Business Strategy: 7 things you should know

Strategy is a cool word. Business people like to use it. It leaves a good impression with your audience if you talk about strategy. It’s even expected from a certain seniority level in an organisation. But strategy is probably also the most over and misused word in business language. Most people who use it don’t really know what strategy is all about. And I often have the impression that the more someone uses the word ‘strategy’ in a conversation, the less they know about the subject.

Here’s a list a 7 things I believe every leader should know about strategy. Know these inside out and you will do better than 80 percent of the managers that you will come across.

Strategy picture - the execution shortcut, Jeroen De Flander

1. Strategy = compete to be unique, not to be the best

Strategy is not about being the best, but about being unique. Competing to be the best in business is one of the major misconceptions about strategy. And if you only remember one tip from this list, it should be this one. Many leaders compare competition in business with the world of sports. There can only be one winner. But competing in business is more complex. There can be several winners. It does not have to be a zero sum game – you win, I lose or vice versa. Within a single industry, you can have several companies beating the industry average, each with a distinctive, different strategy. They are no direct threat to each other. There can be several winners. So the worst possible approach to strategy is to seek out the biggest player in the industry and try to copy everything they do.

2. Strategy = compete for profit

Business is not about having the largest market share or about growing fast. It’s about making money. ‘I want to grow my business’ is not a strategy. ‘I want to grow my business’ is the same as saying, ‘I want to be rich’. Those things (unfortunately) don’t happen by themselves. Growing is not a strategy, it’s a consequence. When someone includes growth in their strategy, there should be an orange light starting to blink. That does not mean that you cannot use the word ‘growth’. I use it a lot in the analysis phase – for example, when you talk about growth areas of the business or when you look for growth platforms – areas where you can reach potential that will give you additional profit.

3. Know your industry

A company is not an island – it’s part of a larger ecosystem, an industry. Each industry has its own characteristics, its own structure. This structure and the relative position your company has within the industry determines profitability. Certain industries have a higher return than others. Your thinking about the industry and industry competition will determine your thinking about your strategy – how you are going to compete within the industry. The better you know and understand the industry, the better you will be able to determine elements that will make you stand out, be unique and reap a higher average return than the industry average.

4. Strategy = Choice

In my eyes, this is the most simple strategy definition. You need a clear choice of WHO you are going to serve and a clear choice of HOW you are going to serve those clients. It’s about connecting the outside world – the demand side – with your company – the supply side. Or in fancy terms: you need a value proposition for a specific customer segment and to develop unique activities in the value chain to serve them. The key word is ‘choice’. You cannot be everything to everybody. You want to target a limited segment of potential buyers with the same needs. Next, you are going to tailor your activities in such a way that they meet these needs. Or in fancy terms: you want to tailor your value chain – your company’s activities – to your value proposition. Strategic innovation is the process to make those choices – defining a new who and how for the organisation.

5. Learn to say NO

If you have clearly defined what you go for – a clear value proposition for a specific client segment (who) and a set of distinct, unique activities in your value chain to offer the needs of this client group (what), you will find out that there are lots of things that you are not going to do. There will be customers that you are not going to serve, activities that you are not going to perform and services/products that you will not be offering. In strategy, choosing what not to do is equally important. Using the words of the founding father of modern strategy thinking, Michael Porter: “The essence of strategy is choosing what not to do”. Each strategy should also have a section where it clearly states the noes.

6. Don’t ever stand still

Having a good strategy means that you have arrived. Competitors move, customers’ needs and behaviours change, technology evolves. One crucial element to determine a future path for your company is to predict these evolutions and trends and incorporate this thinking into the strategy-building process. If you don’t, you can miss out on new value that is created in the industry or even left behind and get into trouble. Think about the smart phone and Nokia and you’ll understand.

7. Scenario thinking is an important strategy tool

Facts and figures can only go so far. You need to turn data into assumptions that will fuel your reflection process. The standard way to work with assumptions in a structured way is by scenario thinking – fix some parameters and let other vary. This technique helps your reflection process by offering you possible future routes (read: strategic options) for the company. I believe that scenario thinking is a crucial skill for anyone who wants to deal with strategy. Every leader should at least master the basics so that they don’t need a strategy consultant for every reflection process or at least to help them challenge the scenario models that the strategy consultant presents.

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The Pygmalion Effect – a leadership phenomenon

The Pygmalion Effect: success is a self-fulfilling prophecy.

We all have great ideas. And we often need the help of others to let them shine. But getting people to support our brainchild is easier said than done. We know—and have probably experienced firsthand—that people don’t always do what we like them to do. We all struggle to get our ideas across. And that’s because successful execution is much harder than many of us realize. And failure doesn’t come so much because of the quality of the idea, but because of age-old, programmed human behavior. It turns out that human nature kills big ideas. Let’s take a look at one of the 8 villains on the execution road: The Pygmalion Effect. 

Consider a 15-week army course where 105 soldiers were assigned to one of 4 instructors. A few days before the start of the program, each instructor was briefed, including the following message:

We have compiled much data on the trainees including psychological test scores, sociometric evaluations, grades in previous courses, and ratings by previous commanders. Based on this information, we have predicted the command potential (CP) of each soldier. …Based on CP scores, we have designated each trainee as having either a high, regular or unknown CP, the latter due to incomplete records. When we’re not sure, we don’t guess. Soldiers of all 3 CP levels have been divided equally among the 4 training classes.

Each instructor was given their list of trainees (one-third of whom had a high CP, one-third a regular CP, and the remainder an unknown CP). They were then asked to copy each trainee’s command potential into their personal records and learn the names and scores before they arrived.

It’s important to know that, at the time, these 4 instructors didn’t know that the command potential classification—the performance score on the list they received—was completely random. In other words, the soldier listed as having the highest CP could very well be the worst soldier in the group.

After 16 weeks, at the end of the combat course, the performance of the 105 soldiers was tested in 4 different areas. One of these performance evaluations, for example, was their proficiency in the use of weapons they had been trained to master.

The outcome? Those soldiers who got marked with a high command  potential  significantly  outperformed  their  classmates  in  all 4 subjects. Those with an average CP scored the lowest. The third group—those with an unknown performance potential—ended up in the middle. The difference in performance between the best and the worst group was 15 percent.

After detailed analysis, it showed that the experimentally induced expectations—the fake command potential scores—explained al- most three-quarters of the variance in performance. In other words, by making a superior believe a subordinate has the ability to be a great performer, the actual performance increases. And the effect isn’t marginal. It’s a whopping 2-digit figure!

Strange, don’t you think? When we believe a team member has the ability to be a great performer, our belief becomes reality. The performance expectation we have for our team members is a self-fulfilling prophecy.

In the end, to succeed as a strategist, we need a thorough understanding of what makes people tick. And that’s on top of industry dynamics, customer behaviors and financial savyiness. We need to have a deep understanding of how people process information and take decisions, what makes them care about an idea, and what gives them the energy to take action. And when we do, our idea has all it needs to succeed.

The Pygmalion Effect is one of the 8 execution villains I discuss in The Execution ShortcutYou can download a free ebook with more interesting stories here. 

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