elevate - three disciplines of strategic thinking

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ElevateThe Three Disciplines of AdvancedStrategic Thinking Rich HorwathJohn Wiley & Sons, Inc. © 2014192 pages[@]

Rating9 Applicability

8 Innovation

9 Style9

FocusLeadership & Management

Strategy

Sales & Marketing

Finance

Human Resources

IT, Production & Logistics

Career & Self-Development

Small Business

Economics & Politics

Industries

Global Business

Concepts & Trends

Take-Aways• Strategy is the astute allocation of resources – “time, talent and capital” – in planned

activities to serve customers better than your competitors do.

• Successful businesses are strategic. The right strategy is the best predictor ofprofitability. Businesses fail because of bad strategy.

• Many firms treat strategy as perfunctory and occasional, instead of as crucialand ongoing.

• Leaders often have no time to think, can’t prioritize and end up putting out fires insteadof strategizing long term. Stop and give strategy the time it warrants.

• Sound strategy calls for a big-picture, “elevated” understanding of your business.

• Strategic thinking has three elements: “acumen” for developing valuable insights,“allocation” for using resources wisely, and “action” for executing strategic plans.

• “Differentiation,” not price-cutting, is the best route to business success.

• Strategy takes three disciplines: First, “coalesce” your best insights.

• Second, “compete” by making the right “trade-offs.” Third, “champion” your strategy.

• A great strategy may fail if your employees don’t understand or don’t rally behind it.

This summary is restricted to the personal use of Avirot Liangsiri ([email protected])

LoginContext[cu=1698525,asp=1320,subs=0,free=0,lo=en] 2014-10-05 17:46:33 CEST

Elevate getAbstract © 2014 2 of 5

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getabstractWhat You Will LearnIn this summary, you will learn:r1) Why strategy matters, 2) Why many companies fail at strategy, 3) Whatcomponents make up a good strategy and 4) How to strategize.

getabstractReviewA 25-year study of 750 bankruptcies identified bad strategy as the primary reason businesses fail. Strategy is crucial,but most firms give it neither the respect nor the attention it merits. Strategy expert Rich Horwath explains thatsuccessful companies are, by definition, strategic, as is his book, which conveys valuable, concrete informationsuccinctly. He explains the links between strategy and success, and guides executives on how to think strategically.getAbstract recommends Horwath’s authoritative lessons on making strategy an ongoing aspect of your business toCEOs, executives, entrepreneurs and investors analyzing corporate strategies.

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getabstract“How do you come upwith a business modelthat differentiates youand that creates valuefor your customers and,by doing that, puts youin a unique position inyour industry?”

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getabstract“We argue and debatelike crazy about whatwe’re not going to dobecause we know thatwe can only do a fewthings great.” (AppleCEO Tim Cook)

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“Elevate” Your ThinkingIn business, you can’t see the big picture until you gain “elevation.” Seek an encompassingoverview so that you can understand what makes your businesses tick, how the parts worktogether, how to differentiate it from its competitors, and how to provide value and serviceto your customers. Leaders must think strategically so they can make the right decisionsand the best trade-offs – choices that lead to success.

This elevated view demands mental agility and the ability to sift through floods ofinformation. Failure to think strategically can be disastrous. The Conference Board reportsthat 70% of the public companies that suffer a “revenue stall” will see their marketcapitalization drop by more than 50%. Poor strategic decisions account for most revenuestalls. When a firm’s business falters due to inferior performance, that pattern is likely tocontinue for at least 10 years. Many times, this leads to complete collapse.

What Is Strategy?Strategy is defined as “the intelligent allocation of limited resources through a uniquesystem of activities to outperform the competition in serving customers. Resources includetime, talent and capital.” The GOST framework can help you maintain a separate focus on:

• Goals – What are you pursuing? A goal is a general target.• Objectives – What do you specifically want to do? An objective is a specific target.• Strategy – A strategy sets the path for “how” you will reach your goals and objectives.• Tactics – A tactic provides the specific answer to “how” you will proceed.

When you plan ways to mete out resources, your strategy becomes your general allocationschematic and your tactics are its specifics. Identify the “trade-offs” you must make among“time, talent and budget” to meet your goals.

The “Top 10 Strategy Challenges”Most executives recognize the need for smart strategic thinking, yet few know how todevelop a strategy. Research with 500 managers identified the top 10 strategic challenges:




getabstract“If strategy is howto achieve the goalsand objectives, it’simpossible to gainfull engagement andproper commitmentfrom employees [when]rolling out the strategyif they don’t know whatit is.”

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getabstract“Time, talent andbudget spent on fightingurgent but unimportantfires are resourcesthat can’t be properlyinvested elsewhereto support...yourstrategy.”

