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Chapter 2 of The Seven Inconvenient Truths of Business Strategy (978-1-4724-1247-8) by Paul Hunter

Relevance Regained; Reinventing Strategic Planning: A Programme of Continual Strategy Renewal

Chapter 2

INCONVENIENT TRUTH NO. 2: STRATEGY IS AN UNDEFINED AND DYNAMIC SYSTEM RATHER THAN A CLOSED-LOOP PROCESS.

Unlike the rigidity of accounting and law, strategy is an open-loop system that flourishes within a world of contradiction and conflict – a taunt of the unknown, and a challenge of what could be.

A key benefit of a common appreciation of a business’s strategy is that its content contributes to the reinforcement of a sense of organisational purpose, individual aspirations and thereby the basis for strong leadership. Conventional wisdom supposes that the tangible outcome from strategising, the method deployed to develop good strategy, is a formal strategic plan. As suggested in Chapter 1, though, I seriously challenge the wisdom of that assumption. A strategic plan does make a useful contribution to decision making; however, I suggest that a greater contribution would be its application as a basis for decisions made in a context of continual strategy renewal and as an outcome from that, a foundation for organisational renewal and sometimes reinvention. Organisational renewal is essential to the survival of modern-day business, and appears to me to be one of the most widely ignored strategic imperatives of all.

There are numerous examples of organisations that have failed to renew, literally continuing to do the same thing in the same way until eventually there is just no more demand for their products or services. One is Finland- based Nokia, which procrastinated on the development of its version of a smartphone, to the extent that the company, once estimated to be valued at almost USD $300 billion, saw its market value fall 77 percent to $25.6 billion since the introduction of the Apple iPhone in 2007 (Kharif et al, 2011). In Australia, Telstra’s Yellow and White Pages Directory business (Sensis) literally died a gradual death as demand for advertising in its printed telephone books diminished over a number of years. The impact was similar to Nokia, in 2005 Sensis was estimated to be valued at close to AUD $12bn. When it was sold in 2014 its value had reduced to a mere AUD $649m.

The challenge we face as strategy practitioners is to overcome the danger that the strategising system that we are responsible for fails to deliver much more than the staid content that is all too often seen in static strategic plans. In this chapter I return to the construct of a fully integrated Strategic Management Framework (see Figure 1.1) as a mechanism that facilitates and enables renewal and a considerably more meaningful way of structuring strategy in a format that represents the reinvention of the traditional notion of strategic planning itself. This is one of the many benefits available from the application of the Strategic Management Framework, it will also provide us with:

  • a means to express the aspirations of leaders and motivational elements of an envisioned future and the way in which those soft desires will be transformed into hard results over time;
  • insight into the structure of strategy (identifying gaps and possible exclusions in content as well as provoking innovative inclusions), and as a result a construct facilitating implementation and the continual renewal of strategy; the means by which strategic alignment can be achieved;
  • a basis for the development of a common language (our strategy), and thereby the means to engage colleagues in structured and strategically aligned dialogue;
  • a way to facilitate the application of specific learning regimes in our own organisation and, by definition, the means to capture and expand knowledge which as an outcome;

  • – provides a basis for organisational renewal and quite possibly reinvention, and;

  • – contributes to personal learning through its application to our own, company specific formal education programme(s).

 

It is through the Strategic Management Framework, therefore, that we have addressed the as yet unstructured approach to strategising which also provides a foundation for the development, implementation and communication of strategy in a professional manner, and in a format that can be recognised as generally accepted strategising principles (GASP).

The Second Inconvenient Truth of Strategy

In proposing The Second Inconvenient Truth of Strategy, I suggest that you, the strategy practitioner, explore the application of the fully integrated Strategic Management Framework as a succinct construct and method of addressing the conundrum that is identified in this chapter:

Strategy is an undefined and dynamic system rather than a closed- loop process. Unlike the rigidity of accounting and law, strategy is an open-loop system that flourishes within a world of contradiction and conflicta taunt of the unknown, and a challenge of what could be. The consequence of this inconvenient truth is that when strategy is viewed only as a part of a process or independent methodology, the value realised from the quantum of strategy tools becomes suboptimal and their application overly reliant on simplistic, ‘flavour of the month’ methods. This leads to the development of right answers, but to the wrong problems.

 

The Strategic Management Framework captures the dynamics of an open open-loop system and is a basis upon which continual strategy renewal can be enacted. In this chapter I focus on the first element of the Strategic Management Framework as a tool that in its entirety captures the many components of strategy and corrals them into a structured system. That system, and therefore this chapter, commences with an explanation of the vision and mission and the operations of a strategic architecture in detail, and its alignment with the next element of the framework, strategy evaluation.

In Chapter 3 we expand on the elements of strategy evaluation, especially that of shaping; the search for information contributing to the strategic plan, strategic decision making, and subsequently the primary target for the activity of strategy evaluation reviewing. This follows in Chapter 5 with a review of the next element of the Strategic Management Framework; concerned specifically with a program of continual strategy renewal. In Chapter 6 we address the final element of the framework, strategic alignment.

We commence this chapter with an update on Cadbury, and a continuation of a story where an empathetic management style grounded in the Cadbury family’s values as Quakers is evident, commercial aspirations and ambitions are high, but systematised and informed strategic conversations decidedly sparse. In Chapter 1 we observed that when John Cadbury opened his shop in the Northern England city of Birmingham in 1824, he did not have a formal business strategy or strategic plan, nor did he have access to any form of strategy tools and techniques. Now this absence of strategising capability has carried over to the late nineteenth century, which is the setting of the Cadbury story in this chapter.

Significant changeshave takenplaceinthe city ofBirmingham where Cadbury is based. The world in general is now more crowded, competitive and busy than in the early years. Fortunately it is still not overly complex or unpredictable – at least from our perspective of complexity today.

