2 of 4: What are Your Strategic Objectives? (Part 2)

[This is the third of some posts I've planned on the topic of business strategy.  My intent is to offer up a simple model for structuring strategy conversations.  I hope you find it thought provoking & useful.]  The previous post covered where you might look in considering possible strategic objectives.  This post deals with prioritizing the possible objectives.

PRIORITIZING STRATEGIC OBJECTIVES ~ “Where to Focus”

With a list of possible strategic objectives, the next step is to winnow down the list to a manageable number by applying some filters (see below).  Any strategic objective that falls out of the process can be kept on a list for consideration for future planning.

Strategy alignment: As you scan the list of possible strategic objectives, which objectives are more distantly related to basic strategy?  For instance, if the basic strategy is “focus”, an objective of improving finished goods inventory turns may not be as well aligned as an objective to add new profitable products for the focus / target segment.  Both of these strategic objects can result in improved financial strength, but the latter is most closely aligned with the basic strategy of focus.

Customer problems: Another good test in narrowing a list of strategic initiatives is to compare the list to the set of known problems reported by customers.  This step provides a safeguard against an unhealthy focus on strictly internal issues.  This perspective needs to be actively sought out as the voice of the customer is often only heard by sales, service, and marketing science / research.

Hot Spots & Cold Spots: The book “Blue Ocean Strategy” (Kim, Mauborgne) describes the concept of “hot spots” as activities that have a low resource requirement but a high potential performance gain.  The concept of “cold spots” are just the opposite.  As the team considers the list of strategic initiatives, which represent opportunities with the greatest leverage to deliver on the overall strategy?

Core competencies:  Another tool for narrowing the list of strategic objectives is to objectively assess how the list compares to core competencies of an organization.  There is merit to including an objective that will require the organization to develop new capability and competency but the bias should be on strategic objectives that well aligned with existing strengths and capabilities.

Other considerations:

Keep the list short:  It is a natural temptation to commit to too many strategic objectives.  While most teams consider top of mind resource constraints (e.g., capital, people), other impact resources such as time and attention, plus the related interdependencies, create a strong argument for focusing on a handful of objectives. 

If the team wants to take on more objectives, it is good to consider two additional actions:  First, challenge the existing set to ensure they represent a meaningful and significant challenge.  Second, go through the process of creating strategic initiatives (next posting planned for this BLOG).  The process of creating strategic initiatives will require resource sizing that may be helpful for properly calibrating expectations.  If the team completes the initiative plans and still believes there is resource capacity, then additional strategic objectives can be pulled in and planned.

Continuity:  There will be strategic objectives that are relatively transient in nature (e.g., objectives related to the integration of an acquisition), but approximately 2/3^rds of the strategic objectives will likely remain fundamentally unchanged over time (exception aspects include specific targets and timing).


Vigilance:  Keep the main thing the main thing.  While the quote  “Plans are nothing, planning is everything” (Dwight Eisenhower) has a lot of merit, it will pay to consciously compare, on an on-going basis, any new opportunity identified after the planning process is complete to the list of finalized strategic objectives / “the plan”.  Consider revising the strategic objectives if there is a competitively compelling reason.  

CONCLUSION

Identifying and clarifying the strategic objectives that support a strategy is an important step into making the strategy development process valuable to the organization.  Starting with a broad list of possible objectives and refining the list to align with the basic strategy, customer needs, and leveraging “hot spots” and core competencies, will increase the likelihood of successful strategy implementation.  The next step will be to develop strategic objectives into actionable plans / initiatives (next posting of this BLOG).

COMMENTS

Please share your comments about this post or topic (or previous posts).  Thanks!

References:   Blue Ocean Strategy: How To Create Uncontested Market Space and Make the Competition Irrelevant, W Chan Kim; Renée Mauborgne, 2005 - Boston.

2 of 4: What are Your Strategic Objectives? (Part 1)

[This is the second of some posts I've planned on the topic of business strategy.  My intent is to offer up a simple model for structuring strategy conversations.  I hope you find it thought provoking & useful.]

TRANSLATING STRATEGY INTO STRATEGIC OBJECTIVES (Part I)

The initial posting for this four part series on practical strategy application focused on determining the “basic strategy” for your company.  This second posting looks at how you translate the strategy into appropriate strategic objectives.  To keep it easy to read, we will look at what constitutes a good strategic objective and how to identify possible strategic objectives in this post.   The subsequent post will cover how to create focus on the most appropriate strategic objectives.

STRATEGIC OBJECTIVES DEFINED

Strategic objectives are documented and measurable long term goals that put your strategy into action.  Strategic objectives address intended changes, improvements, and challenges within a given period of time. They provide specific guidance on what an organization will do in support of winning in the market place. 

QUALITIES OF STRONG STRATEGIC OBJECTIVES

As your team considers strategic objectives, it is important to ensure the objectives are as strong as they can be.  The “SMART” framework can help ensure objectives are strong:

Specific:  Provides specifics about the activity or action area.

Measurable:  Quantifies progress against fulfilling the objective.

Appropriate:  Consistent with the strategy of the organization.

Realistic:  Achievable given the organization’s capabilities and competencies.

Time bound:  Lists a time frame for accomplishing the objective.

Here are two contrasting examples (weak, strong) of strategic objectives for a company that features service as part of their differentiation strategy: 

Weak strategic objective	Strong strategic objective
Improve customer satisfaction by 10 points over next 5 years.	Achieve satisfaction ratings of 92% by 2014 from web customers who use website technical support (a 2 percentage point improvement / year from ‘09 to ‘14).

