What is strategy development and execution?

People argue about which is more important: strategy or execution. This is a false dichotomy. Both are important. In fact, each is worthless without the other.

In strategy, development and execution are opposite sides of the same coin.

What is strategy development and execution?

Strategy development is the process of deciding and agreeing what an organisation will do, when, for whom, how, and why.

Strategy execution is the process of allocating resources, changing and aligning the organisation to deliver that strategy.

The problem with strategy development without execution

The problem with strategy development without execution is fairly obvious. Without execution, your strategy will never be more than an aspiration. Nothing will change.

Unfortunately, this is exactly what happens with many strategies. The leadership develops a new strategy and announces it to the rest of the organisation and then... not much happens.

A popular remedy for this problem is to try and involve more people in developing the strategy in the first place. Whilst this can help, it is usually not enough. Sometimes, it can make matter worse. People, be they staff, customers, suppliers or others, can be great sources of insight. But someone still has to process that insight. Strategy is about making choices and tradeoffs. It should not be an attempt to give everyone what they want.

Instead, strategy execution requires rigour and discipline:

• Communicate clearly and unequivocally. It should include not only what the strategy is, but why it is that. It is important to distinguish between when you are asking people for their input, and when you are communicating a new strategy.
• Establish accountabilities, track and report against carefully thought out milestones, scorecards and KPIs.
• Allocate resources. More often than not, this means re-allocating from what is now relatively less important to what is now relatively more important. Change structures and reporting lines accordingly. Terminate or redirect programmes which no longer fit.

All of this can be very uncomfortable. Strategy involves change. Many people resist change - especially where it challenges their existing power base.

The problem with strategy execution without development

The problem with strategy execution without development is more subtle.

If you haven't developed a strategy, what will you execute? Unfortunately, this does not seem to stop many organisations. The result is 'busy work'. People pursue their pet projects just because they can. Or they deploy resources to do things just because they worry that those resources will be taken away from them if they're not seen to use them.

Even more subtle is the problem of strategies which are not executable.

Some so-called strategies are little more than grand slogans, woolly ambitions or jargon-packed corporate double-speak.

When asked to execute them, staff don't know what they're actually supposed to do. What should change?

And so they play it safe. They carry on doing what they were doing before. Or they use the opportunity to pursue their pet projects.

If they are smart they will rebadge their existing work or pet projects as being central to the execution of the strategy. And because no-one can say for sure what the strategy dictates instead, it can be hard to contradict them.

To overcome these problems:

• Make sure that your strategy articulates clear choices. It is as important to say what the strategy is not as to say what it is. You haven't really done strategy until you've decided not to do something.
  
  
• Avoid unqualified comparative statements. As a general rule, avoid words like "best", "leading" and "world-class".
  
  For example, a company might say it wants to be "the worlds best widget manufacturer". That is a fine ambition. But what does it mean? What, specifically, constitutes best? How will this be achieved?
  
  
• Describe as vividly as you can how the organisation will be different after executing the strategy than it was before.
  
  Focus on tangibles - changes to processes, resources, products and services - rather than intangibles. Focus on what you will do differently, rather than on what you will become by doing it. (What you will become is also important. But you won't become it unless you do something. So focus on that.)
  
  For example, a company might say its strategy is "to become the most trusted widget manufacturer". Again, that is a fine ambition. But what will the company do to achieve that?
  
  
• Avoid sitting on the fence or delegating your strategy.
  
  For example, a company might say its strategy is to be customer-centric or to listen to its customers and what they need. Those are both noble ambitions, but they are not strategy. Strategy describes the choices you make after having listened to your customers, understood their needs, and decided what you will and won't do about them.
  
  The same goes for equivalent statements like "putting staff at the heart of our business".

Strategy development and execution are equally important parts of a holistic process. It is as important to develop strategies that are executable as it is to ensure that what is executed is the strategy.

14 tips for running a strategy day that works

Image by rawpixel from Pixabay

The Strategy Day has a bad reputation. But done well, it can make a valuable contribution to a broader process for developing and executing business strategy.

The Strategy Away-day, Strategy Offsite or just Strategy Day. These remain a cornerstone of many business strategy development and execution processes.

They also have a terrible reputation for being a waste of time. For indulging out-of-touch executives in their ivory towers. For producing strategies that just sit on the shelf. Until next year's strategy day comes up with the next one.

Here are 14 tips for running a strategy day that actually delivers results.

1. Don't expect to build a strategy in a day

Rome wasn't built in a day. Neither will your strategy be. But that doesn't mean you can't do meaningful work in a day.

Strategy is a process, a conversation, a way of thinking, planning and executing.

It's not an event or a deliverable. It's not annual strategy day.

But a strategy away day can be a valuable part of that conversation. Just don't assume its enough on its own.

Be clear on what you will and won't achieve on your strategy day. And be clear about how you will achieve everything else you need to achieve to develop and execute a strategy successfully.

2. Remember that it's still a meeting

A strategy day is a particular kind of meeting. But it is still a meeting. So all of the usual good practice for meetings applies.

