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Corporate Strategy Development Leadership

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TMG December 2010
Ccorporate-strategy-development-leadership-01.pngonstantly changing strategy
Recently, a listed company CEO commented to me that “he found his organization was constantly changing strategy, so dynamic was his firm’s marketplace”. I bit my tongue but admit to thinking “incrementalism is every busy management team’s solution to avoid the task of building significant new value”.  Uncertainty, regular crises, increasing instability and declining value are the consequence. Incrementalism is often little more than a dynamic action plan rooted in operational goals to the exclusion of strategy. Yet, too often, managers get drawn into chronic incrementalism?
 Constantly changing strategy is a recipe for disaster
No organization of people can successfully change strategy constantly. They may be frequently changing many facets of the way they operate as they grow and develop but consider what changing strategy means and it’sobvious that strategy does not change ‘constantly’.

corporate-strategy-development-leadership-02.pngWhy constantly changing strategy is a disaster
If you set out to be a lowest cost provider to a big product market and within a year, add differentiated value to a newly emerging niche in that product market, how will your brand be understood or are you to support 2 brands? Already you have strategic conflict emerging, the consequence of which is always compromised decision making and resource allocation. Perhaps within a year, an adjacent product market is increasingly asking you to bring your expertise to their needs and the opportunity seems irresistible despite the fact that this expands the range of competitors you must outcompete with another product extension.If you proceed, not only is your lowest cost provider objective dead (even if you don’t know it) but your brand is now so misunderstood that you have created opportunities for competitors. Just ask a major beer brewer tempted into the wine business or many major recruitment firms who all look alike.

Reasons for constant changes to strategy
An over simplified example perhaps, but the principle resonates. Consider how your organization responds to changing market forces with amore specific example. It is not uncommon to hear in strategy making sessions even now, people remarking that ‘we have to recognize the impact social networking is having on us’.  Now take a look at the timeline in diagram 1. 1

Diagram 1 – The chronology of social networking
corporate-strategy-development-leadership-03.png
By early 2004 there was plenty of discussion and speculation about the potential impacts of social networking, particularly in concert with already exploded mobile communications and email.  Since then, social networking has given impetus to new entrants (competitors), created alternate supply chains for others, substitutes for some industries and put a lot of power into buyers hands for other industries. Social networking has enabled the creation of new products and services, altered business costs, changed channel strategies, transformed relationships and based on TMG research, about to create a whole lot more opportunity.  Most businesses that could have leveraged this disruptive market force for competitive advantage 5 years ago are instead, incrementally and relatively recently adapting minor applications of it to their marketing operations.

Whilst this incorporation into marketing operations may be referred to as strategy, in reality it is not strategic for the organization. (See the TMG Paper on “What makes decisions, Strategic”) Instead, such actionis more akin to operational effectiveness.

Changing your approach to strategy development
It is not the market which has become too complex or changing too fast. Rather, the way strategy is developed is inappropriate. Three things need to be reconsidered;

Frequency
Corporate strategy can be ‘tweaked’ annually, but corporate strategy should be revisited on a frequency that balances four factors;
  1. The occurrence of any dramatic unforeseen, immediate and huge change in major market forces (such as the GFC although most astute strategists had adjusted their balance sheets for strategic opportunity in anticipation of a significant downturn)
  2. The nature of industry change and development cycles (The fashion industry has very short change cycles shortening the strategy cycle to every 2-3 years.  Mining tends to operate on longer change cycles any significant strategy rethink might be appropriate on 4-7 year cycles)
  3. Capacity to resource (executive time investment, hiring expert advice, giving strategy development priority, organizational willingness to seriously revisit)
  4. The quality of existing strategic clarity, inputs to achieving that clarity and the assumptions on which the strategy decisions were made. For example, the first time competitor insight is developed takes longer. The task of maintaining it and adding any new significant competitors to it is less onerous. This applies to every aspect of management information applicable to strategy development.



    If the frequency choice is well made, the work will reveal a collection of discernible changes in market forces, likely changes to future scenarios and their probability and bring into focus, tangible options for creating significant new value.
Depth
Corporate strategy formation necessitates an integrated examination of target markets (including potential markets), competitors, market forces, trends, icorporate-strategy-development-leadership-04.pngnternal analysis of performance, emergent issues and process challenges (which often inform the external analysis) and a review of corporate power, purpose and principle. The intent is to identify both emergent threats and unmet needs of an appropriately significant scale and probability to impact major new value creation (orthreat of loss). Attractive solutions to enhancing competitive advantage that redress threats and capture new value are financially modelled, the process of which drives out further clarity around assumptions, probability and the best (in light of the analysis) strategic choices.

Such work realistically takes time, information assembly, several passesat dialogue and usually, three or more iterations. Such preparation canbe done in parts, over time, in the lead up to a formally integrated review of strategy, but it does need to be done systematically. With that work assembled and socialised, executives are coming together to develop strategy with both intuitive insight formed through experience as well as deep and informed management information. It is at this levelof depth that corporate strategy development conferences are positionedfor significant value creation.