From Cadbury Chocolate to Cadbury Brothers of Birmingham: A Time of Passing, a Time of Questionable Inheritance

Although Cadbury founder John Cadbury had great faith in the concept of the chocolate drink known as cocoa as a saleable product, there was no science from which complexity could emerge to deliver the dream of the rich and creamy dairy milk chocolate product that it was to become. John Cadbury was effectively ignorant of the full potential of the cacao nib as the key ingredient in chocolate and the way in which it would be produced on mass, never mind its level of acceptance in the marketplace. Acting primarily on intuition (and a lot of hope), John Cadbury’s aspirations, as with most entrepreneurs then and now, were based purely on an inside-out (resource/competence-leveraging) philosophy which saw the family members toil for years to perfect the chocolate texture and taste (transforming activities) that consumers would eventually learn to savour.

John Cadbury’s dedication to puritanical religious beliefs drove his vision and market orientation by default. Based on an entrenched values-based philosophy – and ultimately the marketing slogan ‘absolutely pure, therefore the best’ – the Cadbury family tradition was grounded in a competency that would serendipitously ensure that the brand carried a reputation of quality and trust for all time. Emerging in an era when less scrupulous competitors were known to be adding arsenic and red brick dust as fillers on top of flavour enhancers to hide the naturally sour taste of the butter fat found in the middle of the cacao seed, Cadbury was gifted an automatic competitive advantage based on multidimensional values of purity that would nonetheless remain as a point of differentiation for the life of the company.

By 1842, the business was doing reasonably well, to the extent that John Cadbury invited his brother to join him in the firm, and later his two sons. Now known as Cadbury Brothers, the business was experiencing modest success, selling 16 lines of drinking chocolate and cocoa in both cake and powder forms (Cadbury, 2010). A further boost to the potential prosperity of the business presented itself to Cadbury Brothers when in 1854 the firm was awarded a Royal Warrant of Appointment to Her Majesty the Queen. With it came permission to display the Royal Coat of Arms on Cadbury packaging. From a competitive perspective, however, the business environment was particularly harsh even in these early years. By the time Cadbury had opened its London sales office in 1853, for instance, one of Cadbury’s biggest competitors, Fry’s of Bristol, in the English West Country, had already built one of the largest chocolate factories in the world.

During the course of the 1850s Cadbury Brothers fell into serious decline, an outcome attributable in part to the severe economic conditions that were experienced in the UK in the 1840s. However, much of the misfortune can be attributed to John Cadbury’s declining health, which became so bad that he chose to dissolve the partnership with his brother in 1861. This caused him to formally hand the business over to his sons Richard and George, both of whom had been working in the business for some time. Each had shared John Cadbury’s vision for the business, and his values, they accepted their inheritance with enthusiasm. George’s role in the new venture focused on manufacturing and purchasing whilst Richard focused on sales and policy. Both George and Richard remained committed to meeting the demands of their Quaker beliefs, even though it came with inbuilt despair and a crippling financial burden that would last until at least the mid-1860s.

Representing the extremely early years of the Cadbury story, the level of strategic thinking is again limited to an interpretation of intuition and assumptions about the more complex problems that the business faced. Given the circumstances of the era, the thoughts of the Cadbury family and other team members were restricted to the preordained mental models they held in their roles as managers and leaders of the business. Mental models are defined by Senge (1990) as ‘deeply ingrained assumptions, generalisations, or even pictures or images that influence how we understand the world and how we take action. Regrettably for the Cadbury brothers, their mental models of the world were limited to an environment of low technology, insufficient scientific know-how, and most importantly, an absence of an appreciation of the true potential of the modest but complex cacao nib. Hope, belief, shared vision, continual dialogue and above all perseverance were the required characteristics of the day.

Just as science started to deliver explanations for chemical reactions that made up the foundation of many manufactured products, so too did the second stage of the Industrial Revolution take hold. This period is thought to have commenced around the mid-1860s, a time when the integration of inventions that included electrification, mass production and the assembly/production line combined to allow low-cost manufacture – on a very large scale. An example is the Bessemer steel process. As a predecessor to open hearth furnace technology, Bessemer is considered to be one of the earliest methods of producing highvolume, low-cost industrial-quality steel from molten pig iron.

In the case of Cadbury, it wasn’t until 1866 that George and Richard Cadbury would experience the beginnings of the Cadbury family dream: the realisation of wealth creation for all stakeholders and the low-cost production of a quality cocoa product that could act as a substitute for alcohol. Ironically, it came as a direct result of George’s last-ditch effort to save the company from bankruptcy. George elected at that time to spend the last of his inheritance from his father on a ‘big bet move’ into automation. George had resolved that he would invest in a European machine (the Van Houghton press) to automate the grinding of cacao nibs. The press was known to run at a very fast pace and produce a product of far higher quality than the Cadbury brothers had previously been able to achieve.

However, John Cadbury’s grandson, George Cadbury Junior, a trained chemist, wouldn’t be successful in mixing milk with the bitter-tasting cacao butter fat to produce the sweetened milk chocolate product that we now know and enjoy today until 1904. The notion of a journey of discovery that was the driver of John Cadbury’s, and later his son’s, ambition was all about transforming activities with a concentration on resource and competency development, which in this case was focused on the core competencies of food (ingredient) management, cacao nib processing and chocolate production on a mass scale.

John Cadbury and his descendants were in effect driven by the increasing opportunities that became evident from growth in commercial activity in industry through the late 1800s and early 1900s, at which time the priority for businesspeople in general was focused mostly on inside-out activities, including product design, manufacture and distribution, rather than the more outside-in, market-oriented issues of marketing, market share and differentiation. In this period of the Industrial Revolution, growth was a certainty – you just had to make good products that could benefit from the economies of scale offered by mass production and get them to market in the most efficient way possible.