• Set clear objectives.
• Set a clear agenda.
• Communicate both up front.
• Distribute any pre-reading, allowing plenty of time for people to actually read it.
• Make sure the pre-reading is relevant, concise and of a very high standard.
• Make any expectations of what you want done in advance clear with plenty of warning.
• Think about who you actually need there. There is a perceived status attached to attending strategy away days. But who do you really need there? And who will really add value?
• Keep to time. But be flexible if you need to be. You can't rush strategy.

3. Choose the right venue

Choosing the right venue is an important first step.

There are two objectives:

1. Minimise distractions.
   
   Encourage people to turn off their mobile phones, tablets and laptops. Discourage them from 'checking into with the office' or 'popping back to their desks' during breaks. Each interruption breaks their flow. Takes them out of 'strategic thinking' mode and back to day-to-day fire-fighting mode.
2. Allow space to think.
   
   Getting people to carve out a whole day to think about strategy is a good starting point. But it is difficult to think strategically when you're crammed into a stuffy windowless room. Find a venue which provides plenty of space to move around. Find a new environment that encourages creativity. Find an environment that doesn't remind them of the immediate day-to-day problems which will still be waiting for them tomorrow.

For both of these reasons, it is often best to leave the office for an offsite venue.

4. Bring people into the room

Many people aren't naturally strategic thinkers. Even those that are often live there lives in a much more tactical fire-fighting mode. So the first thing you need to do is to set them up to spend a day thinking differently.

The right venue will help (see above).

But the first agenda item is critical for setting the scene and for setting up the participants. This could be:

1. An inspiring introductory talk.
   
   This could be delivered by an external speaker or by one of the participants. It should be on a topic or topics of particular relevance to the organisation at that point in time. But it should be forward-looking and expansive. It should focus on 'the art of the possible', and not on the challenges of the past. It should focus beyond the organisation - beyond the industry even - rather than on the organisation itself. It should throw up questions more than answers.
2. An inclusive question.
   
   An inclusive question is a question that everyone in the room can answer, and for which there are no right or wrong answers. It should be phrased so that the answers are positive and connect people. The aim is to get people out of day-to-day problem-solving mode, and primed for thinking strategically. A good example is: What is the one thing that makes you most proud to be associated with this organisation?
3. Set expectations.
   
   A more conventional opening is to ask each attendee to state their expectations of the meeting. Ask them to complete the sentence: "I'd be happy if by the end of today we'd ...". Record their answers on a flip chart.
4. Name the elephant in the room.
   
   Whilst it is best to start the day on a positive note, sometimes you can't avoid the fact that there are one more shadows hanging over it. Perhaps the organisation has just posted a particularly poor set of results, lost a large contract, or is facing a hostile takeover. In that case, there is no point in trying to sweep them under the carpet. Allow participants to name them. To get them off their chest. Write them down on a flip chart. They are more likely to be able to move past an issue if everyone is clear that it is out in the open.

5. Understand when to be divergent and when to be convergent

Developing and executing strategy requires a combination of divergent and convergent processes.

Divergent processes involve gathering data and generating ideas. Casting the net as wide as possible. Using macro scanning and brainstorming. Imagining. Asking 'what if?' Thinking about benefits. In divergent processes, there is no such thing as a bad idea. No stone that should be left unturned.

Convergent processes involve analysis and making choices. Narrowing things down. Focusing and prioritising. Choosing what you will do as well as what you won't do. Planning. Considering feasibility and costs.

But as much as developing and executing strategy requires you to alternate between the two, it is important never to mix them.

We've probably all heard that you should never evaluate the ideas generated during a brainstorming session. This is because brainstorming is a divergent process, and evaluating is a convergent process.

So decide if the purpose of your strategy day is divergence or convergence, and design the day accordingly. If you must do both on the same day, aim for divergence before lunch and convergence after lunch.

See also: Alternating between divergent and convergent processes.

6. Work on the business, not in the business

Your strategy day is an opportunity to talk about the bigger picture. About the shape of the business. Which markets should it be in? How should it compete in those markets? What should it look like in 10 years time?

It is not an opportunity to dive into the operational minutae of your existing business. To identify and fight fires.

Those things are important, of course. But indulging in them on your strategy away day will take people out of strategic thinking mode and into operational mode. And more often, those issues are better delegated to other people.

7. Make visible notes as you go

Obviously, you want to remember all the good stuff that people talked about.

But if people see the notes, it makes it easier for them to feel heard and then to progress to the next thought without worrying that their great insight will be lost.

There are a number of different ways of achieving this:

• Flip charts,
• PostIt notes on a board,
• On-screen capture.

Remember that the note-taker wields enormous power in the room. How you capture the notes makes a big difference. Who's words do you use? What do you leave out? What do you include? So choose that person wisely. I've seen many a session all but destroyed because note-taking was delegated to a junior person who did not really understand the nuances of what was being discussed.

