Performance-Based Strategy

Tools and Techniques for Successful Decisions

Steve Fairbanks, Aaron Buchko

• Publisher: Emerald Publishing Limited
• Year: 2018
• Print ISBN: 9781787540903, 9781787437968
• eBook ISBN: 9781787439825
• Topic: Business
• Subtopic: Business General
• Index: Business

Executives in today's business environment have never been busier. Time constraints are ever present. Resources are strained. Strategic planning constantly competes with the tactical demands of running an organization. To make matters worse, most organizational leaders, when confronted with the need for strategic planning, have no idea about how to go about it. They have plenty of knowledge and information about the organization and their situation, but no effective tools to analyze their thoughts, to make decisions that will lead to effective strategies, and most importantly, to create a plan of action.

In Performance Based Strategy, Steve Fairbanks and Aaron Buchko offer a practical set of simple, productive tools that will enable leaders to develop effective strategies. The book offers tools that have been tested in small, medium, and Fortune 100 companies, with for profit and not-for-profit organizations, and across a breadth of industries, such as manufacturing, health care, banking, distribution, transportation, government, and charities, among others. The authors have used these tools as insiders to turn around companies, and as outsiders in advisory and board roles.

When properly applied, the strategies offered here enable leaders to see their situations and organizations in new ways. Managers will be able to present information in a way that everyone in the organization will understand.  Executives can provide a sense of direction that will provide a framework for decision making that will give guidance to people. Above all, applying these tools will enable managers to improve their firm's performance.

1

What Is Strategy?

Abstract

Strategy Question: Is there a simple, “real-world” definition of strategy?

Summary: We define strategy as an integrated set of actions and resource commitments that position an organization within the competitive environment so as to generate superior results over time. There are five key concepts to this definition. Strategy is integrative, encompassing all of the activities of an organization and the manner in which those fit together. It involves the commitment of organization resources — human, financial, capital, etc. — in ways that lead to effective action. These actions position the enterprise relative to all others within a competitive environment that includes customers, suppliers, and competitors along with external factors such as political, economic, and social trends. If the position in the marketplace is aligned with customer’s needs and wants, the firm will be able to achieve superior results and outcomes.

Keywords: Strategy; integrated; resource commitments; actions; position; competitive environment

Strategy Question: Is there a simple “real-world” definition of strategy?

The Definition

This is a guide to using various tools for strategic analysis and planning purposes, so we need to first define what we mean by using the word strategy. It is a good word, an old concept, but it has been overused so much throughout the years that it has lost a lot of its meaning. Before we get too far into the tools, we want to present an overall framework for understanding strategy, both to provide a clear understanding of the concept and to provide a framework for the tools.

The word “strategy” comes from the Greek word “strategos,” literally meaning “general of an army.” Strategy has its roots in the military; originally it meant the decisions and directions of the general commander of a military force in conflict with an enemy. The dictionary defines strategy as “the commitment of resources to support adopted policies, usually in time of war.” So the basis for strategy is conflict. It involves making decisions and directing resources and actions toward a desired end goal.

Fortunately, in most organizations, we’re not in armed conflict with our competitors. But we are competing for customers, revenues, and market share. Or in a not-for-profit organization, we’re competing for funding or grants, for clients and services. Inherent in strategy is this idea of a competitive environment in which firms struggle for access to the resources necessary to survive, grow, and prosper. This idea of competition for scarce, limited resources is fundamental to understanding the reason for strategy in organizations.

Unfortunately, executives seem to like the word “strategy” or “strategic” so much that it has become overused in their organizations. Today we have marketing strategies, human resource (HR) strategies, information technology (IT) strategies, operational strategies, financial strategies, and more. We have a strategy for this market or that group of customers, a strategy for dealing with the government, and a strategy for growth. We strive for strategic leadership in our industry, with strategic product placement and strategic innovation based on strategic research and development activities. The problem is, when everything is a strategy, nothing is strategic. Our ability to communicate and to understand our management decisions and actions becomes difficult due to the confusion created by our use or misuse of this single word.

