Rethinking: What is Strategy?

Understanding your strategy is not enough. You have understand your leadership team's strategic thinking process - this is what will change your strategy and this is what will predict your success.

If you went to business school, you probably grappled with a definition for “What is strategy?”. As a professor at Pepperdine University, in California, as well as at the Richard Ivey School of Business, in Canada, my brief but pointed definition of strategy was: “Strategy is about performance. Performance in the for-profit world is measured in PROFITS. Performance in the non-profit sector is measured in various forms of IMPACT. Firms who are interested in a more inclusive definition of the bottom line measure performance in achieving a BALANCE between PROFITS & IMPACT. With my varied consulting clients, their strategic issues could usually be framed within my version of the Strategy Triangle, whose centerpiece is performance.

STRATEGY TRIANGLE

STRATEGY is about selling the right PRODUCTS OR SERVICES in the right MARKETS. Profitable firms do this by ensuring they have the right RESOURCES in place. Profitable firms shape and configure these resources, so they are difficult to copy and allow them to outsell products and services relative to their competitors. When a firm is able to tangibly create value for its customers such that customers are willing to pay a premium for the firm’s products/services, the firm has a defensible COMPETITIVE ADVANTAGE. This allows the firm to become a strategic leader in its industry. The Strategy Triangle is an interesting way to think about strategy – some might say its elegant. But sadly, it may be outdated.

Amazon: Does the Strategy Triangle Apply?

Jim Cramer, the Host of CNBC’s Money Matters, calls Amazon: the death star – the ultimate business model – able to outcompete almost anyone! Amazon has few, if any boundaries on its product offerings. Amazon seems to want to sell almost everything to everyone. Does it even care about having the right products or does it want to ensure it has most products? Amazon also seems to operate in most product markets. Today it serves almost 20 different geographies. What is its competitive advantage? Is it brand? Is it size? Is its “Prime Shipping”? Or is Amazon’s competitive advantage the reality that it has invested in resources and technology that seem to allow it to successfully be your everything?

Shout out to Andy Gibb (he was what came before boy bands – sadly this is how old I really am) https://www.youtube.com/watch I WANT TO BE YOUR EVERYTHING - Andy Gibb.

The very basis of the Strategy Triangle is that performance is earned when a firm is able to be something very valuable to a group of customers who are willing to tangibly reward value. However, does this capture how Amazon thinks about strategy? The truth is: “sort-of”, but not completely. Amazon’s customers want cheaper products more cheaply. They don’t want to pay a premium – so what is Amazon’s sustainable competitive advantage?

Drop Shippers: Does the Strategy Triangle Apply?

Let’s look at one of the newest selling trends: fly-by night drop shippers. These entrepreneurs – well actually marketers - create companies with very credibly sounding names with amazing websites that feature beautiful pictures of a product that may or may not be the actual product they are selling. Drop shippers then engage in behavioural retargeting – a fancy term for stalking a potential customer on various forms of social media – and then overwhelming that customer with ‘cool products’ like weighted blankets, wireless earphones, wooden watches, etc. until they drive a conversion. About 2% of all viewers make a purchase and that means big revenues and sizeable profits. Drop shippers then outsource order fulfillment and don’t engage in any real customer service. Maybe you can sense that I am not gung-ho about drop shippers – they raise the ethical hairs on the back of my neck – but the real question for now is: Does the Strategy Triangle inform how drop shippers think about strategy? Humour me for a second. It would seem that a very successful drop shipper moves from product to product – that’s their competitive advantage. Drop shippers don’t care about the customer except to entice him/her to spend. When customer dissatisfaction rises, drop shippers close up shop and move on. Does the strategy triangle capture this approach to strategy? The answer is: “sort-of”, but not completely. Drop Shippers woo their customers with new and interesting products that always seem very high quality and very low price. Their customers, too, don’t want to pay a premium. So, is their competitive advantage identifying the inflection point at which increased sales will outweigh the costs of increased customer complaints?

QUESTION: SO, WHY DOES THE STRATEGY TRIANGLE ONLY “SORT-OF” CAPTURE AMAZON’S AND THE DROP SHIPPER’S STRATEGY – WHY DOES IT NOT CAPTURE THE STRATEGY COMPLETELY?

ANSWER: WHETHER YOU ARE AMAZON OR WHETHER YOU ARE A FLY-BY-NIGHT DROP SHIPPER – MODERN-DAY STRATEGIC SENSIBILITIES ARE GROUNDED IN INFORMATION AND KNOWLEDGE – ELEMENTS MISSING FROM THE STRATEGY TRIANGLE.

