start to see new possibilities, and your team gets the message that change must be normal.
A NEW AGENDA FOR EXECUTIVE DEVELOPMENT
For the past 100-odd years, most management and leadership programmes have focused on skills development. In the future, they’ll need to redirect their attention from management concepts (ideas, philosophies, tools) to concepts of business (business model design) and to the context of business (the environment in which business gets done).
The fact is, there is just a handful of management concepts that matter, and they can be taught very quickly; after that, practice has to kick in. The real challenge for tomorrow’s leaders is to know about new business models, and to know how to create them. And for that, they need to have a deep understanding of the world around them.
This will be a big shift, so I’ll have more to say about it in a future blog post!