Having multiple “strategies,” like a supply chain strategy and an advertising strategy and a growth strategy and an innovation strategy, doesn’t mean your organization is strategy rich. In our opinion, the more “strategies” you have, the less likely it is that your organization has a strategy at all. There’s a quick acid test for strategy: if every manager in the organization can state, clearly and succinctly, what the organization’s strategy is, then odds are good you have a strategy. If no one can state in a clear, simple, and easily understood manner what the strategy is, then you probably don’t have one. It doesn’t matter what your official documents say; if the people in the organization cannot state a common strategy for the enterprise, then the organization doesn’t have a strategy, because the actions that individuals are taking are not bound together in an integrated way toward a common, shared objective. There may be nice words on paper, and they may make managers feel good, but there’s no strategy.

Over the years, and with experience and time, we have narrowed down the definition of strategy into one that captures both the competitive nature of organizations and the essence of strategic decision-making and execution. We’ve worked with and talked to countless managers in diverse organizations. We’ve seen all kinds of conceptualizations and definitions of strategy. We’ve seen numerous strategy statements, the good, the bad, and the ugly. And we’ve studied the works of the major writers, researchers, and strategy consultants. From this, we believe we have been able to distill it all down to a practical definition of strategy:

Strategy is an integrated set of resource commitments and actions that position an organization within the competitive environment so as to generate superior results over time.

We’d like to break that definition down to be sure that we begin by having a shared understanding of what these tools are intended to produce and support.

Integrated — The first thing that needs to be understood is that strategy is purposely intended to integrate all the various functions and activities of the organization. By nature, strategy is inherently integrative, involving all the elements of the firm.

Nothing happens in isolation in an organization. Every activity, every function, is inherently linked to everything else. A decision to increase market share requires product or service development and expansion, HR commitments, financing to support growth, and information support. Reducing costs affects HRs, operations, finance, marketing, and so on. Hence, integration across the various functional areas or disciplines of the enterprise is fundamental to strategy.

The activities are not just integrated, though, the activities are integrated in varied, complex, and numerous ways. So even if it were possible to isolate the actions of each functional area, it isn’t possible to isolate the relationships among these because of their complexity. As a result, every strategy will touch all aspects of the enterprise, and therefore all elements of the organization have to be considered in developing a strategy.

Set of Resource Commitments — Like the classic dictionary definition, strategy involves the commitment of resources — human, financial, and capital. These are the basic resources of any organization: people, money, and assets. Strategy requires that the managers of the organization make decisions about how to apply these resources, and it is the commitment of those resources that comes to define the strategy of the organization. We want to distinguish, then, between an organization’s stated strategy and the actual strategy. Organizations make a lot of statements about what their strategy is, but the commitment of resources is what operationalizes the strategy and makes it real. An organization that claims to be pursuing a strategy of innovation yet never commits people, money, or assets to innovation isn’t likely to come up with too many innovative ideas. No resources, no strategy.

As economists constantly remind us, these resources are scarce, limited, and finite. That’s what gives rise to competition: the struggle for scarce and limited resources, which in turn defines the nature of market competition. But it is this property of resources that also necessitates the development of strategy, because it is not possible for firms to do everything. No organization has an unlimited amount of resources. Since resources are scarce and limited, strategy involves making tradeoffs — making decisions about where, when, and in what amount to apply the limited resources available to the manager. The old strategy truism “an organization cannot be all things to all people” is based on this innate requirement of tradeoffs among resource commitments. Executives have to decide how to allocate a fixed set of resources among alternative potential uses in order to drive the right behaviors and outcomes. This is the nature of strategy.

Actions — Strategy is not a concept; it is not words on paper, it is not a three-ring binder with charts and tables and graphs, and it is not a list of Critical Success Factors or project plans. At the end of the day, strategy is about people DOING things. Strategy requires actions, actions that involve the use of people, money, and assets (hence the commitment of resources). If, at the end of the strategy development process, the organization has nothing but words on paper, or if no one actually does anything, then the process (and the strategy) will be a failure.

