The aim of this series of articles is to lay bare the essence of strategy and show how it can be used by accountants in a very practical way. Along the way it will be demystified as much as possible
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Strategy is often over-conceptualised and clouded in unnecessary jargon. Strategy - such a simple term - has become entangled with confusion. As a result, people who deploy strategy terms end up saying things in real life that don't have much real meaning at all. You may recognise this is what is happening when someone says something about strategy, and you simply don't get it, explains Dr. Tony Grundy.
If you don't get it, it doesn't mean that you are stupid. It may well be that the speaker is either using 'strategy' as an excuse to be vague or using terms that they don't really understand. They may simply be trying to be clever or use the reference to strategy to get you to think in a particular way.
The complex and abstract language so often used in strategy is another problem. There are possibly 100 terms or more that get talked about in discussions about strategy; some, like 'competitive advantage', are useful and generally clear, but others such as 'mission' and 'vision' can carry connotations that are simply too general and vague.
The number and ambiguity of these terms can make strategy hard to follow, so let's make a start by defining just what is meant by 'strategy'.
The road from here to there
Many of the possible definitions of strategy are abstract, such as 'matching the environment', or are concepts, such as 'having an inimitable competitive advantage'. This kind of abstraction can quickly put people to sleep, so the first of my three complementary definitions is: strategy is how you get from where you are now to where you want to be - and with real and sustainable competitive advantage.
This definition has five ingredients:
- knowing where you are now
- knowing where you want to be
- knowing how you will get there
- basing the 'how' on competitive advantage
- making this competitive advantage genuine and durable.
For this, you need to have a very clear idea as to where you are right now - in other words, your strategic position.
This means asking some key questions, such as:
- What is going on in the environment around your industry/market - the economy, the technology, and so on?
- How competitive is your market and what are its dynamics?
- How do your customers see your business and the value that it adds relative to your key competitors?
The other aspect here is that 'where you want to be' takes you into the future. Strategy encourages people to think future a great deal more than they usually do. Much of what goes on in everyday management is focused on the immediate: this meeting, today's tasks, this week. But as is often observed, the future is so important because we are going to spend the rest of our lives in it.
Strategy serves a very real purpose by getting us to think about the future environment, future options, future competitive advantage and so on. Strategic thinking therefore means being able to travel imaginatively through time into the future.
In this definition the strategy itself is not just the strategic goals and is very much to be found in the 'how' itself.
At this point you might be thinking that what is being described here is implementation, which you have always thought of as operational and tactical. But it would be very odd if it were possible to say how a strategy would be implemented without explaining something about its tangible, operational action. Strategy must be specific and tangible; otherwise, how will you achieve it and how will you know if it has actually happened?
What you really, really want
My second definition pays homage to British girl-band the Spice Girls: strategy is what you really, really want. This definition gets us to imagine a future world with strategic possibilities and where we can realise an exciting dream, but through realistic actions and activities.
This definition comes into its own when managers have got entrenched in their existing position and the mindset that goes with that. It encourages people to stand back and reflect (sometimes referred to as 'helicopter thinking') on what they wanted in the first place, rather than get too bogged down in the problems and issues of their current strategic position.
This definition lifts expectations about what can be credibly achieved. A strategy of the Spice Girls form still needs to be rooted in ideas that are grounded in real competitive advantage and are fully aligned - all the things external or internal to the business that are prerequisites of success (the so-called 'alignment factors') must be in place.
An example of a strategy based on alignment is that of James Dyson's entry into the carpet cleaning market in the mid-1990s. His alignment factors were:
- the product had technology which made the vacuum bag obsolescent
- it had more suck
- it was designed to be a status item rather than be hidden in a cupboard - it was iconic
- it was patented
- for some years competitors tried to come up with a better bag
- its premium price positioned it as having a high value-add.
Subsequently many of these alignment factors were eroded and profits fell by 50% by the 2000s (although they have now recovered), highlighting the need to preserve the sources of real competitive advantage.
