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FMI Quarterly/December 2013/December 1, 2013

What Exactly is Strategy Anyway?

workingplans14_imageOne of the more difficult aspects of strategy is the many misunderstandings about exactly what strategy is and what it is not. FMI’s definition of strategy is: the decisions you make about what you (collectively) envision for your company over the long term and, therefore, about where you will invest resources (time, treasure, talent) and how you will reap return on those investments. Elements of strategy include where the firm will compete (geographies, segments, owners, etc.) and how the company will compete (services, scopes, differentiators, etc.). Strategy may also include intrinsic goals that are value-based and do not deliver specific economic results.

FMI’s perspective is that there are four common components that must be present to have truly exceptional company strategy. Those are strategic thinking, strategy development, strategic planning and strategy execution. The last two are the areas where the majority of leadership teams focus most of their time and attention and are the ones that are most familiar. In this article, we will explain the differences between each of these components; introduce some of the frameworks, tools and methodologies; and discuss why they are all important pieces of exceptional company strategy.

STRATEGIC THINKING

A prerequisite for a leader’s ability to focus on the big-picture goals is a personal commitment and capability to think strategically. The primary difference between strategic planning and strategic thinking is that the strategic thinking is continuous and ongoing, while the planning process is defined and typically for a set period. While we might do strategic planning in the first quarter, we cannot stop thinking strategically once the plan has been outlined. Although they are distinct from one another, strategic thinking and strategic planning rely upon each other to reach their full potential as leadership tools. Without adequate capability to think strategically, the plan may not fully address important market trends or company strengths or weaknesses. The best strategic thinking in the world is useless if it never results in a plan that is executed.

By developing a capability to think strategically, a leader is preparing him or herself for the chaos often experienced today. One popular summary of the current environment is that we are operating in a VUCA atmosphere. VUCA is a term developed by the military that defines the environment as “volatile, uncertain, complex and ambiguous.” On the surface, most leaders agree that this describes their business environment accurately, but it does not paint a positive picture. A leader who is adept at thinking strategically looks at this VUCA environment as both a challenge and an opportunity. It is an opportunity because there is an antidote to VUCA, and for those who can acquire it, there is no limit to the available business success. In order to address the volatile, uncertain, complex and ambiguous environment, a leader must have vision, understanding, clarity and agility. In order to apply the VUCA antidote, a leader must be capable of thinking strategically about his or her business.

Strategic thinking is often a mystery. Top executives proclaim that their organizations need leaders who can think strategically, but when pressed to define what that means simply state, “I will know it when I see it.” This unclear definition makes it hard to assess and develop an individual’s capability to think strategically. A person’s ability to think strategically can be developed and honed. In order to create a clear and compelling vision, to grow in understanding, to gain clarity and build agility, a leader must implement a thought process that enables the best decisions for both challenges and opportunities. This thought process is intuitive to those who currently have a strategic thinking capability, but it can be developed in those who do not.

Leaders who think strategically about any issue follow a thought process that moves through eight key components, which include:

  • Mental flexibility
  • Intellectual curiosity
  • Creativity
  • Intuition
  • Analysis
  • Systems thinking
  • Information gathering
  • Decision-making

Combined, these components of strategic thinking enable individuals and, in the proper organizational systems, organizations to develop consistently better strategic solutions to challenges and opportunities in the VUCA environment. Leadership and strategic thinking are consistently at the top of the list of skills senior construction leaders lack. Developing the key components of strategic thinking in yourself, your team and your organization will improve overall leadership to help ensure your organization has a chance to survive this VUCA environment.

STRATEGY DEVELOPMENT

With a firm foundation built upon the capacity to think strategically, senior executive teams are prepared for the strategy development process. Whether your company’s objective is the development of a new strategic direction, a refinement of existing strategy, differentiation, growth or the development of “game-changing” ideas, you must evaluate the components of context in order to make sound strategic decisions. A thorough evaluation of context allows you to have confidence in those strategic decisions and assures you have done everything to improve the chances for success. The process should test the assumptions that drive your current strategy and those strategies that emerge in the development process. You should strive to achieve clarity of thought by ensuring the process includes both divergent and convergent thinking to consider all options and then settle on the few that are best. Finally, you need to consider the gap between your current capabilities and what is needed, by being realistic about what is possible, given your current leadership, organizational capability, financial resources, systems and skills.

The strategy development process is focused on developing a deep understanding of all the components that define the company’s current and future context. Those include the climate, customers, competitors and capabilities (known as the 4Cs of strategy). To understand each of these requires a rigorous data collection and research process.