Relevance Regained: Reinventing Strategic Planning Within the Construct of a Fully Integrated Strategic Management Framework

From the foregoing scenario of Cadbury in the late 1800s, we can identify levels of complexity that would justify the application and use of a formal strategy. Although a few fundamentals representative of a long-term strategy at Cadbury are evident, there was one, overriding strategic imperative that continued to challenge the tenacity of the Cadbury brothers as entrepreneurs; whether or not they would ever be able to produce a viable chocolate product at all. Although John Cadbury was initially driven by his and his father’s shared vision of the future of the mysterious cocoa nib, the realisation of that vision continued to evade him all his life. Would his sons suffer the same fate they wondered?

As we saw in Figure 1.1 the framework commences with an appreciation of a vision as well as a mission, each driven by organisational purpose and the definition of the strategic imperatives that provide the grounding for longterm strategy. These preliminary foundation elements contribute to the firm’s strategic purpose and should not be treated too lightly. As we saw with Cadbury, they capture the imagination and aspirations of leaders and incorporate the external industry influences as well as their preferred approach to competing in national and international markets. They are also an expression of the internal essentials of management style and organisational culture. Just as designers need inspirational features as anchors for their designs, so does strategy need a focal purpose from which a strategic plan and programme of continual strategy renewal can evolve.

Not only do vision and mission provide the nucleus for the design of strategy, they also describe the long-term and future direction upon which a firm’s leadership can be enacted. These articulations of desired futures also contribute to the resolution of strategic issues related to organisational purpose and the environment within which the firm operates. Mission statements are often the subject of derision as their contents are often vague, overly descriptive or used only as a public relations exercise for surfers of corporate websites. When used appropriately, however, they provide a sense of purpose and are used to clarify as much as inspire. I use the word ‘clarify’ as an open statement that is complimentary to the mission statement’s other purpose, which is to articulate (briefly) a description of policy, which in turn provides the operating guidelines upon which strategic boundaries can be clarified and defined. Organisational values form an integral component of a mission statement, providing the basis for all management decision making and the backbone of the culture out of which the organisation’s soul is born.

Vision is a form of futures thinking that is often misused and disregarded with throw-away comments about ‘the vision thing’. Our discussion of the David Jones department store chain in Chapter 1 appropriately demonstrates the consequences of an absence of long-term strategic thinking which is ideally encapsulated in strategy and articulated through a description of a vision. The absence of a vision in particular was found to lead to short-term decision making and ultimately a calamity at the department store; David Jones. Senge (1990) is supportive of a shared vision as a basis upon which organisational learning can occur. Shared vision, according to Senge, is a ‘force in people’s hearts’ that becomes ‘a force of impressive power’. A shared vision and a notion of personal mastery (defined by Senge as ‘the discipline of continually clarifying and deepening personal vision, of focusing energy, of developing patience, and of seeing reality objectively’) combine to become the two key disciplines that provide inspiration to participants in a learning organisation. I explore the value of organisational learning and its contribution to strategy and organisational renewal as part of the people component of strategy practice throughout this book. Learning, Senge suggests (1990) may in fact be ‘the only source of a sustainable competitive advantage’ which as I have noted previously, can now be seen to be the premise of a renewable competitive advantage.

Another key attribute of a learning organisation is provided by Senge (1990); it is the discipline of systems thinking. Systems thinking was defined in Chapter 1 as being an integration of a combination of unknown, unseen phenomenon into a whole. Flood (1999) extends Senge’s view of systems thinking to include the notion of systemic evaluation. Flood’s application of two different aspects of evaluation allowed me to adapt his views for application to the construct of the strategic planning component of the Strategic Management Framework. In my exploration of this terminology so far I have referred to Flood’s (1999) explanations of systemic evaluation in the context of strategy evaluation shaping and strategy evaluation reviewing. Our discussion here follows each form of evaluation within the context of an integrated and aligned strategising system. This, I believe, enforces the legitimacy of the application of the fully integrated Strategic Management Framework as a valid and integral component of strategy as practice. It is also the basis upon which reinvention of strategic planning can be effected. The topic of strategy evaluation is discussed later in this chapter in the context of the Strategic Management Framework and again in Chapters 3 and 7.

Strategic Architecture: Providing Structure to Long-term Strategy

The fully integrated Strategic Management Framework assists practitioners to understand the content of strategy in one page, as demonstrated in Appendix 2 of this book. This is an important feature; as we will observe later, the area of greatest-short term influence is the differentiating/transformational activities that are representative of activities over ownership. Activities are more readily changed than are resource-oriented assets and competencies (for example) or the market-oriented assets of brands or ‘positions’ in the market (the primary measure of which is market share).

The strategic architecture (see Figure 2.1) is one of the key features of the Strategic Management Framework, defining the structure of long-term strategy and providing the basis upon which practitioners are able to manage and review strategy and strategic plans continually. In particular, the hierarchy helps us to do five things:

  1. define clear and concise outcomes from strategy – stakeholder outcomes;

  2. clarify the ‘blue ocean’- oriented market opportunities, or at the least market spaces that offer at least a sustainable, or better; renewable competitive advantage;

  3. appreciate and evaluate some of the different strategic tensions that exist between the polarities of the outside-in (market-driven) versus inside-out (resource-driven) activities through an articulation of the transforming activities and differentiating activities identified as key components of strategy;

  4. provide insight through the brief, but purposeful statement of strategic intent;

  5. make a valid assessment of the resource base, comprising the intangible elements of capabilities, competencies, values and culture, as well as the physical, tangible assets such as plant, buildings and machinery.

 

Tensions in strategy, as demonstrated in the construct of a strategic architecture (Figure 2.1), are evident between the outcomes or effect of the strategy that can only be realised when the causal activities (the differentiating/transformational activities) are conducted to either ensure visible differentiation exists between the firm and its competitors, or when they are deployed to build and enhance organisational competencies/resources. Each will have a strong influence on whether or not a firm remains ahead of competitors. Both forms of activities provide a link between the firm’s resource base and the renewable market positions within an industry and within which a firm chooses to compete.

