One of the key tasks of any Board in the private, not-for-profit or public sector is to create a strategy for their organisation. Strategy is inextricably linked to good governance and effective risk management. The UK Corporate Governance Code at C.1.2: “Directors should include in their annual report an explanation of the strategy for delivering the objectives of the company.” Strategy has been defined as “the direction and scope of an organisation over the long-term which achieves advantage in a changing environment through its configuration of resources and competencies, with the aim of fulfilling stakeholder expectations”. For businesses, a winning strategy should provide a sustainable competitive advantage. For other types of organisation, the strategy provides a mechanism to seek an increased share of limited resources, with the aim of advancing a mission, whilst balancing the interests of different stakeholders.
What is an effective strategy?
Creating a successful strategy is not an easy task. It is completely different to operational management. It requires board members to set aside proper creative thinking time, question assumptions and develop a critical enquiring approach. It can’t be achieved by a solo actor working in an ivory tower: it requires contribution and buy-in from a wider group of leaders and senior managers. The statistics show that most boards do not get it right. Studies published by Harvard Business Review show that at least 70% of strategies fail. Some research has found that 85% of directors don’t know what their organisation’s source of competitive advantage is. In his 2011 book, Good Strategy, Bad Strategy, Rumelt tells us that a winning strategy contains three elements: a diagnosis, which defines the nature of the challenge, a guiding policy to overcome the obstacles identified which builds on or creates some form of advantage and (iii) a set of coherent actions coordinated with each other to accomplish the guiding policy. Typically, insufficient time is spent on diagnosis, as managers rush to action; sometimes the actions are not coherent because of a lack of alignment.
Why do most strategies fail?
Rumelt identifies four hallmarks of bad strategy, which we can all recognise: the use of ‘fluff’ (gibberish and buzzwords masquerading as strategic concepts to give the impression of intellectual thinking!); failure to define the real challenge, mistaking a long list of aspirational goals for strategy (e.g. we will grow our revenue by 20%, we will delight our customers etc, without saying how); setting objectives which are just impracticable in the context of the organisation, or which fail to address critical weaknesses in resources and capabilities.
So how do we avoid falling into this trap? Here I offer a ten point plan from my experience which could be used to help develop a winning strategy.
- Start with why?
Simon Sinek has developed a whole business methodology around this question. We first need to understand the motive force behind the enterprise. Why are you in business, what is your core purpose and mission? Has this been explicitly captured and communicated to all your stakeholders? When did you last review it?
- Values matter more than ever
Identify what the values of the organisation are and how these reflect your culture (the beliefs, traditions and habits shared by your people). Capturing the values requires input from across the organisation. Values can be used to set the ethical and legal boundaries for the activities you undertake and to set the emotional temperature of the organisation. However, it is no use articulating a charter if those at the top do not lead by example! Studies show that the Generation Y millennials and Generation Z among your customers and employees are particularly attuned to corporate values- ignore them at your peril.
- Assess your current position
Use a SWOT analysis to assess strengths, weaknesses, opportunities and threats facing the organisation. Strengths and weaknesses are normally internal factors, whilst opportunities and threats are external forces. Strengths might include specialist knowledge, a highly skilled workforce; weaknesses might include a lack of working capital or inefficient operating procedures. In looking at external forces, it is useful to employ the PESTEL analysis to identify the political, economic, sociological, environmental and legal factors that could, or do already, impact on your business environment. From this analysis, identify the top 3-5 critical success factors – the essential factors which the organisation must absolutely get right to succeed and keep these front of mind.
- Where else could you play?
Having identified your strengths and some opportunities, in which markets (existing, new or adjacent) could you operate? For example, if you were an enterprise with strengths in residential care for the elderly, could you move into caring for learning disabilities? What discontinuities could occur which could open up new avenues of opportunity for you?