Crafting Effective Strategy

There is no shortage of bad strategic decisions in the business world. In 2007, Pfizer finally pulled the insulin inhaler Exubera off the market, but not before taking a $2.8 billion pre-tax hit. One analyst referred to Exubera as “one of the most stunning failures in the history of the pharmaceutical industry.”[1] Even history eludes some companies as they repeat past mistakes. In the middle of the last century, Ford Motor Company introduced the Edsel, a car that – among its other drawbacks – was too large for changing consumer tastes. Ford sunk close to $3 billion (in 2010 dollars) into the Edsel before ceasing production in 1959. Then, in 2006, Ford Motor Company seemed to grasp evolving consumer preferences toward smaller cars when it announced its “Bold Way Forward” and a commitment to more fuel efficient cars. The effort culminated with their grand introduction of the 2007 Ford Expedition; a car that achieved a whopping 10.4 mpg. To their credit, Ford was able to avoid accepting government bailout money in 2009, but that’s hardly the hallmark of a brilliant strategy.
Such failures beg the questions: Why does strategy so often fail to create value? And is there an approach to strategy that improves the odds of success? This article provides the answers to both question in detail, but here are the short answers:
  • Strategy often fails because choices are not made through a consistent, relevant and inspiring decision framework.
  • Yes.

The School of Strategy 

At a recent annual meeting of the Academy of Management, more than 10,000 business leaders, consultants and business school professors discussed key issues facing the world’s commercial enterprises. Among the key issues was how to create and implement effective strategy. There was notable agreement that the answer to the question was not clear. 
Professors admitted that while they were quite good at teaching students how to consider a variety of perspectives and analyze data, they were less successful at teaching students what goes into a good choice. A senior partner from the consulting firm McKinsey highlighted the strategy learning gap by describing a typical interview with an MBA student applying for a job. When presented with a case problem, the student engaged in a text-book Porter’s five forces analysis, provided perspective on the financial statements, detailed the results in a SWOT and then used the BCG matrix to describe where the company’s product would stand in the market. The candidate used the interview to highlight his knowledge of analytical methods, and he assumed his strategic decisions were sound because his analysis was sound. Of course, sound decisions – choosing how to compete, where to compete, which consumers to target, etc. – are at the heart of a strategy that creates value. The partner got what she expected from the candidate, but not what she wanted.
The truth is businesses need good analysis and creativity. It is not that basing decisions on analysis is wrong; to the contrary, analysis is vital. But decisions based on analysis alone are not enough to make a differentiated experience or create a unique company. What is needed is a framework to make decisions that are aligned with a company’s vision, and the will to use it.

An Effective Strategic Process

The starting point of strategy is answering the most fundamental question of business: What can we do that is compelling and differentiating? Compelling means that people have to have whatever it is the company is selling, while differentiating means they can get it nowhere else. The answer to that question must be part of a company’s vision, but the vision must also describe how a company will inspire others (i.e., employees) to sustain its consumer position and how it will define and achieve success. A vision is not strategy, but strategy derived from an inspiring vision promises acceptance, alignment of decisions, and better odds for success.
Once the details of vision have been articulated, the strategy process is devoted to detailing the “how” and “what” of bringing the vision to life. Like other strategy development processes, ours relies on analysis, opportunities, choices and planning.  What may differentiate our approach is a focus on consistent alignment of strategy with an overarching, inspiring dream statement (vision) and the understanding that strategy implementation is an ongoing process of change toward achieving that vision. 
Often, companies have not done the hard work of articulating a comprehensive vision, but that should not dissuade leaders from crafting strategy. It is also rare that companies have the luxury to articulate their vision before being pressed with the urgency to develop a strategy.
Fear not. Key elements of a vision can be articulated in a relatively short period of time to serve the needs of strategy creation and implementation. The process that follows, depicted in Figure 1, describes how.

Figure 1. Strategy Creation and Implementation Process

  • Model: This phase includes articulating a dream, strategic imperatives and metrics that define whether success is achieved. Seeing the company from the customers’ (and other stakeholders’) perspective, identifying company strengths and weaknesses and revealing the cultural assumptions, perspectives and disagreements within the leadership team and dispelling hidden agendas.

  • Choose: This phase includes SWOT and other analyses, establishment of priorities and planning and alignment among accountable businesses/departments. Formalizing the leadership team’s understanding of the interplay among the company’s hard targets, business basics, competitive keys, values, external environment and key results.

  • Implement: This phase includes executing and measuring the agreed-upon plans. Turning the back-plan created in Step 4 into action in terms of milestones, timelines, metrics and specific accountability.

  • Adjust: The dotted arrow leading from implementation back to modeling represents the ongoing adjust of imperatives as progress is made and gaps between reality and ambition narrow.

Strategy’s Key Ingredient

The tradition of strategy is to focus on a few of a company’s prime competitors with the idea of somehow beating them at their own game. A less often tried approach is to change the game itself. This does not mean that a company ignores its competitors as being competitive with however competition is current defined is the price of entry to survival. This less often tried approach –compete while changing the rules of competition – is not often tried, but has great potential as illustrated by companies such as Southwest Airlines; a company that changed the rules of competition by changing who it identified as its competitors. The company identified ground transportation – cars and buses – rather than airlines as its competitors.
An effective strategy includes elements that ensure that a company’s leaders remain focused on the end result of the strategy and the milestones of progress. In this sense, creating a strategy is only the tip of the iceberg. Below the surface are all of the connections among the external environment and the company’s core idea, business basics, internal stakeholders, processes and individual accountability for execution of the strategy. Ultimately, it is how well these connections are maintained that determines whether a company’s strategy will move it toward being worthy of growth.
[1] Raymond James and Associates analyst, Mike Krensavage, as quoted in WSJ, Oct 19, 2007, p. 1.