• Strategy and entrepreneurship

So, you think you have a strategy?

So, you think you have a strategy?

Does your company have a strategy? Freek Vermeulen doubts it. And he posits the five main reasons why, too often, a firm’s strategy is nothing more than a pipe dream.

Comments

Most companies do not have a strategy. Okay, I admit it: I do not have any solid statistics (if such a thing were possible) as evidence to back up this statement, but I do observe a heck of a lot of companies. And I get the chance to meet with and listen to strategy directors and CEOs while they present their ‘strategies’ — and, I tell you, I think nine out of 10 (at least) don’t actually have a genuine strategy.

Sure, such a conclusion depends on us being able to agree on the answer to the pervasive question, what is strategy? But, even if you would accept the most lenient of definitions, few companies actually meet the definition. Beyond that, when I test managers on whether they know what they’re doing and why (when it comes to matters such as positioning, branding, pricing and other strategic factors), most of their firms would simply fall short. To be emphatically blunt: most companies and their top executives do not have a good rationale for doing the things they are doing and cannot explain coherently how their actions should lead to superior performance.

Even the CEO

Curiously, this problem does not usually reflect a case in which the CEO knows the strategy and everyone else on the management team just fails to ‘get it’. No, when it comes to strategy, I’d say there are three types of CEOs:
 

  • Those who think they have a strategy — they are the most abundant
  • Those who pretend to think that they have a strategy, but deep down are really hesitant because they fear they don’t actually have one (and they’re probably right) — these are generally quite a bit more clever than those in the first category, but, alas, are fewer in number
  • Those who do have a strategy — there are preciously few of them, but they often head very successful companies

So what do all these CEOs do when confronted with the question, “What is your strategy?” Well, of course, most will strongly insist that they do have one and will promptly retaliate against a seeming challenge with a dazzling Powerpoint presentation composed of effusive colours and animated fades in and out. I love the omnipresent title slide: ‘Our Strategy’. And there are always many more slides to follow. Trouble is: it’s a nice pitch, but it just ain’t strategy.

Strategic tanking

When I view such presentations, I often wonder why such bright CEOs and their deputies miss the most basic necessities of cogent and executable strategy. They fail because they:

  • Are not really making choices Strategy, above all, is about making choices; choices in terms of what you do and what you do not do. Future Plc, for example, has chosen to focus on specialty magazines for young males (decent magazines, by the way) in Britain. Their strategy contains some very clear choices. For example, publishing a magazine for middle-aged women might potentially be very profitable; but that is not what they want to do, because they think concentrating on a clear set of alternative consumers and products will help them do better. Most companies don’t concentrate; they cannot resist the temptation of also doing other things that, on an individual basis, look attractive. As a consequence, they end up with a bunch of alternate (sometimes even opposing) strategic directions that appear equally attractive but strangely enough don’t manage to turn into profitable propositions. Too many strategies lack focus.
  • Are stuck in the status quo Another variant of this is the straightjacket of path dependency, meaning that companies write up their strategy in such a way that everything fits into what they were already doing anyway. This is much like generating a to-do list of activities you have already completed. Last year. There might be nothing wrong with sticking with the tried and true, if it so happens that what you were doing represents a powerful, coherent set of activities that propels your company forward. Regrettably, more often than not, strategies adapted to what you were doing anyway results in some vague, amorphous marketplace statement that would have been better off in a beginners’ class on esoteric poetry, because it is meaningless and does not imply any real decision about what needs to be done in order to be a vital company in the next one to three years. The worst of the lot I have seen (although low on poetic value) was Ahold’s strategy, which ended up doing so many different things in so many different corners of the world that the company descended the management ladder all the way to the basement by calling their strategy ‘multi-format, multi-local, multi-channel’. This — not coincidentally — was shortly before the company collapsed.
  • Have no relationship to value creation Sometimes companies make some decisive choices, but it is wholly unclear why these choices would do the enterprise any good. Strategy is not just about making choices; executives need a good explanation why these choices are going to create the company a heck of a lot of value. Without such logic, I cannot call this line of thinking a strategy at all. Let me give you an example, which happens to be the most common strategy I have seen among multinational corporations: The Matrix. On the horizontal axis, one puts countries; on the vertical axis, one puts business lines. And the strategy is to tick boxes, as many as possible, as quickly as possible (preferably through acquisitions). But why would performing all your activities in all your countries be a good strategy? If you can give me an explanation of why this would lead to superior value creation, I might label it a strategy; but such an explanation is usually conspicuously absent. Without a proper rationalisation of why your choices are going to help you create value, it’s not a strategy. It’s a dartboard.
  • Are mistaking objectives for strategy We want to be number one or two in all the markets we operate in. Ever heard that one? I think it is bollocks. A CEO who wrote to me the other day, after having read my book, Business Exposed: The Naked Truth About What Really Goes on in the World of Business (FT Prentice Hall, 2010), said that too many strategies read as if an athlete were saying, “I am going to win the 400 metres during the 2012 Olympics by running faster than anyone else.” Yes, that is very nice, but the real question is how. We want to be number one or two in the market; we want to grow 50 per cent next year; we want to be the world’s pre-eminent business school — and so on. These are goals, possibly very good and lofty ones, but in terms of amounting to a strategy, they do not. You need an actionable idea and a rationale — a strategy — of how you are going to achieve all this. Without a true plan of action, lofty goals are but a tantalising aspiration.
  • Keep it a secret The final mistake I have seen, scarily common, as to why CEOs who think they have a strategy don’t actually have one (despite circumventing all of the above pitfalls) is because none of their lower-ranked employees actually know about it. A strategy only becomes a strategy if people in the organisation alter their behaviour as a result of it. And, in order to achieve that, they must know about it. A strategy by itself does nothing; the Powerpoint presentation — regardless of how colourful and fine-tuned — is not going to result in improved performance unless the choices and priorities it contains result in competitive actions by middle managers and people on the work floor. A good litmus test is to simply ask around: if people within the organisation do not give you the same coherent story of how the company is to prosper in the future, chances are it does not have a strategy, no matter how colourful the Powerpoint slides. These slides may fade in powerfully on the projection screen, but (in the marketplace) they fade out into strategic oblivion.
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  • AUTHORS

Freek Vermeulen is Associate Professor of Strategy and Entrepreneurship at London Business School. He is the author of Business Exposed: The Naked Truth About What Really Goes on in the World of Business (Financial Times Prentice Hall, 2010). He teaches on the Accelerated Development Programme at London Business School.

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