  • Climate. You need to understand all the external factors and forces that are beyond your control but have influence on your company. This includes economic forecasts, surety industry trends, commodity prices, politics, demographics, regulatory issues, globalization, technology, etc.
  • Customers (or markets). This requires more than a cursory review of what our senior management team knows about our clients. You need objective facts about changes in buying behaviors, such as budgets or selection criteria, growth in current and adjacent markets, unmet needs of target clients, perspectives on you and your competitors, preferred positions of contractors and other information vital to determine your future market opportunities.
  • Competitors. You must understand as much as possible about your competitors, such as entry/exit, strategies, management changes, aggressiveness in key markets, strategies they are pursuing, relationships with key customers or suppliers, etc.
  • Capabilities. This includes all internal considerations, such as strengths and weaknesses, unique capabilities, drivers of value within the firm, ownership aspirations, access to resources, employee engagement, etc.

Armed with this information, you should be able to analyze immediate business needs, identify strategy themes and answer the questions of “Where” and “How” to compete in the future. Once potential strategies are identified, screen them to ensure they make sense. To do this, you should look at whether you have the required leadership, skills and systems, structure and financial resources to execute the strategy. An honest assessment of the following questions is a good start:

  • Do we have the right leader(s) to set direction, align resources and inspire the troops?
  • Are current organizational skills, abilities and systems in place to support this initiative?
  • Is our organizational structure conducive, or will it hinder the effort?
  • Can we support the level of financial investment required to realize success?

STRATEGIC PLANNING

“Strategic planning” for many people is a generic term that describes the process that a company follows to develop long-range plans that the organization will follow. Some will even go a step further to describe it as the process a company follows to define how it will gain competitive advantage in the market or where it will invest limited resources. All of these are good definitions, but to FMI, strategic planning is only one of the steps that a company engages in to make decisions about where and how it will invest effort and how it will reap the returns for those investments. Strategic planning is the step in the process that takes the overarching strategic direction that the leadership has set and turns it into action. To do this, the strategy team must consider developing each of the following:

  • An organization plan that includes the organization structure, personnel management systems, skills and numbers of staff at each position, and skills development plans at all levels of the organization.
  • A business development plan that includes marketing, sales and customer service plans. If the company is pursuing growth, the strategic plan may include acquisitions plans.
  • An operations plan that defines the key operational capabilities the company will need to develop and how they will be built. This may include plans to develop standard processes or acquire specific scope capabilities or other components of the businesses field operations that need to be addressed.
  • A risk management plan that defines what new risks the strategy exposes the company to as well as plans to account for those risks. These risks could include uncertainties associated with dealing with new markets, new materials, new subcontractors, new employees, etc.
  • A financial and controls plan that includes the proforma financial plan for investment and returns from the proposed strategy. It also includes objective and subjective measurements that will help the executive team monitor progress of implementation.
  • A communication plan to roll out the strategy to the organization and to all stakeholders. It includes how and when certain groups will be told about key parts of the strategy, their roles in its execution and its impact on them.
  • Contingency plans that includes trigger points and define the external and internal information that the strategy team will monitor to cue them that the contingency plans need to be executed. This could include data about market growth, competitor responses, employee satisfaction, etc.

STRATEGY EXECUTION

The final component of good strategy is the execution plan. Most people intuitively understand that execution is the most important aspect of strategy. After all, a good plan poorly executed is worthless. Although they understand the importance of execution, most fail to plan adequately for it. A common misperception is that if we just create a detailed set of action items with due dates and meet periodically to review them, then the plan will be executed. While that often works for a while, it frequently becomes a less important part of larger management team meetings, and eventually the group loses focus and execution wanes.

We see the best companies approach strategy execution in the same way they would a cultural transformation. They create regular sessions to review smaller parts of the strategy, constantly revisit and reinforce the overarching strategic themes that the company is pursuing and keep focus on the big-picture goals, rather than the detailed action plans. They do this by constantly asking themselves when reviewing the strategic plan, “What is working, what is not working and what is next?” The intent is to create a management rhythm that will constantly drive the organization forward to achieve the strategies rather than being mired in the detail of action plans. That is not to say that all the items on the action plan are ignored; however, the team must remember that the intent is to focus on executing strategy and that tactics will evolve over time.

No two companies have the same strategy, because the process requires individual consideration of all of the context components affecting the company’s performance. Strategy development also requires senior managers to invest significant time thinking about where and how they will compete. Since many people can look at the same data and draw different conclusions, it just makes sense that they would arrive at different solutions to the challenges they face. Occasionally, senior executives should look at their company and assess how effective their team is at strategic thinking, strategy development, strategic planning and strategy execution. A good place to start is by asking a few questions:

  • Is your strategy based on a true source of competitive advantage?
  • Is your strategy putting you ahead of industry trends?
  • Are your senior leadership team’s biases contaminating your strategy?
  • Is your strategy based on facts or conventional wisdom?

If the answers make you uncomfortable about your strategy, consider the four components of strategy as the basis for putting good strategy in place.


Brian Moore is a principal with FMI Corporation. He can be reached at 919.785.9269 or via email at bmoore@fminet.com. Matt Kennedy is a former senior consultant at FMI.

 

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