This is an updated version of an article first published in 2008.
Strategic thinking is the cornerstone of successful strategy development. Yet it often gets overlooked.
Good strategy requires strong positioning and a clear vision. Strategies are competitive and should be based around clear customer definition with a strong value proposition. How you can provide better customer value? If you want to outperform, you can’t follow the same road as everyone else.
Strategic thinking precedes strategic planning, but is not often done well. It should create a longer-term vision consistent with opportunities within the context of the organisation’s place in its market and industry.
I believe that strategy is misunderstood. Everyone is expected to have a strategic plan, but it is often a “check the box” task that results in a plan with no real strategy – a case of process prioritized over outcomes.
“While certainly not dead, strategic planning has long since fallen from its pedestal. But even now, few people fully understand the reason: strategic planning is not strategic thinking. Indeed, strategic planning often spoils strategic thinking, causing managers to confuse real vision with the manipulation of numbers. And this confusion lies at the heart of the issue: the most successful strategies are visions, not plans”
The Fall and Rise of Strategic Planning – Henry Mintzberg, – Harvard Business Review January 1994
All organisations are created to bring additional resources together for the purpose of achieving greater results than is possible in isolation. The fundamental premise of every organisation then is that it will create better results for its members – this includes both effectiveness (doing the right thing) and efficiency (doing things right).
In listed corporates the expectation is to build shareholder value, through share price and dividends. In a family business it about building wealth, often with a longer time frame and a greater emphasis on building assets. In a Not For Profit it is about levels of service provision.
Strategic thinking starts with the fundamental premise of purpose and objectives.
No matter the nature of the results sought, every entity exists in a competitive environment and the intent of strategy is to achieve better performance than rivals. It is worth reflecting for a minute on the nature of competition. There can only be one winner, with others on the finishing podium recognized as being amongst the best. Those that make it to the finals are also admired as achievers as they have risen above the thousands that have competed, but there are many who just “make up the numbers”.
Not everyone can have a winning strategy!
With so much of management theory and learning being driven by the large corporate sector, it is easy to forget the restricted strategic choices which this group of small to medium enterprises has. Being the lowest cost supplier is not an option. Differentiation and focus are the only game in town for these entities, and strategy has to be built around those concepts.
Examples of Effective Strategy Development
IBM’s switch from a supplier of hardware to a supplier of services has become a cornerstone case study in most business schools around the world. This is a prime example of recognising a shifting environment, and taking bold steps to remain relevant to avoid becoming lost in industry-wide changes taking place (computers becoming a commodity item, low cost manufacturers and assemblers cutting margins and redefining the industry).
Woolworth’s introduced its Fresh Food concept to build its position as a food retailer and to directly target its weakest competitors (individual butchers and greengrocers). That positioning underpinned 20 to 25 years of market growth and dominance. A great example of building competitive strength around industry strength and shifting demographics, whilst adding value (lower costs) for consumers.
A building company in Victoria defined its core strength as being the expert builder of complex buildings and grew from a $20m company to a $200+ company, with market leader position in the construction of pharmaceutical manufacturing plants throughout Asia.
Bakewell Foods introduced the Mrs. Macs brand to reintroduce quality into a market segment that was being driven by price competition with declining product standards, and to combat negative perceptions of its core brand. The Mrs. Macs brand helped the company to a 15-fold increase in revenues and promotion to national status. This success was built not only on product quality, but also strong support through the route trade by refusing (for more than a decade) to sell the brand through supermarkets. It also maintained a very tight focus on a specific target demographic.
In Western Australia, Community First, a small to medium not-for-profit realized that changing government regulations and funding philosophies were intended to reduce the number of suppliers in its market areas. This was being driven by a desire to lower costs across what was seen as an inefficient industry. The continued provision of quality and lower cost services in the personal support arena would require scale. The company successfully negotiated an equal merger with two compatible organisations to form what is now known as Chorus.
Each vision had a clear customer definition and strong value proposition. They all required a continued investment in capabilities to support growth. Only with company wide acceptance is change of this nature possible.
The core strategy in each example required the development of several plans over the years to help establish and maintain a market winning position. In each case the strategy was visionary, and leaders were strongly committed to its implementation.
So What is Strategic Thinking?
Strategic thinking requires an understanding of external forces shaping the future, an objective assessment of market and industry position and a clear knowledge of customer needs and value determinants.
Execution requires organisation-wide commitment, adequate resources and the determination to stay the course. The strategic thinker must also consider how to win this support (for a CEO this means both the Board and the executive team).
Above all else it needs action.
Successful execution also needs an ability to adapt to changing circumstances as the future is inherently unstable and refinements to the plan will be a regular event.
This is necessary, and healthy – so long as the future direction remains constant.
Too much of so-called strategy is planning without thinking. If you want to build a winning position for your business, you need to be thinking about who your customers and what they need. How can you package your services to provide a better alternative than your competitors? Customers (and their money) will eventually flow to the organisation that provides the best value.
David Shelton
www.transitioncapital.com.au
