#13 Corporate strategy as the supreme discipline?

Strategy: Glorified by managers & corporate leaders as the supreme discipline of corporate management, criticized by others as a waste of time.

In the new episode Hope is not a strategy in Strategy Talk #13 "Strategy - supreme discipline or waste of time?", strategy consultant Christian Underwood and Professor Jürgen Weigand, Deputy Dean ofWHU(Otto Beisheim School of Management), discuss the importance of strategy in companies.

Glorified by many managers and corporate leaders as the supreme discipline of corporate management, criticized by others as a waste of time. This is the reality after more than 100 years of discussion about strategy and strategy development.

The incorrect application or even the absence of strategies and strategic decisions in companies has long-term consequences for business success and can even mean the end of the company. Some even lack a well thought-out plan for achieving their goals. In addition, many managers have problems defining the strategy and implementing it. But why is that?

In this episode, Jürgen and Christian tackle the big questions surrounding the myth of strategy. What is the definition of strategy? When is something a strategy and when is it just a short-term tactic? How do you make strategy tangible? How do you develop strategies correctly and how can they be implemented successfully in order to ultimately achieve set goals? You can find out all this and more in the new episode Hope is not a strategy #13 "Strategy - supreme discipline or waste of time?"

Detailed episode description:

The conversation starts with a quote about strategy from the book "Momentum" by the two advertisers Holger Jung and Jean Remy von Matt, which is then commented on by Christian and Jürgen:

"Strategy is a big word. Often oversized. When it comes up in a meeting, everyone freezes to a pillar of salt and hopes for the Messiah to show the way. But you have to realize that strategy is often only the tried and tested means for the weak. Strategy is important (...) for those who can't make it with sheer performance."

While Jürgen has found that the word strategy does not cause any fear in his meetings, Christian reports that the situation is different in his consulting world. He has often found that strategy or a concrete plan of action is hardly given any importance, especially in medium-sized companies or in management circles. This raises the question of whether strategy is needed at all, as the operational business itself is doing well. Here, strategy is often seen as a plan that will be thrown overboard tomorrow anyway and therefore does not generate any benefit - i.e. remains largely unsuccessful.

Nevertheless, strategy and performance always belong together for both of them. The only question is what is meant by strategy by definition.

Definition of strategy

Strategy is a plan on how to get from A to B. A represents today's initial state and B describes the target state. Strategy therefore helps to outline the path from today's state to the desired state in the future and, if possible, to achieve it.

Strategy vs. operational business

Even when managing the operational business, you need a sense of direction as to where the journey should take you. Entrepreneurs and managers should ask themselves what their goals are and what they want to achieve with their operational business.

Strategic goal setting in organizations

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

What resources can be used for this? What is needed in addition to what is already available today? Do we need completely new approaches?

At the end of the day, strategy also means thinking about how to achieve certain goals and what is needed to achieve them, such as a strategic action plan.

In corporate reality, however, targets often have a generic effect and are defined by key financial figures. Of course, there is nothing wrong with pursuing financial targets, because ultimately companies have to operate profitably and if they do not, they will inevitably disappear from the market. Nevertheless, qualitative targets are also needed, and achieving them is defined as success.

Here you see people setting themselves goals like: "We want to be the best.". But what does it actually mean to be the best? Do you want to be the best in your particular market environment or do you want to expand your market environment? Do you want to be the best in contact with customers? Or the best at developing and achieving sustainable goals? A good and correct approach is to think about why the company exists in the first place and then derive from this what you actually want to achieve - in other words, to draw up a certain plan. Jürgen cites an example from soccer: Do you want to take part in the Champions League or perhaps you want to win it? Both are valid goals, but they need to be underpinned by elements that express what you need to do when and where you currently stand. These elements can be qualitative or quantitative. It would determine which playing philosophy you pursue. Is the playing philosophy more defensive or offensive? In order to implement this, you need the right players. If you don't have them, then you need the financial resources and have to generate them in order to buy the right players. If you don't succeed in this endeavor, then you have to abandon it and pursue a different strategy. The timing of training, on the other hand, would by definition be more of an operational goal.

