Defining and executing strategy is one of the most important tasks of a leader. In this episode, I explain what strategy is, what it isn’t, and how it differs from other concepts such as operational excellence.
I discuss two principles you can apply when developing your strategy: the Blue Ocean strategy and mission-driven strategies. Furthermore, I explain how you can analyze your company’s situation or develop a new strategy using a simple SWOT analysis or the more sophisticated business model canvas.
[00:00:48] This will be another solo episode where we will talk about strategy. Now, leadership has many facets, but obviously one of the most important ones is to work with strategy, define it, implemented, evaluated. That’s what leadership is about. This is not a topic that we can cover entirely in just one podcast episode.
[00:01:15] So we will get back to this. It should probably a number of times over the course of this podcast in the future. Recently, I had to run a one-day workshop here at Frankfurt School on strategy, so it was a good opportunity for me to refresh some of the things and I thought it might be a good idea. To put that into a little podcast episode.
[00:01:37] So let’s, let’s get started with what strategy is and what it isn’t. And a lot of these things, they go back to what could be called the guru office strategy. Michael Porter, he’s a professor at Harvard Business School, and he has developed many of the ideas that underlie, we understand, ask corporate strategy today, and all the things I will mention.
[00:01:59] Don’t [00:02:00] worry, I will put them in the show notes. So you don’t have to worry about missing some of the information. If you want to read more about different things, everything will be in the show notes. So let’s start with a little bit of a definition of what strategy is. Now. If you imagine a company, maybe you’re a company or any other than you can imagine it as being a set of different.
[00:02:24] Activities, lots of different activities at make obvious enterprise. So you’re producing something. You will have production elements, cars or other parts. You will have marketing and sales. You will have general administration. You will have research and development. And so on and so forth. Different things.
[00:02:46] And depending on the size and the complexity of your organization, those activities may be many, many, many. And you could map them in a activity map and you can show the connections between those elements. Here we get to the fundamental difference between strategy and other things such as operational effectiveness.
[00:03:07] And when we’re talking about effectiveness, and we’re talking about. Doing these activities, the set of activities better than your competitors, increasing the quality, become more effective, more efficient, less error prone, for example. So all these things are extremely important, of course, and they are necessary for you to be successful, but they are not strategy.
[00:03:32] And the example then to Michael Porter, for example, comes up with these, the Japanese companies in the United seventies and for primarily in 1980s. When S the older people of you will remember. That was a huge advance in terms of market share from Japanese companies to the point that many in the West thought that they would be unstoppable.
[00:03:54] But the thing is that the majority of these advances were fueled by efficiency gains. So the Japanese companies, they were much better at that time then their Western counterparts at quality management. And so they could produce more at better quality and lower prices. If you can gain operational effectiveness as a company, that’s great and you should absolutely do that.
[00:04:23] The problem with that is that. A, it is something that is very easy to emulate, which means that if one company has figured it out, many others will probably follow. So it’s a very elusive advantage and advantage that will only hold for a very short amount of time. And it also leads companies to become more generic if all companies are following the same trends in terms of operational effectiveness.
[00:04:54] They become more and more alike. And there’s, of course, if you’ve ever done anything on strategy, is the opposite of what you’re trying to do. So operational effectiveness is doing the same processes or activities better than your competitors’ strategy or trying to put yourself into a position of strategic advantage.
[00:05:15] On the other hand means either doing different things than your competitors or doing the same things. But. Getting there in a completely different way. So having completely different sets of activities. And one of the things that is fundamental about strategy, and I will repeat that a number of times, is that there are always tradeoffs.
[00:05:38] You cannot do everything at the same time. You cannot be everything to everyone. And that is fundamentally important. Although these things are not fully, mutually exclusive, you generally have to decide whether you want to do concentrate on a limited set of products or services and offer them universally, or having a broad set of features and products, but for a very limited subset of customers that you are really dealing with.
[00:06:09] So for example, there are private banks. Who cater for all the financial needs, but not everybody, but just have a very, very specific subset of very wealthy customers. Let’s get back to the activities. If you are in the process of developing your strategy, you have to make sure that whatever you’re trying to achieve, the activities that you choosing, that they are a good fit, so they have to be looking into the same direction.
