One of the many functions of boards is to review strategy proposals. However, many board members are not sure how to evaluate what is presented to them, and those who are writing strategies are not confident in how they should do it. This often results in poorly constructed ones being approved, which are not fit for purpose. As a business owner, you must future proof your business with a purpose-driven strategy so that it can scale and last.
As Lou Gerstner found when he joined IBM to turn it around: “there was very little true strategic underpinning for the strategies discussed”. The consequence is that the strategy is not executed but put in a (virtual) drawer for ten months until it is updated with new dates, a few minor changes and then re-presented, only to be put away again, with everyone continuing with ‘business as usual’.
No wonder many organisations end up doing the same things, making the same mistakes and failing to change as fast as their market demands.
Make no mistake- writing a good strategy is very difficult. It’s not a trivial exercise, because the future of organisations depends to a large extent on how well it is done.
This article will give you some pointers on where to start, for creators and reviewers alike and how to future proof your business in 2022 with a purpose-driven strategy.
1. Start with good foundations (the purpose)
Every good strategy is built on a solid purpose, vision and mission. Why does the organisation exist? This is not about making a profit (if it is a commercial company). This is about whom the business serves and how it serves them. A strategy must take a company down a path that brings its vision closer to reality.
Look at this example: Unilever. They have a very clear purpose: “To make sustainable living commonplace”. That simple statement makes it obvious which direction they are moving in. Every strategic decision, whether about products, markets, suppliers, operations or financing will be informed by the purpose. If an organisation is not crystal clear about its vision, then it will be much harder to decipher which of the many possible options are going to be the right ones.
2. Perform great analysis (the why)
The analysis is often performed with a perfunctory SWOT (strengths, weaknesses, opportunities and threats) chart and a PESTLE chart (political, economic, sociological, technological, legal and environmental). Frequently, once these have been filled in, they are ignored, because people believe that completing the form is enough, instead of using the insights that are generated. This is unfortunate since they are simply tools and are good ones if used well. Certainly so to future proof your business.
However, if the external environment is well understood; if the internal capabilities are clearly known; if history is examined for lessons; if future trends are considered – then it often becomes obvious where the most urgent decisions have to be taken, and why.
The analysis stage of strategy creation is about the ‘why’ the organisation needs to change.
This is where the drive for innovation comes from. Understanding customers, the market and the supply chain, etc. means that businesses can spot where innovation is essential to fulfil an emerging need or to counter a competitive threat.
A good question for organisations to ask at this stage is ‘What would we do if Amazon entered our market?’. Of course, businesses may choose Google, or another similar disruptor outside their industry to compare themselves to.
This stage is not complete until you have asked yourself whether you have learned everything you can from the current environment (the rear-view mirror) and done the best possible projections for the future (the headlights).
3. Build a clear strategic intent: the direction of travel (the what)
Once the analysis is done (the ‘why’), the strategic intent is the ‘what’. Decisions have to be made about which is the best answer or a set of answers. One thing is for sure: the solutions are not going to be the same as they were in the past. Yesterday’s answers will not necessarily be the right ones for the future.
A good strategy states clearly what it sets out to do.
Let’s look at a remarkable example from Tesla. Back in 2006, Elon Musk wrote: “The strategy of Tesla is to enter at the high end of the market, where customers are prepared to pay a premium, and then drive down market as fast as possible to higher unit volume and lower prices with each successive model”.
Fifteen years later, we can see that he has done exactly that, and by July 2020, Tesla became the most valuable car company on the planet. The strategic intent is a short summary, usually one sentence, of what the organisation must do. Make it clear, unambiguous and concise. Spell out what is changing.
4. Define the strategic actions (the how)
Lastly, this is the ‘how’ of the strategy process: how companies can fulfil their intent. It usually consists of a small number of high-level actions, usually ones that will take some time to be completed. In practice, this means three to five actions to be completed throughout the strategy.
These actions must have SMART (specific, measurable, achievable, realistic and time-bound) goals and define not just the outcomes, but also the milestones to be achieved over the coming period. Then the board can have an agreed expectation of what should be done, and by when.
For someone on a board reviewing a strategy, there are three critical questions you have to answer:
1. Is this the right/ the best course of action?
2. Can it be executed successfully?
3. How will it be executed?
All three answers, of course, must be ‘yes’ if the strategy is to be approved. In order to convince the board, the strategy must lay out the evidence for each. The analysis section of the strategy should explain, without unnecessary detail, the background for the decision and show how it leads to the strategic intent and strategic actions.
The board should be able to assess whether the organisation has the resources it needs to execute the strategy. The key needs are people, money, and time. Which then cascades down to other elements like technology, skills, capital, infrastructure and so on.
Lastly, the board must assess the appetite of the executive team to commit themselves to the long and difficult path of executing the plan. While it is difficult to create a strategy, it is always harder to put it into practice. All organisations find change difficult, and strategy is all about change.
If a business has done the work well, it will have found the innovations needed. The board will be able to support the proposal, and the organisation can get on with managing strategy execution, resulting in you being able to future proof your business which is the goal.