Monday, September 20, 2021

Opinion

Key elements of a good business strategy

Organizations are caught in the maelstrom of addressing urgent task-oriented routine issues that assume priorities than others.

By Jaykhosh Chidambaran

info@thearabianstories.com

Saturday, September 11, 2021

Michael E Porter, the Harvard university professor, widely acclaimed as the preeminent global authority on business strategy sums up strategy in the following words, “The essence of strategy is choosing what not to do”. Strategy can never be ambiguous. “We want to gain market share by 30% in 5 years” is nothing but a bold statement or a desirable outcome, but mention nothing about a roadmap to achieve it. Strategy is defined as general plans to achieve major goals and how scarce resources can be effectively earmarked, employed and marshaled to achieve long term organizational goals. In laymen parlance, a strategy is a set of simple rules an organization formulates based on past data/information to fight or defend its future from competition and emerging trends. We live in a VUCA world characterized by volatility, uncertainty, complexity and ambiguity. A strategy is an offensive weapon to combat VUCA successfully and is akin to art of warfare. 

Tactics are then conceived and implemented to execute the strategy. Strategy rarely follows a linear course of its preliminary draft, since it will merit and warrant rethinking, re-evaluation based on real-time events unfolding, making concessions and trade-offs that warrants more hours of brainstorming and more time in planning alternatives. No strategy has ever been executed as it was originally conceived.  

Missing the Wood for the Trees: 

Organizations are caught in the maelstrom of addressing urgent task-oriented routine issues that assume priorities than others, and therefore the top management tend to ignore important strategic issues over the immediate customer or operational demands. Adequate time should be invested in strategic planning process by the top management and if neglected, run the risk of becoming sterile and reactive by the winds of change buffeting it from external macro and microeconomic forces. Consequently, an organization will be forced to languish in the policies and plans that were formulated in the past and that has little or no relevance to the present, ever changing market dynamics, spearheaded by rapid technological innovations. 

Many business leaders mistake strategy to become the best in the business, competing on the same dimensions as rivals whether in price, product features, marketing communications or distribution. But an effective strategy is to become unique in the value proposition for the target segments an organization choose to serve and compete. Thus, a strategy is more than operational effectiveness to do things better but it’s a positioning to do things differently to achieve a different purpose. A strategy is different from mission statement and not the same as values, visions and mere aspirations. Without a coherent, communicable strategy, many top line managers could work counterproductive to strategic objectives. The strategic planning process should take into consideration the following key elements:

Goal Setting:

Establishing a roadmap of clear, coherent, practical and reasonable objectives/priorities are the first step in strategic planning process. This is the most challenging and daunting task of the top management due to the difficulty in streamlining competing interests. In the words of the iconic and mercurial Steve Jobs “People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred other good ideas there are.” Once the objectives have been finalized, it should narrow down to two or three top priorities. If the objectives run into an endless list, it will be less likely, the organization will be achieving them in a stipulated time-frame.

 A strategic goal should inevitably have far-reaching consequences that will fundamentally alter the organizational trajectory, corresponding to changing macro/micro economic fundamentals and competitive pressures. A mobile phone manufacturer could strategize increasing the market share to double of its current position, a consumer goods company can plan to phase out non-profitable brands in their product portfolio and consolidating the brands/segments and geographies to free up retained earnings and generate cash flows to invest in a path breaking innovation that will catapult the organization into an unassailable market leadership etc. 

Sweden’s IKEA is a classic case of excellent strategic positioning with respect to other furniture retailers. It targets young, first-time or price sensitive buyers with design sophistication. IKEA’s strategy is leveraged through modular, easy-to-self assemble designs, in-house design of all products, self-selection and self-delivery by customers, large onsite inventories, extensive assembly line type store layout, suburban locations with parking spaces, on-site restaurants etc. The entire value chain is reconfigured and realigned to optimize the unique strategic positioning of IKEA in the retail furniture industry. This has consistently led to superior performance and greater profitability. As a result, IKEA has retained powerful brand associations, brand loyalty and brand equity over decades. 

