#34 What business owners shouldn't do

"The essence of strategy is choosing what not to do," said strategy guru Michael Porter. Why that holds especially true for business owners in these unusual times, which kind of crisis strategy work can no longer fix, and why strategy routines help you avoid these crises in the first place: you'll find out in our episode, recorded as a virtual live podcast for the German Association of Small and Medium-Sized Businesses on the occasion of our book launch on November 23, 2022.

The guiding question in this episode: why does a true entrepreneur need a fully articulated corporate strategy?

Your corporate strategy is the plan for reaching the goals you've set. Every company should have one. Because without a plan, nothing holds together, and everything is left to chance. There's a great quote from Michael Porter, the strategy guru: "The essence of strategy is choosing what not to do."

Unfortunately, every business owner's day has only 24 hours, and as humans we have only two hands and one head. Without a real plan, that isn't enough, because there's an overwhelming amount to do.

Above all, it's important to know exactly what doesn't need doing right now. So it comes down to the right focus. Every company has limited resources: capital, people, time and its own capacity. That's why business owners should ask themselves these questions:

Where do we stand today? Which goals do we actually want to pursue? And what do we need to tackle to reach them?

We're living in very unusual times. It's not normal for so many challenges to appear at once: the climate crisis, a pandemic, tighter ESG regulations.

Then there are the supply bottlenecks. Material is short everywhere, and when it's available, it's incredibly expensive. The shortage of skilled workers is putting pressure on everyone. The ongoing war in Ukraine is wiping out markets. And all of this after two years of the Covid pandemic, during which many companies' capital reserves already took a serious hit.

That puts many business owners in a tense position, especially since it's clear that most of today's challenges will drag on for quite a while, and experience shows that once you've handled one challenge, the next one isn't far behind.

So what do you do? The first step is a situation analysis. Current topics, above all the macro topics that affect not just companies but society as a whole, are sorted into relevant and less relevant based on how strongly they influence you.

This kind of assessment always happens on several levels: the company level, the industry and market level, and the macro level. Add to that the various trends whose future development is anyone's guess, such as aging societies or possible new pandemics.

That's why a situation analysis matters so much: it gives you clarity about your starting point and the resources you currently have. You also need to account for the forces at work and how they'll develop in the near and more distant future. What are the challenges and threats? Your short- and long-term goals follow from that.

In short: you need a precise situation analysis, which is part of the StrategyFrame®. In our book, it's backed up with the matching visualization. There you'll find the different points on market, competition, customers, trends and the broader environment.

Your own realities play a key role in the StrategyFrame®. In the pressure most companies are under right now, apart from a few who are profiting, it's certainly not easy to keep a clear head and stay focused.

Running routine processes while adapting to a changing environment is part of the daily work of business owners and executives.

The alternative, burying your head in the sand and hoping the storm passes, isn't an option. So it takes real effort, at least when it comes to your own realities. It pays to take a clear, rational, considered look at the good results you've achieved so far, so you can reproduce or even improve on them in the future.

Right now companies are stuck in various crisis situations. Different types of crisis include:

Sales crisis Strategy crisis Earnings crisis Liquidity crisis

In a sales or strategy crisis in particular, business owners should start thinking about a new strategy early and ask themselves:

What does this situation have to do with our current strategy? Which results come down to external factors?

It also pays to turn strategy into a continuous process. Developing a strategy and then waiting two years for the next situation analysis gets you nowhere. Our times move too fast for that, with the environment and circumstances shifting constantly.

In a sales crisis, for example, you need to review your sales capacity while tracking shifts in demand and customer preferences. Ideally you act ahead of the curve in both areas. And together with your marketing team, you should always keep your ear to the customer.

An earnings crisis also calls for serious thinking. Are your products or services still needed in the market, or are they no longer profitable enough? So you need to examine profitability, or rather its two components:

Sales (revenue) Costs

Both should be managed at the same time.

These examples alone show that every kind of corporate crisis calls for a plan that defines which measures you take when certain circumstances or crises arise.

The biggest challenge for business owners today is staying on top of the complexity while keeping an eye on every option and every important lever, so they can respond and act appropriately. Because every decision you make is interdependent. That means it has side effects that aren't always visible right away.