IDENTIFYING STRATEGIC OBJECTIVES ~ “Where to Look”

You should look at these areas for possible objectives:

Basic strategy (Overall cost leadership, Differentiation, Focus, other):  The theme of the basic strategy (see prior post) is central to establishing strategic objectives that create a very distinct value proposition.  For instance, if the basic strategy is cost leadership, the strategic objectives will specify exactly where costs will improve.

By function (e.g., marketing, human resources, etc.): Within the bounds of the basic strategy, how might key functions improve to support the value proposition?  For example, if the basic strategy is differentiation, the strategic objective related to marketing could measure improvement in customer understanding that new products offer novel and effective solutions to customer needs.

Balanced Scorecard approach:   Kaplan and Norton introduced the Balanced Scorecard as a way to assess strategic progress.  However, another tool introduced with the balanced scorecard is the idea of creating a strategy map.  A strategy map is a visual depiction of strategic organizational objectives and the relationships between them.   Creating a strategy map will involve strategic financial objectives that are linked to customer objectives, which are in turn linked to internal capability objectives, and finally linked to the supporting objectives of learning and growth. 

Feedback from customers, competitors, CFO:  Another source of possible strategic objectives come from outside the organization via feedback from customers and competitors.  Another source is to ask the CFO for trends related to the balance sheet and income statement that represent threats or opportunities.

Environmental scan: Considering external forces outside of customers and competitors can also yield possible strategic objectives.  Macro environmental-socio-economic trends can often have an impact that requires longer term attention.  For instance, demonstrating environmental consciousness requires longer term attention for companies that feature that as part of their value proposition (e.g., Patagonia).

NEXT POST:  An approach for prioritizing strategic objectives and related considerations.

COMMENTS

Please share your comments about this post or topic (or previous posts).  Thanks!

1 of 4: What is your strategy?

[This is the first of four posts I've planned on the topic of business strategy.  My intent is to offer up a simple model for structuring strategy conversations.  I hope you find it thought provoking & useful.]

TOPIC OF BUSINESS STRATEGY

It is fair to say that the topic of business strategy triggers a variety of responses from admiration to suspicion.  When we see a company execute a winning strategy, it is easy to admire the result and hypothesize as to why it was effective.  Yet, when we’re asked to get involved in the strategy development process, it is common to view it as a less productive activity compared to “running the business”.  But running the business is in all likelihood as really just executing the strategy.  There is a way to engage in the strategy process and keep it simple yet productive.  Here is a framework.

DEFINITION & EXAMPLES

One way to define strategy is ‘the way in which an organization chooses to compete in the market’.  Given this, the number of strategies is almost endless.  However, Michael Porter, the thought leader on the topic of strategy helps keep it simple by defining three basic strategies that apply to a majority of businesses. 

Overall Cost Leadership:  This strategy requires efficient scale facilities or processes, vigorous pursuit of cost reductions, tight cost and overhead control, avoidance of marginal customer accounts, and cost minimization in areas such as R&D, service, sales force, advertising, etc.  Low cost relative to competitors is the primary strategic theme.

Differentiation:  This strategy is one of differentiating the product or service offering by creating something that is viewed as being unique on an industry wide basis.  The differentiation could take the form of design, brand, technology, features, distribution, or a combination of these and other factors.  This doesn’t allow the firm to ignore costs, but they are not the primary strategic theme.

Focus:  This strategy is aimed at a particular market segment, product line, or geography.  The primary strategic emphasis is on serving a particular target better than the competitive set.

To illustrate the strategies, here are some examples for the grocery market in central Iowa:

Basic strategy	Company	Company statement
Overall cost leadership		Everything we do, from selecting suppliers to scouting locations to building and operating stores, facilitates savings…[aldi.com]
Differentiation		…a company known for excellent service and low prices. [hy-vee.com]
		Building on our 75+ year heritage of convenience and service… [Dahlsfoods.com]
Focus	Jung’s Oriental Food Store. [actual logo not available]	…variety of carefully selected, high quality imported Asian foods and produces.
		It’s all about food at Gateway Market, a new kind of good food market for central Iowa. [gatewaymarket.com]

Source: Company websites

SIMPLE QUESTIONS

One easy way to engage the strategy process is to use the basic strategies as a framework for comparing your strategy to those of your competitors.  Just ask:
·    Which strategy are we most closely executing?
·       Which strategies apply to my two toughest competitors?
·      What facts support these beliefs?
·      Unprompted, how would a customer describe the market choices?
·      What are the reasons to believe our strategy will be the most effective?
·     What factors are for and against this belief?

THE BENEFITS

Having a clear strategy will help…

1.       Prioritize opportunities and problems

2.      Assess performance

3.      Increase confidence and strengthen resolve during execution

4.      ...And increase the likelihood of achieving business objectives

THE CONSEQUENCES

If an organization is too busy to engage the strategy process, it could mean that the current lack of strategic focus is creating a situation where an organization is attempting to be “all things to all people”.  Subsequently, evaluating performance in this situation will likely reveal that results are below expectations for many, if not all, of the strategic initiatives.   Furthermore, an organization that views itself as failing to perform will likely struggle on implementing any strategy.  There are numerous examples of this situation; however, answering the questions above can reduce the likelihood of this strategy ambiguity.

CONCLUSION

Asking questions to identify and clarify the current strategies is a simple and effective way to have an enlightening strategic conversation.   This step alone can yield some very good benefits (see above).  In addition, there are some other simple steps, that will be covered in future posts, that also yield value from the strategy development and implementation process.

COMMENTS

Please share your comments about this post or topic.  Thanks!

Reference:  Competitive Strategy, Techniques for Analyzing Industries and Competitors

MICHAEL E. PORTER, 1980 - New York