The CEO of a 500-employee company said to me recently, “strategy isn’t even a full-time job here”.
He was in a company that had been doing well. Why does he need strategy?
For startups, hasn’t the recent rise of the Minimum Viable Product/Lean Startup approach killed the need for a strategy? Can’t we figure out everything we need to know along the way, based on fast user feedback loops?
When thinking about strategy nowadays, if you’re not confused, you’re probably at least a bit disheartened.
I’ve been thinking about strategy a lot myself in recent years, first as a McKinsey consultant, and then, more recently, as a founder, strategy leader, and board director in several tech startups and growth stage companies. I wanted to share a few insights I’ve arrived at along the way about strategy and why it’s as relevant as ever today.
There are some insights about strategy I’ve arrived at:
Strategy isn’t dead. In fact, it’s as critical today as ever
- The fact that the world is changing around us means that companies can no longer rely on annual strategic plans to provide meaningful guidance. But it also means that, without a simple articulation of whom we serve and why we create unique value for those customers, companies can become lost in the noise of a frenetic and chaotic environment around us.
- Unfortunately, collectively we have disregarded strategy in recent years. This may be because we either overestimated our ability to repeat past growth or because we have seen strategy as something far scarier than it really is. Here’s a way to test this latter theory: see how quickly you can strike fear into the heart of any career executive by walking up to them and asking, “What’s your strategy?”
The concept of “competitive advantage” isn’t dead
- There are many great points made in the popular book whose title declared the end of competitive advantage but I disagree with its central thesis. I believe even the author disagrees with it. In her case study of Milliken, for example, she highlights their consistent distinctiveness in specialty materials production, corporate culture, and employee engagement, among other areas—all of which sound like great examples of competitive advantage to me!
- Everyone agrees the world is moving faster today than ever before. Thirty-year advantages in the 1970s may have been commonplace, while five to ten years may be more the case today. In addition, sources of competitive advantage have migrated from physical assets (e.g. mines and plants) to technical and cultural/skill-based ones. But that doesn’t mean the concepts are irrelevant. Innovation today is the process of taking the set of things you do well as an organization and injecting them into new products and better ways to serve your customers.
- Find what unique technologies, skills, or resources you have that allow you to help your customers accomplish things 2-, 3-, 5-, or 10-times faster, cheaper, or better than they otherwise could: that’s why they’re buying from you and that’s where your advantage lies. If you don’t have a competitive advantage, why is anyone buying your product?
The Lean Startup approach has not made strategy irrelevant. In fact, one without the other is dangerous, and the two combined are exceptionally powerful
- The Lean Startup approach is a set of tools and concepts to create highly-mobile teams that iterate the product development cycle. But too many startups are using quick iterations and Minimum Viable Products as an excuse to avoid upfront strategic thinking.
- If you iterate purely on an MPV without the guidance of a strategy, who knows if you’ll end up solving a need large enough to be meaningful to buyers?
Google’s success has not proven that strategy is irrelevant
- Google is distinctive at hiring creative, smart engineers, investing large amounts of money in long-term products, and creating technical, web-based solutions in easy-to-use products. The ability to do those things is a large part of their competitive advantage.
- Google’s two most public failures, Wave (a real-time email and messaging platform) and Glass (wearable glasses) were anchored in those areas of competitive advantage.
- They were both built on a technical insight but solved no articulated business need. They probably iterated the product development with a Lean Startup approach and got great user feedback. But then what problem did they solve? For whom? Why would anyone pay (or accept advertisements) for them? Strategy forces these questions into the forefront.
Analytics is the root of most effective strategies today
- Years ago, strategy was anchored primarily in frameworks (e.g. the Five Forces) and executive muscle memory. Those days are gone. Strategy today needs to be heavily anchored in data. Data is the best guide we have to strategic decisions and investments—especially data that we can uniquely see.
- In addition, building an analytics flywheel into your product to inform new waves of innovation and customer value over time is a powerful component of a strategy.
The three primary colors of building a business are Strategy + Analytics + Agility
- Strategy is a clear vision of whom you are serving, the problem you are solving for them, an understanding of why they need your help solving it, and an outline of how you’ll solve it.
- Analytics (or a similar technological insight) is the unique tool that you are able to use to solve the problem that others either don’t have access to or haven’t considered applying to this problem.
- Agility is your unique ability to quickly deploy the technology to solve the problem for the customer, get feedback, and continuously improve.
Hiring and investing in “strategic stem cells” is a primary way that companies can become more mobile, innovate faster, and be able to re-allocate resources as needed
- When startups and successful companies are hiring today, they look for people who are comfortable with ambiguity, can learn new skills, and who get excited about the prospect of playing multiple roles in their company. They look to make deep investments in core assets that can evolve into different products as an uncertain future plays out (e.g. flexible factories). They double down on building fundamental capabilities such as customer care, designing unique user experiences, and training their employees.
- These are all examples of what I call “strategic stem cells”: the flexible collection of skills/assets/capabilities that can be moved into different products as corporate priorities shift in a fast-evolving environment.
- Like a blank tile in Scrabble, strategic stem cells can play the role of any vowel. What’s the word we’ll need? Patting? Putting? Potting? Our future options are open.
Companies need to be decentralized and agile to innovate … and a strong, simple strategy will let you do it
- My personal affinity is to the startup model where everything is both centralized and decentralized at the same time: the firm is small enough so everyone can see and weigh in on most things quickly, while any employee is typically afforded the freedom to propose and run with major changes. But even in startups, I’ve seen the pendulum swing, as it should. There’s a period of open innovation where solutions are cobbled together (in a decentralized way), then, once the proof points are established, there’s a period of purposeful rebuilding to handle scale, maintain consistency, and improve responsiveness (as part of a centralized build).
- When I’ve had the chance to be part of larger companies, I’ve seen how hard it is to let any process run in a decentralized way. Any company looking to be more innovative has to reduce the centralization of control. There are many ways to do it. The most important criteria is that they have a strong, simple strategy. Then decentralized, agile teams can operate with the freedom they need within the confines of a consistent corporate direction.
The existence of “Black Swans” underscores the need for short, simple, and thoughtful strategies
- Nassim Nicholas Taleb’s popular books on “Black Swans”, the rare and extreme events whose odds of occurring are unknowable, provide no justification for avoiding having a strategy. Indeed, a strategy is most valuable in those situations. A strategy should provide enough clarity during the chaos of shocks to your market while still being open-ended enough to allow all employees to adjust their own decisions and actions as needed as the exact circumstances and opportunities evolve.