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getabstract“A good ideaunsupported by afinancial formulafor success remainsnothing more than agood idea.”

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getabstract“The next time youhear [people] blamingthe economy orheadwinds for theirpoor performance,smile and hand them amirror.”

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1. “Time” – Managers suffer excess responsibilities, endless to-do lists, and pressure todeal with immediate tasks and problems. Most lack the time to think strategically.

2. “Commitment” – Employees don’t know what a company’s strategic plan is, so theycan’t get behind it. The Harvard Business School reports that 95% of employees don’tknow about or don’t understand their organization’s strategies.

3. “Lack of priorities” – Don’t give every concern the same weight. Make trade-offs.4. “Status quo” – Strategy implementation usually requires change. Some employees

will get more resources, some fewer, and some will lose the resources they have. Thosewho lose resources will dislike the strategic changes.

5. “Not understanding what strategy is” – Many people mistake strategy for “mission,vision, goals, objectives and even tactics.”

6. “Lack of training [or] tools for thinking strategically” – Many managers lackexperience or education in planning or setting strategy.

7. “Lack of alignment” – Large firms have many different constituencies which oftendon’t operate in sync and sometimes conflict. This hinders executing a unified strategy.

8. “Firefighting” – Executives can’t think and act strategically if they spend all their timeputting out fires. They must adopt a reflective “let’s think about that” style.

9. “Lack of quality [or] timely data and information” – Strategy requires astuteinterpretation and application of data. It calls for developing quality insights aboutcreating value for customers. Information is the “core of strategic thinking.” Executiveswho lack access to timely data operate at a strategic disadvantage.

10. “Unclear company direction” – The people at the top must set clear directions.But some executives don’t want to reveal their plans because they fear providinginformation to competitors. However, leaving everyone in the dark makes planningnearly impossible.

The Three Strategic DisciplinesWhen you find yourself too busy to think, reorient yourself to the following three strategicpriorities by asking, “Am I working on an activity that is important to the execution of thestrategy, or is it an urgent but unimportant issue that’s taken me off plan?”:

1. “Acumen” – You have the ability to develop valuable “business insights.”2. “Allocation” – You utilize your available resources wisely.3. “Action” – You execute your strategic plans to achieve your goals.

Strategic thinking also requires practicing three disciplines:

1. “Coalesce”The first discipline is bringing together in a unified way the ideas and data your businessneeds to compete. Strategic thinking demands developing quality insights, and that oftendemands pattern recognition – seeing the context in which a problem recurs.

Work through the six “levers” or basic issues on the “Strategy Spectrum” to identify thedata you must pull together: 1) What products or services do you offer? 2) Who are yourpotential target customers? 3) Why do they need what you sell? 4) Where can they accessyour offerings? 5) When can they gain access? and 6) What activities will you undertaketo bring them in?

The “Value Mining Matrix” helps you focus on your current and potential customers andthe steps you take to deliver value to them. Plan your value creation, value delivery andvalue capture strategy on three different “time horizons”: the first 12 months of activity,




getabstract“While checkinglots of tasks off a to-do list each weekmay foster a senseof accomplishment,activity doesn’t alwaysequal achievement.”

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getabstract“If you can’t read thebusiness landscape,you risk leading yourorganization in thewrong direction.”

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getabstract“The inability toelevate thinking inorder to set strategicdirection can havedevastating long-term effects on anorganization.”

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getabstract“Having a high-performance car(tactic) doesn’t help youreach the other side ofthe river if there isn’ta bridge (strategy) tocross it.”

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the second and third years, and after the first 36 months, by which time you may need torefresh your business model.

Strategy’s single goal is to increase profits. Pursue these actions to achieve the earningsyou want:

• “Differentiation” – Develop a special product or service.• “Neutralization” – Eliminate the gaps between you and a rival product or performance.• “Productivity” – Make your processes more efficient so you can cut costs.• “Waste” – Avoid any effort that does not provide “new value.”

All of these steps require innovation, but differentiation may be the most pivotalstrategic need. In a study, more than 4,000 executives agreed that attaining “competitivedifferentiation” is their “number-one business challenge.” A survey of more than 25,000firms showed that those with the best return on assets succeeded through differentiation,not through lowering prices.

2. “Compete”This discipline requires assembling a strategic system that gives your firm a competitiveadvantage. You must know where your company stands in relation to its rivals. As formerHarvard Business School professor Theodore Levitt said, “Everything is differentiable.”Determine if your organization is a “leader” – on top and focused on protecting what youhave while working to expand wherever it can; a “challenger” – looking to increasing brandawareness and build the business; or a “spectator” – a reactive, “me-too” operator stuckon the fringes?

