Business strategy, Strategic Leadership

Building a winning strategy is undeniably the foundation of successful management. So I was not surprised when an unusually large audience turned up at a venue south of London to discuss this essential subject with me. I explained that strategy demands answers to three tough questions. How can you?...

1. Grow your revenues
2. Manage your costs
3. Captivate your customers

The slide originally read 'win your customers'. But the change of word to 'captivate' has an invaluable double meaning. Your strategic drive must do far more than attract new customers: it must win the loyalty of old and new alike. All three questions are much less simple than they look. Take the first: 'top-line management' is vital, but fails unless the revenue growth is profitable. Then, cost management means far more control and/or cutbacks. It means winning lower costs per unit of output - which may well stem from actually raising absolute expenses.

FINDING THE ANSWERS
Now, any sensient and sensible manager must want to find the right answers to the three questions: i.e., to compose a strategy, or rather a set of strategies, for building profitable growth, getting my old friend LIMO (Least Input for Most Output), and gaining and retaining customers. So how many managers in my audience believed themselves to possess a strategy - and, equally important, the means and methods to turn a strategic plan into strategic action? I asked for a show of hands - and got a couple of handfuls, at most.

The explanation could hardly be that the remaining 90% of the audience felt that strategy didn't matter. If so, it was distinctly odd to find them at a lecture on the very subject. So I asked how many of the strategically challenged actually wanted a strategy and the ability to execute the strategic plans that would result. A forest of hands shot up. This result was, of course, weird. Just so might a motorist drive into a gas station with an empty tank and refuse to fill the car. Strategy should fuel success: but it won't make itself.

Or rather, it will. As I've written before, no strategy is a strategy, though a very poor one. Everything that an organisation does involves strategic assumptions and actions. But in the absence of a properly thought-out plan, the activities are likely to be uncoordinated and very possibly counter-productive. Anyway, the audience plainly realised this truth. Otherwise, they would neither have attended, nor raised their hands. The big puzzle, therefore, is why so many managers pay only lip-service to such a crucial activity - one that can have so dynamic an impact on their futures, for better or for worse.

You could hardly find a much more compelling example of worse than the fate of ICI, once the blue-chip of blue-chips and Britain's largest industrial force, the first such company to make a billion pounds of profit, and a chemical leader fit to rank with Du Pont and the German Big Three. The billionaire profit sprang from the turnround work of Sir John Harvey-Jones, who revitalised the businesses by sweeping away moribund practices and instilling a new spirit of dynamism.

AWKWARD COMBINATION
His reign, however, was too short to reshape and consolidate a lasting strategy. That task fell to successors who saw ICI as an awkward combination of a business with great potential (the pharmaceutical side) and low yielders (the traditional chemical lines). Since major drug companies commanded massive premiums in the stock market, ICI'S deep thinkers decided to spin off its interests as Zeneca. The solid, dull chemical rump would be swapped for speciality products which were not boring commodities, but vital ingredients which were not price-sensitive.

A key element in this master plan was a purchase of Unilever's chemical interests. It proved to be a disaster. ICI's shareholder value has shrunk to £2 billion. Not only is the spun-off Zeneca (now Astra Zeneca) worth 18 times more, but ICI's pension fund, despite the big collapse in equities, has a value of £7.5 billion! In other words, the fund has outperformed the strategists by getting on for fourfold. That shows the dire penalty for dire strategy.

Don't be tempted to assume that keeping Zeneca would also have retained the benefits of its superior portfolio. Before the spin-off, the drug business was operating well below full potential as central management, stretched too wide by its responsibilities, and insistence on retaining them all, exerted a dampening hand on a business which had no connection with the other interests, from petrochemicals to household paints.

It's easy to understand why other managers, confronted by such an example of deep thinking disaster, shy away from the risk involved in any planned, radical change. But don't assume that the unplanned do-nothing strategy is any safer. In Britain some entire industries have disappeared (like non-naval shipbuilding) or passed into overseas hands (like cars) because successive managements blundered on along the same unclear paths that had served (badly) in the past.

The risk argument is similar to another familiar line: shortage of time, as urgent immediate matters drive out equally pressing issues that are longer-term. But any manager, however efficient, spends considerable time on things that are completely unnecessary, even more on things that could be done by others, and surprisingly little on the things that only they can do. Do a time analysis along the above lines, and you will be astonished by how much 'free' time suddenly becomes available.