Sometimes it makes sense to let delegates take then pen and draw what they're describing for themselves. That should be encouraged. Not just because it allows people to share their thoughts more clearly. But also because it creates a sense of movement and energy in the room.

On-screen capture has the advantage of making it easy to distribute exactly what was captured immediately after the event. There will be plenty of opportunities to refine and develop the output later. It's usually hugely valuable to get out an accurate record of what was actually discussed as soon as possible.

8. Be clear on the actions

You don't want your strategy day to be nothing more than a talking shop. So make sure you draw out clear actions. Actions don't need to be strategic decisions themselves. An action can be to:

• gather more data,
• consult with more people, or
• work up some options,
• to stop doing something, etc.

Use (simple) templates to send everyone out of the room to continue working but in alignment. And be clear how and when you will follow up.

9. Plan a post-event communication

If you take any number of senior decision-makers out of your business for a day, people will notice.

And they will start to speculate. And talk. Especially if the company is facing difficulties or uncertainties. If not handled well, that can further erode trust and alignment.

These days, it is quite common to share diaries. Either generally, or with subordinates or support staff. So it is worth thinking about how your strategy day appears in peoples diaries. This is part of the communication.

Then, plan a general communication with a few days of the meeting. You may not be able to talk about exactly what was discussed. But there is always an opportunity to say something positive.

10. Where is the data?

Strategy should be an evidence-based process. All-day workshops don't always lend themselves to that.

Consider what data you need before the workshop. Do you want to distribute it ahead of time? Or do you want someone to present it on the day?

Record actions to gather and distribute data after the workshop. Make sure they are assigned to the right people. One technique is to do a round at the end of the workshop. Ask everyone what, after the day, they most wish they knew now.

Predistributed data is better for convergent processes. Divergent processes tend to generate data needs after the workshop.

See also: Using online research to build an evidence base | StrategicCoffee

11. Use a facilitator

There are a number of reasons to get an external facilitator:

1. Participation: Using a facilitator means that everyone else gets to participate fully. Let the facilitator worry about process, time-keeping, etc.
2. Objectivity: Using an external facilitator ensures they are objective, and have no vested interests.
3. Skills: An experienced facilitator should have the right skills. These include facilitation skills, strategic thinking, and possibly even industry knowledge. But make sure they are a generalist so that they are not bringing any bias into the process.
4. Cost: Hiring a facilitator may be a little bit more expensive. But it is worth it to ensure you get the most value out of taking a number of expensive senior resources out of the office for a day.

See also: Expert Facilitation will Transform your Meetings - Destination Innovation

12. Don't confuse strategy with team-building

Team-building is another great reason for having an away day. A strategy away day may have some team-building benefits. But don't confuse the day.

A strategy day is all about the business. A team-building day is all about the people and the inter-personal dynamic.

Think back to the difference between working on the business, and not in the business, above. Also, you will need a different kind of facilitator with different skills for a team-building day.

13. Don't mix other issues into it

Resist the temptation to tackle other issues 'while we've got everyone in the room'.

Your strategy day is designed to get everyone thinking strategically.

Every time you do something other than strategy, it draws people back into their day to day firefighting mode and out of strategic thinking mode.

For the same reason, you should avoid letting people step in and out of the meeting. When they do, they then miss part of the conversation and thread of logic. But as importantly, their thinking pattern changes.

But be pragmatic. If disaster strikes during the day you will have to adjust. There is no point in having the perfect strategy if the business was destroyed while you were designing it!

14. Get people to move

Strategy days can be quite intense. The session immediately after lunch can be particularly challenging for many people. It isn't called the graveyard shift for nothing.

A little bit of movement reinvigorates the brain.

Sometimes it's enough just to ask people to change seats. Some people believe that simply changing seats is enough to change people's perspectives.

Another technique is to play a little game for a few minutes. A little bit of fun can enhance creativity. But try to make it a game connected to the strategy or the strategy process. Remember this is not a team-building day.

The strategy day has a bad reputation. But done well, it can make a valuable contribution to a broader process for developing and executing business strategy. And now, you know how.

It's time we stopped idolising failure in innovation

Failure, it seems, is in vogue.

We're told to "fail forward fast", "celebrate failure", give our teams "permission to fail", etc.

But have we gone too far? Have we inadvertently started idolising failure?

It is true that failure is inevitable in innovation. Just as risk is inevitable in earning investment returns.

But we should not lose sight of the fact that our ultimate objective is success rather than failure; returns rather than risk. Failure and risk are means to an end, not ends in themselves.

I recently heard of an organisation who set a KPI target that "at least 90% of innovations must fail". I think I know what they were trying to achieve. They wanted their staff to be bolder. Less incremental. And that would mean tolerating higher levels of failure.

But to actually encourage - mandate even - more failure is perverse. The obvious unintended consequence is that staff will be encouraged to sabotage perfectly good innovations!

Catchy phrases lauding failure had a purpose. That purpose was to break the mindset that failure was unacceptable. To reintroduce failure as an acceptable cost of innovation. But now I fear they have taken on a life of their own. And it is not good for business. Or for innovation.