Strategy is not passive; it is active. It is real people spending time, energy, and effort on various activities that cause things to happen and that create meaningful change in an organization. These activities, as we’ve noted, are integrated with hundreds and thousands of other activities in the organization in complex ways, but ultimately it is these actions that define what the strategy is in practice. We distinguish, then, between an organization’s strategy CONCEPT (what we say) with the strategy PRACTICE (what we do). Of these, it is the latter, the actual practice of the strategy, that is in fact the real strategy of the organization.

Position — Since strategy is by nature competitive and occurs within a competitive environment, then it follows that the goal of strategy is to secure for the firm a particular location within that environment, based on the unique commitments of resources and the integrated actions undertaken by the organization. This location is defined relative to all other organizations by the distinctive application of those resources and the resulting activities that occur based on those resources.

It is these unique commitments of resources and actions that give rise to such traditional strategy concepts as “distinctive competence” or “competitive advantage.” What we are trying to describe through these terms is the manner in which an organization is different from all others — but different in what space? At some level, all organizations have products or services, people, money, and assets. All organizations “do” marketing. All organizations have operations that need to be managed. The uniqueness of differentiation of an organization cannot be relative to these common resources and actions. Positioning comes about as a result of the distinct manner in which resources are applied and actions are performed.

Competitive Environment — The uniqueness of the organization must therefore lie in its position — but a position relative to what? Since competition and conflict are inherent in strategy, the position must refer to the competitive space, that arena in which firms must compete. In business organizations, the arena is the market. In not-for-profit organizations, the arena is the firm’s external environment. In any case, the essential point to note is that strategy is intended to enable the firm to occupy a unique space within the competitive arena, distinct from all others. This presumes that the organization understandings the environment and market(s) in which firm is trying to compete. There must be a way of evaluating or assessing the competitive space that aids managers in determining if the resource commitments and actions are effective in enabling the firm to identify and secure that space within the environment relative to others.

Superior Performance — By achieving a unique position within the competitive environment, an organization will be able to generate superior performance. In the case of the for-profit business enterprise, superior performance can be measured as returns to the owners, profitability, return on investment, cash flows, economic value added, or any of several measures. For the not-for-profit entity, performance can be measured by clients served, services provided, outcomes produced, return on philanthropy, and several other metrics. The essential point is that a successful strategy enables a firm to generate superior performance in the competitive arena through the ability to stake out a defensible, unique position based on an integrated set of resources commitments and actions.

Wow; what a long-winded, technical definition. What is it we’re really trying to say? The point we’re trying to make with all of this is that the proper application of strategy tools requires that we have a framework to “hang” the tools on. If we don’t know what we mean by strategy, then virtually any technique or activity can be viewed as strategic. It’s like trying to build a house: if you don’t have a blueprint for the home you’re trying to construct, then you don’t know how to develop a plan to build the home and which tools to apply at which times. You’re likely to wind up with a mess and a lot of frustration. But if we have a clear sense of what it is we’re trying to create, then we can develop a process to achieve the goal and we can determine which tools to apply along the process to enable us to reach the desired end state.

Unfortunately, all too often we’ve seen organizations and executives with no sense of strategy, just this vague notion that “we need a strategy” (usually because performance is suffering or some Board member or consultant told them they needed one, or because there’s some significant change in the organization’s circumstances). In these situations, organizations usually hire consultants to perform various analyses or to develop a strategy for the firm based on the consultant’s models and tools. The problem is that the consultant’s toolkit is usually limited to a few key models or concepts, and the resulting analyses and strategies are likewise limited as a result. To continue the analogy, it is like only hiring a carpenter to build a house; you’ll get a nice structure, but you might also want a plumber and an electrician to really have a livable space. Many times, strategies look like the house built only by a carpenter: a nice structure, but no way of actually doing anything.

So if it seems like we’re being a bit “anally retentive” in insisting on this precise understanding of what strategy really is, it’s only because our intention in providing a strategy framework relies on having an accurate conceptualization of strategy in the first place. Once we have a common concept and definition, we can begin to talk about HOW to go about developing an effective strategy. That’s where we’ll turn our attention next.

