Tag Archives: Michael Porter

Re-learning What Strategy Is


Does the poster at the left describe how your organization thinks about strategy?  When I speak with managers and executives about the topic of strategy, (or when I ask a group to describe during a workshop what a strategy is) I find there is a lack of understanding about what strategy is, and why we need to create one.  If I am honest about it, I think my understanding of strategy was pretty superficial at the time when I first was taught  it during my MBA program, and I think perhaps I was not alone.  Many of us need to re-learn the basic concepts.

I find often people can’t describe the strategy, or translate it into what they should do within their departments that supports strategy execution. For many of us, strategy is an annual event that feeds information upward together with a set of budgets and pro-forma financial statements.

What Strategy is, and Is Not

Ask yourself if YOU can define what strategy is, in just a couple of sentences.   Then, watch this brief video clip featuring Michael Porter talking about what strategy is and what some of the main mistakes are that people make.

Would you change your definition after watching this?

Strategy Must Be in Response to External Forces

While it is fine to ask what it is YOU would like to do, or how you would like to create your own business.   However, it must also be developed in response to those pervasive external forces (we call drivers) that are influencing your industry and your business.   These forces are seldom ones we can control, but our understanding them helps us imagine what we must do in response.

Here is Professor Porter speaking about the five main forces that drive (or should drive) strategy.   It has to do with understanding the external forces from competitors, suppliers and customers that drive profitability in your business.

How much do you know about your what things are driving not only you, but your customers, suppliers, and competitors as well?

You can’t Please Everyone

I don’t think I can think of any organization with unlimited resources (financial, or human).  So, almost by definition, strategy is about making CHOICES between possibilities that define:

  • What your products and services are (or not).
  • What customers you wish to serve (or not) (all markets are consisted of segments that all want something a little different.  In the airline industry, business travelers and personal vacation travelers are distinctly different.  We want to buy from people who UNDERSTAND us, and this is much easier to do and to project when you are deliberate about who you are serving.)
  • How you create value for those you are serving (some people call this your value proposition.  It answers the question “why would anyone want to buy from you?”)
  • How you will choose to deliver your value (this is not just a set of operating approaches, but reflects a set of deeply held values about how you want your organization to be)

This last point helps inform your thinking about tactical execution.   Remember this quote:

“Good tactics can save even the worst strategy. Bad tactics will destroy even the best strategy.”     —General George Patton

Deciding on what business you are in is not that difficult.  The hard part is exerting the organizational self-discipline to risk being drawn into new product-market segments without deliberation and purposeful effort.  When you end up chasing all opportunities that seem like could make a profit, you can end up unfocused, and stretching scarce resources in too many directions.  The best way to do a poor job with any one is to try to do a good job for everyone.

In addition to knowing what business you are in, the second issue has to do with what you want your brand to be about.  (How do you want customers to see and think about you?)  You can choose to compete based on being the highest quality, lowest cost, best service provider, or the most cutting edge technology provider, as some examples.  Wal-Mart and Nordstrom are both mass merchandisers, but provide two very different shopping experiences, and appeal to different customer demographics.  Here again, there is not necessarily any right or wrong choice, but you need to make one, and then act consistently with it.   If your goal is to be the low-cost provider, you may not want to be investing in elaborate corporate jets, or luxurious store decorations.

It is a team sport

It is fine to have senior execs with a strong vision, but even these people have difficulty getting everyone top-to-bottom understand it in the same way – and so, execution suffers.  A better approach is to engage people from across your organization in the process.   It can work if top execs define what, and ask the rest of the team to define HOW.   However you approach it, I think lower level people will almost always surprise you if you let them.

Not an Annual Event

If you are living your strategy every day, then it is unlikely that strategy can be an annual event at budget time.  Strategy is an organic thing.   The second you publish your strategy, the world is changing in ways you may not have anticipated.   So, the strategy must be flexible, and subject to revisiting whenever new things are happening that cause you to question some of the assumptions upon which it was initially based.

Requires Thinking and Action TOGETHER

One of my favorite strategy quotes comes from General Erwin Rommel when talking about battle plans (the Army version of a strategy is:  “Every [strategy] is a good one, until the first shot is fired.”   This is true in business as well.   We form a plan and begin to execute it.  But instantaneously, the market shifts, competitors react to our moves and the situation us highly dynamic.   So we need to think about strategy as being a circular, not linear, process.  We learn as we go, and continue to adapt tactics and strategies in real-time.  Think – plan – do – learn – re-think . . . etc.

References

(Sometimes these classics are well worth re-reading.   I hope some new flashes of insight will appear for you.)

What is Strategy , from HBR by Michael Porter

Strategy Safari, by Henry Mintzberg

What Strategy Is, by Balajhi Narayanasami, Business Week

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Where Many Go Wrong In Strategy


Business Strategy is one of the core topics covered in every business curriculum. Bright, aspiring young business leaders go out into their corporations, MBAs in hand, equipped with the skills to create beautiful business plans filled with matrices, tables, charts, and graphs.  Many companies have strategic planning divisions or departments filled with people who have lots of analytical skills.   We mainly think that strategy is an important business activity.  We wouldn’t think of running an enterprise without a strategy…without a plan, a set of goals, and objectives. But, even strategy can have its pitfalls.

