#13 Corporate strategy as the ultimate discipline?

Strategy: glorified by managers and business leaders as the ultimate discipline of corporate leadership, criticized by others as a waste of time.

In the new episode of Hope Is Not a Strategy, strategy call #13 "Strategy: ultimate discipline or waste of time?", strategy consultant Christian Underwood and Professor Jürgen Weigand, Deputy Dean ofWHU(Otto Beisheim School of Management), discuss the role of strategy in companies.

Glorified by many managers and business leaders as the ultimate discipline of corporate leadership, criticized by others as a waste of time. That's the reality after more than 100 years of debate about strategy and strategy development.

Applying strategy incorrectly, or having no strategy and no strategic decisions at all, has long-term consequences for business success and can even mean the end of a company. Some companies lack any well-thought-out plan for reaching their goals. On top of that, many leaders struggle to define their strategy and put it into practice. But why is that?

In this episode, Jürgen and Christian take on the big questions surrounding the myth of strategy. What is the definition of strategy? When is something a strategy and when is it just short-term tactics? How do you make strategy tangible? How do you develop strategy properly, and how do you make execution work so you actually reach the goals you've set? You'll find all of this and more in the new episode of Hope Is Not a Strategy #13 "Strategy: ultimate discipline or waste of time?"

Detailed episode description:

The conversation opens with a quote about strategy from the book "Momentum" by advertising professionals Holger Jung and Jean Remy von Matt, which Christian and Jürgen then comment on:

"Strategy is a big word. Often too big. When it comes up in a meeting, everyone freezes, hoping for a messiah to point the way. But you have to realize that strategy is often just the go-to remedy for the weak. Strategy matters (…) for those who can't make it on sheer performance."

While Jürgen's experience is that the word strategy doesn't spread fear in his meetings, Christian reports that things look different in his consulting world. Especially in mid-sized companies and among leadership teams, he has often found that strategy or a concrete action plan is given hardly any weight. The question that comes up is whether strategy is needed at all, since day-to-day business is running well anyway. Strategy is often understood here as a plan that will be thrown overboard tomorrow anyway and therefore creates no value, so by and large it leads nowhere.

Still, for both of them strategy and performance always belong together. The only question is what strategy actually means by definition.

Definition of strategy

Strategy is a plan for getting from A to B. A is where you are today, B describes the target state. So strategy helps you map out the path from today's situation to the situation you hope for in the future, and ideally to actually get there.

Strategy vs. day-to-day business

Even while running day-to-day business, you need a sense of where the journey is headed. Owners and leaders should ask themselves what their goals are and what they want to achieve with their day-to-day business.

Setting strategic goals in organizations

Every company, regardless of the size of the organization, has to develop a plan for reaching its goals. These can be goals you want to reach in the short term or goals set for the longer term, and you should also define how you can reach them.

What resources can you put to work? What do you need beyond what you already have today? Do you need entirely new approaches?

At the end of the day, strategy also means thinking about how you can reach certain goals and what it takes to get there, for example a strategic action plan.

In corporate reality, though, goals often feel generic and are defined by financial metrics. Of course there's nothing wrong with pursuing financial goals, because ultimately companies have to operate profitably, and if they don't, they'll inevitably disappear from the market. Even so, you also need qualitative goals whose achievement you define as success.

What you see here are goals like "We want to be the best." But what does being the best actually mean? Do you want to be the best in your specific market, or do you maybe want to expand that market? Do you want to be the best in how you engage with customers? Or the best at developing and reaching sustainable goals? A good and sound approach is to think about why the company exists in the first place and then derive from that what you actually want to achieve, in other words to put together a real plan. Jürgen uses an example from soccer: do you want to play in the Champions League, or do you want to win it? Both are valid goals, but they have to be backed up with elements that spell out what you need to do and when, and where you stand today. These elements can be qualitative or quantitative. They would determine the playing philosophy you follow. Is that philosophy more defensive or more offensive? To pull it off, you then need the right players. If you don't have them, you need the financial means and have to generate them in order to buy the right players. And if that doesn't work out, you have to do without and pursue a different strategy. The training schedule, by contrast, would by definition be more of an operational goal.

