As we head to 2016, many businesses are thinking about how to be more successful, generate more revenue and increase profitability by implementing new strategies. To help you out, I’d like to share with you a few of the fundamental ideas I have learned through teaching strategy and strategic thinking for the last 20 years.
The first and most important idea about strategy sounds very simple, but it is exceedingly hard to implement.
All effective strategy is just valued differentiation multiplied by disciplined execution.
In other words, to build an effective strategy, you have to bring something that’s unique, exciting, and compelling to the marketplace — that your customers highly value — that is difficult if not impossible to copy — and you can execute on it flawlessly.
Go back and read that a few times, and then I challenge you to sit down and figure out exactly how your business meets the criteria. I have worked with dozens of businesses around the world that have not been able to reach the criteria. I spoke with one bank that said, “It’s very tough to differentiate us from other banks; we all sell money, and our industry is highly regulated, so there’s almost nothing we do that can’t be copied.”
Actually, one other key idea about strategy for most businesses today is that one of the only competitive differentiators left is the quality of people they can get, keep, and grow on the team along with the relationships they create with customers. For those of you saying your major differentiator is your “people” – that could possibly be true, but for most businesses it is not. If you truly have top talent, who are highly engaged and motivated and extremely customer focused, than you do have a winning combination.
This next one was an idea that took me a few years to solve. Because all strategy is basically an exercise in how to allocate limited resources (even Google does not have unlimited resources), it is critical you figure out what to focus on and how to deploy these resources — and just as important, what not to do. In other words, a huge part of strategy is figuring out what to say “no” to! What customers do you not want? What markets do you not want to compete in? What products are no longer viable? What do you have the courage to stop doing in order to reallocate your time and resources on the things that will allow you to be successful?
Although I conduct a large number of strategic planning sessions, I always have to remember this important fact: We’re just guessing. Even with the best data, tons of market research and a robust planning methodology, at the end of the day, it is still just a very educated guess. This means you need to follow the plan carefully and resist changing it until it becomes obvious your guesses were not on target and you do need to change the strategy. This is a fine line to walk between being too rigid and myopic versus changing so much that you never get any traction.
Lastly, perhaps most important, the best plan in the world is completely useless if you don’t execute on it. I have taught an executive-level seminar on strategic thinking and strategic planning at the Wharton School of Business for the last 16 years, and every year I ask my class, “What percentage of companies that have a good strategic plan, have a great product or service and know how to differentiate themselves in the marketplace…effectively execute their plan?” The answer every year has been 10 to 15 percent. There is no lack of incredibly smart people who can develop uber-impressive strategies, but there is a huge lack of people who can take those strategies and turn them into reality in the marketplace. So, to me, spending time on planning the execution of the plan is just as important as the time spent to create a plan.
Unfortunately, far too many businesses don’t even bother with doing strategic planning; they just hope next year will be better than last year and they will somehow make more money and at least a little profit. I can tell you this with great confidence: Hope is not an effective strategy.