Book Extract: When to change strategy

The ability to modify strategy at the right time can save or destroy a business, says a new book

ELEVATE: THE THREE DISCIPLINES OF ADVANCED STRATEGIC THINKING
Author: Rich Horwath
Publisher: Wiley
Price: $28
ISBN: 9781118596463

Just as a helicopter pilot monitors his planned course during flight for conditions that would warrant adjustment, we too must monitor our strategic direction to determine when a change in strategy is appropriate. A study of 1,053 companies showed that strategic blunders are at the root of poor performance 81 percent of the time, making them the number-one cause of lost shareholder value. The researchers concluded, "About half the time, the loss of value occurred gradually - over many months or even years if the company took too long to grasp a changed strategic environment or lacked the agility to react."While an action resulting in an error may be highly visible, sometimes it's inaction that is our ultimate undoing. The ability to modify strategy at the right time can literally save or destroy a business. Here is a check­list of five moments when it is critical to evaluate your strategy.

1. Goals are achieved or changed. Goals are what you are trying to achieve, and strategy is how you're going to get there. It makes sense then, if the destination changes, so too should the path to get there. As you accomplish goals and establish new ones, changes in resource allocation are often required to keep moving forward. In some cases, goals are modified during the course of the year to reflect changes in the market, competitive landscape, or customer profile. It's important to reflect on the strategy as these changes occur to see if it also needs to be modified.

Ask: Have goals been achieved or changed?

2. Evolution in customer needs: The endgame of business strategy is to serve customers' needs in a more profitable way than the competition. But, as the makers of the Polaroid camera, hard­cover encyclopedias, and pagers will tell you, customer needs evolve. The leaders skilled in strategic thinking are able to continually generate new insights into the emerging needs of key customers. They can then shape their group's current or future offerings to best meet those evolving needs.

Ask: Have customer needs changed?

3. Innovation in the market. Innovation can be described as creating new value for customers. The new value may be technological in nature, but it can also be generated in many otherways including service, experience, marketing, process, etc. It may be earth shattering, or it may be minor in nature. The key is to keep a tight pulse on your market, customers, and competitors to understand when innovation, or new value, is being delivered and by whom. Once that's confirmed, assess your goals and strategies to determine if they need to be adjusted based on this new level of value in the market.

Ask: Is there new value in the market?

4. Competitors change the perception of value: For many years, fast food was fast food. Burgers, tacos, chicken, pizza, and hotdogs were the standard fare. Within each category, there was greater similarity between competing offerings than distinction. As Subway entered a period of rapid expansion through franchising, it began to promote a healthier fast food. Eventually, they used a spokesman who lost weight on the "Subway diet" to lead the campaign, and the fast food arena slowly started to change.People who never really considered the nutritional aspect of their fast-food meals were now faced with healthier choices. Subway crafted a new perception of value in the market. While we'd like to believe that people choose products and services based on the actual merits of the offerings, we know that this isn't always the case. Shaping the perceived value of an offering through market­ing campaigns, social media, celebrity endorsements, and so on is a powerful weapon or threat, depending on your position.

Ask: Have competitors changed the perception of value in the market?

5. Capabilities grow or decline. A final consideration when determining whether or not to change strategies deals with what's under your own roof. Having led strategic planning sessions for the past 15 years, I've observed how challenging it can be for organisations to honestly evaluate their own capabilities relative to competitors. One indication is compiling a meandering laundry list of 15 strengths during the SWOT Analysis exercise (which lists an organisation's strengths, weaknesses, opportunities, and threats). However, objective assessment of the group's capabilities relative to the competition is a starting point. If your capabilities have significantly grown, it may open up new strategies for capitalizing on opportunities to increase profits. If your capabilities have declined, it may call for new strategies to neutralize competitor initiatives or to exit the market. Ask: What is the state of your capabilities?

Fire prevention
As you consider the five key factors necessary when reviewing strategy to determine any changes in course, keep in mind that fires are generally not a reason to change strategy. However, you may have some managers who are all too eager to don the helmet and hose and swoop in to save the day through urgent but unimportant tasks. The problem with this firefighting mentality is the opportunity costs it bleeds from your business. Time, talent, and budget spent on fighting urgent but unimportant fires are resources that can't be properly invested elsewhere to support the successful execution of your strategy. Research with 197 global companies on the reasons for the underperformance of strategy found that the biggest contributing factor is, "the failure to have the right resources in the right place at the right time." Taking a few hours here and there each week to attend to fires might not seem like a big deal, but it is. Take those few hours a week and multiply that by the number of managers in the organization. It's quickly evident how thousands of hours a year can be wasted with no way to regain those precious resources.

MEET THE AUTHOR

 

• As the CEO of the Strategic Thinking Institute, Horwath leads executive teams through the strategy process and has helped more than 50,000 managers develop their strategic thinking skills
   
• A former chief strategy officer and professor of strategy, he brings both real-world experience and practical expertise to help groups build their strategy skills
   
• His best selling publications, include Deep Dive: The Proven Method for Building Strategy and Strategy for You: Building a Bridge to the Life You Want

Rich Horwath
CEo, Strategic Thinking Institute

It's recommended that at least twice a year you conduct a Fire Prevention exercise with your management team. The Fire Prevention exercise is designed to help you put out some of the recurring fires by taking action on the things that ignite them. The first step in the exercise is to identify the fires: urgent but unimportant activities that are not a part of your plan, but require a resource investment. The second step is to have a strategy conversation with all of the people involved in that fire to shed light on its cause. The third and final step is to create an approach to stop the fire from consuming your resources. There are three potential actions when dealing with a fire:

1. Control: Invest resources the first time (and only the first time)a fire appears in order to control it, prior to further analysis.

2. Delegate: Pass the resource investment requirement to a group or person with the appropriate accountability for such an event.

3. Prevent: Determine and eliminate the root cause. Examples of internal fires include:

• Senior leaders demanding lists or reports that require time, labor, and energy to put together, versus those that can be automatically generated.
   
• Flavor-of-the-month initiatives that aren't directly related top people's strategic plans.
   
• Attendance on conference calls that have no direct business value for the participant

Examples of external fires include:

• The same customer continually asking for activities to be performed in a much shorter time frame than normal.
   
• Requests for proposal that don't match up with your business acquisition criteria.
   
• People outside the organisation seeking teleconferences or meetings to discuss partnerships or alliances without first providing sufficient business rationale.

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Reprinted with permission of the Publisher . Copyright 2014 by Rich Horwath. All rights reserved