Finding time for strategic thinking is only part of the battle, however. Thinking without doing is worse than useless. Consider these wise words: 'Strategy is like sex. When all is said and done, more is said than done'. The jest was uttered by Ben Tregoe, the co-founder of the Kepner-Tregoe consultancy, which is famous for its dedication to doing. He has contributed his wisdom to a new book whose prime author is another K-T luminary, Mike Freedman, and which bears the title, The Art and Discipline of Strategic Leadership. It poses these questions as the foundations of what the two authors call a 'strategic vision':

NINE KEY QUESTIONS
• What are you assuming about the world in which you're doing business? Write down each assumption and ask what its implications are for the business
• What do you want to sell - and not want to sell?
• Which customers and/or end-users do you want to serve - and which customers do you not want to serve?
• Which parts of your country, continent or the world will you enter - and not enter?
• Which products and markets offer the greatest potential for growth? Which will need the most investment?
• What 'competitive advantage' will you need to succeed?
• What capabilities are essential to back up competitive advantage and win the needed markets?
• Last, but not least, what financial and non-financial benefits are you going to target?

Some of these nine questions may very well never have crossed your mind before. They can seem formidable to many managers. Freedman and Tregoe, as master strategists, find it natural to consider 'demographic, economic, political, competitive' assumptions. But for others, clearly enough, the nature of the thinking, rather than the time available for thought, is the real inhibition. Fortunately, the questioning process can be simplified and shortened by the A4 Method.

As I've advocated before, just take a piece of A4 paper and write at the bottom a concise account of where the business is now. Then write at the top where you want it to be in x years: the period is up to you. Next, write down, in-between Now and Then, what has to be done and when, to get from the bottom of the page to the top. You shouldn't need more than an hour for a rough sketch of your brilliant future, if that. In my experience, though, most people by far are deeply reluctant to undertake the exercise.

FOCUS AND MIND-SET
That's great news. It gives you every hope of achieving an early and lasting lead over the strategically challenged majority. Highly successful people, with precious few exceptions, share two vital attributes. They know where they are going, and they know how they are going to get there. That gives them two quite priceless assets: Focus and Mind-set. The first concentrates their driving force on what truly matters. The second directs their attention continuously to anything and everything that can assist their progress.

Freedman and Tregoe make the important point that creating a strategy isn't a one-off activity within a set time-frame. You not only modify strategic plans and execution as feedback comes in from the real world. You review and revise strategy regularly and extend it beyond the original period. The principle is exactly the same as that of the rolling budget. There's nothing sacrosanct about a calendar year. It's use is a strictly arbitrary convenience. That's why sophisticated companies not only revise their budgets quarterly, but add on a new quarter whenever an old one expires.

In other words, the strategy isn't something different from the day-to-day life of the company: it must be integrally linked with that life. Andrew S. Grove, the maestro who led Intel to greatness, emphasises that point very strongly in calling for strategic action as opposed to strategic plans. He recommends putting any strategy to this test:

• Is it just a statement of intention?
• Does it sound like a political speech?
• Does it have concrete meaning only to management?
• Does it deal with events far in the future?
• Does it have little relevance to today?

Any strategy which fits that description is probably doomed to failure. To earn Grove's approval, and win success (which matters more), construct a plan that consists of actions that...

• Are already taken or being taken
• Imply longer-term intent
• Consist of concrete steps which will immediately affect people's lives
• Take place in the present and command immediate attention
• Aim at LIMO - Least Input for Most Output
• Provide market-leading VFM - Value for Money
• Include heavy, continuous IIP - Investing in People

INVESTING IN PEOPLE
IIP is more than training and development, crucial though they are. The chances of a strategy working effectively are greatly increased if all members of the organisation not only understand the strategy, but have actively participated in the three Fs: Formation, Fulfilment and Feedback - creating the strategy, putting it into execution, and monitoring its impact in reality so that revision can follow.

To revert to the sad case of ICI, how many of its managers, let alone other employees, agreed with the plan to spin off Zeneca, the jewel in the crown: or to sell off traditional chemical interests: or knew about the Unilever deal before it was announced: or could do anything but sit by in impotence while the master strategy came unstuck? The truth is that ICI wasn't the kind of company that could have made a success from a strategy based on divestment, restructuring and acquisition. Indeed, very few companies can do so.

Better by far to know yourself and your limitations and work on removing the latter strategically to win results that please everybody - except your competitors.