Use of the term strategy

We come across the term strategy very often in everyday life and terms such as the right vaccination strategy are used. But is the term strategy actually being used correctly here? Hardly any other word is so often misunderstood.

The example of the vaccination issue shows that a strategy is needed. The goal during the coronavirus pandemic was to vaccinate 80 to 90% of Germans. A plan was needed to achieve this goal. The problem here was people's incentive. The incentive was too small, so the vaccination rate was stuck at 70%.

Why people are afraid of the strategy

It is precisely this issue that causes anxiety when it comes to strategy. Strategy is never free of interference. With strategy, you don't operate in a vacuum. The environment is changing rapidly, people's preferences and incentive systems are changing and you have to react to this - you have to constantly evolve. The definition of strategy is therefore a dynamic one: it is not set in stone, but must always be adapted. In order for a company to achieve its own goals and achieve success, it must always be responsive.

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

Here, 75% of respondents stated that they did not believe the strategy would be successful and 33% said that the difficulty lies in the long-term implementation of the strategy, as market conditions change quickly.

However, the solution to this problem must not be to simply have no strategy, but to develop one that responds to the company's needs.

Strategy has a long-term effect

It is important to understand that strategy has a longer-term effect. Because strategy means that I have the resources I want to use in the first place and then you have to be clear about how you want to use them. Furthermore, not all resources are flexible. If production companies want to expand, for example, they need new production capacities. These are very expensive and strategic investments have to be made first. However, if the investments fail, the production capacities are no longer needed. Then nobody can talk about success anymore.

Thyssen Krupp, for example, sank 3 billion euros into the ground with a failed investment in a steel plant in Brazil - knowing full well that it would never work. What was missing here? Clearly: a sophisticated plan and an implementable strategy.

Strategy therefore also means thinking ahead, looking into the future and realizing that strategic decisions have longer-term consequences. Decisions with short-term consequences, such as price changes, are tactical measures. In reality, there is often a confusion here.

In the longer term, this means that companies need to ask themselves 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 be relevant in the future?

What you invest in cannot be reversed overnight. Strategic decisions and measures are therefore fundamental and differ from tactical measures. These distinctions in the definition should be clear to everyone.

Strategy retreat as the last word in wisdom?

Many companies set the end of the year or the beginning of January as the time to go on a strategy retreat. The top management teams get together and develop a new, major strategy.

In principle, strategy retreats are a positive thing. However, you also have to take care of your strategy for the rest of the year.

Strategy is a bet on the future and bets are always risky. That's why it makes sense to think outside the box, stay in touch and sit down with more than one person to work on the company's strategic issues. In addition to formulating the strategy, it is also necessary to implement it. This does not work with the CEO alone. This requires the support of all managers, who must be involved in the process in order to achieve success.

That's why the retreat is a positive way to get together and deal with strategic issues outside of normal day-to-day business. But the same applies here: after the strategy meeting is before the strategy meeting. Unfortunately, in day-to-day business, the discussion of strategy ends after the retreat. Assistants then write it down and the strategy is shown to the stakeholders. Afterwards, however, the developed strategy document often ends up in a drawer because routine, everyday life and day-to-day business return.

A study by the Harvard Business Review shows that top managers spend less than 10% of their working time on strategy because they are otherwise occupied with routines, meetings and operational matters. Implementing the goals of such a strategy remains secondary.

This is precisely why it is advantageous to take your eyes off the operational business during this period when developing a strategy, and this works best far away from the company.

Why it makes sense to get outside help with strategy development

When the managers sit down together to develop the new strategy, they are the same group of people who usually come together. They are swimming in their own juices and are therefore virtually blind to the company. That's why it's a good idea to seek contact with the outside world and get ideas from there.

Strategy consultancies are often brought into the company, but the intention of many companies is often to have external consultants validate and implement things that have long since been decided internally. A truly newly developed plan rarely comes into play. Furthermore, strategy consultants have an interest in acquiring follow-up business and are therefore also eager for their own success.