I came across an interview of Michael Porter (Harvard’s best known strategy guru) by Joan Magretta where she asked him what some of the most common strategy mistakes were.   This made me think about what I saw as common strategy mistakes as well.  Below is a list I compiled (Porter’s list of strategy mistakes follow mine):

We think about strategy as the end-product.  At the culmination of the strategic planning process, we typically produce a massive strategic (or business) plan document. It can consist of hundreds of pages, spreadsheets, and PowerPoint slides.  Now that we have “finished” the strategy, participating executives go back to their “day jobs” and the strategy document goes on the shelf. It’s not really exercised, except when we are held accountable for achieving the financial metrics that came at the end of it.

In many organizations, meeting the metrics is what dominates thinking and behavior.  The strategic initiatives seem to yield to the skills of financial engineering needed to manage business performance.

The value of any strategic planning system is the process itself.  The value is not so much in the finished documents, but in the debate, reflection, choices, and discussion that takes place as we’re building it.  Too often, companies involve a relatively few number of people in developing strategy, and it is no wonder that the masses, deprived of the chance to participate in the discussion, have little affinity for, and limited understanding of the strategic intent.

We struggle too hard to create the one “right” strategy.   The MBA mentality is that there is always one “right” answer to every situation or problem.  We work really hard to develop the perfect strategy,  research thoroughly, and perform analysis.

The truth is that there are many different choices available to us in terms of how we want to compete.  We can decide to compete on quality, customer service, technology, cost, or company culture – to mention a few.  As long as the competitive advantage we try to create is correctly aligned with the desires and needs of the customers we have chosen to serve, things will work out.

When I was at Marine Corps Officer Candidate School, I learned a key lesson there.  The Marines learned over the last 230 years to value action over analysis. They teach that when you have 70% of the information available, you should make your decision and begin implementation.   They further argue that even a “mediocre” strategy, if aggressively executed, can often produce good results.

That is an interesting idea.  It suggests to me that what matters more than having a perfect plan, is having alignment among all the fire team members so that their actions support each other and the commander’s strategic intent.   This means that they understand it, and know what their own personal role is within the overall plan.  So let’s invest more energy of communicating strategic intent, and helping assure greater consistency of purpose across teams.

We do not force ourselves to have the discipline in strategy execution.  It is great to decide that we will build our competitive advantage based on producing superior product quality, for example. So if we have made this choice, quality initiatives should dominate our internal agenda.  They should greatly influence who we hire, what we train, and how we spend money.  If we claim that quality matters but pummel our managers each month or quarter over meeting short-term financial results, I can guarantee that quality concerns will take a back seat to financial ones.

Yes, there is a dichotomy here.  We want both . . . high quality and financial performance. But the mindset needs to be that by producing superior quality (however, we define it) we will produce the undying customer loyalty, word of mouth referrals, and repeat business that will ultimately PRODUCE the financial performance we seek.   We want our organization to believe that it is QUALITY that drives FINANCIAL METRICS.   Otherwise, quality becomes just another slogan on the posters in our facilities or on our company website.

Again, it is about consistency of purpose.  One of the best examples I can cite is that of Wal-Mart.   They are a controversial company, and many people (when I teach a Wal-Mart case) are critical of some behaviors of the company like being harsh on suppliers, being anti-union, hiring many part-time workers, etc.

In my view, the company mission (enabling ordinary people to save money, so they can live better lives) COMPELS them to do all the things listed above.  Everything about W-M actions is to drive down cost, improve productivity, and manage the supply chain with fierce efficiency.  They have the discipline to do what they must to insure that they live up to their brand promise (helping people save money).  Just visit their company headquarters in Bentonville to see proof that they live to a more Spartan set of ideals than do most organizations.

Now here are some common mistakes that Michael Porter sees:

We follow our industry leader Porter asserts that very often we look at the industry leader and try to emulate their actions, products, and go-to-market approaches in the illogical hope that it will somehow produce superior results for us.  In a dynamic world filled with able competitors, this can be a hard race to win.

A better approach is to find a new means of achieving competitive advantage that our competitors haven’t yet thought of.

We overestimate our own strengths.   I learned this one the hard way.   Just let someone write a couple of complementary articles about you in the local press, and you actually start to believe in your own myth. Our organizations are hard-wired to overestimate internal strengths.  I never spoke to one of my engineers who did not believe our technology design was the best one in the market.  The only measure of your true strengths comes from speaking openly to customers.   What I say was that we did have some impressive technologies, but in many of our markets, customers valued other things more highly – like price.   When I was able to speak to clients honestly, I almost always found that those areas where we felt we excelled were seen by them to be points of parity, or sometimes even weaknesses.

Be suspicious of your-self assessments.

We define our business wrong  In my business, we served Asian, European, and US car makers.  We saw the auto industry was becoming more global, and so we concluded that we needed to be as well.   We did greatly expand our sales overseas (to almost 40% of our total revenues).   But we discovered that the demands of our three markets were very different.   They all defined quality, technology, customer service excellence differently. We hoped for synergies (selling the same products to everyone in a global market).  But we had to develop three different sets of designs (at great excess cost) to serve clients on each continent.

Perhaps globalization was the right strategy for us, but we greatly under appreciated the challenges of serving each different customer group.

Another good example referenced by Porter is the railroad industry, which saw itself as just that, rather than being in the transportation business.  Thinking narrowly about their business, arguable caused them to underestimate the threat from trucking and air freight, leading to dramatic declines in their revenues.

Final Thought

Here is 2 minute clip of Michael Porter in London, lecturing about what strategy is and isn’t.  He makes a great point about the difference between strategy and action steps.

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