We were elaborating on one of the key weaknesses the executive team had just identified. The weakness was that the market research firm’s customers didn’t do a good job of implementing, or in many cases, even listening to their recommendations. The CEO had complained: “They use us to find white space in the market, unsatisfied market needs they could exploit with new growth products. Then they drop the ball when it’s time to act on those insights. Think how much more valuable our research would be if we could find a way to have our recommendations truly implemented.”
The CFO then spoke up and asked the “dumb” question: “Why can’t we take responsibility for implementing the new product development phase? We already do half the work when we come up with our recommendations, which, by the way, we give away for free along with the research results.” Why, indeed?
The strategic planning team responded by creating a strategy, visualizing a future where their company was positioned as the Fortune 500 C-level executives’ “go to” source for innovation and growth, rather than merely market research. They strategically remixed the basic elements of their market research business to become that visualized company within five years. They had always had operational excellence. What they added now was strategic excellence.
Within a few years they became an industry leader, ultimately attracting the attention of a multi-billion-dollar market research firm seeking help to make the same transition globally. They are now implementing their strategy on a global stage as part of that multi-billion dollar organization.
Chapter focus
This chapter discusses how to build a strategy to create your desired future, based on asking and answering three basic questions. What do you want the future to look like? Why do you want that future? How do you get there? The most effective strategy leverages “strategic laws,” including the Drucker Phenomenon, the 80/20 Rule, the Experience Curve, the Law of Concentrations, the Law of Critical Mass, the Product Life Cycle, and the Risk/Reward Tradeoff.
The chemistry of strategy
The process of successfully growing an organization is like mixing chemicals together to create a reaction. Ask the typical executive to name the most valuable tool in the process of creating a chemical reaction, and they’ll offer such answers as the quantity of certain chemicals, the quality of the lab facility, the combination of two or more elements, and so on. That’s because we tend to be so rooted in tactical thinking that we miss the larger equation.
The reality is that the most important tool in creating the desired chemical reaction – or growing a company – is the formula that describes its “big picture” results. Without this, a CEO might just as well tell the executive team to grow the company blindfolded. The way to remove the blindfold is to first build a shared, team-supported visualization of where the company wants to be at a given point in the future. This shared visualization is at the heart of the chemistry of strategy – where elements in just the right proportions are applied at just the right time (as in a chemical reaction). This visualization provides a company with answers to the basic strategy issues of growth, sustainability, risk, and productivity.
There are three key elements in what I call the chemistry of strategy, all critical for effectively communicating a strategy throughout an organization beyond the executive team and for the purpose of actually achieving that shared vision.
In the chemistry of strategy, it is more important to be asking the right questions than to be worrying about the specific answers to those questions. In one of the first companies where I served as the turnaround CEO, I brought in venture capitalists. My liaison with the venture capital firm would randomly show up and drive me crazy with dozens of questions about what results we were aiming for, why we thought they were worth focusing on, and how we expected to accomplish them. With all the passion he exhibited in asking the questions, I never had the sense that he really listened to my answers. In retrospect, I came to appreciate that he knew that making sure that I had asked myself and my executive team these questions was more important than the details of the answers to these questions.
The primary formula for strategy is simple enough:
Strategy is the collective set of answers to those questions of what, why, and how. Strategy answers the above three questions for next week, next month, next quarter, next year, five years, and beyond. For instance:
What executive team today, next year, and five years from today will lead you to that future? Reaching the future requires changing the status quo and implementing that change depends on sustained leadership. Leadership starts with a healthy executive team capable of not only setting the direction but also having the passion and competence to sustain the implementation to get there.
What focus do you want and need? What market and product focus will be sufficient to gain and sustain a competitive advantage through the power of the Experience Curve? (The Experience Curve is a strategic law that recognizes that for most activities, every time you complete an action, you learn how to reduce the cost of the next one.)
What growth do you want and need to achieve your visualization of the future? Growing the value of the organization is the number one challenge for C-level executives like the CEO and CFO.
What organizational changes will be required to reach and sustain your future?
What personnel chemistry will foster engagement, empowerment, and accountability? Strategy memos and PowerPoint presentations won’t implement your strategy, your people will.
What productivity gains will be required to sustain a competitive advantage? Every year you, your customers, and your competitors have twelve months to get smarter. A competitor that gets smarter faster than you do ends up winning.
What risks will you have to manage in the future? As you grow, you can and must handle opportunities with higher value. Along with the higher value comes a higher risk. The greater the risk you can effectively manage, the greater the long-term value you can create.
What systems will sustain implementation of your strategy?
What timeframes should you set for your expectations? Exploitation of current market and product positions could yield results within a few quarters. Exploration of markets with the potential to totally replace current ones could take years to make a measurable impact.
Strategic laws
A few “strategic laws” underlie the chemistry of strategy. Let’s take a minute to review these before we move ahead.
The
