GPM First
Chapter 3 of The Seven Inconvenient Truths of Business Strategy (978-1-4724-1247-8) by Paul Hunter

Strategy and a New Perspective on ‘Fit’: Directing Desire, Accommodating Fate, and a Catalyst for Transformation and Renewal

Chapter 3

INCONVENIENT TRUTH NO. 3: MEASURES OF STRATEGY EFFECTIVENESS ARE MISPLACED AND ILL DEFINED.

The primary focus of strategy evaluation activities is mostly assessed on incorrect measures – an assessment of specific outcomes rather than the ‘causal’ factors arising from inevitable assumptions/guesstimates that contribute to its formulation and renewal (shaping) and its implementation (reviewing).

Strategy is all about the future, but because the future is unknown, its content is by definition made up of numerous assumptions and guesstimates, each of which are based on a version of the truth that doesn’t yet exist. Evaluation techniques that ignore the consequences of the inevitable changes that occur in business after the making of assumptions can be highly detrimental to an organisation’s health. This occurs when scant attention is given to the combination of each element of evaluation (as we saw in Chapter 2): systemic strategy evaluation shaping and reviewing.

In the absence of an agreed and clear definition and purpose for strategy, and as a result of its strong tendency to be treated as a unique and independent process as identified in The First Inconvenient Truth of Strategy, the practice of strategising can now be suitably conceptualised as a specific and independent (although fully integrated) cluster of projects against which normal programme and project management evaluation techniques can be applied. Together, the ensuing programme of strategy and planning combines to form a system which offers considerable synergistic effects. More importantly, when the strategising system acts to integrate strategic planning content with that contained in the strategic architecture (within the construct of the Strategic Management Framework – see Figure 1.1), causal and influential factors interact to form an integrated system. As the time dimensions of each are aligned, the outcome combines to contribute to the formation of a truly dynamic strategy and planning open-loop system.

The Third Inconvenient Truth of Strategy

When addressing The Third Inconvenient Truth of Strategy, I therefore propose we explore an extension of the usual strategising infrastructure (the strategic plan) and pursue one that has the added advantage of effectively bringing strategy to life (and in a construct worthy of a profession) in the form of a programme of continual renewal of strategy. Such a systems-based, continually renewed (dynamic) approach to planning offers a robust solution to the dilemma that is expressed as The Third Inconvenient Truth of Strategy:

Measures of strategy effectiveness are misplaced and ill defined. The primary focus of strategy evaluation activities is mostly assessed on incorrect measures – an assessment of specific outcomes rather than the ‘causal’ factors arising from inevitable assumptions/guesstimates that contribute to its formulation and renewal (shaping) and its implementation (reviewing). The results of this are that in the absence of an appropriate strategy evaluation capability, unforeseen outcomes and unintended consequences arise, including:

  • incomplete, inappropriate strategy content;
  • continued investment in invalid strategies;
  • poor responses to unforeseen change.

 

 

The discussion in this chapter, therefore, focuses on the component of the Strategic Management Framework that attempts to identify and quantify those factors contributing to knowledge that informs the effectiveness of strategy and strategic decision making in general; I have referred to these previously (Chapter 2) as the elements of systemic strategy evaluation shaping and reviewing as depicted in Figure 1.1 and Appendix 2.

We commence the chapter again with an update on the developments of Cadbury in the next era of its life which is still characterised by high ambition and exceptional aspiration albeit with an absence of a formal strategy. In which case, it would have been hard to measure the effectiveness of the underlying assumptions that determined its future direction, though some assumptions stand out loud and clear:

  • that a method of producing high-quality, delicious chocolate products would be found;
  • that a market would exist for those products;
  • that the chocolate product would be capable of manufacture on a mass production scale;
  • that abusers of alcohol would readily accept a chocolate drink (cocoa) as a substitute for gin;
  • that resources would be found to finance and support the mass production of chocolate products.

In a way, the Cadbury brothers were living with, and relying on positive outcomes from assumptions similar to the above each day.

A Second Life and Whisper of Breath at Cadbury

By 1866 the Cadbury Brothers had maintained their commitment to the company values that were so closely associated with their beliefs as well as the foundation of their strategic direction. The Cadbury business itself had reached the point where it was on the brink of bankruptcy, saved only by what can be described as a ‘big bet’ investment made by George Cadbury, based on an assumption that survival could prevail if he took the decision to invest the remnants of the cash that had been a part of his inheritance from his father.

In a continued belief (assumption?) in the viability and apparent success of other competing manufacturers of products derived from the mysterious cacao nib, George decided that he would continue with the company’s commitment to a resource/competence-leveraging (inside-out) strategy and hope the outcome would deliver a step-change increase in production capability – thankfully, it did; his assumption was right. The production technology that was the target of George’s ambition was the recently invented Van Houten press, designed in Europe to extract butter from the cacao nibs in large volumes. It also enabled the production of a less rich and more palatable cacao essence (cocoa drink) than was previously available as a precursor to the ingredients used in the chocolate bars that we enjoy so much today. As a result of the combined benefits of the high volume, flexible production processes that the Van Houten press enabled, Cadbury was now empowered to launch a variety of flavours and mixes – indeed, in some cases, according to press comments of the day (Cadbury, 2010), too many varieties were released.

There was no strategic plan that pointed the Cadbury brothers in the direction of an investment in the Van Houten press, or the number and type of products produced. Their decision was reached through a response to an unstructured, visible operational evaluation programme that would have automatically alerted them to the need to introduce change. In a way, therefore, the brothers were ready to embrace a notion of strategic management. In effect they were following an invisible strategic change agenda, based on an informal strategy blueprint that, had it been real, would have informed decision making about which projects or initiatives would need to be prioritised, progressed, or put on hold. The one significant thing that would have made their leadership capability more effective would have been an indication of potential income and resource deployment demands that would have been incurred as a means of justifying their investment in the cacao press.