The Power of Assumptions:

Key assumptions are the guideline on which plans are established and are an indispensable part of the strategic planning process. Brainstorming on these assumptions will reveal cognitive biases, overgeneralizations or poor intelligence. Organizations are increasingly exposed to vulnerability in the form of obsolescence of existing technology, uncertain future market conditions and ever-changing patterns of consumer demands. An organization has to make strategic economic decisions impacting an investment in new technology, whether to take a first mover advantage or a pioneering position in developing a new technology that will increase the consumer demand for a product by 30%, is it better to fight or defend competition through product innovation, pricing or acquisitions are a few examples of assumptions that are critical to formulate a cohesive combat plan for survival. These assumptions could be entirely wrong when an organization embark on the strategy execution road, but without these initial parameters, there will be little or no information to act on the changing circumstances to devise and revise the plans substantially to suit the point of departure.

Elon Musk of Tesla is a visionary leader who envisaged a world of transportation away from non-hydrocarbon fossil fuels. His investment in EV vehicles using Lithium Ion batteries was truly revolutionary with a first mover advantage when major mainstream auto manufacturers were still improving on internal combustion engine efficiencies and adding plethora of product features and gadgets to woo customers. The power of Musk’s assumptions of a future world that is greener, sustainable and with zero carbon footprint has made him the pioneer in producing environmentally sustainable electric battery powered passenger cars and commercial vehicles. 

Identify the Best Course of Action:

Dr. Herman Kahn, one of the most celebrated futurists, military strategist and systems theorist of the twentieth century whose theories contributed immensely to the development of nuclear strategy of the United States has an interesting methodology to identify the best course of action for a specific strategic issue. He would draw a horizontal line on a paper and plot the his entire universe of ideas, probable course of action and consequences that were most favorable on the top of the line and the ones that seem less prospective below the line, but no idea, counter-proposition, course of actions and their challenges were discarded. By revisiting to this list, he could conceive new ideas from the entire scenarios conceived without bias and thereby zero in on the best choice, appropriate to resolve the current issue. Such a methodology facilitates leaders to refrain from impulsive decision making by weighing all alternatives listed above the line, based on their deserved merit. 

Once the key elements of the strategy are formulated- goals, assumptions and course of actions, it’s necessary that CEO/senior executives present it to the board/top management briefly, succinctly and clearly in simple terms so that everyone in the panel understands In Toto, without any ambiguity. The strategic contents need to be refined if there is a lacuna in communication and comprehension for all members in the board.

Performance Evaluation:

Peter F Drucker, the doyen of management famously said, “If you can’t measure it, you can’t manage it”. Once the execution roadmap has been finalized, there has to be systems and procedures to track the execution by means of numeric indicators or metrics. These data from the metrics evaluate the execution phase against the actual strategic draft and identifies any point of departure or whether the salient features of the strategic content need to be revisited and revised, corresponding to the changing socio-political or business/market dynamics. Measurement is a powerful tool and it relays information to the leaders whether, the strategic plan is focused and moving in the right direction of achieving the desired results.  

 A positive mindset in evaluating the real-time strategic progress is imperative and as in the words of one the great strategists of the twentieth century, former US president Ronald Reagan “Don’t be afraid to see what you see”. Strategy is no longer just a tool for competitive advantage but a core competency that resides within the organization that differentiates excellence from mediocrity. And true to core competencies, it will be harder to emulate too…

About the author : Jaykhosh Chidambaran is an accomplished management professional with over 20 years of diverse industry experience in MNC’s and is currently an EdTech Growth and Strategy Consultant for India & Middle East. He is an alumnus of Chicago Booth School of Business. 

Disclaimer : The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of TAS and TAS does not assume any responsibility or liability for the same.

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