What is your definition of strategy?
That's a deceptive question. Also a provocative one. And when Vancouver-based consultant Tim Lewko uses it with top executives to kick off a strategy session, a dismaying question, since they quickly find they all have quite different understandings.
"Everybody wants to talk about strategy and competitive advantage, but nobody wants to admit they don't know what it is," he says in an interview.
Chief executive officers, who are supposed to be strategy experts, can be the worst. They have climbed the corporate ladder as fantastic operational executives. But when the door shuts on the top office, they don't often know what to do in the new role. Mr. Lewko believes they need some simple tools to guide them.
He starts by advising that strategic decision making is a process, not an event. Too often, companies choose an event: The strategy retreat. Sure, go ahead and have one and make some decisions. But he warns you to remember that you lack certainty. That means your decisions will have to be revised, again and again. It's a process.
As for consultants, be wary. He says more than 80 per cent of the gaps and barriers holding back your business are already known by the people in your firm, who are closest to the issues and most knowledgeable. Don't pay for consultants to talk to you and create a PowerPoint deck that just feeds back what you told them. Create a strategy with your own executives and people.
In doing that, here's a hint of what strategy is, from his book Making Big Decisions Better: A framework of choices that defines the purpose and path of the organization. Strategic choices always come down to three things – products, markets and capabilities.
Through the interplay of those elements, it's also about profits. The fact your company doesn't have a vice-president of profitability is a signal that organizations lack holistic focus on profitability. Sure, somebody oversees sales and another oversees operations, and the issue of profit comes up. But each department focuses on their own interests. It all needs to be tied together.
He urges CEOs to make sure this equation is well understood by all: Revenue – Costs = Profit. Everybody serves revenue or costs, or both.
Lack of understanding can also create frustration between the board and CEO. The senior executives might seek an acquisition, but the board insists it has always intended growth to be organic, from within. "Why didn't you tell me?," the CEO will moan.
Mr. Lewko recommends "strategic latitude guidelines," a one-page document that makes clear the parameters for executives. For example, growth has to be more than 10 per cent a year, what kind of acquisitions are permitted, what geographic areas can be considered. He finds both boards and CEOs appreciate the clarity when they develop such a document.
The three main tools he recommends are not quite as concrete as a hammer, screwdriver or nails. But they will help you build strategy:
- Strategy assumptions: You need to connect outside trends to the inside profit and loss statement, figuring out the implications of those trends and what is likely to happen. “You can’t make decisions without assumptions. You need to think which critical ones will affect the business,” Mr. Lewko said in the interview. Unfortunately, most companies don’t define the assumptions they are working with, and can’t adjust them if they prove unreliable. As well, companies can operate in a vacuum. Thinking about assumptions – what’s happening externally – focuses you beyond your own doors.
- Product market capability engine: This is a one-page statement that outlines what your plan is for the three elements at the heart of strategy – products, markets and capabilities. How will you combine them to be an effective engine for your company? It should explain the big decisions you are making with respect to each, show the relative priorities of all your products and markets, highlight where you make money and don’t, and clarify if your competitive advantage is real. “It’s simple, but powerful,” he says.
- Goal and gaps: Figure out three key goals – no more – that force you to focus, enable accountability, and help you to find and fix performance gaps. Strategic goals, he stresses, don’t have to be long term – they just need to be strategic. Avoid ambiguity, such as “be the leader in customer service” or “gain market share.” Then keep track of how you fare against those goals with some (but not too many) metrics.
"Strategy doesn't need to be complex. This provides a simple way – products, markets, and capabilities," he sums up.
Harvey Schachter is a Kingston, Ont.-based writer specializing in management issues. He writes Monday Morning Manager and management book reviews for the print edition of Report on Business and an online column, Power Points. E-mail Harvey Schachter