To quote Frederic Etiemble, "a good idea doesn't have to become a dogma". (Source)

The original intent of those catchy phrases was to enable learning by doing. Its time we focused our attention back on that original purpose.

Innovation does not require failure. Innovation requires you to run experiments. Experiments don't succeed or fail. They produce results from which you can learn.

What we really want, is a more scientific approach to innovation.

In science, experiments don't fail. They either prove or disprove an hypothesis. Or they're inconclusive. Either way, we learn something.

Scientists don't just throw random chemicals into test tubes and hope something interesting happens. Research programmes are carefully planned and structured.

So how should we go about innovating in a more scientific way?

1. Be very clear on your goals.
2. Break those goals down into the smallest testable experiments.
3. Start with the experiments where the greatest uncertainty exists with the greatest impact first.
4. For each experiment set a clear hypothesis. Know (1) what data you're going to collect and (2) how you're going to collect it to confirm or disconfirm the hypothesis before you start.
5. Make sure you have a control group. You need to know if the hypothesis was confirmed or disconfirmed because of the experiment and not because of some other factor.
6. Experiments are not commitments. Make sure you can stop the experiment any time you want.

Words matter. Our focus on failure will lead to failure. Let's change the language. Let's focus on success. Let's focus on learning. Let's focus on a scientific approach to innovation.

We need to move the narrative from:

• "we tried a, b and c and failed - awesome job everyone!"
  to
• "we tried a, b, and c, and learned x, y and z." 

The successful innovators already get this. It is the unsuccessful ones, the not-yet-successful ones, who will be misled by lazy, populist slogans.

See also:

• 5 remedies for your innovation woes
• 5 templates for innovation
• Management shortcomings hinder innovation

Using online research to build an evidence base

Business strategy must be evidence-based or it is just wishful thinking. (Tweet this)

But how exactly do you build an evidence base?

1. Get good at Google

You'd be amazed at how much quality data is available on the Internet. And Google is there to help you find (almost) all of it.

But using Google can be a bit like trying to drink from a fire hose. There is just too much information. And most of it is not very good. The bad an irrelevant information drowns out the useful information.

So you need to get good at using Google to sift through the dross to find those nuggets.

There are lots of good resources to help you use Google more effectively. It is definitely worth familiarising yourself with these. (Note: Not all search tips are equally useful for strategy. But I think that will be obvious enough.)

• 20 Google Search Tips to Use Google More Efficiently
• 23 Google Search Tips You'll Want to Learn - PCMag UK

Some of the more useful tips I have found are:

• Use quotes to specify precise words in a specific order. This can be helpful when searching for a specific quote, a proper name, or a specific report where you know the title.  
• Put a minus sign in front of words to exclude them. For example, if you're looking for smartphone technology other than the iPhone, you could search for "smartphone -iphone".
• Use the tabs. Click the "news" tab if you're looking for recent news stories. Click the "images" tab if you are looking for charts. This is particularly helpful as the better quality research sites will often use charts to represent their data and analysis.

Remember that most of the time you're trying to improve your search criteria to eliminate that which is not useful.

The other challenge can be to tap into the specific jargon which people use when writing about the industry you are interested in. If you've worked in that industry for a long time that's usually not a problem. But if you're an outsider or consultant, you should make a priority to master the language used.

It can be a bit hit and miss. Especially when you're starting with a new topic, line of enquiry or industry. So you have to keep trying it from different angles until you get it right.

2. Get good at scanning the results

No matter how good you get with Google, you're still going to need to process a lot of material to get the evidence you're looking for.

The first trick is to learn to recognise the reputable sources of information in the industry you're researching. Which are the quality edited journals? Which are the quality research companies? You can usually spot their URLs in the Google search results before you even click through to the page.

Then you look into the text itself. Which pages are spouting un-substantiated opinion? Which are written by lazy journalists trying to fill column inches or be the first to break a story without really understanding it? And which are providing high-quality, in-depth analysis backed by evidence and data?

"If we have data, let’s look at data. If all we have are opinions, let’s go with mine.”

- Jim Barksdale (tweet this)

Where there is data, is it of a high quality. Is it clearly described and defined? What is the sample size? Are the conclusions statistically significant?

What is the quality of the analysis? Is it clearly and logically reasoned? Does it make basic mistakes like confusing correlation and causality?

You have to kiss a lot of frogs to find a prince. When you're doing research you will have to scan and discard a lot of information. A lot of it is poor quality, repetitive, or not quite relevant to the topic you're researching. It takes time.

3. Focus on the contradictions and inconsistencies

Don't get lazy and only look for data which easily supports your views. Look for as wide a range of evidence as possible.

Data sources which contradict each other or contradict the opinions of experienced people within your business are often the most interesting.

Assuming the data sources are credible, and the experience people are indeed knowledgeable, these contradictions often lead to the best insights.

Instead of assuming that one or the other must be "wrong", dig deeper. Look for some explanation under which both can be right.