Figure 2.1 summarises a discussion of the application of components of a strategic architecture and the way that the emphasis of the strategic architecture will vary from company to company when they are in the same industry. The illustration here includes an interpretation of the dominant position that various restaurants with global reach in terms of presence or reputation conceptually have in a strategic architecture. A more detailed exploration of the details of a specific restaurant as well as other examples follows the summary.

 
Figure 2.1 Attributes of the strategic architecture of relevance to the restaurant industry

graphics/fig2_1.jpg

Illustrative Application of Strategic Architecture and Examples from the Restaurant and Other Industries

Stakeholder Outcomes

Located at the top of the strategic architecture, these are the primary performance measures that represent the desired outcomes from strategy (Figure 2.1). Traditionally, this area of focus has centred on financial targets such as return on investment (ROI), measures of growth, and earnings per share (EPS). Increasingly, stakeholder outcomes also include measures of social responsibility in areas that include aspects of community engagement, social respect and environmental concern as well as other related (but non-financial) measures of success. As illustrated in the Cadbury case study that is explored in each chapter of this book, the strategic architecture accommodates a range of stakeholder targets that complement the more conventional, but single focus of financial outcomes. Most targeted outcomes I have observed will not change over a long period, although circumstances may dictate that they vary from year to year, or even month to.

Renewable Market Position

This defines the markets in which the firm chooses to compete within a given industry. More recent developments in strategy suggest that an organisation should attempt to identify a ‘blue ocean’ (Kim and Mauborgne, 2004) market position. The term ‘blue ocean’ is a metaphor used to describe a market position where high growth and profits can be generated through the creation of new demand in an uncontested market space. This contrasts with the more common position whereby firms that have little to offer in terms of competitive advantage are forced to compete head-to-head with other suppliers; a position referred to by Kim and Mauborgne (2004) as a ‘red ocean’. I propose that a renewable market position is one that is sustainable in the short term, but evolves over time. As such, it is an illustration of the need for continual renewal of market positioning definitions included in strategy and reflected in the strategic plan.

Porter (1985) proposes that a sustainable competitive advantage is obtained first through the identification of an attractive market position within an industry. The second step is the successful penetration of that market position through the realisation of one of three generic strategies. The three strategies are based on the offer of (1) a unique (differentiated) product or service, (2) a lower- cost product or service than competitors are offering, or (3) the occupation of a focused (market niche) product/service offering. Interestingly, the authors of Blue Ocean Strategy, Kim and Mauborgne (2006) criticise Michael Porter’s idea that successful businesses are either low-cost providers or provide access to unique products and services. Instead, they propose profitable market positions cross conventional market segments to offer both lower cost and uniqueness.

A sustainable market position is often considered to be an adequate outcome from strategy. I suggest here that a more aggressive perspective of sustainability requires the identification and implementation of a renewable market position as a means of obtaining and retaining competitiveness on a continual basis. Under the regime of a renewable market position and associated competitive advantage, a business’s responsiveness to evolutionary and sometimes revolutionary change should be pre-empted and appropriate responses prepared accordingly.

EXAMPLE OF RENEWABLE MARKET POSITION: STARBUCKS

Starbucks’ mission, as declared on its website, 1 [3] is ‘to inspire and nurture the human spirit – one person, one cup and one neighbourhood at a time’, not just as passionate purveyors of coffee, but everything else that goes with a full and rewarding coffeehouse experience. Starbucks believes in continual renewal through leadership:

Our Customers

When we are fully engaged, we connect with, laugh with, and uplift the lives of our customers It’s really about human connection.

Our Stores

When our customers feel this sense of belonging, our stores become a haven, a break from the worries outside, a place where you can meet with friends. It’s about enjoyment at the speed of life – sometimes slow and savoured, sometimes faster. Always full of humanity.

Our Neighbourhood

Every store is part of a community, and we take our responsibility to be good neighbours seriously. We want to be invited in wherever we do business. We can be a force for positive action – bringing together our partners, customers, and the community to contribute every day. Now we see that our responsibility – and our potential for good – is even larger. The world is looking to Starbucks to set the new standard. We will lead.

In most instances, corporations will be reluctant to rapidly change the markets in which they choose to compete. Market positioning is therefore a longterm proposition for the business. I note though that from many perspectives it is the primary basis upon which growth is realised. Start-up businesses for example will typically commence with the application of a resource-focused, inside-out strategy, applying a resource and competence leveraging format. Chefs are a good example, they graduate with skills in cooking that can then be translated to their own bistro and later restaurant. They rise to fame through their continual renewal, development and refinement of competencies (enactment of transforming activities) that now include front of house presentation. These are then translated to a high reputation. It is only when they get to the point of real competition that they must turn their business acumen to market focused competition.

As products and markets mature (and as competition increases), businesses are required to focus more on a market positioning-oriented (outside-in) strategy for purposes of growth. Cadbury is an example of this; its transformation from competence-driven (skills in chocolate manufacture) ultimately gave way to toughing it out for market share against global giants, each of whom benefited from their ownership of similar chocolate-making competencies.

Providing the link between organisational resources and a renewable market position are the differentiating/transforming activities.

Differentiating Activities

Differentiating activities provide a point of differentiation when they are deployed to facilitate the way resources are leveraged into a sustainable (or a unique/renewable) market position. They are the physical activity-based elements that provide differentiation in those markets. If there were only one ideal market participant and market position, according to Porter (1996) in his quest to answer the question ‘What is strategy?’, ‘there would be no need for strategy’. In which case companies would face a simple imperative: to win the race to discover (differentiation) and pre-empt it. The essence of strategic positioning, Porter suggests, is to choose activities that are different from rivals’ (and if you can’t differentiate, he says, then learn to execute activities better). Porter points to the unique ‘just in time’ supply chain design that the global clothing retailer Gap uses to differentiate itself from other retailers.

McDONALD’S RESTAURANTS AS AN EXAMPLE OF DIFFERENTIATING ACTIVITIES

A global food service retailer with more than 34,000 local restaurants serving nearly 69 million people in 118 countries each day, McDonald’s offers a unique value proposition through its variation on traditional supply chain designs.