Fighting on in what must have seemed like a continual fog of uncertainty, the turnaround in fortune that had been afforded the Cadbury brothers as a result of their subsequent investment in the Van Houten press did make a significant contribution to the future and viability of the Cadbury business. It provided the brothers with a release from the threat of bankruptcy, and subsequently the opportunity to trial new and pure variations of cocoa essence, flavours and more extravagant chocolate products. In the language used in this book, it represented an increase in the conduct of transforming activities as it sought to strengthen its competency in chocolate production, and this in turn allowed further differentiation and the opportunity to explore the products of the future. The fact that the Cadbury brothers neither used this terminology nor had a basic understanding of these basic principles of strategy confirms the extent to which ‘intuition’ influenced their decisions rather than science. In contrast, we can now see the value the Strategic Management Framework brings to the strategising activity; through its ability to structure and guide strategic analysis in a way that is supportive of an otherwise independently intuitive (strategically oriented) decision making capability.

I propose, therefore, that from the era that commenced with the installation of the Van Houten press, the construct of a strategy plan and strategy blueprint would have provided the Cadbury brothers with a way to frame a strategic plan in the short term whilst still striving to realise their life-long strategic intent of providing a viable alternative to alcohol. Regrettably – as we will see in subsequent chapters – a continual absence of a visible and structured longterm strategy is quite possibly a contributing factor to Cadbury’s inability to stave off Kraft’s aggressive acquisition of the company in 2010.

Operating in an environment that was filled by large numbers of industry participants but with little industry influence of their own, the Cadbury brothers acted on faith (and on the success of others such as Fry’s – a significantly larger business than Cadbury). Supported by that faith, they were able to rise above the competition by default. Based on their religious beliefs as much as commercial acumen, the arrival of the Van Houten press allowed the bothers not only to improve productivity, but also to reduce the amount of objectionable ingredients that disreputable competitors had used in the past in an attempt to reduce costs and camouflage the unpleasant and bitter taste of the cacao fat. Drawing on their inherent values and now confirmed marketing slogan of ‘absolutely pure, therefore the best’, the Cadbury brothers had stumbled upon a benefit to their brand that wasn’t offered by any of its major competitors – that of purity in its product as well as purity in its values.

In getting to this breakthrough, George and Richard had fought off bankruptcy by clinging to a firm belief in the product, and more physically by spending nearly all of their waking hours at work. The driving force for them both was the promise of a secure future, and still, a commitment to the strict values held by members of the Society of Friends. As far as George and Richard were concerned, Quaker values were a greater priority for them than fortune (Cadbury, 2010). Survival and prosperity for the business would enable them to provide ongoing support to their employees as well as the poor and underprivileged.

Financial success, when it did occur, didn’t suddenly appear. Seen as a luxury consumer product in these early times, chocolate was, and always has been considered expensive. Perceived to be a comfort food by some, it is considered an extravagance by others. An assumption that this could be over-ridden in the long term was always the basis for hope, but there was no guarantee. Although quality improved considerably as a result of the introduction of the Van Houten press, so did the cost of ingredients. Eventually, though, an increase in consumer wealth and a further reduction in taxes on chocolate did provide sufficient revenue for the Cadbury business to thrive.

Just as the business succeeded, though, so did the opportunity present itself in the early twentieth century to devote time to the search for the perfection of a chocolate product that had already been developed by competitors overseas: the blend of milk and cocoa nibs in a format essential to produce what we know today as Dairy Milk Chocolate. Regrettably, during the course of this search, Richard Cadbury contracted a terminal illness whilst travelling overseas. His subsequent death occurred whilst he was still abroad, in Jerusalem in 1899.

Throughout his career Richard had been operating an inside-out strategy oriented to the maintenance of what was – the conduct of transforming activities that were undertaken to improve the competencies Cadbury had and the way in which those competencies could be developed; a program to deliver what could be. Cadbury’s market definitions were well defined and still limited to an elite consumer represented by the few who were able to afford the luxury of the solid chocolate bars and confections offered by Cadbury, as well as those who could bear the harshness of the bitter component of the cocoa drink. They were also limited to the constraints imposed by known formats and physical production techniques and capacities – the very elements that the Cadbury’s assumed would improve one day.

Systemic Strategy Evaluation

Bradley (2008) provides us with some insight into the specifics of Cadbury. We are concerned in this chapter however with his insight into Cadbury’s successful turnaround from near bankruptcy to industry leader in their field. As a confirmation of Cadbury’s focus on an Inside Out strategy, Bradley observes that their success can be primarily attributable to ‘better management of their product range and infrastructure’. Specifically, Bradley observes that Cadbury shined in the areas of customer focus, an ability to rapidly respond to change, an associated speed of decision making and the quality of their product and service that can be seen as a key outcome from their values; captured in the phrase ‘absolutely pure, therefore the best’. Cadbury also benefited from another feature of their resource base, following the establishment of a low cost manufacturing capability and an efficient and effective supply chain they had established as a result of their move to a country location out of Birmingham; Bourneville.

From a modern strategy practitioner’s perspective, Cadbury seems to have mastered the art of strategy exploitation, the mining of existing business to become leaders in their field. This was at the expense though of an effectiveness in strategy exploration; an appreciation of future opportunities (other than the quest to perfect a product that was already proven; milk chocolate) that may be the basis for transformation to a more sustainable future. Either way, there is evidence to suggest that there was a place for the application of a formal strategy reviewing and monitoring mechanism to manage the assumptions (and intuitive guesses) that the likes of Richard Cadbury relied upon intuitively at that time to inform decision making into the future.

In this chapter we will review a number of strategy tools and techniques that contribute to our understanding of strategic issues that will have an impact on the future of an industry, a community, a business and most importantly the individual strategy practitioner. They include of course the aspirations, ambitions, assumptions and guestimates that we referred to previously and become therefore, a legitimate subject for review in the next component of the evaluation element of the Strategic Management Framework depicted in Figure 1.1, strategy evaluation reviewing.