Have you found an exception to a rule? Something which is true under one set of circumstances, but not under another? Have you uncovered an implicit assumption or bias in thinking? Have you found something that used to be true but no longer is? If so, what has changed?

Such seeming contradictions and inconsistencies provide the starting point for more considered analysis, insight, and sometimes strategic breakthroughs.

4. Make excellent notes

Once you've found the evidence you're looking for, it is important to keep good notes. You need to be able to recall what you've found easily, whether its because you've got a report to produce, or because you're in a meeting and someone is asking you to back up what you're saying.

You can use a general-purpose note-taking tool, like Evernote. But general-purpose tools don't know what your notes mean. Nor do they know how they should be organised. So often, you end up searching through your notes just like how you were searching for them through Google in the first place.

Alternatively, you can use a special-purpose tool like StratNavApp.com. StratNavApp.com is specifically designed for organising evidence for business strategy. It will organise your notes for you using familiar strategy analysis models. Evidence gathered in this way typically supports PESTEL analysis, Porter's 5 Forces analysis, and the Threats and Opportunities in a SWOT. StratNavApp.com will help you to connect the evidence you gathered directly to these analyses. It will also maintain the links back to the original sources of the information.

Not only will it make it easier for you to find them again, but it will help you develop your strategy analysis as you collect your evidence.

StratNavApp.com supports this with a convenient 'clipping' tool. Once you've found a web-page of interest, simply highlight the relevant text and click the button. StratNavApp.com will pull it through into the app, categorise it and link it into your existing analysis. Follow these instructions to install the clipping tool in your browser.

StratNavApp.com also integrates with Grammarly.com. Grammarly.com will help you to ensure that your notes are clearly and accurately written.

Conclusion

Evidence is the bedrock of good strategy. Get good at finding and interpreting it. (Tweet this)

What are your top tips for researching evidence? I'd love to hear your thoughts or questions in the comments.

See also:

• 6 top tips for strategy analysis
• More data usually beats better algorithms

7 top tips for strategy analysis

Strategy analysis is the bedrock of good strategy. In this post, we look at 6 top tips for doing it well.

1. Know your tools

You can't be a mechanic without the right tools. Nor can you be a strategist without the right tools, frameworks and methodologies.

Using the right tools is the most basic requirement of strategy analysis.

You will need a wide range of tools at your disposal. You will need to know both how and when to use each one.

Remember that not all tools are useful in all circumstances. And that not all analysis yields results. Much of it will end up on the cutting room floor.

See: Essential tools for Strategy Analysis

2. Take an external perspective

Avoid being too introspective.

Companies have a tendency to tell themselves stories. Particularly about what they're good at. It's natural. They've invested time and energy into creating what they got. They want to believe they're good at it. They want to take pride in what they've done.

And if they tell themselves the same stories often enough, they start to believe they are true.

Strategy analysis requires you to look beyond those stories.

One way to do this is to take an external perspective. How do your stakeholders see your business and your market?

Your list of stakeholders should include your customers, distributors and suppliers. Anyone the business relies on to succeed. Consider existing stakeholders and target stakeholders.

Ask what your customers would see as your strengths and weaknesses - relative to your competitors. Ask how industry trends might affect your suppliers and distributors.

Read industry reports. Attend conferences. Join online forums. Get out there and talk to people.

If appropriate, get an external review of your analysis.

3. For insight, present data, facts and interpretation

Opinions are a dime a dozen.

As Jim Barksdale said:

“If we have data, let’s look at data. If all we have are opinions, let’s go with mine.” (tweet this)

Strategy analysis relies on data. Facts. Evidence.

You can ask people for their opinions. But then use those opinions to work out what data you need. Does the data confirm or disconfirm the opinions? What does that mean?

Data can come from lots of different sources. Internal sources include operational and financial reports. External sources include industry reports and primary research.

Data can be presented in lots of different ways. There is an art to presenting data in the manner which best reveals its meaning.

Annotate your data with insights, conclusions and interpretation. Draw the story out of it. But be careful of inferring causality when all the data shows is a correlation.

4. Embrace the ambiguity

No matter how good your data, things are seldom conclusive.

If you've asked lots of different people and drawn on lots of different data sources, it's unlikely they will be.

Expect to find contradictions and gaps.

One way to deal with ambiguity is to use scenario planning.

Even then, strategy analysis is uncertain. Part of being in business is taking risks. Sometimes you just have to take a change. But make it an informed decision.

5. Keep repeating

Once you've completed your analysis, don't expect people to get it the first time.

Remember, you've been working on this for some time. You're familiar with the material. But your audience probably isn't. They're probably distracted by other things.

So keep repeating it. Keeping trying different ways to get your message across. Learn what works and what doesn't work. Keep repeating what works.

Don't make the mistake of moving to the next stages - articulation, planning and execution - assuming that everyone will remember the analysis. People forget - sometimes quite quickly. And then the strategy starts to drift away from the analysis. It usually reverts back to 'the way we've always done things around here.'

6. Never stop analysing

Strategy development and execution is not a linear process.