Practical Strategy Tools

Let’s assume (now that you know what strategy really is) that you’re aware that your organization doesn’t really have a strategy. Or perhaps you have a strategy, but it is not effective; it doesn’t tell you what your unique position is in the environment, and it isn’t creating superior returns or outcomes for the organization. You know that your organization needs an effective strategy, one that can be shared among the members of the enterprise and that will guide decisions and behaviors. But you’re not sure how to go about developing a strategy, and you don’t want (or can’t afford) to hire a consultant to develop one for you. You know the questions you need to have answered, but aren’t sure how to go about getting those answers. If this sounds like your situation, then you are the target of this book. You are the person or organization for whom this book was written. No one outside of your firm can develop a strategy for your organization; there’s no way an outsider can possibly understand all of the complex interrelationships among people, assets, processes, and systems that are necessary for your company to be successful. You know that ultimately, effective strategies need to be developed by the members of the organization. You can’t hire this out or look to consultants for the necessary experience if you want to be truly effective in your business situation. It takes intelligent, committed, and capable people inside the enterprise to develop an organization’s strategy.

But you also know that your abilities to do so are limited. Most organizations don’t hire people because they are great strategists or strategic thinkers; they hire them because they are extremely capable of performing the tasks necessary for the organization to be successful. However, the essential strategic question is not “How can we perform our organization’s tasks better?” The essential strategy question is this: “What tasks do we need to perform well?” These are two different questions. And the skills that make a person very good at determining a better way to market a product, to lower manufacturing costs, or to improve processes over time are very different from the skills needed to analyze the future of the business and determine how to allocate resources and actions in creating the future.

How does the organization determine which position to secure in the market? How does the organization decide which tasks need to be performed in order to achieve success in the competitive marketplace? How does the business allocate resources to those tasks? These are crucial strategy questions, yet most managers in organizations have limited experience in addressing these issues. They need help, but they are justifiably leery of having people from outside the organization make these decisions for the business — managers realize that no outsider ever understands the business in the same way an insider does. Outsiders simply can’t; they lack the knowledge that comes from years of experience in dealing with customers, vendors, and service providers. They are not immersed in the organization in such a way that allows them to be able to see the web of interrelated systems and to understand how those systems and processes interact with one another to yield results. You want to do it yourself, with your own people, because no one can know your organization as you do. You want to involve others in the organization for the knowledge and experience they can lend to the decision-making process.

This book is intended to provide you with a set of analytic and decision-making tools that will help you and your team assess your situation, analyze the information, ask the right questions, and develop an effective strategy. This is for the senior leader or executive who is a type of “do it yourself-er” when it comes to strategy. You believe in your people and your organization, but you want to be able to guide them in a way that will enable you to develop an effective strategy. You just want some proven, effective tools to help people see the situation in a strategic manner and make effective strategic decisions.

We present tools in this book with this need in mind. The tools cover each area of our strategy definition. We start with tools that help with understanding the competitive environment. Next, we offer tools that will help define your current position wi...

Table of contents

• Cover
• Title Page
• Introduction
• 1 What Is Strategy?
• 2 The Market and Four P Tool
• 3 The Bottom-Up Market Sizing Tool
• 4 The Market Segmentation Tool
• 5 The Segment Niching Tool
• 6 The Market Map Tool
• 7 The Strategic Environmental Scan Tool
• 8 The Product Volume Margin (PVM) Chart Tool
• 9 The Strategic Market Portfolio Matrix Tool
• 10 The Customer Value Analysis Tool
• 11 The Willingness to Pay (WTP) Ranking Tool
• 12 The Product/Service Portfolio Matrix Tool
• 13 The Poor Man’s Quality Function Deployment (QFD) Tool
• 14 The Process Improvement Guidance Tool
• 15 The Strategic Outsourcing Matrix Tool
• 16 The Critical to Customer Mindset Tool: Where Are We Causing You Pain?
• 17 The Brand Perception Tool
• 18 The Opportunity Sourcing Matrix
• 19 Milestone Project Management Tool
• 20 The Visual Waterfall Chart Tool
• 21 The 90-Day Bucket Tool
• 22 The Communication Matrix Tool
• 23 The 10-Quarter Tool
• About the Authors
• Index