Strategy evaluation shaping is the area that the fundamental assumptions, estimates, guesstimates and leaps of faith are made as the foundation of the strategy, strategic plan and futures thinking in general. The output is of course subjective, its validity highly dependent upon less tangible attributes of strategy; anticipation, adaptation, expectations, hope, enthusiasm and optimism. One description of the notion of strategic uncertainty as an aspect of subjectivity was identified by Hubbard et al. (2007) who found that senior leaders of the eleven most highly regarded Australian Corporations benefited from ‘clear, but fuzzy strategy’. This feature of an organisations strategising capability Hubbard et al. observed, provided the senior leaders they interviewed with a clarity of purpose, as well as a level of flexibility that (they thought) ensured no opportunities were missed.

Strategy needs to be clear enough to provide guidance to current activities. At the same time it can be fuzzy so that opportunities that are related or are incremental can be taken up’. Characteristics of organisations operating clear but fuzzy strategy included attributes of adaptation, continuous improvement, and innovation. The organisations were also structured to ensure they were flexible enough to adapt to external change. Strategy was seen as an art; managed within a system of continual strategy renewal.

Strategy for winning organisations is clear, but slightly fuzzy. It is communicated with a high degree of clarity and consistency, but in different ways and it develops and changes incrementally over time. (Hubbard et al., 2007)

Each of these attributes are I suggest, sufficient to justify the necessity for the ensuing activity of systemic strategy evaluation reviewing, to become a formalised component of any strategising programme.

Systemic strategy evaluation reviewing is the term I use to refer to the monitoring of two aspects of strategising within the boundaries of the Strategic Management Framework. The first is the programme and project-oriented aspect of strategy implementation; its efficiency and effectiveness and the measurements and analysis related to the realisation of desired outcomes from short-term strategy, as expressed in the strategic plan. The second is the specific outcomes from strategy (strategic objectives and associated projects and performance expectations) as well as the less certain component of strategy that may or may not prove to be accurate, reliable or sustainable in the future; the assumptions and guesstimates referred to previously. The former relates primarily to programme and project management issues such as project costs, completion dates and actual versus estimated return on investment; the latter relates to less clear-cut issues of strategic planning that could include an assumption, for example, that people will be attracted to a tastier version of chocolate, that supply of the precious cacao nib grown in the Tropics will always be available, and that we will be able to ship the resulting products around the world at a viable cost. The mechanism that is illustrated in Figure 3.1 demonstrates the integrated nature of the elements of strategy evaluation shaping and reviewing.

The topic that makes up the bulk of our discussion in this chapter is systemic strategy evaluation shaping. This is the activity where we create the decisions that are based on the risky factors of uncertainty in strategy; the leaps of faith based on assumptions, guesstimates and estimates.

Systemic Strategy Evaluation Shaping

Systemic strategy evaluation shaping (Figure 3.1) consumes the majority of work to be conducted in the development and/or the review and renewal of strategy and the strategic plan. This method of evaluation relies on a big-picture direction from the firm’s vision and mission and its integration and engagement with long-term strategy as expressed in the form of a strategic architecture, as discussed in detail in Chapter 2. In reviewing the topic of strategy evaluation shaping, we address the three categories of environmental scanning, futures thinking and responsiveness. Environmental scanning is used to deliver insight into trends and cycles of possible events and areas of influence that may or may not occur in the future, futures thinking refers to the use of specific tools to develop and evaluate stories of alternative (possible) future scenarios. Responsiveness accommodates either one of three actions and reactions to foreseen or unforeseen events. One is a reactive response to unforeseen, unexpected change (accommodating fate) second is a proactive response to anticipated change (anticipated response), third is the design of a hoped-for response to deliberate change (directed desire).

The strategic plan is very much a ‘static’ instrument, it is still though one that provides a viable basis upon which implementation and an associated programme of strategy renewal can be based. Future iterations of the strategic plan however may now be avoided as I would expect the notoriously static planning document would become an interactive monitoring mechanism; reviewed and renewed on a regular basis, its frequency subject to the discretion of the leadership team and the circumstances of the organisation within which such a mechanism is deployed. This matter and a determination of content is discussed further in Chapter 5 under the topic of ‘programme of continual strategy renewal’. We propose that in any format, the strategic plan is a primary contributor to a programme of continual renewal of both strategy (directly) and the business (as an outcome). Fundamental to our discussion here therefore, is the inclusion of the various assumptions and ‘unknowns’ identified as part of The Third Inconvenient Truth of Strategy that are also considered in the context of strategy evaluation reviewing.

 
Figure 3.1 Extract from Strategic Management Framework: combined programmes of systemic strategy evaluation

graphics/fig3_1.jpg

The more specific professional attribute of strategy evaluation reviewing is the issue of strategic governance. This remains a vital aspect of strategy that we will explore in detail as an element of strategy as a profession in Chapter 7. As we will see at the conclusion to this and subsequent chapters, the strategic plan, when treated as an ongoing programme of continual strategy renewal (see Figure 1.1) becomes the catalyst rather than inhibiter for strategising, and indeed the driver of strategy, strategic change and ideally organisational renewal.

Insight Into Systemic Strategy Evaluation Shaping

In our review of the concept of strategy evaluation shaping, I propose to explore the major elements located on the left of Figure 3.1. As you will observe from this diagram, the practice of evaluation consists of a constant alignment and realignment of fit between each of the three elements of environmental scanning, futures thinking and responsiveness. Each contribute to our appreciation of the nature of the external environment and ways in which it can and should be revisited, reviewed and reassessed on a regular basis. The process or system itself can be incorporated into the same management reporting and control system within which a firms other topics of evaluation are being monitored. These include the assumptions that were made when the firm’s vision, purpose and long-term strategy were developed and subsequently became embedded components of the firm’s strategy, as reflected in its strategic architecture.

Strategy Evaluation Shaping, Element I: Environmental Scanning

A key influence on an organisation’s strategy is the extent to which external industry-specific factors will influence the firm’s capacity to exert any form of control. External industry factors that influence strategy could include regulation, social norms and behaviours, safety requirements and regulations that impose constraints on the firm’s infrastructure. Less specific industry related forces could include technology, politics, media and social unrest. An industry specific example is utilities, or the electricity industry, which in most countries is highly regulated and controlled by government authorities. As we discussed in Chapter 1, research suggests that a large portion of strategy content is ‘influenced mostly by industry forces and emerging trends’. On the surface, this doesn’t leave much room for creativity and innovation when assessing the competitive advantage of a business in the electricity market. It does, though, require the firm to maintain a good appreciation of where the industry in which it operates is headed.