As Helmuth von Moltke the Elder said:

"No plan survives first contact with the enemy." (tweet this)

As soon as you start executing your strategy things start to change. Things don't work out quite the way you planned. Stakeholders don't respond as you'd expected. Competitors fight back.

So strategic analysis is an ongoing process. In fact, strategy is best thought of as a loop. Analysis, articulation, planning, execution and back to analysis.

See: the Strategic Learning Methodology

7. Use intuition to help you know where to start

But, where do you start? There is so much data out there it can be daunting.

That's where intuition comes in. It can be your own intuition if you have experience in this area. Or you can talk to other people with experience and ask them for their intuitions.

Use intuition to help you form hypotheses. What do you think is happening. Then start looking for data to confirm or disconfirm those hypotheses. It is important to look for both confirmation and disconfirmation. Otherwise, you could fall victim to confirmation bias. This is where you see only evidence that supports your assumptions, and don't see evidence which contradicts it.

Book review of Subscribed: Why the Subscription Model Will Be Your Company's Future - and What to Do About It

We don't have to look too far to see the impact that the subscription-based business models are having on everyday life.

We no longer buy music - we listen to it on subscription from Spotify. We no longer buy films, we watch them on subscription from Netflix.

In the subscription economy, we no longer pay a lump sum up front to own or use something forever. Instead, we pay a monthly or annual fee for the right to access that benefit for that period of time. As soon as we stop paying, we lose access to that benefit.

Even capital intensive purchases like cars are being impacted by this change. Instead of buying a car outright, more of us are entering into Personal Contract Plans (PCPs) or other similar arrangements. With these, we pay a monthly charge for the right to use a vehicle. Of course, under a PCP we have the right to buy the vehicle at a predetermined price at the end of the deal. But the dealer's hope is that you trade it in for a new car on a new PCP arrangement and keep paying.

I do most of my consulting in the financial services industry. This has always run on something like a subscription basis. When you open a bank account, you pay for it either through explicit charges or reduced interest rates until you close it. When you take out insurance, you pay a monthly or annual premium. When you invest or take out a pension, you typically pay a monthly 'usage-based' fee based on the value of your assets.

So, I am quite familiar with many of the challenges that subscription-based business models bring. Providers' expenses are highest at the start of the relationship. And then they hope that the customers will stay long enough to become profitable. As a result, providers spend a lot of time worrying about:

• How to reduce the costs of acquisition. These include sales and marketing, distribution and onboarding) 
• How to reduce the churn rate. This is the percentage of customers who leave during any defined period.

In their book, Subscribed, Tien Tzuo and Gabe Weisert take a broader view of the trend towards subscription-based business models and their impacts.

The subscription economy is customer-centric

The book sets the scene with some bold claims. For example, it claims that "companies running subscription models grow their revenue more than nine times fast than the S&P 500". In fact, there is a whole addendum of juicy numbers describing the rapid growth of subscription-based companies. It draws most of these from the usage statistics of a "comprehensive billing and finance platform for subscription-based businesses", called Zuora. Disclosure: Tien Tzuo is the CEO of Zuora.

One of the reasons for the success of subscription-based businesses is that each and every subscriber has a unique identifier to which all the data the company collects about them is mapped. I am a little tempted to point out that they may be conflating two separate issues - customer-centric data management and a subscription-based revenue model.

The authors point to companies like Amazon, Google, Facebook, Apple and Netflix as evidence of their hypothesis. However, Amazon was a runaway success long before it introduced it's Amazon Prime subscription model, and on the basis that it exploited customer-centric data on the basis of unique customer identifiers right from the start.

Amazon, Google, Facebook, Apple and Netflix are all examples of digitally native customer-centric businesses, who also happen to be (increasingly) subscription based.

The authors contrast this against 'traditional' businesses that mass produce and distribute physical goods. Such businesses tend to rely on Enterprise Resource Planning (ERP) systems. These are designed around physical goods - raw materials and finished products. They do a great job of managing operational efficiency, raw materials, inventory, purchase orders, sales, shipping and payroll. But they do a lousy job of managing customer relationships and experiences.

The book does not discuss Customer Relationship Management (CRM) systems. But I think it is fair to say that CRM systems have gone a long way towards addressing this. However, they are largely still bolt-ons to the underlying ERP-style systems. The result is a far cry from systems built around the customer and customer experience from the ground up.

Instead, what it does describe is how companies:

"...set up customer service departments! When in doubt, build another vertical silo—they launched market services, technical support lines, warranty contracts, and maintenance groups. The customer had truly arrived—they had their own department now. And that department was located way down at the far end of the supply chain, just past the loading dock."

The authors argue that the battle between Amazon and Walmart is not between online versus traditional retail. It is between customer-orientated data-driven app-centric flexible and omnichannel retail on the one hand and product-orientated retail on the other. (tweet this)

They conclude that:

"If you're still selling your product off shelves to strangers in five years, there's a good chance you're not going to make it to ten." (tweet this)

Changing consumer preferences

The book then goes on to talk about consumers changing preferences:

• for services rather than products,
• for outcomes rather than ownership, and
• for constant improvement rather than planned obsolescence.

