Does your business have a corporate strategy? |
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TMG December 2010
What is corporate strategy? Peter Boyce, Director of Consulting at TMG takes a stand on the frequency of weaker rather than stronger strategy development, the reasons for it and how you can develop much more effective corporate strategy.Corporate strategy development is not easy. As organizations get bigger, servicing larger markets with more invested capital developing strategy can feel like trying to navigate a maze. There are many possibilities, a seemingly unlimited supply of information, diverse views and on most executive teams, different conceptions of what constitutes “strategy”. In the article which follows, I’ve attempted to set out the case for ensuring corporate strategy (for the whole of the enterprise) retains its emphasis on innovation. Corporate strategy is about reliably achieving higher than industry average returns in a sustained and corporately responsible way over an extended period. (It is unlikely that investors would support a strategywhich sought average or below returns) It is important to check that this is a conception held by all the executive team and that you know how you compare on this dimension in relation to your competition. It isn’t easy to deliver Obviously competitors continue to be attracted to industries where investment returns are good but stop coming (unless they have significantly valuable innovation to offer) as demand becomes fully supplied. Also, as demand becomes fully supplied, rivalry between firms increases with innovation becoming the pivotal strategic weapon. To sustain above average returns means being better at innovation – both incremental and ultimately, major (usually requires capital investment) than your competitors.Your strategy must deliver superior value creation and extraction through innovation whilst at the same time, continuing to optimise and defend existing sources of value (unless deliberately being exited)  What kind of innovation is required?Innovation can be as simple as product augmentation and as game changingas a new business model or invention. The closer the innovation gets to the latter, the more potential it has to deliver higher than average returns but it also comes with risk. For that reason, corporate strategy development needs to spend a lot of time on identifying, developing and evaluating innovation. In particular, innovation capable of creating significant new value for customers and as a consequence, the business. Where the existing customer value sources are dominated by relativelymore mature competition, the more important the search for larger value creation opportunities. Why the strategy development becomes weakened Put another way, the most common issue we have encountered over two decades is that the focus of strategy development turns to optimising and defending existingsources of value. You can tell this is occurring when the bulk of strategy development effort (time and other resources) is invested increasingly shorter term views, more incremental adjustments and improvements rather than innnovations likely to create competitive advantage. In such circumstances, the effort and dialogue turns increasingly toward operational effectiveness. Ultimately, as if by stealth, the strategy becomes an action plan for business improvement with innovation beyond logical incrementalism marginalized. What is developed is no longer strategic; that is, no longer forcused on sustained higher than industry returns over an extended period but rather, operational adjustments to individual pressures as they arise. Big moves are not necessarily strategic Even big steps, like a major acquisition, are not necessarily strategic. For example, growth is only a strategic benefit if size improves your market power to resist new entrants, secure more value from suppliers, weaken the economic viability of competitors or secure a foothold in a new geography, to name a few strategic benefits. Growth by acquisition does not automatically have these effects. It can also dilute brand positioning and weaken your brand franchise, encourage support for competitors to prevent you from getting too big or it can destablise customer relationships as cost rationalizations to drive out economies remove important intangible assets. Big does not make the move strategic and acquisition rarelyclears the 'innovation' hurdle of creating new customer value. How can this 'weakening' be prevented? There are four simple things you can do that will help greatly; Plan the strategy development process so that 50% of the time and resource is devoted to innovation – futurist input, trend analysis, supplier chain (including adjacencies) innovation, market needs analysis, global scanning, scenario planning, and so on. Get the mind ofyour team off what is and onto what could potentially be. Don’t try to develop major innovation as part of an annual strategy event – it can’t be done well in a 2 day strategy meeting (even if facilitated by us!) unless well incubated and socialized. Organize the innovation process as a buildup of new inputs and meaningful dialogue over a period, culminating in highly socialized and well understood possibilities. If what emerges (and it usually does) has big potential, develop and socialize it to the point where it is ready for formal consideration and critical appraisal at a strategy conference where, apropos point 1, it will get adequate time and attention. Have enough in incubation to reasonably expect, based on the competitiveness of your industry, that you will be likely to achieve returns superior to the industry norm. In some industries, that might mean significant innovation every year, in others, the cycle may be slower. Ensure operational effectiveness does not take over by having someone own the responsibility with an expectation that more large and importantOE (operational effectiveness) tasks will spin off as projects from thestrategy development process rather than derail the process.  How can you tell you are doing a good job?This simple checklist* can be very revealing. It not only informs the design of your strategy development process, but provides a benchmark against which to evaluate your progress throughout. (If you would like more information about how to construct your strategy development process, contact TMG)
Once you’ve ticked 6 or more of these, your confidence in your strategy will be rising. In our experience, this list can be a bit confronting but, as a consequence, the task of strategy development immediately has more rigour and stays away from being an operational plan. Three things will help you advance down this path more easily;
T |M | G strategyfacilitation Contact us Tel 03 9010 9010 (Aust.) Fax 03 9857 3733 (Aust.) Web: www.tmg-strategy-facilitation.com.au Email:  Add this page to your favorite Social Bookmarking websites 
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