How the term strategy is used

You run into the term strategy constantly in everyday life, with phrases like "the right vaccination strategy." But is the term actually being used correctly here? Because hardly any word is misunderstood as often.

The vaccination example shows that a strategy is needed. During the Covid pandemic, the goal was to vaccinate 80 to 90% of Germans. That required a plan to reach the goal. The problem here was people's incentive. The incentive was too small, so things stalled at a 70% vaccination rate.

Why people are afraid of strategy

This is exactly what makes people anxious about strategy. Strategy is never free of noise. With strategy, you're not operating in a vacuum. The environment changes fast, people change their preferences and incentive systems, and you have to respond to that. You have to keep evolving. So the definition of strategy is a dynamic one: it isn't set in stone, it has to be adjusted continuously. To reach your goals as a company and book real wins, you always have to account for that.

In a 2019 study by Strategy&, German executives were surveyed on the topic of strategy.

75% of respondents said they don't believe their strategy will succeed, and 33% said the difficulty lies in implementing the strategy over the long term, because market conditions change quickly.

But the answer to this problem can't be to simply have no strategy. It has to be developing one that responds to the needs of the business.

Strategy has a long-term effect

It's important to understand that strategy has a longer-term effect. Because strategy means first having the resources you want to deploy at all, and then getting clear on how you want to deploy them. Beyond that, not all resources are flexible. If a manufacturing company wants to expand, for example, it needs new production capacity. That's very expensive, and strategic investments have to be made first. But if those investments fail, the production capacity is no longer needed. At that point, no one can talk about success anymore.

Thyssen Krupp, for example, sank 3 billion euros into the ground through a failed investment in a steel plant in Brazil, fully aware that it would never work. What was missing? Clearly: a well-thought-out plan and a strategy that could actually be executed.

So strategy also means thinking ahead, looking into the future, and recognizing that strategic decisions have longer-term consequences. Decisions with short-term consequences, like price changes, are tactical moves. In practice, the two often get confused.

Over a longer horizon, that means companies have to ask themselves some important questions:

Do we have the right business model? Will we still have the right business model in the future? Do we have the right customer group? Which customer groups will matter in the future?

Whatever you invest there can't be undone overnight. Strategic decisions and moves are fundamental, and they differ from tactical moves. Everyone should be clear about these distinctions in the definition.

Is a strategy retreat the ultimate answer?

Many companies pick the end of the year or early January for their strategy retreat. The top leadership team locks itself away and develops a new, big strategy.

Strategy retreats are a good thing in principle. But you also have to work on strategy the rest of the year.

Strategy is a bet on the future, and bets are always risky. That's why it makes sense to look beyond your own thinking, stay in touch with the outside world, and work on the company's strategic topics with more than one person in the room. But formulating the strategy is only half of it: you also need execution. And that doesn't work with the CEO alone. It takes the support of all leaders, who have to be part of the process for the strategy to succeed.

So the retreat is a genuinely good approach: sitting down together and dealing with strategic topics away from day-to-day business. But the same rule applies here: the end of one strategy meeting is the start of the next. In everyday corporate life, unfortunately, engagement with strategy ends once the retreat is over. Assistants write it all up, the strategy gets presented to stakeholders, and then the document often ends up in a drawer, because routine, everyday life and day-to-day business take over again.

A Harvard Business Review study shows that top executives spend less than 10% of their working time on strategy, because the rest goes to routines, meetings and operational matters. Actually delivering on the goals of that strategy becomes an afterthought.

That's exactly why it helps to take your eyes off the operational business while you develop strategy, and that works best away from the company.

Why it makes sense to bring in outside help for strategy development

When the leadership team sits down to develop the new strategy, it's the same group of people who always meet. You're stewing in your own juices, essentially blind to your own business. So looking outward and picking up fresh input is a smart move.