[00:06:40] If you are, for example, a. No frills airline, then all the activities that you are developing have to go into the same direction. They have to be a good fit, and ideally they have to be mutually reinforcing because the stronger the network of activities and the [00:07:00] better it fits into the whole system of what you’re trying to achieve, the more difficult it is to emulate that position.
[00:07:08] And that is the fundamental. They are, for instance, to operational effectiveness. If you have strategic advantage that is represented through a network of activities that are mutually reinforcing, then it will be very, very difficult for any of your competitors to really break into that because they would have to essentially copy the entire network of activities in order to compete with you.
[00:07:34] Once again, there are always tradeoffs and to Michael Porter is also famously said that the most important thing about strategy is not to decide what you want to do, but rather to decide what you don’t want to do. After this bit of theory, obviously you could ask yourself, how do you get to this strategy?
[00:07:54] How do I develop. An appropriate strategy. And again, there are tons of [00:08:00] ways that you can do that and tons of concepts. I just want to highlight two that might be useful. And the first one is the blue ocean strategy, which was developed by two professors from inside the business school in France, and they call it the blue ocean strategy because of what they want to do is.
[00:08:21] They want to lead you into an area where there is no competition at all. So the area where most companies are is the red ocean and the red ocean is called the red ocean because there are lots of predators. Sharks that are circling there. Everybody is at each other’s throats and the ocean is rad from the Blatt, and that’s cutthroat competition that nobody can really win in the long run.
[00:08:50] And even if you try to expand your product portfolio, it’s generally not very profitable because. Or profits that may [00:09:00] exist. They’re fast eaten away by your competitors, and the idea of the strategy is that it’s dead. You should go to the blue ocean where it’s just you and you can develop completely new offerings that have no competition whatsoever.
[00:09:17] Sometimes this can be really an entirely different market, but more often than not, it will be a combination of something that you are already doing. In conjunction with something else. And one of the classical examples off blue ocean strategy is the suck distillate, the pint of circus. And I say kind of circus because what they did, if you’re familiar with it, and maybe you’ve seen one of their shows, is that they took the concept of circus and they combined it with visually appealing theater performances and they created a completely new.
[00:09:55] Kind of experience that a attracted new segments of [00:10:00] customers that may not have attended circuses before. And they also managed to do so by introducing new elements, but also by getting rid of others. And that’s very important about this concept is that the, the old notion is that there is a tradeoff between value and cost does not necessarily hold.
[00:10:21] Now I will try to explain them. So one of the things that certainly Solei did was they got rid of the animals. So if you’ve been to Cirque du Solei, you will know that there are no animals. And why was that a clever move? Well, for two reasons. One. Animals are very, very costly to maintain. And second, they did some research and they found out that the attractiveness of animals and circuses for the customers was rapidly declining because there were ethical concerns of course, about the treatments of animals.
[00:10:55] So they decided very, very cleverly that they could get rid of something. Then a cost, a lot of money in P was losing attractiveness. So there’s obviously a win-win situation in that sense. There are other companies that you will know who have followed a blue ocean strategy by opening up new markets.
[00:11:16] Apple, of course, is one with many of their innovative products, Facebook, Instagram, Airbnb, Netflix, and others. And what is important is that they don’t. Do benchmarking. They don’t benchmark against competitors. They only look at the blue ocean and try to go out there where there’s no one else. Just bear in mind that of course there’s the risk to everything in life and the ocean may be blue and very lonely for a reason.
[00:11:46] So maybe there is no market at all, but that is maybe a risk worth taking. The other way you can approach strategic development is by looking at the purpose of the [00:12:00] mission of your company and asking yourself, what do we stand for and how can we progress from that? And we will, you may find out that you are not necessarily in the business of producing a specific product, but it’s something else.