McDonald’s essential business model is designed around the provision of low- cost, self-serve, fast/convenient food of a realistic quality. The company sees itself as ‘a first job for many, a community partner, a model for other restaurants around the world, and a company seeking new ways to fulfil our brand promise of Quality, Service, Cleanliness, and value’. 2 [4]

Altruism and philanthropy is another point of differentiation, always on show through Ronald McDonald, the clown who visits children in hospitals and other places, whilst Ronald McDonald House provides accommodation for parents visiting sick children in nearby critical care facilities.

In his criticism of business’s apparent over reliance on operational effectiveness as an emerging phenomenon of the day, to the extent that it was becoming a substitute for strategy, Porter concluded that rather than a focus on cost reduction alone, strategy rests on a firm’s ability to deploy a unique suite of activities. Competitive strategy is about being different, he suggests. It means deliberately choosing a different set of activities to deliver a unique mix of value: ‘If the same set of activities were best to produce all varieties, meet all needs, and access all customers, companies could easily shift among them and operational effectiveness would determine performance.’

Transformational Activities

This is an adaptation of the term ‘dynamic capabilities’ (Teeces et al., 1997) to describe the distinctive processes that include the ‘honing of internal technological, organisational and managerial processes of the firm’. The way in which the names I give to dynamic capabilities (transformational activities) are shaped, will be dependent upon the nature of the firm’s resource base, its asset positions, and the way in which the business chooses to develop its resources (consider the Toyota Way from Chapter 1 as an example). Cadbury demonstrated a very specific development path which was based on a path committed to the development of pure chocolate drink and chocolate products.

There are three levels of transformational activities, each are related to individual perceptions of environmental dynamism (Ambrosini and Bowman, 2009):

  1. incremental transformational activities – those concerned with the continuous improvement of the firm’s resource base;

  2. renewing transformational activities – those that refresh, adapt and augment the resource base;

  3. regenerative transformational activities – those with an impact, not on the firm’s resource base, but on its current set of transformational activities in a way that changes the way the firm adapts its resource base.

 

An appreciation of the existence of both differentiating and transformational activities and the strategic intent (described below) that is usually conceived as being the key purpose of an organisation’s strategy are of significant importance as they represent some of the few ‘short-term’ activities (significant because of their attribute as things people do, and as a result more controllable than things they have) that can be included in a long-term strategy.

Supported by the managerial philosophy of the Toyota Way (see Chapter 1), this company demonstrates a considerable strength in differentiation through the activities it carries out as a part of its ‘agile supply chain’. Toyota’s business model requires that its sales and marketing divisions remain highly responsive to customer demands, based on expectations of value – reasonable pricing and high quality in its product and service delivery. These demands are satisfied through the enactment of its competency in ‘just in time’ manufacturing – the basis of which is the application of lean manufacturing techniques. Through Toyota’s integrated supply chain system, customers’ orders are afforded a direct link with production schedules which allows Toyota to respond within tight time frames to changes in purchasing patterns as soon as they occur.

EXAMPLE OF REGENERATIVE TRANSFORMATIONAL ACTIVITIES: THE FAT DUCK RESTAURANT

Owned by chef Heston Blumenthal, Berkshire-based The Fat Duck possesses three Michelin Stars and was voted Best Restaurant in theWorld in 2005. Blumenthal’s career path has demanded continual skill development in competencies and technique. This has included, and I quote, ‘rule-breaking, unusual experiments and an exploding oven’.

Strategic Intent

The term ‘strategic intent’ was coined by Hamel and Prahalad (1989), who used it to describe a method of encapsulating the strategic goals and objectives of a business in its strategy; it was designed as a catch-cry in the form of a statement that was concise, but at the same time seen to be more meaningful than traditional vision or mission statements.

Preferring the term ‘strategic intent’ to ‘vision’, Hamel and Prahalad (1994) suggest such a statement ‘implies a particular point of view about the long- term market or competitive position that a firm hopes to build over the coming decade or so’. Hence, it conveys a sense of direction. A strategic intent, they suggest, is:

differentiated; it implies a competitively unique point of view about the future. It holds out to employees the promise of exploring new competitive territory. Hence, it conveys a sense of discovery. Strategic intent has an emotional edge to it; it is a goal that employees perceive as inherently worthwhile. Hence it implies a sense of destiny.

 

As can be observed in Figure 2.1, I adapt the term ‘strategic intent’ and apply it to the body of the strategic architecture. My reasoning is that whereas a vision, based on an envisioned future is about a future perspective of the business and an outlook upon which the leadership team would like to direct the future of the organisation, a strategic intent is concerned with the underlying theme of the strategy.

I propose that in this context a strategic intent is used as a brief description of the general purpose of the strategy. Its role is that of an emotive driver of the continual renewal of strategy and ideally the business. An example of a more generic strategic intent is ‘conquering all global market segments’, another is ‘transforming knowledge into intelligence’. Another way to look at this application of strategic intent is to incorporate it into the firm’s value proposition as a description of the reason why customers will continue to buy the firm’s products and services.

The basis for a customer-focused value proposition is usually clear when a firm is first established. It is generally an outcome from the fundamental problem that gave rise to the firm’s existence in the first place. Retail stores of all descriptions, for example, were established to provide an outlet for manufacturers to sell their goods and a convenient place for customers to obtain access and choice in the acquisition of those goods. The 1832 version of Cadbury as a retailer is a good example of this, as John Cadbury sought to provide such a solution for his customers in a way that incorporated entertainment as a part of his method of differentiation, he also sought to solve the problem of alcoholism, although it ultimately proved to be beyond his reach. An example of a strategic intent applicable to John Cadbury’s retail business therefore, could have been ‘delivering health and harmony through purity, taste and entertainment’.

