By Forum member Professor Danny Samson
Apart from leadership itself perhaps, the most important thing for any organisation to get right is its overall business strategy. An effective business strategy defines the organisation’s forward path into the medium and longer term, seeks to achieve a fit between internal capabilities and the external business environment, and must be focused on ‘what we will excel at’ in the market. Once formulated, strategy guides decision-making and operational priorities in all functional areas. When strategy is well articulated and goal directed, it becomes the vehicle that drives integration and alignment across the organisation, as a visible guiding hand, that in the best of circumstances can be broken down and related to everyone’s job role. The power that comes from strategy is as much from its implementation as its formulation: many firms have suffered from having cleverly created their strategies but not had the discipline to ‘make the rubber hit the road’ in implementation.
Strategy formulation is best started with a big-picture goal setting process: where do we want to be in 3, 5 and 10 years? What is our vision for value creation? What resources and capabilities do we have or need to develop? What businesses and industries will we be in, and very importantly, what market segments will we be in and precisely how will we win in those?
At a business unit level, operations need to be informed with an answer to the strategic question: “How do we compete?”. What is your focused answer to this question? Candidate answers include cost, quality or service, delivery reliability, flexibility/ customization, or innovation. There are others, but a hallmark of great strategies is of not trying to be all things to all people in too many market segments. Focus is key! Value proposition statements are very specific in great companies.
Implementation is best accomplished through a highly ordered and structured approach, that, put simply, should be ‘project managed’ to overcome the inertia and resistance to change that we should all anticipate. Yet even though I am advocating for disciplined and diligent project management, the best laid plans and strategies should be flexible enough to encompass updating in real time as market conditions themselves change!
IKEA has a very well-focused strategy, matching its positioning in its markets to its capabilities. Its strategy is to have a low-cost position, and to take well designed products “to the masses”. In many cities of the world, IKEA dominates its market segment with only one or two stores (hence efficiency), and runs a globally lean supply chain, often sourcing from low cost countries, matched to an egalitarian culture. It’s a powerful strategy, that delivers value for all stakeholders, and is scalable and profitable.
National Australia Bank, in its hey-day decade beginning around 1988 had the clearest strategy I have seen in that sector, then it lost that focus. The very clearly articulated strategy was to have the sector’s low-cost position, accompanied with sound risk management, through its industry leading ‘credit bureau’. When Australia’s state banks went broke and the other big banks got into trouble with impaired balance sheets, NAB created shareholder value at around three times the rate of the industry index, for a whole decade! NAB’s strategy proved to be scalable and highly profitable. Then due to a change of leadership, the strategies imploded, implementation and controls faded, and so did NAB!
Medco, a North American company (now a division of Express Scripts) that delivers mail-order prescription pharmaceuticals to over 60 million Americans has one of the most brilliantly conceived and implemented strategies that I have seen anywhere. When I visited them on a study tour, their business model revolved around five pillars of value, all of which drive profit, and all of which can be cascaded right down to operations-guiding metrics that every employee can relate to and moreover contribute to! Their high-level strategies, improvement initiatives, and even their employee compensation and culture all revolved around those five metrics of cost, quality, service, turnaround time and earned value add, with amazing clarity and company-wide consistency. Once again, powerful and profitable.
And finally, a government agency, the Transport Accident Commission (TAC) in Victoria, had a two-pronged strategy of being the best at accident prevention and customer service. TAC’s no fault insurance scheme (personal insurance for those injured in transport accidents), led the world in performance terms, such that when most other Australian states privatised these schemes, Victoria did not, after we (I served nine years on the TAC Board) demonstrated superior performance, evidenced by benchmarking! It was an eye opener to see a compulsory government monopoly outperforming the free-market set ups in other states and countries, and the reasons were clear: strongly focused, scalable strategies, and disciplined leadership of their implementation. Powerful strategies indeed!