An example of a business that is in this position is Asciano, a rail freight transport and port management company that operates in Australia well under the radar of better-known consumer-oriented brands. Asciano’s success is highly dependent on ownership of and access to sea ports and rail tracks, most of which it does not own. In most cases, they remain the core assets of governments, or mining companies which in turn may also be leasing the tracks from the government. Similarly, Amcor, a global packaging company and primary supplier to the tobacco/cigarette industry, has no influence over the sale (or otherwise) of the end product – cigarettes. Its fortunes are therefore largely tied to the fluctuations of the industry and the marketing efforts of its customers, who, because of consumers’ health concerns, are understandably under constant pressure to exit that business. Other examples of organisations occupying this space are utilities, government departments and agencies, hospitals, not-for-profit organisations and educational institutions.

For organisations that are not tied to industry influences, it is just as important to be aware of future trends and factors of influence that could emerge as a threat or opportunity for them in the future. However, such organisations can benefit from a capacity to influence the structure, or shape of their industry environment as opposed to having to conform to it. In fact, many of the more successful firms have been able to carve out their own future within an industry, and as a result benefit from at least a renewable competitive advantage, or better still, global domination of that industry. Examples of individuals and companies that have realised such an outcome include Anita Roddick (who as founder of the Body Shop is famous for her observation that she looked at what others in her industry were doing and deliberately ‘walked in the opposite direction’). Others are Richard Branson (Virgin), Henry Ford (Ford) or even early twentieth-century inventor Thomas Edison. We shouldn’t forget either the vast number of inventors and entrepreneurs who literally invented new spaces in an industry, and sometimes a new industry altogether, such as Zuckerberg with Facebook.

Each of these individuals and the companies they founded benefited from their ability to define new rules of the game as opposed to playing by the rules of the game, as many industry incumbents tend to do. Whereas some opportunities are sourced as a result of deliberate attempts at creativity, innovation and invention, other initiatives that have led to success are driven by the opportune and timely application of what is (an existing set of resources) or what will soon be in existence (emerging). One of Steve Jobs’s attributes, for example, was his ability to spot emerging technologies and to ensure that Apple was working to capitalise on them before anyone else – that is, before the new wave of technology advancements became the norm.

Another example of an entrepreneurial company that is writing its own future is a small women’s fashion retailer based in Melbourne, Australia called The Ark. At a time when the highly labour-intensive textile industry has long left Australian shores in favour of higher-volume, lower-wage countries such as India and China, the owners of The Ark have thrived under their own unique value proposition realised through a clothing range that is designed and made in Melbourne. As with Apple, the owners of The Ark found that control over design and manufacture allowed the company to respond to and largely influence customer demand. The number of retail outlets operated by The Ark is deliberately limited to only three stores. Offering contemporary (fashionable, but unique) designs, production runs are also limited so that customers won’t be embarrassed by seeing other women in the same dresses around town.

Described on its website as a business run by women for women, The Ark adds extra value to its customers:

The Ark wishes to keep understanding and educating our valued customers positively. We have staff with skills in the areas of design, patternmaking, e-commerce, wholesale, customer relations, graphics, marketing, sales and accessories who all work cohesively together to bring the best from The Ark product, season after season. 1 [5]

 

Most importantly, The Ark is all about the customer:

If you’ve lost confidence in your body and its ability to make you feel good, indulge in the often hilarious but always informative WORKSHOP YOUR SHAPE nights. Here the staff themselves strip down to the bare essentials to help you understand how to make the use of the best bits and disguise the less loved parts. So which shape are you? CURVY, SQUARE, TRIANGLE, DIAMOND or STRAIGHT? 2 [6]

 

Environmental Scanning Tools: PESTE Analysis

The primary tool used for environmental scanning in its most simplistic form is PESTE analysis (or a variation thereof), an acronym for the Political, Economic, Social, Technological and Ecological issues that face a business. The purpose of PESTE analysis is to develop an overview of the different macro environmental factors the company has to take into consideration when conducting an external environmental analysis contributing to strategising activities or market research. It contributes to strategy evaluation activities because it provides insight into the strategy practitioners’ understanding of the specifics of the future, and informs decisions on market growth or decline, its position in that environment, and an indication of the future potential and direction for proposed or existing operations. PESTE analysis also offers increasing value as environmental or ecological factors continue to have greater impact on corporate social responsibility (trends), serving as an early identifier of potential opportunities and/or threats to the business.

PESTE is a vital component of standalone strategic analysis, or a contributor to the conduct of scenario analysis (discussed in the next section). Table 3.1 gives an example of the application of PESTE analysis by examining the mid-term (ten- to fifteen-year) trends within the political, economic, social, technological, and ecological dimensions. To complete the analysis, a list of at least five changes in each element is required to be identified (a total of 25 items).

 
Table 3.1 Example of application of PESTE analysis

Dimensions

Areas of greatest uncertainty impacting our industry

Political (e.g. change in balance of power in Governments)

Economic (e.g. continuing repair of effect of Great Recession)

Social (e.g. impact of mass cross-border migration)

Technological (e.g. emergence of analytics, big data and social media)

Ecological (e.g. impact of climate change, incidence of obesity)

Environmental Scanning Tools: Porter’s Five Forces Model

A second tool used to assess and review the external environment within which a firm operates is Porter’s Five Forces Model (Porter, 1980). Developed by Harvard Strategy Professor Michael Porter, this model is mostly an econometrically based environmental analysis (industry attractiveness) assessment of the strength that the five forces that prevail within an industry will have. The five forces are: the bargaining power of buyer’s, the bargaining power of customers, the threat of new entrants, the threat of substitutes and the extent of rivalry among existing participants in the industry (your competitors). Porter refers to this model as the Five Forces Model of Competitive Advantage. It is used to compare the impact each force will have on competitive intensity, and therefore the attractiveness of an investment in an industry.