However, it is definitely advisable to involve external people in the process. You need someone to take a really critical look at the strategy, contrary to all opinions, to hold up a mirror with the brutal truth and put their finger in the wound until all ambiguities have been removed. Everyone should then have a common understanding of what the strategy is that should now be pursued and what the elements of it are - because this is the only way to achieve long-term goals.

The strategy formulation is followed by many other parts:

What does it mean for the financing of the company? From plan to success: How do we approach the whole thing? What do I need to do in the individual areas (e.g. marketing) to implement the strategy?

In the latter case, the functional strategies then come into view, which is why it is important that it is not just the smallest circle that thinks about it in the strategy retreats, but also the functional experts.

For a new and fresh perspective, top performers in the company who are not part of the management team can also be involved to contribute new ideas. Especially when it comes to disruptive thinking, it is difficult for long-standing employees to completely rethink the company or redefine existing processes.

Why even large companies have failed due to a lack of external perspective

When you've been doing things successfully in a certain way for a long time, it's difficult to take the blinkers off left and right and think beyond that. You develop a certain stubbornness and basically insist that it has always worked well so far. So why should you do something different now and reinvent the wheel when many goals have already been achieved?

Large companies such as Nokia or Kodak have often failed because managers did not want to acknowledge that the environment was changing in such a way that their own business model was no longer sustainable in the long term. Sticking too long to what you have been doing can be disastrous. You should always stay in touch with the outside world.

External service providers, such as strategy consultants, who don't talk at the mouth of the client and stick their finger in the company's wound, can therefore be a great support in remaining sustainable in the long term. Yesterday's experience shapes today's decisions.

The supreme discipline or a waste of time?

So we have learned that it is not only the king who turns the corner with the salutary strategy. As managers hardly spend any time on strategy on a day-to-day basis, the waste of time is probably not dramatic. However, companies should rethink this - so that more time is spent on a defined strategy.

Free space in the head leads to better decisions

Warren Buffet has a diary in which there are whole weeks without appointments. This free space for the mind is very important.

Especially due to the pandemic and in these digital times and working from home, people are driven to quickly jump into the next meeting or conference. This does something to the human brain and means that we are less able to rest and can no longer think clearly in order to make decisions differently and consciously approach strategic issues differently.

People are strongly dominated by everyday life. Acting under time pressure results in less good decisions. In order to make better decisions, people need this freedom.

From strategy formulation to implementation

Implementation is the most difficult part of the strategy. Companies often fail when it comes to communicating with the various stakeholders.

Ideally, even the janitor should know what strategy is being pursued and what he personally contributes to it and what can be achieved with it. However, if people do not know what is currently being implemented and why, then the implementation is doomed to failure. Even the best plan is useless if the implementation is poorly executed.

However, there are also some companies that do not really pursue a strategy. 70-80% of participants in Jürgen's strategy courses do not know the strategy in their company and do not know what value they contribute. The larger the company, the more often this experience is made.

Larger organizations have more serious communication problems and deficits. It is therefore hardly surprising that many do not know why they are doing something. They only act because it has always been done this way or because budgets have been negotiated that then have to be worked through. Then they often pursue pointless projects just so that the budget is exhausted. But can this really lead to long-term success?

Better target management through OKRs

The topic of OKR (Objectives and Key Results) has long been established in the corporate world. Here, goals are broken down in a cascading manner and made comprehensible. In his work with companies, Christian sees how difficult it is for people to set concrete goals and then categorize what they do on a daily basis. It is also particularly important to check whether certain things make sense and then stop doing them. For example, meetings that have been established for 20 to 30 years can simply be dropped because they don't contribute to the company's overall objectives.

There are few things more difficult than defining goals. Quantitative goals are the easiest, but even here you have to find a way to get there and people are often overwhelmed by this.

Contact: Do you need help planning your strategy process? Feel free to send an e-mail to christian@underwood.de.

Thank you for your interest and until the next episode... ...because HOPE IS NOT A STRATEGY.