The art lies in aligning the entire system, from internal organization to production to sales, with daily market changes. Obviously, not everything runs smoothly.

When the business press scolds executives because things aren't going well, it's easy to forget that a company is a complex organization with multilayered daily challenges, even at the smaller end of the mid-sized segment.

With the various modules of the StrategyFrame®, such as the situation analysis already mentioned, or the target picture and the fields of action, you get a powerful tool in your hands.

Those are the three pillars of the StrategyFrame®, which supports you as a kind of visualization aid and guide across the entire workflow. The book defines eight workflow steps for this. They give business owners, managing directors and executives exactly the information that matters at that moment.

By the time a liquidity crisis hits, no company turns to a strategy consultant anymore, because the money isn't there. Ideally you'd bring one in far earlier, because an outside view can be a huge advantage. It helps you keep track of what's happening beyond your own reality and get to know other perspectives for a change.

The StrategyFrame® also makes it easier to establish strategy routines. It's like training. A one-off process won't have a lasting effect on a company's success. That's why the StrategyFrame® includes a few strategy routines as well.

With the StrategyFrame®, business owners get a tool they can use to develop strategies themselves, together with their own leadership team. Experience shows that strategy development and execution are far more likely to succeed when the company and its leadership see the measures as their own strategy rather than something dictated from outside.

More and more companies are recognizing how important it can be to involve their own employees in these processes. There's a study on this by "strategy&", the strategy arm of PwC. They surveyed several thousand managers in Germany about strategy. Two-thirds of them believed their company's current strategy was doomed to fail. A third even said their company had no strategy at all.

Other studies in the US point out that strategies mainly fail at implementation, because the processes drag on too long or employees weren't properly involved.

That proves the point: the road from formulating a strategy to implementing and executing it is a hard one. But once you turn that process into a routine, it gets much easier.

With our book, we want to encourage you to start processes and get them moving. That's why it's more of a workbook. It contains blank pages to fill in, plenty of tables and a number of visualizations to help you put your ideas into practice in a straightforward way.

For larger organizations in particular, StrategyFrame® is also available digitally at www.strategy-frame.com. Here you get the entire workflow including the process organization, all in one innovative tool.

Our approach is to make sure companies stay in charge of their strategy process, and of course they always have the freedom to bring in a strategy consultant, possibly just for selected steps.

For every company that has steered its ship so far without much of a strategy, but now senses it isn't quite working anymore, and that has no experience with a strategy process yet: it's worth setting up a structured process.

Developing such a process should always happen along the workflow, so that anyone, including employees who join later, can plug into the ongoing process at any time. That's how you easily get everyone involved on board.

One of the current challenges is that because of Covid, many leadership team members and employees are still working from home entirely or partly, rather than on site at the company.

That's where the term "new work" keeps coming up, and nobody really seems to know what it actually means. Older executives in particular are uneasy about remote work and tend to view it critically. There's a lot of uncertainty, especially when it comes to access to employees.

But one thing has to be clear: these changes are here to stay. The wheel won't turn backwards, so leadership has to think about which mechanisms work best here.

Trust is the only possible basis for making it work. Without it, executing any strategy becomes difficult, if not impossible. Here, too, it's important to implement a frame, a strategy frame, that employees can move within and identify with.

Strategy is often understood as a process that bypasses the levels of the organization, or simply ignores them. But that, too, is doomed to fail. Yet strategy can be a great thing, for everyone involved.

That means management is the captain and has to give the crew the direction, the route and the destination. Because only a clear perspective creates the security and connection employees need.

It's a real problem when companies can't clearly articulate their own strategy and leave employees somewhat adrift. That creates uncertainty, which can only be turned into security through clear leadership and a clearly articulated company strategy.

Jürgen's tip of the day

What would be the first step for anyone who wants to start a strategy process now?

First, think about where you stand right now. Why are you where you are today, and what made you and your company successful? And what would you have to do to stay relevant and successful in the future?

That's where the strategy process should start.

At the end of this episode, we answer questions from the chat. As you'll remember, this is a live episode and listeners can ask questions.

Most strategy plans from the big consultancies fail at implementation, because they impose their standard model on companies and don't concern themselves with execution. So for developing and supporting a strategy, you either bring in a small consultancy or a hands-on interim manager. Would you agree with that?

