I consult, write, and speak on running better technology businesses (tech firms and IT captives) and the things that make it possible: good governance behaviors (activist investing in IT), what matters most (results, not effort), how we organize (restructure from the technologically abstract to the business concrete), how we execute and manage (replacing industrial with professional), how we plan (debunking the myth of control), and how we pay the bills (capital-intensive financing and budgeting in an agile world). I am increasingly interested in robustness over optimization.

I work for ThoughtWorks, the global leader in software delivery and consulting.

Monday, October 31, 2022

Strategy

A few months ago I was asked to review a product strategy a team had put together. I had to give them the unfortunate feedback that what they had created was a document with a lot of words, but those words did not articulate a strategy.

There is a formula for articulating strategy. In his book Good Strategy, Bad Strategy, Richard Rumelt puts forward the three essential elements of a strategy. It must:

  1. Identify a need or opportunity (the why)
  2. Offer a guiding policy for responding to the need or opportunity (the what)
  3. Define concrete actions for executing the policy (the how)

There’s more to it, of course. The need or opportunity has to be well structured and specific. The guiding policy must be focused on the leverage that a company can uniquely bring to bear (this is effectively the who that a company is) as well as anticipate the reaction of other market participants. The actions must be, well, actionable.

What we see too often passed off as strategy are goals (“grow the business by xx% in the next y years” is a goal, not a strategy); vision statements (“we want to be the premier provider of aquatic taxidermy products” is a lofty if vain ambition); or statements that are effectively guiding policies (“to be the one stop shop for all of our customer’s aquatic taxidermy needs”) without the need (why) articulated or actions (how) defined.

I’ve seen the aftermath of a number of failed strategic planning initiatives. Each time, the initiatives failed to articulate at least two, and sometimes all three, of the aforementioned elements that compose a strategy. The postmortems to understand why these initiatives failed exposed a few consistent patterns.

One pattern is that the people involved in the strategic thinking did not truly come to grips with what is actually going on in a company’s environment. To understand “what’s going on” requires collating the relevant facts (internal and external) into a cohesive analysis. That, in turn, requires a great deal of situational awareness: an honest assessment of a company’s capabilities, a high degree of customer empathy, and a fair bit of macroeconomic understanding. It also requires a sense of timeliness: not too immediate so as to be just a tactical assessment (your competitors are easier to do business with through digital channels than you are), not too far in the future to be purely speculative (ambient computing). All too often, the definition of the opportunity is derived - in many cases, copied verbatim - from some other source, such as an analyst report, somebody else’s PowerPoint making the rounds inside the company, the company’s most recent annual report. Or it is a truism (the world of aquatic taxidermy is going digital). Or worse still, it is a tautology (customers will buy aquatic taxidermy products through digital channels and from physical store locations from specialist retailers and general merchandisers).

Defining the opportunity through a thorough understanding what’s going on is hard. It’s also awkward, an exercise of the blindfolded people describing the pachyderm. And that’s ok. It takes several iterations, it requires diversity of participants, and while there will be many moments when the activity feels like churn (and not the kind of churn that yields butter or ice cream), it is worth the investment of time. The “what’s going on” is, arguably, the most important thing in formulating a strategy. If the “what’s going on” is wrong, the opportunity isn’t clear, and as a result the most eloquent guiding policy and the most definitive of actions will not solve the right problem. By way of analogy, directional North stars are great, but in the field we still largely navigate by compass. A compass is low tech. It works throgh attraction to a magnetic field that serves as a close enough proxy to true north, which we correct with declination. As Dr. John Kay showed, the most successful companies navigate by muddling through.

Another pattern: whereas the would-be strategic thinkers spend comparatively little time defining the opportunity, they are obsessed with formulating the equivalent of the guiding policies. Some of this is likely a function of professional programming: if, for the totality of your career, the boss has supplied you with the reason why you do the things that you do, it isn’t natural to start a new initiative by asking “why”. Just the opposite. But the biggest reason for focusing on the guiding policies is that the strategic thinkers believe they are being paid to come up with clever statements of what a company should do. No surprise that strategic planning exercises tend to produce a lot of “what to do” options, which they present as a portfolio of strategic opportunities. Yes, the portfolio passes the volume test applied to any strategic planning initiative: too few slides suggests the team just faffed about for several weeks. So what we get is a shotgun blast of strategy: dozens of “what to do” options, only some (not many, let alone all) of which are complimentary to one another. Plenty of things to try, but they’re just that: things to try. They don’t converge at cohesive interim states where the company is poised to engage in a next level of exploitation of an opportunity or need, exploitation that is amplified through development of the unique capabilities the company brought to the table in the first place. This is not a strategy as much as it is a task list of very coarsely grained things to maybe do, at some point, and see what happens.

The fear of not having a sufficient quantity of clever “whats” is understandable, but misplaced. ‘Tis better to have a few very powerful statements of “why” that tell the executive leadership team and the board very concrete things they do not know about their company or market, with very strong statements of “what” to do about them.

The third pattern contributing to strategic planning failure is the aversion to defining the concrete actions necessary to operationalize a strategy. As damaging as getting the why wrong is to the validity of the what, glossing over or ignoring the how renders a guiding policy into a fairy tale. Figuring out the how is, for a lot of people, the least attractive part of strategy formulation: it requires coming face to face with the organizational headwinds such as the learned helplessness, the dearth of domain knowledge, the resistance to change that characterize legacy organizations. Operationalization - especially in an environment with decades old legacy systems compounded on top of one another - is where great ideas go to die: we could never do that here, you don’t know the history, it doesn’t work like that, and so forth. Yet a strategy without a clear path of execution is just a theory. No company has the luxury of not starting from where it is today. Strategy has to meet a company where it is at. This isn't big up-front design; it's just the first iteration of the end-to-end to establish that execution is in fact plausible, supplemented with a now / next / later to define a plausible path of evolution.

The aversion to defining execution of a proposed strategy stems from at least two sources. One is the tedium of deep diving into operational systems to figure out what is possible and what is not, and to then delve into the details to turn tables to interrogate in detail the things we can do, changing the question from "why we can't" into “why we can”. But the more compelling reason that strategic thinkers avoid detailing execution that I’ve observed is the fear that a single ground truth could undo the brilliance of a strategy. Strategy is immutably perfect in the vacuum of a windowless conference room. It doesn’t do so well once it makes first contact with reality. And that is the real world problem to the person academically defining strategy in the absence of execution: when given a choice, a company will always choose as Ernst Stavro Blofeld did in the movie version of From Russia With Love: although Kronsteen’s plan may very well have been perfect, it was Klebb who, despite execution failure (engineered through improvisation by James Bond), was the only person who could achieve the intended objective. Strategy doesn't achieve outcomes. Delivery does.

I’ve worked with a number of people who insist they no longer wish to work in execution or delivery roles, only strategy. Living in an abstract world detached from operational constraints is great, but abstract worlds don’t generate cash flow for operating companies. The division of strategy and delivery is a professional paradox: if you do not wish to work in delivery, by definition you cannot work in strategy.

Strategy is genuinely hard. It isn’t hard because it bridges the gap between what a company is today and what it hopes to be in the future (the what). It’s hard because good strategy clearly defines what a company is and is not today (the who), what the opportunities are and are not for it in the future (the why), and the actionable steps it can take to making that future a reality (the how), orchestrated via compelling guiding policies (the what).

Successful business execution is difficult. Successful business strategy is even more difficult. If you want to work in strategy, you better know what it is you're signing up for.