The authors describe how customers now "want the ride, not the car; the milk, not the cow." (I think this description is slightly misplaced as buying milk still represents the old manufacturing to sale model, rather than the move to a subscription-based model.)

This broad societal change is nicely summed up in the final chapter:

Once upon a time, we used to know the people we bought from—the butcher, the baker, the blacksmith, the farmer. We used to know the people we sold to, the neighbors in our village. All that knowledge got lost a long time ago, when the Industrial Revolution ushered in the product era. But it’s coming back in a big way.

This trend is fueled and reinforced by a growing awareness of the environmental consequences of mass consumption over the last century.

An added advantage of doing so is that company's doing so can learn by watching how their customers use their products and services. In the traditional product model, once the customer received the product, the manufacturer typically has little, if any idea, of how the customer used it or even if they used it at all.

With a subscription service, providers can gather data on an ongoing basis. They can analyse that data, and use that analysis to continually improve the product or service. Existing customers can benefit from those improvements immediately, often without needing to pay for a new version or upgrade.

So, even where businesses stick with a traditional product-based model, there is an increasing drive to package these with value-added services. For example, Fender now sells a subscription-based online video service called Fender Play. This teaches customers how to play their guitars. This creates an additional revenue stream. But it also creates a more intimate relationship between the company and its customers and reduced the rate at which customers give up trying to learn to play.

Apparently, International Data Corporate predicts that by 2020, 50% of the world's largest enterprises will see the majority of their business depend on the ability to create digitally enhanced products, services and experiences.

Market research needs no longer to rely on what focus groups and survey respondents say they want but can draw real-time data generated by what real customers actually do. (See also: Everybody Lies, the evolution of market research.)

The new economics

The authors argue that traditional businesses rely on advertising to sell individual products to strangers while subscription businesses rely on customer relationships to continue to provide services and upsell new services to loyal customers.

They devote a number of pages in the book to describing a challenge that traditional businesses face when making this switch. They call this challenge "eating the fish" (for reasons which escape me). By way of example, they describe a software business moving from selling on-premise software installations to SaaS solutions in the cloud. The economics change, they argue, from a large purchase and installation revenue followed by upgrade every few years to a smaller, recurring monthly fee. The difficulty in this is that revenues actually decrease in the first few years after making the change.

The long-term advantage, however, is that instead of starting each year with zero sales on the books, subscription businesses start each year with a stable recurring revenue stream.

"You're talking about shifting from an asset transfer model to a long-term relationship."

The authors contrast the two models. The old imperative is to sell more units, increase the price of those units, or decrease the cost required to make them The new model is driven by the imperatives to acquire more customers, increase the value of those customers and hold on to them longer. (I think they miss the opportunity to serve those customers at a lower cost, but their point is well made.)

Crucially, this requires a shift from a sales mentality - make the sale and move on - to a service mentality - win the customer and then stay as close to them as you can.

More subtly, current accounting practices do not distinguish between historic sales and recurring revenues. The traditional manufacturing and sales model is very transaction and backwards-looking, whilst the subscription model is more relational and forward-looking.

As an aside, I would note that the insurance industry has been grappling with this for years, and insurance accounting allows for the recognition of anticipated revenues in the form of 'embedded value'.

However, this change in thinking could be a double-edged sword. I half suspect that it is part of what allows so many startups to burn through so much cash acquiring new customers in the hope that they will stay long enough to become profitable. Sadly, as we've have seen, if this does not come to pass, the investors may be left with little to show for it.

Churn rates

The aforementioned addendum included some annual churn rates which, if I am honest came as a bit of a surprise to me. These were:

1. B2B: 27%
2. B2C 30%
3. B2A 26%
4. Corporate Services 37%
5. Telecommunications 26%
6. SaaS 24%
7. Media 33% 

For all the aforementioned benefits of the subscription economy, these seemed high. I was left wondering if customers who simply buy products might not stick with them for longer, on average, than that. Or perhaps, as we move towards this new business model, we're discovering just how poor many companies are at keeping their customers satisfied.

Conclusions

Subscribed is packed with analysis and examples of industries and companies grappling with this fundamental and far-reaching change in business model.

I would highly recommend it to anyone with an interest in business models. If you're still in any doubt, I will leave you with the authors' conclusion that a subscription business is...

"...also a much happier business. Why? Because subscriptions are the only business model that is entirely based on the happiness of your customers."

When life gives you lemons, think like Juan José Méndez Fernández

Juan José Méndez Fernández is a cyclist from the Catalan region of Spain. He has competed in the 2004, 2008 and 2012 Paralympics.

It was this picture with the caption "Don't tell me you can't" that caught my eye. What an inspiration!

My mind immediately asks: what if he falls over - he has no way to brace his fall? Surely there are easier sports for a man with only one leg and one arm?

