The Bison Valley Ax Works just had a bad quarter. Earnings were down, and the financial analysts wondered if the company had lost its way. Mr. Big, the general manager, decided that he must send a decisive message to the market by defining a clear vision of the future.
He gathered his most trusted advisors. Together, they crafted a strategy statement, and he read it out loud to the assembled workforce. "Bison Valley will be the leading and lowest-cost supplier of innovative, high-quality tools," he proudly proclaimed.
Ogg, the Cro-Magnon design engineer, scratched his head after he heard this. "I don't get it," he said. "What do I do differently now that I know that is our strategy?"
Early in my business career, I worked for a well-known consulting firm, McKinsey & Co. This company did a lot of work in product-market strategy. From this experience, I developed a healthy respect for the fuzziness with which most companies articulate their strategy. For example, an automotive company once told me that its strategy was to be a leader in cost, time-to-market, efficiency, product quality, and customer excitement. Is this a meaningful strategy to you? It isn't to me. Who doesn't want to be a leader in these areas? And what the heck does "customer excitement" mean, anyway?
Undoubtedly, there are as many methods of defining strategy as there are consulting companies. Still, I'll provide you with a system that has worked well for me over the years. To be successful, a strategy needs to define four key areas.
- What customers will you serve?
- What products and services will you offer them?
- Who will be your competitors?
- On what basis will you will compete with them? In other words, what is unique about the business process you will use to design, make, sell, distribute, and service these products?
To be useful, a strategy must exclude things. The easiest way to test whether or not you have a strategy, then, is to ask these questions in a negative form.
- Knowing this is my strategy, what customers have I chosen not to serve?
- Which products and services will I not offer?
- Which competitors will I not compete with?
- Has a particular basis for competition been ruled out? If so, what is it?
If you haven't excluded anything, there is no information content in your strategy. Therefore, it will be of no value to your organization.
How do you know if you have excluded too much? Look at the size of your available resources and compare it to the size of the markets you intend to pursue. If you are pursuing 100% of the customers in a market with 1% of the industry's R&D budget, then failure is likely. See if you can target a narrower segment of the market.
Of course, this means that much of the stuff that is out there today masquerading as strategy is really outright nonsense. So how do we tell the emperor that he isn't wearing any clothes? I don't have an easy answer, but it is vital that this message be delivered. When an organization fails to provide a focus for its members, it deprives them of the key compass that enables them to help it achieve its goals.