A more specific, industrial example is the mining services company Orica Ltd, founded in 1874 as a supplier of dynamite to miners in the Victorian gold fields in Australia. Today Orica provides blasting services to mining companies around the world that would prefer specialists to handle the highly dangerous components of their mineral extraction activities. A strategic intent for Orica could be described as ‘doing the heavy lifting for miners’. This statement, although fictitious could have emerged from Orica’s apparent capacity to solve mining companies complex problem of removing rock, dirt and other substances that get in the way of the mining process. Orica was successful because of the realisation of its strategic intent that can be translated into its value proposition. This is the removal of the risk of that activity to mining companies whose own value propositions would be more oriented towards the transportation and delivery of raw materials mined as opposed to the carrying out of the preliminary task of preparing the ground for extraction.

EXAMPLE OF STRATEGIC INTENT: HARD ROCK CAFÉ

This chain’s strategy is based on a business model that seeks leverage from the notion of an ‘experience economy’ (Pine and Gilmore, 1998). According to Pine and Gilmore, an experience economy can be found in situations where companies elect to compete through customer experience as opposed to customer service alone. In order to compete through ‘experiences’, a service or product offering must include an experience that is memorable to the extent that it will remain with an individual (customer or guest) for a long time.

Hard Rock Café’s strategic intent is based on the notion of an ‘experience’ value proposition, to: ‘provide a dining event that includes a unique visual and sound experience not duplicated anywhere else in the world’.

Organisational Resources

At the foundation of the strategic architecture, organisational resources represent the tangible and intangible strategic assets (Amit and Schoemaker, 1993) that must be built, maintained or acquired to satisfy whatever market positioning is to be adopted. Tangible organisational resources may include buildings, plant and equipment, whilst intangible resources include core competencies, brand, knowledge, skills and culture. In some applications, capabilities are considered to be both resources and competencies. I differentiate between a basic capability and transformational activity; a capability included in the resource set is considered a static application, something the organisation has in the same vein as a strategic asset. Transformational activities, however, are something the organisation does; when viewed as dynamic capabilities they are generally being deployed to create an improvement or enhancement to an otherwise static capability, resource or competency.

As with renewable market positions, organisational resources, especially core competencies, are developed over long periods and usually exceed the average annual planning cycle. Acquisition of new resources is an option, leading to the speeding up of the process of resource development. I note, however, that incorporating another business through company acquisition or merger as a means to build a resource base can take time to complete, and integration with the acquiring organisation can be slow, especially the development of intangible assets such as core competencies, culture and knowledge.

EXAMPLE OF COMPETENCIES/RESOURCES: EL BULLI RESTAURANT

Located in Spain, El Bulli recently closed, but in its time was recognised as the most controversial and experimental restaurant in the world. It received up to 1,000,000 reservation requests a year whilst operating, but only 8,000 were successful in getting a table.

Head Chef Ferran Adrià is acclaimed as the best chef in the world. In order to ensure the product offering (menu) was unique and the most exciting in the world, El Bulli closed for half a year in the winter months as the creative team of chefs worked in their food development laboratory. During that period the team would prepare around 500 new dishes for introduction in the next open season.

Resources and markets are in the main fixed over long periods, differentiating/transforming activities however will typically be more accessible in the event that changes to strategy become a short-term imperative, as may be the case during extreme situations that are beyond the control of the executives and directors of the firm. Such situations are not common, but can be imposed on organisations – as we have seen, for example, from the impact of the Great Recession. This event caused many businesses to adapt very quickly from an environment of certainty and a state of long-term renewable growth to one of great uncertainty, forcing the need for dramatic restructuring, renewal or reinvention; enabled through a change in their activities in the short term which in many cases saw an uptake of technology to enable automation or a rationalisation of service offerings and then infrastructure in the long-term.

The development of external market positions and/or organisational resources can be seen, therefore, to be more likely to be evolutionary in nature. Differentiating/transformational activities, as something the firm does, are naturally more accommodating to revolutionary change. Fundamentally, however, most forms of renewal, strategic change and reinvention are carried out at the activity level of the strategic architecture. To change the business model (defined as the manner in which the business enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit (Teece, 2010)) and the way a business goes to market, it is always necessary to change some component of the resource set, and potentially the way the differentiating and transformational activities interact with those resources (in summation; the management of a system).

SMI Dynamic Model of Strategic Equilibrium

Drawing on the construct of the strategic architecture embedded in the Strategic Management Framework, I propose the notion of a Dynamic Model of Strategic Equilibrium as a concept that defines a state of equilibrium between each of the elements contained within that strategic architecture. Still requiring further analysis of its application in practice, I refer to this proposed construct as the SMI Dynamic Model of Strategic Equilibrium (Figure 2.2). The model depicts a state of equilibrium that can be expected to prevail when a balance is achieved between an inside-out/outside-in strategy and one that incorporates the differentiating/transforming activities described previously; potentially in the form of a micro system. Typically, organisations select an either/or approach to strategising, as shown in the restaurant examples above. Some, but only a few, achieve a balance between the two; Toyota could be the exception as demonstrated in the example presented previously. Toyota is a Japanese manufacturer that challenged the status quo to become the largest automotive company in the world.

 
Figure 2.2 SMI Dynamic Model of Strategic Equilibrium

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I believe the SMI Dynamic Model of Strategic Equilibrium could be the starting point for the determination of new growth opportunities for organisations operating primarily out of a single dimension (hence the inclusion of the word ‘dynamic’ in its title). Stand out examples of single focused companies are Red Bull (market positioning), Honda (competence/resource leveraging), Disney (differentiating activities) and participants in Formula 1 car racing (transforming activities) such as Ferrari and Lotus.

It is my experience in particular that few organisations are even conscious of the actual activity component (transforming/differentiated activities) of the elements of a formal strategy structure; it is not well defined or even identified in the mainstream strategy literature to date. As a result, practitioners could significantly benefit from an opportunity (or imperative) to ensure they retain their strengths in areas beyond core resource leveraging or market positioning alone. Points of optimisation for each are shown in Figure 2.2 as areas that represent a limit to growth from either a market positioning or competence/resource leveraging perspective. An appreciation of the existence and strength of transformational and differentiating activities, I suggest, will contribute to the realisation of further ways a firm can compete. This is the case especially in conglomerates, for example, where sibling entities often possess skills in the conduct of complementary or synergistic activities that are not otherwise shared.