Both Amazon and the Drop Shipper depend on acquiring, interpreting, and leveraging information. If they do this accurately, their customers will choose to do business with them more frequently than their competitors because their business models will feel more aligned to the customer – even when its only for a short period of time. Welcome to the key role of information in modern day strategy and strategic thinking – captured by Strat-ology’s Strategy Pyramid.

STRAT-OLOGY’s STRATEGY PYRAMID

Layer 1: Strategy is about developing and gaining access to multiple and varied sources of information from both inside and outside your organization. Diversity and quality are hallmarks of solid information and data.

Layer 2: Strategy making, thinking and implementing rely on a complex information processing model. Its about taking different sources of information, interpreting and integrating the information, and then using your people’s expertise and experience to create knowledge. Knowledge, in this case, is a set of guiding principles and key realities that you and your team espouse to help you make decisions.

Layer 3: Skilled managers use this knowledge to make decisions that foster value creating behaviours and guide investments in value creating products, services and resources.

Layer 4: Senior leaders serve not only as the architects of the entire process, but leverage knowledge to actively steer value creating behaviours, products, services, and resources to create a firm’s competitive advantage – the ultimate source of a firm’s performance.

Upon first read, you might remark that both the Strategy Triangle and the Strategy Pyramid are not that different. They are certainly similar - both models attempt to explain how organizations can achieve higher levels of performance. However, where the Strategy Triangle can do a relatively decent job of describing a firm’s strategy – from Amazon to drop shipping – it does little to help us predict what comes next. The Strategy Triangle is a good academic way of describing strategy, but not a great way to capture strategic thinking. Strategic thinking is a key driver of a firm’s ‘next set of moves’. Strategic thinking is the mechanism that is captured by the Strategy Pyramid because it focuses on helping managers think about (a) the quality and diversity of their information sources, (b) how they are converting information to knowledge, and (c) how they are leveraging that knowledge to invest in the tangible and intangible assets which drive their firm’s performance. In today’s fast paced world, not only to leaders have to understand their firm’s strategy, they have to understand how their people think about strategy – because one thing is for sure – today strategy changes more regularly and more quickly.

How can thinking and reflecting about Strat-ology’s Knowledge Pyramid make you a better strategic leader and decision maker?

1. Strong leaders must be aware of their personal Information Index

• Your information index is made up of two variables: (1) the diversity of the sources of information you rely on and (2) your hierarchy for information quality. When you think back to some of your more strategic decisions or your contributions to strategic decision-making, do you find that you rely on the same kinds of information, from relatively the same sources? If your answer is YES, you need to broaden your horizons by engaging in more diverse and deeper networking both inside and outside your organization.

2. Strong leaders are data driven: Are the changes you have made to your organization’s products/services, systems, assets, staff, and even leadership data driven?

• What is the nature of the data you rely on? Is it primarily; (a) quantitative - in the form of facts and stats; or (b) qualitative – in the form of opinion, context, and hearsay? High value information sources share both quantitative and qualitative information.

• What is the credibility of the data you rely on? (a) Is it published and validated by peers; (b) Is its private information from friends and trusted colleagues? (c) Do you ever validate the information shared by your trusted sources? (d) Do your sources have a vested interest in sharing information with you? (e) When data is used to validate recommendations – do you research the credibility of the sources of that data? Part of sourcing data is thinking about its value – the more you engage in this evaluation, the better will be the information you rely on and the stronger your decisions.

3. Strong leaders can verbalize their team’s knowledge net.

• Your knowledge net is the result of how you and your team members interpret and integrate information to make decisions. The stronger your knowledge net, the stronger your decision making.

• How aware are you of the details of each of your team member’s experiences and expertise? Since interviewing them (assuming you were the hiring manager), have you ever made dedicated time to learn about your team members’ expertise, experience, and how they think about the world around them? Without this knowledge, you will not know how to leverage their experience and expertise to help create a strong knowledge net.

• How much input do your team members or colleagues have on the guiding principles that guide decision making? Do you create formal, face-to-face or online opportunities for them to share their input? Do they rely on you to set those principles? Do you want their input, or do you want them to focus on implementing based on the parameters you set? When strategy relies on the information processing ability of only a few, but expects successful implementation on the part of many - gaps are inevitable.

• Do you engage in some level of introspection around how you process knowledge? When you evaluate data in your own head are you really only paying attention to data that confirms what you want to do or are you truly open to letting data influence your decision making? Knowing your own biases and preferences when it comes to information processing - allows you to start eliminating your decision-making blind spots.