But I guess that is the point. For whatever reason, he wanted to be a cyclist. And he didn't let what most of us would consider almost insurmountable limitations stop him. He adapted, and he succeeded.

Lessons for business strategy

Of course, I quickly moved on to consider what the lessons from this are in business strategy.

In business strategy, it is important to start from a balanced and realistic analysis of your current situation. There is no point in sugar-coating things. I am sure Juan did not start by simply assuming he was just like all of the other cyclists. I am sure he started by realising that he was different and that he adjusted his training plan accordingly and found someone to help him get onto the bike and upright, etc.

So too, in business strategy, we recognise weaknesses and threats alongside strengths and opportunities in a SWOT Analysis when developing strategy, and risks and issues in a RAID Log when executing it.

You can categorise these negative factors in strategy development and execution using a simple matrix:

Be optimistically realistic

Someone once accused me of being too pessimistic because of the attention I pay to weaknesses, threats, risks and issues. It seems, sometimes, that the world only wants optimists. But I counter that the world needs neither pessimists nor optimists but only realists; that by paying sufficient attention to weaknesses, threats, risks and issues you are able to succeed despite them - or even, if you are really clever, because of them.

Unfortunately, the literature plays to unrealistic optimism. People focus on success - what worked - and forget about all the difficulties and challenges along the way. Failures, and the lessons learned, fall by the wayside.

But being aware of weaknesses, threats, risks and opportunities is only the first step. What do you do about them?

Dealing with Weaknesses in Strategy Development

1. Strengthen your weaknesses. If your organisation is weak at something you can address this directly. You can train existing staff, hire new staff, improve existing or develop new processes, upgrade equipment, move to a better location, undertake research, etc.
2. Partner with someone who has strengths where you are weak. You don't have to go it alone. A partnership could work especially well if you can find a partner who is strong where you are weak and weak where you are strong.
3. Avoid competing in areas where those weaknesses matter most. For example, if you lack retail marketing capability, stick to wholesaling or B2B markets; if you can't manufacture at volume, find a niche; segment your market and focus on those customers who value what you are good at more highly than what you're not good at.
4. Take advantage of your weakness. When Spencer Silver was doing laboratory research into how to make stronger adhesives, he accidentally discovered a very weak adhesive. Instead of writing it off as a failure, he invented the Post-it note, where the weakness of the adhesive is its very strength.

Dealing with Threats in Strategy Development

1. Monitor your threats. Make sure you have systems in place to monitor your threats as they evolve and to communicate that information to the appropriate people in the organisation.
2. Neutralise threats. Consider what steps you could take to prevent threats from materialising. For example, in the case of a regulatory or political threat, could lobbying help to reduce the likelihood or impact of the worst possible outcomes?
3. Prepare yourself. Take steps to prepare yourself for the possibility that the threat turns bad. For example, if it is a technological threat, start to research how it works. If it is an environmental threat, start investing now in greener options.
4. Map out your scenarios. Scenarios are an effective way of dealing with high levels of uncertainty (whether positive or negative). See also: Scenario Planning for Business Strategy
5. Develop your strategy assuming the threat materialises. If the likelihood of it happening is more certain, you can simply develop your strategy around the assumption that the threat has materialised - treat the threat as if it were a weakness, and proceed as outlined above.
6. Adapt. If the threat emerges differently to what you anticipated, at some point you have to change your strategy. Whether it is a small tweak, or a full pivot to a completely different strategy, don't be afraid to change. History is littered with failed businesses who stuck doggedly to their plans when all the evidence suggested that change was required.

Dealing with Risks in Strategy Execution

Dealing with risks in strategy execution is, in many ways, similar to dealing with threats in strategy development.

1. Monitor your risks. Risks are, by definition, things that might go wrong, but have not yet gone wrong. So the first step is to actively monitor them. What indicators or signals might suggest that the risk is either increasingly or decreasingly likely to happen? Are you equipped to detect subtle changes in those indicators and signals, to communicate those changes to the key decision makers and to respond rapidly to material changes?
2. Mitigate your risks. What can you do to reduce the likelihood that a risk does happen, or the impact on your organisation when it does? What safeguards can you build?
3. Avoid your risks: Sometimes a risk is simply too great, and you need to come up with an alternative, less risky solution.

Dealing with Issues in Strategy Execution

An issue, as we know is a risk that has happened.

1. Escalate the issue: The first thing to do is to make sure everyone knows that the issue has occurred.
2. Solve the problem: Can you, or someone else in your organisation (see the previous step) fix whatever it is that has gone wrong? (This is often referred to as remediation.)
3. Go back to the drawing board: Issues are seldom a reason to go back and revise your entire strategy, but they are often a reason to go back and change your tactics for execution. Don't stick doggedly to your plan, as if the issue has not arisen. Can you work around the issue?

Finally, if you ever find people getting too focused on the negatives in your strategy, remember the saying:

The people who think it can't be done should get out of the way of the people doing it.

Source unknown. 

PS: I could not find a proper source for the original image. If you know who made it, please drop me a note in the comments below so that I can give proper credit.