Christian:

That can be one way to go. But the more important question is why strategy implementation fails. For one thing, it fails because there's no buy-in when the strategy comes from outside and the company's own leadership team isn't involved. So yes, it can be important to have a Strategy Coach alongside you for a while.

The fact is, though, if a company doesn't make the strategy its own and doesn't allocate time and resources to it, then no consultant can help either. Whether it's a large or a small consultancy, they must not be responsible for "your" strategy. You can't outsource that responsibility.

Jürgen:

The more a strategy comes from within the company and is owned by it, the more likely it is to work.

You can see that remote work is on the decline again. How do you convince bosses of the remote work principle in 2022?

Christian:

That needs a strategy too. And right now this topic often leads to emotional debates. So my advice is to look for a good, mutually acceptable arrangement with your workforce. Whatever the pros and cons, there's always a middle ground. That includes the team's willingness to work at the company now and then and take advantage of face-to-face exchange.

Jürgen:

Because of the pandemic, the pendulum has swung further toward remote work in recent years. But it turned out that there are people who really miss personal encounters at the workplace. Now that the pendulum seems to be swinging back, a certain balance is needed. Middle ground and flexibility are what's called for. And mutually agreed arrangements between employees and management play a big role in that.

The details of the strategy process can be worked out remotely with the right tools. For formulating goals and the strategy, face-to-face workshops are clearly better, because you can read participants' body language, for example.

Jürgen:

Exactly. And that's how we set it up in the book too. Formulating the strategy should happen in person. Precisely because there are different opinions and convictions in play, it takes solid facilitation to move the strategy forward in the company.

Christian:

During Covid, this was done entirely digitally as well. Even so, a lot can get lost that way. That's why the book includes tips and guidance for designing in-person sessions and for collaborating through the digital tool. The tool is designed to be used in any situation, remotely from home or together in a workshop.

The advantage: you work from a single set of data and don't have to wrestle with endless PowerPoints and Excel spreadsheets. And don't underestimate coffee breaks, lunch breaks and the occasional evening event. They're useful for talking through conflicts and topics on the side that can't always be fully resolved on a call. That's an important part of the strategy process.

For small and mid-sized companies, the end-to-end approach is key. A consultant shouldn't just develop the strategy, but actively support the execution. That's the only way to measure the success of a hands-on consultant or interim manager in the end.

Christian:

Anyone who only ever thinks about strategy for one part of the business hasn't understood the process. It has to be end-to-end, because at the end of the day, what counts for every business owner is the bottom line. And it's no different with strategy.

It isn't measured by whether there was a nice meeting at the start where something got pinned to the wall. Even the StrategyFrame® won't be enough for success if nothing gets executed and the pieces aren't thought through together. You have to make the resources available to actually implement the measures. On top of that, you need an environment built on trust and real support.

In my experience, the consultant or interim manager should be the one who supports, structures and facilitates the process and brings the necessary tools. The strategy itself has to come from within the company. How do you see it?

Jürgen:

That's what we keep emphasizing: the strategy has to come from within the company. Anything imposed from above or from outside won't get the acceptance it needs, and employees won't feel comfortable with it.

One listener asks whether the episode can also be heard later.

The podcast will be available on the website https://www.strategy-frame.com/pages/hoffnung-ist-keine-strategie as well as on Apple Podcasts, Spotify and other platforms. And we'll share the video of the event on YouTube.

To close, Ms. Janzen has a question, or rather a comment. She'd like to hear something about the market and the benefit for the user.

Jürgen:

When companies talk about strategy, they always bring up customer focus. But often the intention behind it is to treat customers exactly the way they've always treated them, without giving much thought to what's happening with the NON-CUSTOMERS.

Why don't they become customers? As a company, you have to think about who your profitable customers are. Who do you want to reach, and with what? What value can I create for my customers? And always relative to the current competition.

Christian:

That's the key point. You have to differentiate: what can we do differently or better than the competition? To find that out, it's worth going to the customer and seeing how they actually use your products, whether they're consumers or B2B customers. And then you have to draw the right conclusions from what you see. Feel free to talk to your customers to understand their needs and notice how those needs are changing. That's exactly where “making strategy” begins.

So it means getting out there, testing, observing practice and figuring out what's still missing. That works best through continuous feedback, which is easy to build into a process.