It also provides information contributing to an understanding of a firm’s current or potential strategic market position in an industry. Another application is to use it to highlight specific issues of industry attractiveness, which in this context refers to the overall industry profitability. An unattractive industry is one in which the combination of these five forces acts to drive down overall profitability. A very attractive industry would be one approaching pure competition in which available profits for all firms is driven down to zero. However, the overall industry attractiveness picture does not imply that every firm in the industry will return the same profitability. To some extent, the effectiveness of a firm’s strategy will have a direct influence on this.

Porter’s Five Forces Model is useful because it assists firms to assess and develop strategies that could deliver profits above the industry average. It prompts industry participants to reassess the marketplace, dependent upon any given changes in industry information that become observable from changes in any elements of the five forces. It also complements other elements of Porter’s analytical toolkit, which also includes the notion of a value chain and the three generic strategies referred to in Chapter 2. As we saw in Chapter 2 also, blue ocean strategy (a derivative of an analysis of ‘value curves’) is a more recent and highly valuable method of assessing market opportunities and is discussed later in this chapter).

Environmental Scanning Tools: Competitive Intelligence

A step beyond the more simplistic competitor analysis, a competitive intelligence (CI) system is a methodology that is sometimes viewed as a knowledge management system in its own right. Embedded within an organisation’s intranet (or similar knowledge management technology), CI becomes a knowledge base of competitive activity that is interactive and visible. The management of a CI system is similar to that of a customer relationship management system or business intelligence (big data) system. Rather than an isolated analysis of competitor’s traits or similar kinds of analysis, CI is managed as an interactive monitoring mechanism that has various live sources of data. A CI methodology is conducted as formal management capability and can be embedded within the firm Strategy Evaluation Dashboard Monitoring Mechanism discussed within the context of the programme of continual strategic renewal in Chapter 5.

In Table 3.2 I summarise the differences between the content of the better known, but higher level competitor analysis study as opposed to that of an in depth competitive intelligence system. In Table 3.3 I provide a summary of possible sources of data from upon a CI system can be based.

 
Table 3.2 Competitive intelligence characteristics

Competitor analysis: Information

Competitive intelligence: Knowledge

‘One-off’ analysis of:

  • comparative cost structures
  • location analysis
  • price and promotion activities
  • new product launches
  • number of employees

Orientation: Comparative advantage

Competitor analysis and embedded (intranet portal) programme of monitoring and planning of competitor strategy and activities relating to:

  • future strategies
  • core competencies
  • investment programme
  • diversification opportunities, etc.

 

Orientation: Competitive advantage

 
Table 3.3 Alternative sources of competitive intelligence data

Areas of focus

Sources of information

External environment:

  • the economy
  • the marketplace
  • consumer trends
  • industry trends
  • technological developments

  • professional service providers (Factiva, IBIS)
  • media, especially the Internet
  • general media: newspapers, TV etc.
  • internal sales force: price changes, people moves

Competitor-specific information:

  • potential expansion of plants and operations
  • fundraising for future investment (share offerings, debt etc.)
  • moves of overseas competitors/company acquirers (predators)
  • parent company announcements

  • public notices: annual reports
  • advertising and media agencies: advertising campaigns
  • business analytics: trackers and predictive analytics
  • trade shows
  • soft sources: sales, existing and former employees etc.

The effectiveness of a competitive intelligence system is optimised when implemented on a large scale. In this capacity, input is encouraged from employees who may hear things about competitors’ activities from various sources, these could include social occasions such as parties or sporting events. Specialist staff can be asked to trawl the Internet and other media for information, whilst formal industry reports published by research companies can also be a useful source of information. Outputs may be presented simply though emails, a formal interactive strategy evaluation and monitoring mechanism or a more comprehensive dashboard reporting mechanism. More complex, dashboard reporting mechanisms are potentially the most effective method of reporting. An alerting mechanism incorporated into the firm’s dashboard reporting system enables an automated response in especially volatile and competitive environments where changes in price, product/system designs, pricing and availability may occur over short time spans. Petrol and alcohol are examples of this situation, where prices for petrol in particular can change hourly.

A competitive intelligence monitoring capability is operated through an alerting mechanism that can be linked to the strategic risk system referred to in Chapter 7. The CI system in general provides a means for managers to be more proactive than reactive in response to the activities of competitors.

Strategy Evaluation Shaping, Element 2: Futures Thinking

‘Futures thinking’ is the activity of looking into the future as an attempt to better prepare for whatever that future may bring, good or bad. Strictly speaking, of course, the future doesn’t exist, so any conclusions that may be drawn about it can’t be guaranteed.

Just as the researcher Igor Ansoff is now referred to as ‘the Father of Strategy’, Royal Dutch Shell and its pioneering strategy team, in particular Pierre Wack and Ted Newland, can be accorded the title ‘Fathers of Structured Thinking Around Strategic Foresight’. As early futurists, Wack and Newland contributed to Shell’s version of a methodological approach to futures thinking through the use of scenario planning. One of the strengths of the scenario planning practices developed by Pierre Wack in particular is the ability for Shell to transform quantitative and qualitative insights into descriptions of plausible but not necessarily probable futures by explaining their observations in the form of stories. In this format, the entertaining nature of their findings facilitates the capture of interest and enquiry, which literally builds memories of the future.

The term of ‘memories of the future’ is attributable to another of Shell’s team of scenario planners, Arie de Geus. As author of the book The Living Company, de Geus (1997) describes memories of the future as being grounded in perception which in itself is not simply a matter of collecting information, but rather a way of looking at an object/event as ‘an active engagement with the world; it requires the deliberate effort by management groups within the company to visit their future and develop time paths and options. Otherwise, the observations and data that are collected will have no meaning’.

Scenarios are used as a means to visit the future, but not one specific predictable future. Rather, scenarios are stories that are developed around a range of plausible futures to invoke strategic foresight, inform decision making, and in turn, induce action. The strength of scenarios is emphasised by de Geus as being its application to a learning organisation, to the extent that he is widely recognised as the originator of the concept. In that capacity, he is also recognised as providing the inspiration to Senge to go on to research and publish the book I have referred to previously The Fifth Discipline (1990).