McDonald’s is highly successful as a provider of convenience foods at low cost and consistent quality. It appears though that it does little to develop its competitive offering further through the development of differentiated or transforming activities. Although there is clear evidence of differentiation in its existing product service and business model, McDonald’s adheres to its prevailing static model of equilibrium. Growth is primarily focused on international expansion of markets rather than innovation in its differentiating activities. Continuation of the same business model over a long period has left McDonald’s vulnerable to other nimble, less constrained competitors who may be more agile in their approach to building market share.

It is true that McDonald’s has explored some points of differentiation and has recently (in Australia anyway) proposed home delivery as a way to grow its business. Although an attractive proposition to customers, this is still not a radically innovative or unique offer overall. We discuss the application of the SMI Model of Strategic Equilibrium in more detail in Chapter 6.

Reinventing Strategic Planning: A Systemic Approach to Strategy Formation, Implementation and Renewal

Senge (1990) informs our approach to the reinvention of traditional strategic planning and enforces the importance of systems thinking as a means to enhance the effectiveness of the activity of strategising. In The Fifth Discipline he proposes that the fundamentals of Complexity Theory are sufficient to cast doubt over the claims of traditional strategic planners that a strategic plan in any context is in fact viable. Senge notes:

It is doubtful whether the results that happen today are those intended any length of time ago. It is therefore, inconceivable to think that we can plan over any great span of interrelationships or very far into the future. The more we try to think global rather than local the more we experience the resistance of complexity. (Senge, 1990)

 

Through this observation, Senge affords a validity to the Strategic Management Framework; as a system designed to deliberately differentiate between strategy, in the form of a representation of an aspirational, envisioned future (the validity of which will always be the subject of conjecture) and the strategic plan which is the physical instrument that enables the implementation of those aspirations in the short term, and the delivery of change.

The reinvention of the strategic plan into a programme of continual strategy renewal and the inclusion of strategy evaluation reviewing as a fundamental component of that programme is I suggest, a valid solution to the conundrum that arises from the ‘doubtful results’ that Senge observes as flaws of strategic planning in general. By submitting the strategic plan to continual monitoring and review, strategy practitioners are alerted to those areas of greatest uncertainty and doubt (that Senge suggests arise from the distance of time and space) and as a result, are better prepared to invoke a reactive, proactive or designed response, in time to counter potential adverse outcomes from uncertainty. The more specific the short term objectives articulated in the strategic plan, the more appropriate is the focus of Senge’s comments on the short-term planning component of strategy. It is fitting therefore that the proposed mechanism of continual strategy renewal should treat the plan as a dynamic, interactive program of review and re-evaluation as opposed to a static, moribund document.

Senge’s proposed notion of ‘systemic thinking’ is applied to the framework as a means to define ‘a way to explore the whole as a means to connect the abundance of events that would otherwise appear to be distinct in space and time’ (Senge, 1990). Systemic thinking, Senge suggests, ‘provides connectedness, structure and boundaries to our thinking. Boundary judgements help people to formulate viewpoints about issues and dilemmas experienced in their lives’. The Strategic Management Framework was designed to provide a systemic understanding of strategy and is an attempt to apply boundaries to our thinking, enabled where appropriate through the development of scenarios which depict future plausible relationships with the business and its environment. As Senge would hope, the framework ‘facilitates construction of incisive insights into each viewpoint’, such that ‘as a result, we are able to learn within the unknowable’ – a useful attribute for any sensible strategy practitioner!

Senge’s approach to systemic thinking is based on the premise that single-loop learning (where incremental improvements are made by making adjustments to existing techniques) should be replaced by double-loop learning. According to Argyris and Schon (1978), double-loop learning ‘promotes changes to fundamental, preconceived notions and assumptions as the basis upon which learning is carried out, problems are solved and decisions made’.

One application of systemic thinking of great importance to you and me is the interpretation given to it by Flood (1999), who associates systemic thinking with that of a formal process of project management, and by association, evaluation. Flood proposes a perspective of evaluation that is centred on systems thinking in a format that he describes as ‘systemic evaluation’. Flood includes an aspect of evaluation that you wouldn’t expect outside a book on strategy – specifically that of strategic planning. Its inclusion is unusual because in most instances, evaluation is considered to be about the monitoring and assessment of an operationally focused project or cluster of projects that make up a programme. Rarely is it applied to the context of strategic planning as well, I refer to this concept as Systemic Strategy Evaluation.

Systemic Strategy Evaluation

Flood draws on standard project and programme management concepts of evaluation to draw a comparison with the management and monitoring of each, against the evaluation of the effectiveness strategic planning. As we saw in Chapter 1, Flood proposes two different perspectives of evaluation of relevance to strategic planning. The first perspective is the process that contributes to the formation of the strategic plan. The second perspective applies to plans that are complete and therefore require an assessment of the effectiveness of outcomes that include an assessment of the relevance of content contained in the strategic plan. The focus of both is typically centred on an assessment of a plan’s timeliness, relevance and its efficiency and effectiveness. Each is reviewed in accordance with predetermined people and culture (behavioural) criteria as well as expectations concerned with the plan’s financial constraints, time and resource allocations and associated (process- oriented) performance standards.

Flood describes the two components of systemic evaluation, therefore, as being either a part of formative evaluation (which in a strategy context can, be defined as evaluation shaping – associated with the activity of creating or shaping a strategic plan) and summative evaluation (which can be seen to be most relevant to strategy in a context of evaluation reviewing – the activity of reviewing the effectiveness and outcomes of a strategic plan).

