How do CEOs and their executive teams develop strategy? The accepted process is like coupling two sides of an equation. On one side sits the organization’s external environment, with all its changes and trends. On the other side sits the organization with all of its internal capabilities. Strategy is about how you align the two.
This analytic, even mechanical, way to “develop” strategy is how it has been conceived and taught since business strategy’s conception in 1965, and it’s the way strategic management textbooks lay things out to this day. As a former professor of management, I’ve been guilty of following this approach myself.
The problem is that this “two sides” approach doesn’t produce strategy; it explains it. To use an analogy, explaining how a painter puts paint on a canvas is not the same as creating the work of art. Managers are in the strategy creation business, not in the strategy explanation business. But the former can be challenging.
For example, I recently facilitated a strategy session for a CEO and his 11 executive team members from across the U.S. The organization, I’ll call Combine, makes pumps for companies in a range of industries including food and beverage, water, and chemicals. We had presentations about industry changes and trends, and they’d discussed the company’s mission, vision, and values.
The early sessions were boisterous and participation was high. But when the time came to talk strategy and future direction, the group came to an abrupt silence.
Was it because they were waiting for the CEO to speak? No, I concluded looking around. Was it the time of day? No that wasn’t it either. It became clear that it was because they didn’t have a clue about how the business should position itself for future success. Then “Frank” piped up from the back of the room with: “I don’t know why we do this each year. It always turns out to be business-as-usual.”
While the comment was dismissed by many in the room as “that’s just Frank,” he was spot on. Developing strategy inside-out with a group of executives is likely to be more operational than strategic, more continue-as-before than innovative.
Move From Develop to Discover
Much of the problem, for Combine and many other firms, is that executive teams don’t know which way to turn in the face of rapid change — the shift to online business, the rise of swift-footed start-ups, the introduction of digital marketing, the intense pressure from consumers via social media, and the emergence of new business models. These were not the conditions under which business strategy was conceived in 1965.
So, I encourage you to shift your method if you intend to make breakthroughs in the strategy space. Stop guessing and start inquiring. Follow the path we eventually took at Combine.
We started by listing the business’s key stakeholders in order to discover some pointers from them. The list was end users, distributors, suppliers, employees, and owners. Stakeholders, being on the outside looking in, are very good at providing ideas. As customers they ask questions like: “Wouldn’t you think they’d … [fill in the blank]?,” “How come they haven’t …?,” “Why don’t they …?” The answers to these questions are suggestions for strategic change. This is a resource you can tap.
Combine’s executives were then tasked with asking a series of questions of representatives from the identified stakeholder organizations. These questions concerned how each stakeholder group came to the decision to use Combine rather than the competition, how they defined these “strategic factors” such as product quality, how they rated Combine’s performance on these and any changes Combine might make to improve competitiveness.
Importantly, it was the executives who were assigned to do the interviewing. The data wasn’t gathered via an emailed questionnaire or conducted by a market research company. This was to avoid any filtering of messages.
In my experience, very few executive teams are willing to swallow their pride and do this. Instead, they want to press on “developing” strategy based on gut feel and guesswork, afraid to admit that they don’t know what their stakeholders really want.
At Combine, the key discovery involved its relationships with its distributors and end-users. Internally, Combine’s executive team felt pressured on price, largely caused by cheaper imports from overseas. The message from distributors was that Combine needed to match the imports on price. Yet Combine’s product was clearly of higher quality.
The research had Combine engaging deeply with end-users for the first time. They’d previously relied on distributors to tell them about end-user needs. To Combine’s surprise, the end-user interviews uncovered that price wasn’t major for them but that the reliability (product quality) of the pumps was. As one end-user put it “price is not critical because the cost per hour of any outage outweighs that.”
This eye-opening result provided Combine with the wriggle room to educate its distribution chain about the real value of its products. It can now demonstrate to end-users that, by paying a little extra, process reliability is greatly enhanced by employing a higher-quality product. It can provide a business case which shows that overall cost effectiveness is better with Combine’s products than with competitors’ products. It can talk up the customer service it provides in the form of technical advice and assistance. It can inform end-users about its complementary product range. And it can boost awareness of its brand. The overall result is that end-users specify Combine’s products in its contracts with distributors and, as a consequence, distributors stock Combine’s product range.
Time for a Strategy Shift?
Bringing in external stakeholders transformed strategy-making at Combine. Instead of competing to look smart and impose their ideas within the bubble, Combine’s executives started to question what they believed and came to look at the world in a new way. As a result, they became more open to new ideas. They stopped treating strategy-making as painting by numbers and came to see it as a genuinely creative process.
If you’re happy with the results that your strategy process is producing, then press on. But I’m pretty sure you don’t look forward to those strategy reviews — heavy on analysis, short on creativity.
My suggestion is to change direction. Stop trying to do all the heavy lifting; it’s not productive. Instead, get your organization’s stakeholders to remove some of the hard work by interviewing them. Then become a forensic scientist to investigate your results like we did at Combine. Look for disconnects that come as surprises; these discoveries could tip your strategy in a new and successful direction.
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