Resourcing
The time and investment required should be judged on the basis of four factors;
  1. Experience: the first or second attempt is a larger investment as organizational management becomes familiar with the process and the sources of information and means of getting that information becomes familiar. (In TMG experience, 3-9 months is the range of time frames, investment varies more widely)
  2. Expertise: The scope of the work needs to add to managers’ development and capabilities but not be so far ahead of it as to be inappropriate. The expert support engaged needs to help design a process appropriate to the expertise of participants.
  3. Energy: There must be a realistic view of the scale of works and a commitment to undertaking it. The time commitments need to be realistically estimated and timetabled and fully appreciated before commitment is sought.
  4. Expectations: Management’s expectations of themselves and the strategic result being sought should balance ambition (for self and organization) with realism.  For example, one client included in their brief to TMG that the strategy being sought needed to triple EBIT within 3 years to be of interest, acknowledging that funding for more than one acquisition or significant upfront investment in organic growth, if needed to do that, would be supported. The expectation was therefore, realistic.
Corporate strategy development leadership
corporate-strategy-development-leadership-development-05.pngCorporate strategy development should aim to create an advanced capability to out-compete, delivering above average industry returns within the context of wider social obligations.  Anything less relies onthe irrational goodwill of shareholders and the poor performance of competitors. TMG holds the view that;
  • The incrementalism approach is good for strategy review, progress tracking and adjustments to implementation and operational effectiveness. The intent is to optimise the performance delivered by the existing strategy and to make adjustments consistent with the strategy.
  • Corporate strategy development occurs less frequently (say every 2-4 years unless market forces change remarkably). The intent is to further advance the organizations ability to out-compete in securing a greater share of the available market value. That means innovation, investment, development, risk and in all likelihood, significant change if the new value creation is to be significant.
Successfully leading the latter – corporate strategy development – is a primary task for any CEO.

Despite the assumed power and influence of the leader (usually the CEO) those in the job know that history and context2 significantly frame whata leader can or will achieve.  In the context of corporate strategy formation, for example;
  • If the timing of strategy formation is occurring when the organization is aware of a ‘burning platform’ the behaviour of leadership will be different to that where historical performance is good and the organizational context stable. The extent to which the leader can more easily motivate and calibrate change is likely to be greater in the former and lesser in the latter.
  • If the timing of strategy formation coincides with the emergence of powerful new competition and M&A activity, the behaviour of leadership will be different to that where only incremental change dynamics are visible. The depth of the strategy work is likely to be far greater in the former context than the latter.
Getting stakeholders aligned around the scope and intent of corporate strategy development (as defined in this article) is challenging;
  1. If the history of strategy is more akin to incrementalism, then it cannot be assumed that participating stakeholders will grasp the scope and intent of corporate strategy development. It is more likely their actions will align with history and the more familiar incremental approach. The corporate strategy development process needs to include a stakeholder journey toward aligned understanding and expectation.corporate-strategy-development-leadership-development-06.png
  2. If the current context is benign, that is, performance expectations are being met or failure to meet expectations has benign consequences, it is unlikely the stakeholders will mobilise around the scope and intent of corporate strategy development. Rather, their actions will tend to revert to the less demanding incrementalism approach. The corporate strategy development process needs to facilitate stakeholders to a sense of challenge and consequence.
  3. If the time and resources devoted to corporate strategy development are similar to that which has been applied in a more incremental strategy adjustment environment, then the implied expectation will be to do as in the past. The allocation of time and resource needs to be different enough and specific enough to communicate the changed scope and intent.
  4. If the quality of information and depth of insight development remain similar to that which arose in meeting the expectations of the more incremental approach to strategy, then again, stakeholder behaviour will tend to reflect the more incremental scope and intent. Early stimulus via input from both internal and external sources needs to set the bar for quality of contribution sufficiently higher, such that it reflects the scope and intent of what corporate strategy development must achieve.
Where TMG is most valuable
TMG has invested heavily in developing capabilities in group facilitation and strategy expertise. We are a consulting firm built around an understanding of the need to have good process as well as goodcontent.

Differentiation
We differentiate ourselves on three dimensions we think are very important to you. (If these are not, then stop reading)
  1. We customise the corporate strategy development process to one which will work in the light of your history and current context. We will be explicit in the process we are recommending and why and work with you in developing it, ensuring it has authentic engagement from your stakeholders before proceeding. We feel that is much more valuable to you than your having to fit our model or process.
  2. We customise the approach to content development (research, analysis, choice of tools and models, scope of works) to leverage as much internal expertise and participation as practical to help ensure ownership whilst at the same time, supplementing with essential external expertise needed to achieve the depth of foresight, understanding and strategy formation.
  3. We specialise in corporate strategy development and as a consequence, hold ourselves and therefore our clients accountable for staying away from operational incrementalism.
Focus
Our target market is medium private firms to smaller public companies. Typically that means 100 to 5000 employees and revenues of AUD$50M to $1Bn. We look for a smattering of MBAs and multiple cultures in the senior ranks which together help support the use of models and modellingand global possibilities. (The later because all strategy today has a global dimension)

Our entire value chain is built around improving our service to this type of client in this differentiated way. So too is our selection of resources and personnel as well as our engagement pricing.

If you are looking for more from your corporate strategy development than what has been created in the recent past and feel you need a catalyst to helping make that happen, the TMG is an excellent choice.


 
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