Gone are the days where technology and business lived in separate worlds. The lines dividing them are not only blurred but probably non-existent. This has thrown existential challenges to enterprises in the form of lack of responsiveness, cost transparency, risks and partial insights for business-critical decisions, inability to adapt to sudden changes in macro-economic environments.
Having led many large business transformation programs, our very own Ramesh Raghavan, who is a certified “CEO Coach”, and a strategy & transformation professional for past 20 years, suggests the traditional approaches of defined outcomes, clear boundaries of engagement and targeted action will probably be detrimental in the current scenario.
Forces such as digital business models, hyper-competition, speed-to-market, and consumer behaviours impacts every layer of business from strategy through execution. Hence the enterprise strategy needs to be far more layered & malleable.
A good strategy (comprehensive strategy is a myth) is just one aspect of the overall organisational transformation journey. The kind of strategies that would work in an Energy or Utilities company would vary from a Retail or Technology product companies. Companies operating in such diverse environments will need to look at their strategy planning process using different lenses. Everyone understands this, but when it comes to crafting the details of the strategy, we tend to get lost in the complexities of execution and lose sight of the primary motivator behind the strategy.
Three guiding principles of Strategy formulation:
1. Motivator (Why)
When we think about our business objectives, we often miss what is driving our strategy, i.e. why are we doing what we are doing? what’s the core purpose? The focus is predominantly on products and services, the market conditions, customer behaviours and the competitive landscape. In most cases we are deeply involved in the “operational execution” aspect of business in terms of business value chain, decision structures for delivering the value proposition that we don’t notice what is important as a whole.
We are now moving into the age of purpose driven economy, where the core beliefs and values of the organisation will drive the business model. This will require a shift in mindset from product to purpose to ensure strategies are sustainable addressing multiple stakeholders in their ecosystem.
Hence the classical inside out approach of trying to balance competing tensions while providing direction to the organisation, to accomplish key objectives within the available resources might not work for all scenarios. This will potentially work for companies with a reasonable view of the future and predictable growth trends and challenges, but it doesn’t cater to companies in which customer needs can change suddenly or there is a constant need to re-invent yourself in a highly competitive/disruptive environment. Hence to avoid falling into this trap, companies need to understand the “Why” behind the strategy rather than getting lost in the complexities of the execution.
2. Shifting Goal Post (What)
Most organisational strategies are focused on disentangling complex operating environments in pursuit of a target end state. This never yields sustainable results as they are not often closely coupled with an Organisations’ fundamental business goals and objectives and make it difficult to deliver measurable progress towards Strategy. These business goals and objectives need to address the 3 questions which will be there on the top of the mind of every leader.
1. What is the predictability quotient for my industry?
2. What is the degree of adaptability I need build into my strategy?
3. How should we ensure that strategy leads to value realisation?
These questions are answered when one re-visits the reasons why the business exists and the diagnosis of the industry and environment lead us to the "nature of the challenge" in achieving our purpose.
In the current times, “the end state” is a shifting goal post, hence the goals/target definition need to be more adaptive in nature than fixed. The traditional focus of trying to find the right balance between competing tensions is driven by the “Core Purpose”. A strategy will need to adaptively look ahead and consider what actions can happen in each potential scenario.
3. The Formulation (How)
Successful strategies not only show the path to the envisaged outcomes but also explain the rationale behind the decisions and the actions. Hence the lens applied for formulation is dependent on the true motivator behind the strategy. Let’s look at the 3 types of strategies adopted by companies worldwide.
• Linear Strategies - A clear set of actions to achieve set Goals. The traditional approach, which is more time bound and clear measures of outcomes. This approach articulates both the decisions made about the organisation's goals and the specific steps to achieve those goals. Companies setting targeted goals, rolling forecasts attaining market positioning are typical attributes of this category. Companies following a linear strategy approach tend to have centralised functions for strategy definition with annual strategy planning exercises which build upon previous years. Industries with a fairly predictable trajectory like the Oil & Gas and Utilities, benefit the most with this approach of strategy definition. For example an asset heavy firms goal to reduce the Opex by 30%, will require potentially multi-year strategy using optimisation levers of process, management systems simplification, partner ecosystems creating measurable operating model efficiencies.
• Adaptive strategies –Agile & innovative. Adaptive strategies require companies to be ambidextrous, balancing the strategy to strengthen the business model while re-imagining the future. In this category successful companies transcend industry boundaries relying on their innovation culture embedded in the organisation work practices. These companies don’t rely on regular centralised strategic planning processes, but have a co-existing “Entrepreneurial” culture looking at new horizons, while the BAU( business as usual) is focussed on efficiencies. This builds the ability in the organisation to constantly sense and respond. The retail industry is a great example where trends can emerge overnight due to change in consumer behaviours or in some cases disruption to the ecosystems leading to an impact on their business value chain. In scenarios like these, technology will be front and centre driving this agenda. Digital strategy will take its role of truly being a business strategy, to build a resilient and adaptive digital business model.
• Futuristic Strategies –Stand the test of time. Seeing an opportunity which no one else does drives this category of strategy. In most cases gaining the 1st movers advantage becomes the cornerstone of success. They are driven by how you would like others to see you both in terms of sheer aspiration and a view to where you would like to be in the near future. Futuristic strategies can arise when you can see game changing trends before someone else does, or an opportunity to leverage a cross Industry technological change reshaping the industry. Adaptability and persistence go hand in glove in this form of strategy formulation. For example at a time when the market for electric vehicles was fairly insignificant, Tesla’s strategy was built on shaping the future by focussing on performance and the high end segment of the market.
The focus of strategies is to create sustainable business capabilities that are key to serve the organisations true “Purpose”. They are realised over time and are more emergent in nature than intended, hence there is high amount of risk in value realisation. The digital world has enabled new levels of agility and flexibility allowing businesses to embrace this risk. This requires large-scale restructuring and transformations, not only in the processes but also in strategy planning approaches. This has created a landscape that promises high returns on risks taken.
So what’s the secret word??
Strategies will just exist on paper if the people executing it don’t understand rationale of change, envisaged outcomes and the enabling actions. Hence clarity on the drivers of strategy being formulated is foundational to the journey. While strategy is about decisions and choices to achieve certain business objectives. The kernel of any strategy are the people executing it. Hence establishing the WHY is not only essential for creating a strategy, but the driving force for execution.
Start with the “Why” …Strategy is just a by-product!