Strategy Evaluation Shaping

The notion of strategy evaluation shaping is important to us. It is undertaken with the objective of generating information about actions that become the primary outcome from a strategic plan, generally articulated as strategic objectives. By definition, the outcomes from strategy evaluation shaping will be based on a number of assumptions, assessments and guesses that contribute to the formation of short term strategic objectives; this is the very nature of strategic planning.

Flood’s (1999) view of what I have expressed as strategy evaluation shaping builds on the work of Senge (1990). He suggests that in environments of significant complexity and extreme ambiguity, managers are faced with the need to obtain knowledge about topics that are in effect ‘unknowable’ – a key challenge of strategy evaluation shaping. Specifically, Flood relies on Senge’s method of systems thinking as a way of dealing with the complex nature of the world, which comprises many inter-relationships, but at the same time is resolved through acts of spontaneous self-organisation. It is only possible, Flood suggests, for managers to get to get to grips with things ‘that we are immediately involved with’, and at the same time are ‘not very far into the future’. It is almost impossible, he suggests, to assess and resolve any issues that are future-oriented and strategic (as opposed to planned) in nature.

It is therefore highly desirable for strategy practitioners to obtain as much insight as possible into future eventualities. As an extension of Flood’s work I have incorporated the notion of strategy evaluation shaping as a key component of the Strategic Management Framework and as such is a form of reinvention of the standard approach to strategic planning. The components of this reinvention contribute to a resolution of Flood’s expressed concerns about difficulty with ‘seeing the future’. As is illustrated in Figure 1.1 the relevant perspectives of strategy evaluation shaping are addressed through our proposed use of tools that help us to reach into the future, as best we can. The tools and techniques I refer to are identified in the Strategic Management Framework as environmental scanning, futures thinking and responsiveness.

I suggest that as a result of their inclusion, strategy practitioners are better placed to work in a sphere where decision makers are at the least better informed (through enhanced insight a least) of the unknowable, but are also better equipped to ‘manage within the unmanageable and organise within the unorganisable’ (Flood, 1999). Each of the perspectives of environmental scanning, futures thinking and responsiveness are explored in more detail in Chapter 3, they are intended to inform strategy through descriptive depictions (such as story) or other similar conceptual means to evoke images of a perspective of what ‘could be’. Arie de Geus (1997) illuminates the way in which insight into perspectives of the future can be developed. He proposes the application of scenario analysis as a form of story, in the format of ‘memories of the future’. Scenarios de Geus suggests, provide a means for strategy practitioners to come to terms with the degree of unknown futures referred to by both Senge and Flood.

Strategy practitioners can never be sure of what is going to happen even ten minutes into the future. What they can do though is try to second guess it or otherwise influence it through the use of advanced strategy tools. The purpose of the activity of strategy evaluation shaping therefore is to provide insight and a basis and content for strategic thinking, strategy formation, strategy renewing and strategy evaluation reviewing, and as an outcome, the basis for continual renewal of the material that would otherwise make up the details of the ubiquitous/annual strategic plan.

Strategy Evaluation Reviewing

There is strong opinion (Rumelt, 1991) to suggest the majority of strategy evaluation reviewing activities are evoked solely from the success (or lack of) of predetermined outcomes. A more effective approach to strategy evaluation reviewing, therefore, would surely be to include an assessment of whether or not the underlying assumptions, suppositions and drivers of strategy that were relied upon to develop a strategic plan in the first place continue to retain their relevance on a regular basis, as proposed previously (consistent with a philosophy of continual strategy renewal). As we saw with the David Jones department store chain in Chapter 1, there is not much point in placing a sole reliance on an evaluation methodology that simply waits for the strategic planning period (maybe as long as three to five years) to expire before making any judgement on the effectiveness or relevance of the strategic plan.

A programme of strategy evaluation reviewing therefore must encompass an element of reflection of the strategic plan, with the objective of consolidating what has been learnt through the processes of implementation of the plan, and where appropriate program of continual strategy renewal. I include the formal interactive strategy evaluation and monitoring mechanism as a key component of the Strategic Management Framework. It is an essential component of the strategy evaluation reviewing and monitoring mechanism supporting the overall strategic change agenda shown in Figure 1.1. The interactive strategy evaluation and monitoring mechanism is designed to observe changes in trends and content of assumptions and estimates that were applied to the development of the strategic plan as a result of the strategy evaluation shaping exercise referred to previously. This is illustrated in Figures 3.1 and 5.1 respectively.

Knowledge obtained from these findings is then applied as a mechanism to improve future strategic planning activities – but of greater importance, to reassess the value and contribution of content contained within the strategy and strategic plan itself. Each of these actions can be enhanced through the conduit of a formal learning program, or at a higher level, and as Senge proposes, within the context of a learning organisation. Consistent with Flood’s view, I see strategy evaluation as a valid approach to the assessment of the value of a strategic plan’s content. When applied to strategy evaluation reviewing in particular it prompts:

reflection on actions taken at a strategic level and as a result presents opportunities for consideration of new issues and dilemmas to be addressed. It informs assessments of relevance, validity and continuing commitments to strategy and the strategic plan and plays a central role in keeping all concerned people informed about consequences. This in turn helps them to learn into the future and to facilitate learning within the unknowable. (Flood, 1999)

 

The overarching strategy reviewing and monitoring mechanism engages the notion of strategy evaluation renewing and incorporates an embedded strategy evaluation reviewing capability that will ultimately make the idea of revisiting strategy on an annual or three to five year basis only – obsolete.

The choice of tools used to conduct any form of strategy evaluation activities will be highly dependent upon the prevailing business environment, and as suggested by Courtney et al. (1997), will be influenced by the extent of uncertainty and/or associated levels of risk. Imagine, for example, how different the world could be today had the assumptions behind different scenarios concerning the political stability of the Middle East, environmental stability in the nuclear energy industry in Japan and the potential for imbalance in global financial stability been tested and re-tested over the past few years. An overview of strategy evaluation shaping within which future focused strategy tools are reviewed and discussed follows in the next chapter.

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