In introducing the notion of organisational learning, de Geus bridges the divide between its application to individuals and teams. Individuals physically learn and retain knowledge, that wisdom is then retained in teams through formal and informal means (de Geus, 1997). Formal systems and processes, policies and procedures act as repositories for explicit knowledge, whilst folklore, story and collective wisdom remain the repositories for tacit knowledge. Explicit knowledge can be physically presented in a form that has been articulated, codified and stored in various media formats, tacit knowledge is presented in a format that is difficult to transfer to another person by any other means than verbalisation or in writing.

De Geus applies his concept of organisational learning to an understanding of the value it brings as a motivator for a response to the potential of change. De Geus suggests that memories of the future are a useful method of promoting change as a result of their ability to ‘reduce uncertainty through prediction’ (de Geus, 1997). Making any predictions about the future is, of course, a fatally flawed procedure. In recognition of this reality, de Geus has observed that memories of the future are more likely to evoke a response from managers because they are less specific, less certain, and as a result ‘allow the manager to learn and to anticipate alternate, possible futures’. The importance of this capability is that knowledge captured in our memories is usually acted upon, whereas certain knowledge applied to a predicted/probable outcome, whilst interesting, is not necessarily believable, and even if it is, it is less likely to be acted upon. Developing plausible memories of the future, de Geus suggests, ‘better allows us to prepare for them’.

An unfortunate but powerful example is the US government’s response to the threat of terrorist attacks in 2012, when the US consulate in Benghazi was penetrated and torched. This is an episode that resulted in the loss of lives, including the highly respected Ambassador Christopher Stevens. Subsequent to the event it was rumoured that the embassy had insufficient defence, even though forewarning and advanced intelligence indicated an attack was imminent. Later, in August 2013, US agencies were rallied to action when their memories of the future prompted them to respond proactively to a non-specific threat (created as a result of an increase in Internet ‘chatter’) by moving to close all embassies in the Middle East even though they didn’t have any specific information about the target or timing. The Benghazi episode was the trigger for this demonstration of proactive responsiveness.

Futures thinking: Scenario planning

Scenarios are the specific stories of the possible eventualities that are the output from scenario planning exercises. They provide a useful context for debate, contribute to informed decision making, and in that way help to facilitate the development of better policy and strategy. They also provide a shared understanding of possible future environments upon which a commitment to action can be based. As an exploration of the possible, not just the probable, they provide a relevant challenge to the conventional wisdom of their users and help them prepare for major changes that may lie ahead. They provide the content which feeds the previously mentioned memories of the future.

As a basis for strategy evaluation, scenarios are valuable attributes which can be applied to:

  1. test the validity of assumptions made in the strategy and the strategic planning process – a key part of the process of strategy evaluation;
  2. conduct a ‘reality check’ – providing insights into the question of reasonableness of assumptions and expected outcomes made in any situation, not just a strategy renewal;
  3. pre-empt the future – providing insights into potential outcomes and possibilities;
  4. inform decision making now – providing insights into the future, allowing us to make decisions now, in the context of possible (but not necessarily probable) outcomes;
  5. carry out risk assessment – analysis of potential and highest risk outcomes from a portfolio of strategic options-supporting activities that could include business cases, joint ventures, acquisition analysis and global expansion;
  6. facilitate leadership development – working in teams to develop shared visions of the future.

Futures thinking: Data analytics (big data)

As an emerging industry in its own right, data analytics is focused primarily on an analysis of internal trends and circumstances. Big data provides an ‘evidence’-based approach to research that makes a significant contribution to strategic decision making because of its insight, which had previously been ‘lost in the detail’. Designed to provide support to what would otherwise be considered to be gutfeel or intuitive decision analysis, data analytics utilises an increasingly complex array of software packages that are designed to mine the quantum of information contained within the mountains of data stored in enterprise-wide transaction processing systems. Collected over many years of transaction history, the information includes a summary of trends, anomalies and patterns in existing data, as well as an estimate of the potential outcomes using predictive analytics and trend analysis.

A primary purpose of the application of these tools is the development of the formal interactive strategy evaluation and monitoring mechanism we referred to previously as a basis for the measurement, management and reporting of data and content contained within various alerting mechanisms, strategy implementation and the continual renewal of strategy.

Futures thinking: Strategy as serious play, storytelling

Relaying sometimes dry factual content in the form of a more entertaining story has proven to be an effective way to considerably improve communications within a company, community or other organisation structure. An example is the relaying of a communiqué from head office. Rather than an hour-long presentation of the facts associated with poor plant performance, users of story would suggest that the issues be presented as a narrative that could, for example, involve players responsible for plant performance. This could include the recollection of the CEO, who, when faced with a similar problem during his or her period as factory leader, experienced similar faults – ideally re-told in a humorous way to ensure the current audience members are left in no doubt about ways to fix the problem.

In some instances humour is less appropriate as the situation being addressed is more serious in nature, in which case demonstrations, pilot programmes, beta releases and scenarios offer alternative ways to create awareness, manage mistakes and enable learning. Similarly, in a strategic context, the use of toys or plastic building blocks is sometimes seen as a viable method of illustration. Rather than slides, numbers and reports, the use of alternative mediums of communication and visualisation allows us to present and look at different perspectives on a problem. One of the reasons this works is that the method engages all the body’s senses, not just the eyes and brain. In their paper ‘Playing Seriously with Strategy’, Johan Roos, Bart Victor and Matt Statler describe the use of LEGO bricks as a method of articulating strategy rather than words alone (Roos et al., 2004). Business simulation tools such as ‘war games’ provide another way of using theatre, intrigue and competition to get people more involved in strategy.

Strategy Evaluation Shaping, Element 3: Responsiveness

We have observed previously that all of proactive, reactive and designed forms of responsiveness are important and critical components of strategy. The formal ‘Strategy Evaluation Reviewing and Monitoring Mechanism’ discussed in Chapter 5 (Figure 5.1) is deployed to provide insight into potential activities or events that will provoke a response to proactive and reactive change. Designed change on the other hand is articulated as actions, projects and programmes that are the intended outcome from the strategising activities that contribute to, and are part of the strategic plan. There are numerous tools applicable to the broadly defined category of responsiveness, we will cover only a few here, with an emphasis on growth; specifically internally generated, organic growth rather than growth as a result of merger and/or acquisition.

