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?

Strategic Decision-Making: Bottom-Up or Top-Down?

One of the many challenges facing business leaders when changing strategic direction or reviewing new opportunities is knowing how or when to involve the company at large in the process. It used to be that strategy was strictly for the Board of Directors or the most senior executives and it's true that the final decision -- the buck -- stops with the CEO and perhaps a few executives at the top. However, there is a golden opportunity to engage the workforce up front so that they know what they are going to execute and why. This approach also can make for better decision-making.

A few thoughts below on why gathering ideas and information as well as assumption-testing and implementation is a Bottom-Up process while the final decision is Top-Down.

Diversity of Thought: Once we get to the top of wherever we are, we tend to share the space with others who think like us. Introducing other people who are at the front end with customers and suppliers or who have a unique perspective like Human Resources, Marketing, etc. will provide a broad spectrum of information and insight that is invaluable when evaluating opportunities. Experience tells me that there is always at least one person who brings a point of view so different from the business leaders and so on the mark that it changes the course of strategy development for the better.

Utilize Bias: Rather than thinking of bias as a negative, consider it a necessary part of evaluating strategy and opportunities. Our experiences and the work we do shape our perspectives; we recognize other peoples' biases and tend to view them unfavorably unless they mesh with our own. The leader's job is to acknowledge the biases, including her own, balance them with good dialogue and help the contributors have their say without dismissing their ideas prematurely.

Use Scenarios: It's a rare thing to find that a strategic decision is correct 100% of the time. There are complex ideas, a lot of information and many assumptions that go into the process. There also is a need to avoid paralysis and make the best decision in the time available. That's why it's critical to have all assumptions documented with alternative scenarios or plans in the wings to course correct. The worst case is having the company execute the strategy, get a long way down the road before it's discovered that certain assumptions were incorrect and the strategy is flawed. Aside from wasted time and resources, employee could see the failure as their own and will be reluctant to get behind the next important decision. It's important to let employees know that testing assumptions is part of strategy execution and that raising a red flag is a critical part of their jobs. This is how successful strategies are designed: they aren't perfect 100% of the time at the outset but there is a process to modify and move on.

Make Timely Decisions at the Top: That's the job of the CEO. It's why they are called decision-makers.

Use Strategy Maps, Metrics and Scorecards: Translating complex ideas into visual representations and creating metrics that test the success of a strategy are both helpful tools for the business leader and employees who have to implement. It isn't necessary to invest in sophisticated technology. Below are a couple of examples using only the software on our laptops (thanks go to my business partner, Cathy Missildine-Martin, SPHR for creating these).

Scorecards should be created at the lowest level that can be properly measured and aggregated. Metrics are relevant to that level (can be aggregated or disaggregated) and are designed to help everyone understand what is being done, what they are responsible for and how they are contributing to the success of the company. Isn't that the definition of engagement?

So, the final decisions including those that pull the trigger or the plug as well as the tools and the responsibility for idea gathering is still Top-Down. Idea generation, testing assumptions and providing feedback on what's working and what isn't is Bottom-Up. It's a two-way street.