Three simple steps to developing good strategy

Guest blogger Guy Hamilton, who’s also a Group Chair for the mentoring and business coaching group The Executive Connection, and lectures at QUT on strategy execution, shares some common strategy development pitfalls before offering three key steps to getting it right

One need only to reflect on the parade of large corporates who have announced bold new strategic initiatives that end up being unwound five or so years later – and often under the guise of ‘divesting non-core assets’ to appreciate that the process by which some boards review, approve and track strategic initiatives is often sub-optimal.

I was reminded of this when a colleague recently shared a paper which quoted 2013 McKinsey research showing that only 34 per cent of 773 directors surveyed thought their board comprehensively understood their strategy, just 22 per cent understood how their firms created value and a mere 16 per cent felt their board had a strong understanding of the dynamics impacting their business.

When facilitating a strategy session, I invariably ask two questions – what exactly is your business and what does it include and not include? And what does good look like in five years’ time?
The first is about focus, history telling us that the more diversified a business the more likely it is to under-perform; the second seeking to extract what incremental value the board wishes to add over the medium term.

It’s rare that a board is able to collectively articulate a consistent answer to both.

Good governance requires a board to own strategy and set the strategic direction, with management then providing recommendations on how to get there. And once approved, the board provides the necessary mandates, authorities and performance measures to enable execution.

My experience and perception tells me that all too often the processes to develop and then communicate strategy lack the required vigour, with common pitfalls being:

  • A big bang one-time strategy review and discussion every three to five years when best practice calls for annual appraisals to track execution progress
  • Getting into discussions of strategic options before a thorough situation analysis has been undertaken and there is clear agreement on, to borrow a cricketing analogy, the pitch you’re playing on and the conditions and opponents you face
  • Short-termism, evident when strategic planning processes start with the best intentions of looking out over the next five years but get sidetracked and end up focusing on the next 18 months. Boards should focus on the medium-to-long-term and leave executive management to take care of the next 18 months
  • Data fog and analysis paralysis often brought on when swamped by too much readily available data – and we forget that a few core figures, analysed and interpreted well, will always win out over multiple slides cluttered with confusing rather than enlightening graphs
  • A tendency to ‘build-up’ from where a business is today rather than ‘work down’ from where it could or should be in five years, which invariably leads to ‘more of the same’
  • Letting current resources and capabilities constrain thinking when the board’s role is to allocate resources to what it believes the business should be
  • Ignoring the importance of core culture and values as an enabler of good strategic outcomes even when evidence tells us that when a business moves beyond its core culture, problems arise as culture takes time to change…the Mercedes-Benz and Chrysler tie up springs to mind, their cultural differences suggested it would not last, and it didn’t!
  • Developing too many ideas and statements of intent when we know a few compelling and credible ideas, understood by and subscribed to by the lowest employee in the company, are always better than many fluffy notions lacking real substance
  • And finally, groupthink. Directors should be actively encouraged to test and challenge management’s proposed strategic options as a management team brimming with conviction is more a warning sign than a positive one. With hindsight, the Woolworths venture into hardware stores under the ‘Master’s brand was an accident waiting to happen and, as one commentator so correctly put it, was the Board asleep on the job?

Yes, developing good strategy can be challenging but the trick is to keep it focused, well founded and based on substance.

I favour three simple steps – a thorough situation analysis, building a working hypothesis of what the business could or should look like in five to 10 years’ time, and a robust champion / challenger debate on how to get there and whether the business has the culture and competencies to make the strategy successful.

Thanks Guy for the wonderful insight.

This will be our last blog for 2017. Wishing you all a wonderful and safe Christmas with your loved ones.

Best wishes,

Kate.

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