banner ad

Why should you do business strategy?

Picture of a chess board with pieces

I think people ask this question because business strategy appears to be a discretionary activity. It appears to be something you can choose to do or not to do.

Most people recognise that a manufacturing business has to buy raw materials, turn them into finished products, and sell them to customers. If you stop doing those things, then your business has stopped. There are similar activities that would seem to be essential to other types of businesses, such as wholesale, retail or service businesses.

But strategy seems more discretionary*. If you stop doing strategy your business will continue to function. For a short time at least. Without strategy, your business may become less relevant over time. But it will take a while before the full effect is felt. And by then the damage is done. Your business is on the back foot. In a weakened state. Trying to catch up with a market where the competitors are stronger and better placed.

*Other functions like marketing or branding may suffer a similar challenge.

So when organisations are under pressure, it is often activities like strategy that are the first to suffer. 

When COVID-19 struck, organisations had their hands full. Setting their teams up working from home. Rebuilding their supply and distribution chains. They were focused on surviving the immediate present. There was little time left to think about what they would need to do to succeed in a decreasingly certain future.

Crises force organisations to become reactive. But strategy is a fundamentally proactive process.

It's ironic that at the exact times when the status quo is most disrupted and the future is least certain, when strategy is most needed, that most organisations are least able and likely think strategically.

And so it is at times like this that it is even more important than ever to have a clear answer to the question: Why should you do business strategy?

I think there are two equally important answers to this question:

1. Strategy is about how to succeed in the future

Experience teaches us about how we succeeded in the past. But we know that the future will be different from the past. We may not know exactly what will change. We may not know how big the change will be. We may not know how quickly it will change. But we do know it will be different. Ironically, experience confirms this.

If we had a crystal ball - if we could see the future clearly - we would have less need for strategy. But we can't. Strategy helps us fill that gap.

Strategy is not about forecasting or predicting the future. That would be a fool's errand. But it does present toolsets and processes that can help us to imagine, anticipate and prepare for not just one future, but a range of possible futures.

These tools include things like macroscanning, game theory and scenario analysis. 

See for example:

Wayne Gretzky, the legendary Canadian ice-hockey player once explained his success on the ice:

"I skate to where the puck is going to be, not to where it has been."

Wayne Gretsky probably only needed to anticipate the next few seconds of play to achieve this. How far ahead should we look when doing business strategy?

That depends on three things:

  1. How fast can we move?
  2. How long do we need to be there (before we move again)?
  3. How fast-changing and uncertain is the environment?

1. How fast can we move?

It takes about 20 minutes to stop an oil tanker travelling at normal speed. So an oil tanker captain has to be able to anticipate at least 20 minutes into the future. (Fortunately, they've gotten pretty good at that, for the most part.)

If it is going to take you 6 months to develop and launch a new product, you need to be able to anticipate demand and market conditions at least 6 months into the future. Similarly, if it is going to take you 2 years to bring a new factory on line, you need to be able to anticipate demand and market conditions at least 2 years into the future.

2. How long do we need to be there?

If it costs you lot of money and resources to get into a position, then you need to be able to stay there for long enough to earn a return on that investment before you have to move to the next position.

Note that the distance you need to look into the future is the sum of both 1 and 2. That is you need to see far enough ahead to allow for the time it will take you to get there plus the time you need to stay there.

3. How fast-changing and uncertain is the environment?

As the Oracle in The Matrix Revolutions says: "No one can see beyond a choice they don't understand."

Some environments are inherently more complex and fast-changing than others. Sometimes it is in the nature of one industry to be more complex and fast-changing than another. Other times it can be a point of crisis (like COVID-19) which introduces complexity and change across many industries for a period of time.

The tools that strategy gives us will help us to a point. But eventually, in complex and fast-changing environments our ability to anticipate into the distant future becomes more clouded.

Then we have to deal with less granular understanding. This requires us to pursue strategies with higher degrees of inherent optionality. Alternatively, we focus less far into the future and restrict ourselves to smaller but more regular moves. Such organisations invest heavily in methodologies like Agile to shorten delivery cycle times and costs. (See also Agility needs a strategy.)

I conclude this section with a quote from William Gibson:

"The future is already here - it's just not very evenly distributed."

The clues lie all around us if we just look at them in the right way.

2. Strategy is about making choices

At any point in time, there is an almost unlimited number of things an organisation could do. And some organisations seem intent on trying to do them all, and often all at the same time!

Sometimes this is because different people can't agree amongst themselves which ones they should and shouldn't do. This creates a problem of alignment - or misalignment. Other times it's because organisations somehow think they can grow faster by trying to be all things to all people (customers). This creates a problem of focus.

But, as Michael Porter points out (in several different ways):

"Strategy is about making choices, trade-offs; it's about deliberately choosing to be different."
"Strategy 101 is about choices: You can't be all things to all people."
"The company without a strategy is willing to try anything."
"The essence of strategy is choosing what not to do."

So strategy provides frameworks for helping organisations to make decisions in a holistic manner; to achieve both alignment and focus in an organisation's efforts.

I like to say that you don't really have a strategy until you've used it to say "no" to an idea which, on a standalone basis, makes good business sense.

As several commentators have noted, COVID-19 didn't fundamentally change things. Instead, what it did was to accelerate existing trends. Changes which many people had anticipated would happen over the next 3-5 years were compressed into the last 4 months. COVID-19 merely sped things up. It removed obstacles holding back trends which had been building for some time. It forced people to confront challenges they had previously been putting off.

As a result, those organisations which had been alive to and preparing for those trends are coping with the crisis much better than those that had not. Their strategic thinking over recent years has been vindicated and rewarded.

But the fact that what we might have anticipated over the next 3-5 years has now already happened does not mean we will enter a period of stability. Instead, some of the things that we might have anticipated over the next 5-10 years are now more likely to happen over the next 3-5 years.

So the need to think strategically - to anticipate and prepare for the future; to align decision making and execution around a clearly articulated plan - is as great as ever. Those organisations able to shift some of their attention from survival to strategy sooner will win markets from those who are not.

Which will you be?

No comments: