Recently, a former client of mine, a CEO of a manufacturing company, asked me to attend their ‘Strategy Day’ board meeting, where each of their Exec members presented their strategy. First, the Sales Director presented his Sales Strategy, then the Marketing Director her Marketing Strategy, then the Procurement Director his Procurement Strategy, followed by presentations of Operations Strategy, HR Strategy, IT Strategy, Finance Strategy, Digital Strategy, and Sustainability strategy by the respective directors. Many strategies are presented that day.
After the presentations, the CEO asked my opinion of their strategies. I told him that despite many “Strategies” presented, the company didn’t have a strategy. “How come?” he asked.
I told him: that it all comes back to the three basic principles of winning strategy, i.e.,
Strategy is about sharp focus in a single direction,
You must design your company around the strategy, and
Dump any initiatives not derived from the strategy.
His company had many functional “strategies” (I usually call them plans instead of strategies to avoid confusion), but it didn’t have a Grand Strategy and, therefore, suffered from conflicting directions. For example:
The Procurement Strategy is to reduce the materials costs by finding cheaper suppliers. By itself, it is a pretty sensible strategy. However, this strategy conflicted with: (i) their Marketing/Product Strategy, which emphasized superior product quality to win the customers; and (ii) their Sustainability Strategy, which was to reduce emissions by introducing a significant proportion of recycled materials in the production. To reach superior quality in their industry, one will need superior materials /components provided by selected suppliers only. In addition, not all the suppliers offer recycled materials. In this case, the aligned Procurement Strategy should be about securing quality materials from selected suppliers by forging long-term partnerships and special supply contracts.
The Sales Strategy was to grow revenue by partnering with two big new customers in the market. The impact on sales revenue would be immense. However, to win these two new customers, they would offer a steep discount and dilute the overall gross margin. Serving these two big customers would also require new products specifically tailored for these customers and, hence, increase manufacturing complexity. This strategy conflicted with: (i) their Finance Strategy, which was to improve profitability by increasing gross margin; and (ii)their Operations Strategy, which was to increase manufacturing efficiency by reducing factory complexity.
Similarly, their IT Strategy of installing new software across sites would increase complexity in operations (at least for 6-9 months). To execute their Digital Strategy, the company would need to recruit a significant number of new FTE with digital talents – but their HR Strategy was all about headcount reduction to reduce the overall SG&A costs. Additionally, headcount reduction conflicted with HR’s strategic objective of increasing employee morale and satisfaction.
When each strategy was reviewed in isolation, each made sense and sounded like the right thing to do. But when these “strategies” were examined simultaneously, they did not fit together. With so many conflicts in the “strategies,” the company would most likely fail to reach most of its strategic objectives. The company was already doomed to fail even before they even started the implementation.
This issue is actually quite common in business: even though strategy creation is one of the most crucial CEO roles, many CEOs do not create a strategy. Instead, they delegate the task of strategy creation to the various heads of departments. But, when unguided by a single, unifying strategic direction, these departmental leaders often optimize for their department only, not the entire company. As a result, these companies will have action plans that point to multiple directions (instead of a single, concentrated direction).
Imagine how confusing it is when an organization has:
Innovation Strategy
Digital Transformation Strategy
Data Strategy
Organizational Strategy
Business Strategy
Corporate Strategy
Operation Strategy
Growth Strategy
Marketing Strategy
Acquisition Strategy
Globalization Strategy
Business Development Strategy
Risk Management Strategy
People Strategy
Change Management Strategy
Talent Management Strategy
Production Strategy
Commercial Strategy
Manufacturing Strategy
IT Strategy
New Product Development Strategy
Financial Strategy
You might think I am exaggerating, but I have seen many companies with multiple strategies. And companies like this operate in disorder. After all, a single ship cannot sail in different directions at the same time.
For a company to be successful, it needs to have one single strategy. And all supporting initiatives (i.e., the functional “strategies”) must be designed around that grand strategy. This way, everything would match and point in a single strategic direction. Anything that does not fit nor points in that direction must be removed. This is what I mean by having a Strategy.
So, make sure you have a strategy, not "strategies."
Continue to explore the secrets of Winning Strategy here.
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