Responsiveness: Strategies for growth

There are numerous models that help organisations to identify opportunities for growth, and Table 3.4 provides details of a few.

 
Table 3.4 Models that contribute to strategies for growth

Three Horizons and Capability Staircase(Baghai et al., 1996; Baghai et al., 1999)

Purpose: To provide a method for mapping future growth strategies in accordance with three time horizons.

Why it is useful? It overcomes common pitfalls of growth strategies which do not include dimensions of time and the ability to anticipate resourcing/investment requirements.

How is it used? Three Horizons Growth – a continuous pipeline of growth initiatives allows:

  • a staircase for building new resources, capabilities, and management systems;
  • borrowing from the existing core business(es);
  • learning and developing new capabilities (a stepping-stone approach).

Ansoff Product- Market Matrix (Ansoff, 1957)

Purpose: It allows strategists to consider ways to grow the business via existing and/or new products, and existing and/or new markets – there are four possible product/market combinations.

Why is it useful? It illustrates how the element of risk increases the further strategy moves away from known quantities – the existing product and the existing market.

How is it used? As a matrix, it provokes new ideas about ways to build on existing product strengths by:

  • being open to new product development (requiring, in effect, a new product);
  • market extension (a new market) typically involving a greater risk than ‘penetration’ (existing product and existing market);
  • diversification (a new product and a new market).

 

BCG Growth-Share Matrix (Henderson, 1979)

Purpose: It helps the company to allocate resources, and is also used as an analytical tool in brand marketing, product management, strategic management, and portfolio analysis.

Why it is useful: It is useful to graphically illustrate the potential of future cash flows from the portfolio suite.

How is it used? When used appropriately this matrix provides insight into ways to invest in various portfolio’s of Business units or products, however it:

  • only ranks market share and industry growth rate, and only implies actual profitability;
  • overlooks other elements of industry influences;
  • has a subjective element involving guesswork about the future, particularly with respect to growth rates;
  • is susceptible to over-enthusiasm of managers, who may claim that cash must be thrown at businesses that are not ready to generate the kinds of returns the proposed investment would otherwise warrant.

 

As a result, a poor definition of a business’s market leads to some poor performers being misclassified as high cash generators when they are not.

Blue ocean Strategy vs. Red ocean Strategy

Purpose: Used to determine where high growth and profits can be generated through the creation of new demand in an uncontested market space, or ‘blue ocean’, rather than by competing head-to-head with other suppliers for known customers in an existing industry ‘red ocean’.

Why it is useful: Value curves are used to help explore the value ‘tradeoffs’ firms impose on their customers, the value proposition generated by a firm’s key attributes that specify the benefit to the customer. Dramatic increases in this value typically lead to discontinuous changes and:

  • an expansion in the total size of the market;
  • obsolescence of existing business models, making incumbents especially vulnerable as their way of doing business becomes increasingly obsolete;
  • target specific (often unfulfilled) customer needs and increase market space.

 

How is it used? The cornerstone of ‘blue ocean’ strategy is value innovation: the simultaneous pursuit of differentiation and low cost. A ‘blue ocean’ is created when a company achieves value innovation that creates value simultaneously for both the customer and the company. The innovation (in product, service or delivery) must raise and create value for the market whilst simultaneously reducing or eliminating features or services that are less valued by the current or future market. The Strategy Canvas is both a diagnostic and an action framework that uses value curves to illustrate compelling opportunities for ‘blue ocean’ strategies. It serves two purposes:

  • it captures the current state of play in the known market space;
  • it provides a canvas upon which proposed value innovations can be evaluated.

 

Measures of Responsiveness: Organisational transformation and renewal

Organisational transformation and renewal is an outcome from a consciousness of the need for responsiveness (change). Intuition (again) plays a big part in knowing why to change and when it is important to change. Knowledge about the detail of change – the who, when, how and what to change – is informed by data. However, knowledge from data doesn’t come directly from an enterprise-wide reporting system, nor directly from any transaction processing system, for that matter. It is, therefore, necessary to design a method of mining this data source, and that, as we have identified, can be derived from the mechanism we are proposing as strategy evaluation reviewing (discussed further in Chapter 7), which in turn is based on the design of a strategy evaluation monitoring mechanism, each of which are located in the fully integrated Strategic Management Framework illustrated as Figure 1.1. This monitoring mechanism can include data on competitive intelligence, analytics (trends and alerts), strategic risk (discussed as part of the topic of strategic governance in Chapter 7), scenario analysis, the strategy blueprint, assumptions made as part of strategy evaluation reviewing and all other knowledge of strategic importance.

The Cycle of Organisational Transformation and Renewal

In any discussion on the topic of organisational transformation and renewal, it is useful to understand the environment within which change will take place as much as the alerting and management of change itself. Previously I have observed that a firm must continue to find a position of fit within an increasingly dynamic, uncertain and sometimes irrational external environment. Similarly, events that occur within a firm will also have a significant impact on the content of businesses strategy and the strategic plan. I have also observed from research (Hunter, 2000) that a firm’s position within its Cycle of Organisational Transformation and Renewal will have a significant impact on the management of a business, as shown in Figure 3.2 (overleaf).

As observed from my own research (Hunter, 2000) and in expanding the work of Ghoshal and Bartlett (1999) and earlier Gouillart and Kelly (1996), the existence of a Cycle of Organisational Transformation and Renewal was found to introduce insight into a far more complex programme of change in organisations, in stark contrast to the more familiar single-step approach to change of freeze-change-unfreeze proposed as early as 1947 by Kurt Lewin. The importance of understanding the impact of change in relation to alignment is attributable to the fact that whilst changes in the external environment are usually appreciated and understood, the impact of change internally is generally only appreciated when a tipping point or awakening from a dominant logic, for instance, has been reached and a recognition emerges that some form of change is required, usually quite quickly.

 
Figure 3.2 The four steps in the Cycle of Organisational Transformation and Renewal

graphics/fig3_2.jpg

A dominant logic is a prevailing point of view among a leadership team, for example, which is often erroneously based on a prevailing commitment to competencies and capabilities that are seen as sacrosanct reasons for the team’s past successes. It is a description of the culture and system of beliefs that the company leaders in particular hold to be true. A dominant logic can be useful when applied to strategic decision making in environments of little change; it can be devastating when the tried-and-true ‘old normal’ dissipates and a new way of thinking is required, but doesn’t eventuate. This form of static, singlestep change is contrasted with the Cycle of Organisational Transformation and Renewal that makes up the bulk of Figure 3.2.

The first stage of the Cycle of Organisational Transformation and Renewal – reframing – is described by Gouillart and Kelly (1996) as ‘the shifting of the company’s conception of what it is and what it can achieve’. Reframing, they suggest, addresses the corporate mind, the objective being to open it up to new visions and new resolves and to break out of existing mindsets. Similarly, Prahalad (2010) suggests: ‘Leaders must also remember to focus the organisation on the forgetting curve. They must identify the behaviours, practices, and beliefs that are increasingly becoming dysfunctional or counterproductive and put in place ways of discarding them.’ Senge (1990) describes the essence of reframing in the context of a learning organisation. He attributes it to a breaking down of mental models, the fundamental component of which is reflection. From my own experience, I cannot emphasise enough the need for business leaders to break out of their preconceived mental models and to engage in regular exercises in reframing.

Few groups can express an experience that led them to reframe their mental models more than those who have experienced an imperative to do so first hand. They are the returning astronauts who have viewed the planet Earth from outer space and assessed its fragility within the context of the entire Universe. They describe the impact of this experience as an ‘overview effect’. This, they explain, has a ‘transformational impact on their perspective of the planet and mankind’s place upon it’. It is one that enables astronauts ‘to appreciate Earth as a shared home, one without boundaries between nations or species’. So insightful is their experience that they have combined to form The Overview Institute, an organisation charged with the challenge of addressing the stark situation that they describe as ‘a critical time’ for Earth:

We live at a critical moment in human history. The challenges of climate change, food, water and energy shortages as well as the increasing disparity between the developed and developing nations are testing our will to unite, whilst differences in religions, cultures, and politics continue to keep us apart. The creation of a ‘global village’ through satellite TV and the Internet is still struggling to connect the world into one community. At this critical moment, our greatest need is for a global vision of planetary unity and purpose for humanity as a whole. 3 [7]

 

We return to the imperative for reframing in Chapter 7, where it is identified as a crucial element of strategy as a profession.

The next stage of the Cycle of Organisational Transformation and Renewal is restructuring, an activity undertaken to re-focus and strengthen the performance of business units through evolutionary or revolutionary change. Actions to bring about organisational restructuring include downsizing, redundancy and divestment programmes. It is a process that is undertaken primarily to realise cost reduction targets, but is also often seen as vital as a driver of organisational renewal.

The following stage is revitalisation, a process that naturally follows a restructuring activity as it entails building and rebuilding an organisation’s strength following the changes demanded by restructuring. It includes rebuilding the morale and culture of the business that is an inevitable outcome from a restructuring programme. The primary objective in this phase is to capitalise on opportunities across business units by exploiting economies of scale, leveraging individual resources and capturing opportunities for crossunit learning.

Regeneration is the most comfortable stage in the cycle, and is characterised by its emphasis on wealth creation and continual renewal as a basis for continual growth. It is reached when an organisation is able to embed its ability to ‘continually replenish and renew itself’ (Ghoshal and Bartlett, 1999).

Hunter (2000) observed that the cycle shown in Figure 3.2 is breakable. When an organisation entered a period of restructuring for the purpose of cost reduction alone and in instances where there wasn’t a conscious strategy for revitalisation and regeneration, it was apparent that the organisation was susceptible to enter a vicious spiral of value destruction – in the form of continued attempts to reduce costs rather than rebuild and move towards the creation of new wealth. On the other hand, those organisations that entered a transformation programme with a clear strategy of renewal (those which had a good understanding of what they were restructuring to become – a renewed purpose), they usually went on to enter a virtuous cycle of value-creation, one of revitalisation followed by regeneration.

The period in the life of Cadbury (1866 to the early 1900s) is characterised by each of the stages of the Cycle of Organisational Transformation and Renewal. Whereas the long-term strategy remained consistent, the change in fortune that was brought about by the purchase of the Van Houghton press was significant and enabled Cadbury Brothers for the first time to migrate from a stage of restructuring to one of revitalisation and then renewal – as might be expected in a business where long-term imperatives are well understood and the outcome from revitalisation strongly appreciated.

The validity of the practical working of the cycle demonstrated in spades at Cadbury. In view of the strength of the brothers’ understanding of their longterm imperatives, John and Richard were able to move quickly into a mode of revitalisation – invigoration and motivation of the team – then on to a period of regeneration. The ease of transformation was enhanced considerably when in 1879 the machines were turned on at Cadbury’s new production operations at a location they named Bourneville. This facility included many features designed specifically and directly to boost morale and at the same time improve the health and welfare of employees. In view of Richard Cadbury’s death in 1899, it is interesting to assess the impact of this unforeseen event on the business; the answer will become apparent in Chapter 4.

The Strategic Plan and Strategy Evaluation Reviewing

Ultimately it is the value and quality of the content contained in the strategic plan that is of primary concern to us in this chapter – more so I think than the means by which we obtain that content. The content we do develop is articulated in the form of a description of the specific strategic objectives that are identified as its outcomes. These are typically project- or programme- oriented in nature; examples include a determination to enter new markets in a foreign country, to implement a new management information system or to embark on a programme of cost reduction and restructuring.

It is these specific strategic objectives that are included within the construct of the strategy blueprint, a structure referred to in Figure 3.1 and illustrated in Appendix 2. An illustration of a Strategic Architecture and Strategy Blueprint derived from the Cirque du Soleil case study is presented in Chapter 5. In the next chapter we review the most critical aspect of strategy, individual stakeholder engagement and strategy as practice – enacted in teams.

Submit your own content for publication

Submit content