Analyze your competitors to assess your advantages. Consider how you compare in market“position,” expertise, capacity, “resources [and] activities,” clientele, the marketplace needyou meet, value delivery, consumer “advantages,” and “value proposition” or “message.”Institute the necessary competitive balances among your efforts to provide “quality,convenience, cost, service” and “selection” to your targeted customers. Never try “to be allthings to all customers.”

3. “Champion”An effective strategy doesn’t help unless you can implement it, so the third disciplinecalls for leading your team to think and act strategically. Champion your strategy. “Fightfor, protect, defend and support” it. Communicate your strategy to your employees andmake sure they support it. Offer social proof – that is, demonstrate senior management’scommitment to the ideas you want employees to rally behind. Use the compelling “powerof story” to present your strategy to your workforce. Secure the commitment of everyonewho is part of its implementation.

Kodak, an iconic American company, demonstrated the dangers of failing to get everyonebehind a new strategy. The common perception is that the photographic digital revolutionswamped Kodak, a leader in film. In fact, Kodak’s senior executives saw the handwritingon the wall and redesigned its strategy so that it could become a digital photographyleader instead. But Kodak’s middle managers didn’t support or implement the newstrategy. They remained stuck in the past and clung to Kodak’s success with film. Theirrecalcitrance caused Kodak to lose its leadership position in the photographic industry, andit never recovered.




getabstract“Great strategy...comesfrom managers who canthink strategically.”

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getabstract“Any business todaythat embraces thestatus quo as anoperating principle isgoing to be on a deathmarch.” (StarbucksCEO Howard Schultz)

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getabstract“Too manyorganizational leaderssay they have a strategywhen they do not...Along list of things todo, often mislabeled asstrategies or objectives,is not a strategy. It isjust a list of things todo.” (Professor RichardRumelt)

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When Is It Time for a New Strategy?Double-check your strategy when:

• You reach or adjust your goals – New goals need new paths.• Your consumers’ needs change – Stay alert to what your customers want.• An innovation disrupts your marketplace – Know who is delivering enhanced value

to your customers and how your firm could compete or do better.• Rivals create a new value – Now, they’ve changed the rules of the game. Catch up.• You gain or lose capability – Either way, your firm will need a new strategy, to capitalize

on your new opportunities or to deal with your diminished situation.

“The Strategy Scaffold”To gain the elevation you need for a strategic overview, stand on a scaffold built of threeplanks: your company’s “purpose,” your business model and your “strategic direction.”Strategic thinking requires elevation, but don’t think about reaching for a metaphoric30,000-foot view “to see the big picture.” Like everything else, you can overdo elevation.At 30,000 feet, all you’d see are clouds and broad terrain. For a better view, consider anelevation of 1,000 feet, where you can see “buildings, homes, bridges and roads.” Use thisperspective to develop your company’s strategy.

With a new strategic initiative, conduct a “Before Strategy Launch Review.” Identify yourgoal. Determine your approach; determine its main challenges and how you’ll handlethem. Continually monitor its results. Ask, “What went right?” and “What areas needimprovement?” When you complete, adapt or discard a strategy, conduct an “After StrategyLaunch Review.” Ask, “What happened? “How or why?” And, “What did we learn?”

Smart strategy requires smart tactics. Don’t spend time and money on activities that don’tmove you closer to your goals. Sort your tactics within a four-box “Tactical EvaluationMatrix” with “efficacy with customers” on the horizontal axis and “differentiation” on thevertical axis. List your tactics and position them within the matrix in one of four quadrants:

1. “Antes: tactics effective but similar” – These tactics, like the ante that starts a pokergame, are routine, but they work.

2. “Drivers: tactics effective and differentiated” – These tactics are your best bet. Theydifferentiate you from your competitors, and they’re efficacious and profitable.

3. “Waste: tactics ineffective and undifferentiated” – Don’t bother. These tactics don’twork and they’re ordinary.

4. “Fool’s gold: tactics differentiated but ineffective” – These tactics make your firmstand out, but they don’t earn profits.

Strategy should not be a perfunctory, fill-in-the-blanks annual activity. Make it a regularcomponent of your daily operations. Have your managers engage in regular “strategyconversations.” These discussions rely on candor, openness and willingness to listen toothers’ opinions with an open mind. Put in the time to give strategy the priority it deserves.

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About the Authorgetabstract

getabstractFormer chief strategy officer and professor of strategy Rich Horwath is CEO of the Strategic Thinking Institute. Afrequent lecturer on strategic thinking, he is the author of six books.

