Sunday, July 4, 2010

What Makes a Good Business Strategy?

That question was asked by Veena Houston at one of our recent Leading Engaged Companies webinars; it’s a good one. I’ve been an internal practitioner and external consult of strategy for 25 years and it’s interesting how strategy formulation goes in and out of fashion, seemingly more in vogue when the economy is tough. For me, business strategy is one of the CEO’s KPI’s and there is the additional responsibility for communicating it and for ensuring it is executed.

First, my definition of business strategy, as I see so many references to “strategy” in the blogosphere but their message is really about tactics (marketing strategy, CRM strategy, HR strategy, etc.). The late Peter Drucker defined business strategy as “Analytical thinking & commitment of resources to action and innovation. Making decisions today about an uncertain future. Taking the right risks while exploring opportunities.”

Back to the original question: good business strategy components. Here are my must-haves:

Foundation of Vision, Values and Mission. Strategy can’t tell you what you stand for or why you’re in business but it should guide you in how you’re going to be different, competitive and successful.

Thorough Understanding of the External and Internal Environment. Knowing where you are now in terms of competition, customers, economic and regulatory issues and creating a report card of internal resources are imperatives; otherwise, strategy and direction are built on hope or dumb luck.

Evaluating Options in the Context of Your Reality. Strategy is about moving in a new direction which means building capability (human, structural, financial and relationship capital) that will support these decisions. Because strategy is a 3-5 year look ahead, not everything can be or needs to be accomplished Year One. That’s why we love annual action plans and budgets.

Scenario Planning. I came across this tool while working in England in the 80s through Royal Dutch Shell and the concept was so blindingly obvious that I’ve never thrown it out of my toolkit. We don’t have a crystal ball to predict our future so strategy development is, by its very nature, imperfect. We mitigate the risk by assessing our assumptions and using those to create scenarios of “What Ifs” and responses to those. Scenarios can lessen the impact of a flaw in the original strategy by allowing rapid course correction.

Measures and Monitoring. Failure to execute is the single greatest reason for strategy failure. These days, with financial and business modeling, strategy maps, scorecards and the like, there is no excuse not to design short- and long-term measures. Good strategy also demands that it cascades into departments, regions, and functions; and, ultimately to the individual level through a performance management system. If KPIs and compensation are not tied to business strategy, there is no skin in the game and therefore no incentive to change the status quo.

Communication, Involvement and Celebration. Communicating strategy is not a one-time event; it needs to drip continuously into the organizational consciousness until it is part of the fabric of all discussions, meetings and reviews. Keeping the message simple makes it easier to weave it into everyday activity.
Involving the workforce is critical, not just so that they are engaged but also because employees are in a perfect position to immediately discern a problem, which, if diagnosed quickly, can avoid strategy disaster.
Yes, celebrate. Every success; every mistake as a learning experience; every time a goal is achieved.

What do you think makes good business strategy? Can you add to my “must-have” list?


  1. Barbara:

    What if you have a company that has never had a strategy. How do you begin with them? It seems sary to some people. (I have heard that many times). Also, how do you think they best way to get strategy down in the organization to the people who actually do the work?

  2. Wow, great question, Cathy. I guess the first thing is to assure those involved that this is a marathon; not a sprint. As such, there is no benefit from trying to design strategy when your hair is on fire: you just have to focus on putting out the flames.
    Start with defining organizational Vision, Mission and Values (the latter is becoming more and more important especially with mission-critical employees). Then stop. Communicate, discuss, involve people in the process. Let them get used to the idea that you know why you're in business and what you stand for.
    Then stop. Think about what data you have in the organization that can help you design strategy. If you don't have what you need, start gathering it. Again, communicate, involve and iterate.
    Build the foundation and work from there.
    Thanks for the question.

  3. In answer to the second part of your question, Cathy, the only way to get strategy flowing throughout the organization is to communicate it (and by this I mean really ensuring that people understand why it's important and what they can do to be part of it); make sure that departments and individual goals align with it; create short term plans and goals that aggregate up to a 3-5 year look forward; reward those who live it and provide consequences for those who don't.