It’s a truism to say if you don’t ask the right question, you won’t get the correct answer. This is true in developing business strategy. The problem executives have in organizations is that invariably they are asking the wrong two questions.
As a management consultant to organizations, there is one golden question I use to focus my clients’ thinking on strategy. But before we get to that, let’s look at the two questions leading management away from effective strategy.
“What Do We Need to Do?”
Some years ago, I was CEO of a company that made trusses and frames for houses. It was failing when I came on board. My role was to lead the management team in turning the business around. The question we asked was: What do we need to do to lift the performance of the company? And it worked. We did turn the company around.
As I now witness among my clients, this is the very same question that executive teams commonly ask in developing their strategic plans. But in strategy terms, this is the wrong question to ask. That’s right – even though this was the right question for my failing truss company, it’s the wrong question for effective strategy design.
By asking, “what do we need to do?” our focus drifted naturally to action. As a result, we did many things. For instance, we closed the milling operation which cut long and large pieces of timber into smaller sections. The mill wasn’t profitable. We reduced the stock levels in a bloated warehouse that contained timber mouldings for which there was little demand. We auctioned off excess equipment that had lain idle for years.
In the end, as I’ve said, we scraped back into a profit position. But I recognized that saving a company and building a company are two very different things. None of our actions were going to grow the company long term. The question we asked is completely wrong when it comes to designing business strategy.
“What’s Our Strategy?”
Ok so, “what do we need to do?” was the wrong question. Should we then have asked: “what’s our strategy?” It sounds reasonable, but in fact this is the second question that leads people down a strategy dead end. Mentioning the word “strategy” in the question does little to clarify, but much to confuse. Individual executives come up with all sorts of suggestions in reply.
One cluster of responses involves what we might calls goals, e.g. “to be the employer of choice” or “to be number one in the industry”. “That’s our strategy”, my clients say. Well, no, it isn’t. It isn’t even strategy. Another cluster involves quite specific targets, e.g. “to grow market share to 25 per cent” or “achieve an ROI (return on investment) of 15 per cent”. Again, not strategy. Another group of replies involves improvement in ongoing activity, e.g. “better training of staff” or “more expenditure on R&D (research and development)”. What can I say? A fourth set of results involves good old actions, something an individual might do e.g. “launch two new services each year” or “employ social media as part of our marketing campaigns”. Again, not business strategy.
What Causes These Problems?
So, we commonly ask “what do we need to do?” or “what is our strategy?”, neither of which tend to end up in the development of an effective strategy. What sits below these two questions that leads managers down the wrong path?
By asking “what do we need to do?” you’ve thrust yourself at the individual “level of analysis.” The two fundamental levels, when it comes to strategic planning, are the individual and organization levels. Action occurs at the individual level. So, when managers ask “what do we need to do?” in seeking strategy solutions they end up focusing on the individual level when their focus should be corporate.
What about the question: “what’s our strategy?” Here the underpinning problem is mainly definitional. Participants are confused about what strategy is and the question doesn’t help to clarify it. Business strategy is about positioning – of the organization. It’s not about actions (by individuals), nor organization goals, nor targets, nor descriptions of activity.
The One Question
What question might you then ask to lead you away from this morass, thus skating around this misdirection and obtaining clear statements of strategy?
The question I ask is this: “As an organization where do you stand on [strategic factor].” The strategic factor in question will depend on the key stakeholder in focus. In the case of customers of a retail store, strategic factors include customer service, range of goods sold, location, hours of operation, store presentation and price. In the case of its employees the strategic factors include pay, recognition, organization culture, promotional prospects and type of work.
Note the emphasis here on “as an organization.” I’ve found that posing the question this way with clients induces managers to think outside-in. In most cases it’s clear that they haven’t clearly articulated their strategic positions before. They’ve either been assumed, or the organization has simply drifted along. So, when I ask this question it usually cuts through like a knife. It startles. I can see the result on executives’ faces: “we haven’t got this sorted out.”
As the responses come in, I frequently need to pull managers up as they fall into, again, describing what they’re going to do. “No, no”, I need to remind them, “as an organization where do you need to stand?”
In the case of a German company that supplies specialized air-conditioning units for IT installations, the answer on the strategic factor “customer experience” was fresh: “Exceptional service pre and post sales and consistent service between states. A benchmark in the industry. Be a trusted advisor and knowledge leader.” Note here how this isn’t a goal, target, activity or action – but an organization position. The company came to this statement through extensive discussion with customers as to what they wanted from a leading company in the industry. It was adopted by the organization because the strategic planning team recognized that it would drive results on their objective to increase profitable revenue.
As another example take the case of one of Australia’s budget airlines, Jetstar. Its position on price is: “Find a lower comparable price online and we’ll beat it by 10%.” Jetstar’s management has figured that by adopting this price position it will capture a giant slice of the low-price market thus driving sales.
Ideas about action and activity tend to dominate when the focus in on business strategy. To escape this bias, an organization’s performance must be viewed outside-in. You arrive at that perspective only by asking the right question.
Author – Graham Kenny
Regular author in the Harvard Business Review
Graham Kenny, CEO of Strategic Factors, is a recognized expert in strategy and performance measurement who helps managers, executives, and boards create successful organizations in the private, public, and not-for-profit sectors. You can connect to or follow him on LinkedIn.