The cunning plan
My final definition of strategy is the 'cunning plan' popularised in British TV comedy Blackadder. The cunning plan:
- works backwards from the result
- is fundamentally simple
- achieves its goals by a combination of obvious, and not so obvious, ideas
- isn't particularly easy to imitate.
The idea of the cunning plan is relevant as many managers seem content with more or less any kind of strategic plan at all, whether it is a cunning one or not. But it is important to stress that average plans, or even plans that are slightly above average, simply will not do.
Over the years I have shown hundreds of accountants Back and Forth, the short film based on the Blackadder TV series. In it, Blackadder and Baldrick invent a time machine so that they can go back into the past and steal things that can subsequently be sold as expensive items. Unfortunately Baldrick falls on the time controls and they zoom back in time before they know where the present (their 'current position') is. They go backwards and forwards through history but can't find their way back, getting more and more frustrated in the process.
Eventually Baldrick comes up with a cunning plan: that they try to drown Blackadder to bring on a near-death experience so that he will recall every moment of his life including the original settings on the time machine. Blackadder, though, has an even better idea and tries drowning Baldrick instead (the 'stunning plan'); Baldrick does indeed remember the settings and they return.
What is memorable about this plan is that it is not obvious. It is very clever, working back from the future desired state (memory recall) rather than planning towards it to try to get somewhere. That is truly cunning.
Strategic thinking can be defined as: the thinking processes that consider any complex situation from a variety of angles, seeking out options and evaluating them and their implications from differing perspectives in a novel way. Let's first unpack the key ingredients in this definition:
- 'thinking' - this a structured and creative process which takes into account causality, the degrees of freedom and the constraints, and weighs up the pros and cons of alternative decisions
- 'looking at things from different angles' - this can be from external and internal perspectives, over short, medium and longer term time horizons, with different sets of assumptions, etc
- 'options' - distils possible choices into discrete and specific options
- 'evaluating' - assesses the options on the basis of multiple criteria
- 'implications' - looks at things like the investment required, the implementation needs, and how to influence stakeholders
- 'novelty' - the end goal is to come up with some cunning (if not stunning) ideas
If strategic thinking is contrasted with more operational thinking, the differences can be listed as shown in the panel below. What becomes clear from this is that strategic thinking is qualitatively very different to operational thinking. It is far more ambiguous and can be challenging emotionally as well as politically.
Some of the most important strategic concepts include the following:
- Mission. The mission is the overarching purpose of the organisation - the kind of organisation it wants to be, what businesses it wants to be in, and its guiding philosophy. If a mission is to be of any use it is vital that it has some grounding in robust assumptions about the present and potential strategic position and is distinctive in some way.
- Vision. The vision is a picture of either the environment (and our fit within it) or just of ourselves at some stage in the future.
- Objective. A strategic objective is one of the goals of the strategy. The objective should not be confused with the strategy itself; it is an output - and a very specific one at that. Strategic objectives can and should be broken down - for example, into compound sales growth, changes in relative market share or other measures of relative competitive position, development of key capabilities and successful strategic breakthroughs.
- Strategic option. A strategic option is a way in which a strategy can be formulated so that it can actually be implemented. This means that the strategy needs to be sufficiently specific not only in terms that allow it to be evaluated, but also in terms that allow it to be executed.
While I have presented these strategic concepts in the order in which they might appear in a plan, in practice they are more likely to be generated by looking briefly at objectives, evaluating options to arrive at strategies and only then setting final objectives, vision and mission so that the latter are grounded and realistic.
In summary, strategy can and should be demystified, its terms defined and explained, and strategies themselves based on a number of elements, especially the cunning plan.
The next instalment will take you further on a much more detailed journey in the demystification of strategy.
Dr Tony Grundy is an independent consultant and trainer and lectures at Henley Business School in the UK.