Companies like to bring in strategy consultants, but the intention is often to have external advisors validate things that were decided internally long ago and then implement them. A genuinely new plan rarely enters the picture. On top of that, strategy consultants have an interest in winning follow-up work, so they're also focused on their own success.

Still, it's definitely worth involving outside people in the process. You need someone who looks at the strategy critically, against every prevailing opinion, who holds up the mirror with the brutal truth and keeps pressing on the sore spot until every ambiguity is gone. Everyone should end up with a shared understanding of what the strategy is and what its elements are, because that's the only way to reach long-term goals.

Once the strategy is formulated, many other parts follow:

What does it mean for how we finance the company? From plan to success: how do we go about it? What do I need to do in each area (marketing, for example) to execute the strategy?

That last question brings functional strategies into view, which is why strategy retreats shouldn't be limited to the smallest circle. The functional experts belong in the room too.

For a fresh perspective, you can also involve high performers from outside the leadership level to bring in new ideas. When it comes to disruptive thinking in particular, long-tenured employees find it hard to think completely differently about the company or redefine existing processes.

Why even large companies have failed for lack of an outside perspective

When you've done things a certain way successfully for a long time, it's hard to take off the blinders and think beyond them. You develop a certain stubbornness and insist that it has always worked well so far. So why do something different now and reinvent the wheel when so many goals have already been met?

Large companies like Nokia or Kodak often failed because their leaders didn't want to accept that their environment was changing so much that their own business model would no longer hold up in the long run. Clinging too long to what you've always done can be devastating. You should always stay connected to the outside world.

External providers, strategy consultants for example, who don't just tell clients what they want to hear and who press on the company's sore spots can be a huge help in staying viable for the long term. Yesterday's experience shapes today's decision.

Supreme discipline or waste of time?

So we've learned that it isn't just the king who comes around the corner with the strategy that saves the day. And since executives barely spend any time on strategy day to day, the waste of time probably isn't dramatic either. But this is exactly where companies need to rethink, so that more time goes into a clearly defined strategy.

Mental space leads to better decisions

Warren Buffett keeps a calendar with entire weeks free of appointments. That mental space matters enormously.

Especially since the pandemic, in these digital times and with remote work, you're pushed to jump straight into the next meeting or the next call. That does something to the human brain: you get less time to settle, you can no longer think clearly, and you lose the ability to make decisions differently and approach strategic questions deliberately.

People are heavily dominated by the day-to-day. Acting under time pressure leads to poorer decisions. To make better ones, people need exactly that mental space.

From formulating the strategy to executing it

Execution is the hardest part of strategy. Companies often fail at the very first step: communicating with the various stakeholders.

Ideally, even the facilities manager should know which strategy is being pursued, what they personally contribute, and what it can achieve. But if people don't know what's being implemented and why, execution is doomed. The best plan in the world is worthless if it's executed poorly.

There are also quite a few companies that don't really pursue a strategy at all. 70 to 80% of the participants in Jürgen's strategy courses don't know their company's strategy and don't know what value they contribute. The larger the company, the more often you see this.

Larger organizations have more serious communication problems and gaps. So it's hardly surprising that many people don't know why they're doing what they're doing. They act because it has always been done that way, or because budgets were negotiated and now have to be spent. That leads to pointless projects being pursued just to use up the budget. But can that really lead to long-term success?

Better goal management with OKRs

OKRs (Objectives and Key Results) have been established in the corporate world for quite a while now. Goals are cascaded down and made transparent. Working with companies, Christian sees how hard it is for people to set concrete goals and then figure out where their daily work fits in. It's also especially important to question whether certain things still make sense, and then stop doing them. Meetings that have been on the calendar for 20 or 30 years, for example, can simply be dropped because they don't contribute to the company's overall objectives.

There's hardly anything harder than defining goals. Quantitative targets are the easiest, but even then you have to find a way to actually get there, and that's often where people get stuck.

Contact: Need help planning your strategy process? Send an email to christian@underwood.de.

Thanks for your interest, and see you in the next episode… …because HOPE IS NOT A STRATEGY.