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Setting Strategy
The business context defines a strategy in terms of:
- Definition of success as a “winning aspiration”
- Choices of markets and customer segments as “where-to-play”
- Choices for differentiation and/or cost leadership as “how-to-win”
- Strategic business capabilities that are needed to win, and
- Supporting systems for performance tracking
Capture Outlook
By this point, the Leadership team should have emerged, and the singular accountability for the responsibilities and decision authority should be accepted by this person (ideally it is one person, not a coalition). This person is the Business Leader for the specific business, or a General Manager for a set of related businesses. The extended leadership team will include the various stakeholders, but the accountability for strategic decisions falls on the business leader.
The business leader receives a Budget from the enterprise, usually during annual planning, to drive its responsibilities to both run and change the business. This is the budget that is deemed sufficient to achieve the performance goals, like the specific revenue targets for the year through the channels.
The business leader begins the process of strategy development by working with their stakeholders to capture Beliefs about applicable markets, customers, and macro-economic conditions. Write up a “winning aspiration” - a statement that clarifies what winning looks like for the business - as a core belief. Then they capture beliefs about the current state of the business, using the KPIs, to assess the need for change.
Business leaders should also capture their current positions on classic Tradeoffs choices. While Tradeoffs are business-specific, some examples for technology businesses include:
- Time-to-market vs. technical debt
- Deployment of new internal systems for efficiency vs. delivery of customer value
- Short-term needs of key enterprise customers vs. Long-term competitive strategy
Imagine Future(s)
Business leaders conduct scenario planning to explore the possible futures that could unfold.
- Referring to the “winning aspiration” belief, list some key factors and trends that will influence success or failure for the business.
- Rank the key factors by uncertainty and importance
- Create 3-4 Scenarios where the factors evolve differently. Name them thoughtfully and add details. Identify which scenario is the current vision or “official future” for the business.
- Explore the uncertainty for each scenario by collecting Questions for each
- Rehearse with the leadership team what decisions would need to be made in each scenario. Ask: “Is the current strategy robust in the face of this scenario?”
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- Challenge any beliefs that come into question when rehearsing the scenarios
- For each scenario, identify new Possibilities that the business could pursue, and evaluate the necessary conditions for each possibility by asking, “What would it take for this possibility to be true?”
- Determine which conditions you feel least likely to be true, and mark them as barriers (for the particular possibility to emerge as a choice)
- Explore whether key barriers could be tested, to reduce uncertainty, by building Hypotheses (and prioritizing the testing of barrier conditions with least confidence first)
- Identify and communicate what should be learned from the scenario planning exercise.
- Identify scenario early warning symptoms, the signs that a scenario is likely to happen.
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With the possibilities evaluated for each scenario, either confirm the “official future” as the Vision for the business, or revise the vision based on learnings. If there is debate over which future is preferred, drive a deliberative Decision to weigh the choices with a set of stakeholders.
Lastly, once a preferred scenario is selected as the vision, the extended team can articulate the Risks of their ideal future, to mitigate with continued learning and experimentation.
Set Direction
With a vision of the preferred, ideal future in hand, business leaders can document the active set of Assumptions about the external world that they will carry (or are currently carrying) into the strategy definition that follows. These assumptions document the leaders’ predictions for uncertain factors, that is, the uncertainty that was exposed as the scenarios were evaluated.
Next the business leaders make choices for “where-to-play” and “how-to-win” or something similar using Prompts from thought leaders on business strategy. For example, here is a prompt taken from the Strategy Logic Flow from “Playing to Win” by A.G. Lafley and Roger L. Martin:
Industry Analysis
- Segmentation - What are the strategically distinct segments?
- Structure - How structurally attractive are the segments?
Customer Value Analysis
- Channel - What attributes constitute channel value?
- End consumer - What attributes constitute end-consumer value?
Analysis of Relative Position
- Capabilities - How do our capabilities stack up against competitors?
- Costs - How do our costs stack up against competitors?
Competitor Analysis
- Prediction - How will competitors react to our actions?
When multiple, promising, competing choices emerge, the leaders can facilitate structured discussions to make and document these strategic Decisions. Consider driving the questions from prompts as decisions, to support collaboration and record-keeping for these critical choices.
For example, a “Playing to Win”-driven prompt might yield five new decisions-to-make:
- What is our winning aspiration?
- Where should we play?
- How will we win?
- What strategic business capabilities do we need to win?
- What supporting systems for performance tracking will we need (to know if we are winning)?
Or using a prompt from “Jobs-to-be-Done: From Theory to Practice” might yield one or more of these decisions-to-make:
- Should we borrow features from other company offerings?
- Should we accelerate offerings in the pipeline and R&D?
- Should we partner with or license from other firms?
- Should we acquire another firm to fill a gap?
- Should we devise a new feature set?
- Should we devise new ancillary services?
- Should we conceptualize the ultimate solution?
Keeping with this example, the choices of “where-to-play” and “how-to-win” can be restated now as objectives for the Goals that will drive the business over the next year. The extended leadership team works to specify what success would look like for these objectives as Desired Results that could be measured, say, a year from now. These are often financial-oriented measures, and as such would be lagging indicators of success.
The business enables their strategy by building or enhancing a set of business capabilities. This is the means by which they “win where they play”. Start by baselining the current state of the business’s capabilities. Are they enough to achieve the goals? Likely not. What new or enhanced capabilities are needed to win? Explore this by proposing Levers (i.e. a ”lever to pull” to improve capability). These are high-level directions for change that signal a possible path for investment. Levers are the “Strategic Themes” or “Investment Themes” that signal a path without describing the specific changes. Levers, and their course of action, are evaluated with tools like CDD and Opportunity Trees to help business leadership teams discuss how an idea could lead to results that achieve the goals.
When multiple ideas surface (to chase the same goal) and all cannot be pursued, business leaders should facilitate nominal collaborative groups to make the Decisions.
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