[00:12:17] So imagine you’re an airline. You could say, well, we’re an airline. We fly people from a. To be, but you could also think a differently and could say, well, we are a provider of mobility. And then of course, might open up a whole set of different activities that all fall under this umbrella. So this is a bit tricky to develop, but it’s well worth it because if you have a strong mission, a strong purpose, something that you stand for that will help you with strategic coherence.
[00:12:48] Then immediately it is clear to everyone in your organization what you’re supposed to do and whatnot. So it helps with aligning internally, but it also creates a lot of trust to the outside. If you’re seen as, as being something, then customers can trust in you and delivering. So for example, Amazon. If you’re a customer of Amazon, and I suppose that most of you are, you can be sure that, Hey, there’s everything there you need.
[00:13:19] And you can also trust in them having an excellent customer service. So if something’s wrong with a product, you can always return it and so on and so forth. So there’s a lot of. Trust that consumers put into a brand like Amazon, and that helps this company because many, many customers don’t even bother looking somewhere else.
[00:13:37] They’d go straight to Amazon, they look up the product that they need, and they will order it there. Now assume that you’ve developed an idea for your strategy and now you want to do a little bit more of an Ana analysis. Whether this would make sense and what it would imply to go down that route. And again, there is a lot of tools and frameworks that you can use.
[00:14:02] So I don’t want to present them all because. Yeah, it would be too long and it would also probably overwhelm you. Just a very few examples, actually, just two that I want to present here, and the first one is something that you might have heard before because it’s kind of a red classical, and that is the SWOT analysis sense.
[00:14:23] What is an acronym? It stands for strengths, weaknesses, opportunities. Then. That’s, and it’s a two by two matrix. So you have four fields, and in each of these fields you map one of these items. So the first one is what are your strengths? And the second one, where do you see your weaknesses? Third quadrant is what opportunities do you see.
[00:14:46] And the fourth one is threats do exist in terms of competition, maybe or other things. This is a bit limited who will of course, because it’s so simple. But the advantage of it is that it can be done very quickly, quick and dirty on the back of an envelope even, you know, when listening to someone. So I encourage you to always start out with something that is really simple.
[00:15:08] Or you can also use that if you are listening to someone else explaining their ideas. If you want to have a kind of a quick overview of whether you think this makes sense or not, this is something that you can apply very, very easily.
[00:15:22] A second, a bit more complex approach, but also obviously more useful in that sense is the business model canvas, which is from a book that I will also put in the show notes, and this is a bit difficult to explain now. Without visual aids. So I’ll just give you a very brief overview. And basically, it’s a canvas.
[00:15:48] So it is a form that you can, you can print it out on a three, or you can also have it on your computer and it consists of nine and different fields. And you are looking at your [00:16:00] strategy or your business model from different perspectives. So you’re looking at the customers. Where are they? What customer segments are you planning to serve?
[00:16:11] How do you plan to interact with your customers? What channels are you planning to use to reach your customers? What’s your value proposition? What kind of key activities do you have to develop? What costs do you have? What we source us do you need? What partners do you have to. Have onboard. And of course also the financial aspect.
[00:16:35] You know, what’s the revenue stream? And the beauty of this canvas is that it a, it forces you to really look at something from very different angles. But also once you’ve done that, you have it all on one sheet of paper and it becomes very, very clear visually. So this is something that I have worked with myself in the past for strategic.
[00:16:57] Task that I had to tackle them. I found that very useful and I would encourage you to also try that out. Looking back, we’ve tried to cover first the basics of strategy, what it is and what it isn’t. Let me remind you, it is not about becoming better and this is operational effectiveness. It is about doing different things or doing things differently from your competitors.
[00:17:28] That is what good is all about. To develop one. You could look at the blue ocean, try to come up with something completely new, innovative, where you don’t face any competition, and you should also be clear about the purpose and the mission of your enterprise or your organization. To dig a little bit deeper, you can use either the very quick and dirty SWOT analysis or which I would recommend.
[00:18:00] Sit down and try to come up with a business model canvas. This was it for today. Obviously not everything has been sat that can be said about strategies, so we’ll revisit this topic in future episodes, but I hope that it is something that you can put in to practice in a useful way.