At CMOE, one of our passions is helping managers and individual contributors understand how to create and apply strategy in their teams, functional areas, and lives.
As a company, CMOE has taught thousands of people working for some of the best companies all over the world how to create and execute strategy at all levels of the organization. This is all part of strategy consulting.
We have personally seen how effective strategies from inside the business, if executed well, can literally change a business and elevate results to new heights.
Before attending our strategy workshops, we invite participants to ask themselves, their co-workers, or leaders the following questions:
- Why is strategy important?
- What does strategy accomplish?
- What is the fundamental purpose of strategy?
- Should strategy be top-down or bottom-up?
Our aim is to help leaders who attend our workshop understand not only that strategy is important, but why it is important, and that everyone in the organization has the responsibility to find ways to add value to the organization by thinking and acting more strategically.
In order to help you understand why strategy is such a big deal, we have created a new series of short articles that take a straight-forward look at how strategy creates numerous benefits across departments, business units, and organizations.
Our objective in writing this series is to help you—the reader—discover how strategy plays a vital role in the long-term success of the enterprise and will ensure that you will stay relevant—now and in the future. We will use the structure of an onion as a visual metaphor to articulate the added value and purpose that cascades throughout an organization after creating and executing a clear strategy.
The onion has been used metaphorically in numerous professions and fields of inquiry because of its distinctive multi-layered structure. For the purposes of this discussion, we will look at each layer of the Strategy Onion from the inside out, with each layer representing a different benefit of strategy.
Strategy is like an Onion
The core purpose of strategy, and thus the core of the Strategy Onion, is results. First and foremost, strategy is designed to help you “win,” to help you gain an advantage in your field, your profession, or your endeavor. If strategy is going to do something for you and produce positive results, you must answer these critically important questions, along with others like them:
- What are my broad goals and ambitions?
- What do I want to accomplish in the long term?
- What does winning look like and how would I define winning in the first place?
- What will drive my success, now and in the future?
- What do I really want to contribute to the organization and achieve on my watch?
Those who are serious about strategy can achieve better results, or get to a better place, if they articulate what their fundamental goals and ambitions are, what winning looks like to them, what they feel will drive their success in the present and in the future, and what is holding them back from making the moves now.
Answering these questions will bring other questions forward.
It is of paramount importance that you answer as many of these and other related questions as soon as possible before you attempt to create a strategy or refresh an existing one. The answers to these questions—the results you want out of your work—create the heart of the Strategy Onion.
To Have and To Be
Many leaders and individuals experience difficulty when they attempt to define the results they want to achieve. To simplify this process, results can be divided into two categories: the have results and the be results. Having a strategy helps you focus and concentrate your resources, energies, and talents on the “high ground”—what you need to have in order to survive and prosper.
The payoff of being more proactive and forward-looking could be tangible—classic stuff, like achieving the best profitability margins in the industry, having better customer service scores, producing more top-selling products and/or services, closer business relationships with customers and colleagues, greater opportunities and security for the people you work with, etc.
These are the have results.
The Be results are less tangible and speak to subjective qualities, like values, character, and beliefs. The Be results include such things as becoming a more reliable person, becoming a more creative problem solver, being in touch with the direction your field is going, and becoming the go-to person in your organization.
These are the Be results.
The Core of the Strategy Onion
The core of the Strategy Onion is about having a clear picture regarding what you are fighting for, why you get up in the morning, and what drives your passion. In other words, it is all about determining the results you want. Working and being more strategic creates huge benefits by pushing us to clarify the outcomes we desire.
They don’t always have to be detailed, measurable targets all the time. But at a minimum, they do need to present a clear picture of the missions you are on, or the directions that you are passionate about, that you can articulate to others, and that you can bring into sharper focus as your end game or destination out on the horizon.
In the first article of this series, “Results and Strategy,” we introduced results as the core concept of the Strategy Onion.
The article asserts that a clear and fundamental outcome or destination is the first thing to focus on.
We began to reveal the layers of the Strategy Onion from the inside out in order to help people discover the core of what strategy means and what it can do for you.
We included a series of questions suggesting that strategy requires you to be clear about what your future success looks like and what winning means to you and your organization, among others.
Increasing Shareholder Value
The next layer of the Strategy Onion deals with shareholder value. No matter where you sit in a business or organization of any kind (for-profit, not-for-profit, small, medium, large, domestic, international, and industry-specific), there are financial realities that have to be managed.
Financial responsibility matters because someone or some group or entity has made a financial commitment or placed a bet on you or your function and its ability to help generate a competitive advantage for the business. Stakeholders are fundamentally taking a risk that you will be a good steward of their investment.
Even in a non-profit entity, constituents, patrons, or contributors are expecting you to deliver on a promise to create better community services or produce benefits from their financial contributions. So, the next layer of the Strategy Onion is about helping the business achieve superior financial performance.
Every part of a business consumes resources. This means that every function and activity adds to the cost of doing business. Every member of your team and every piece of equipment they use on a daily basis has an associated cost. A strategy will help you figure out how to leverage those resources in order to deliver a return on the shareholder’s investment, now and in the future.
The job of a strategic contributor and strategic leader is to figure out how to offer solutions and add real value to the business at a reasonable cost. The fact of the matter is the organization has jobs that need to be done and they are looking to “hire” the best solution for the best price. So, strategists inside the organization should look at costs as an investment in creating solutions that solve near-term and long-term problems the organization is facing.
People, resources, technology, etc. are strategic investments that will hopefully create greater efficiencies and lead to superior economic results. For example, if your organization isn’t better than average at managing the costs of operating the business, you need to become more strategic in the way you manage resources.
You need to look at how you can solve problems better or how to do more, better, faster, cheaper, and differently than the rest of the industry over the long run.
You need to be entrepreneurial with your piece of the business and compare it to how things are being done in organizations competing to offer the same products/services your company offers in the marketplace.
You have to have the courage to ask yourself tough questions:
- How do I consistently discover ways to bring more value to the organization?
- How do I help the business spend less and sell more so that the shareholders and stakeholders get a greater return on their investment?
- How can I assure that my work is relevant to the company’s financial performance stability?
Ultimately, strategy matters because stakeholders are continually under pressure to find investments that will produce better returns, greater efficiencies, and higher margins. We have to periodically ask ourselves whether or not our personal strategic contributions, ideas, and decisions are helping the organization be more competitive and sustainable—from a financial point of view.
Some functions and activities may seem disconnected and far away from the bottom line. But in reality, it all adds up eventually, and when people and teams are more strategic, they can help the organization compete, which links right back to the first article which focused on results.
Strong financial performance is an essential driver of good results. You cannot expect to achieve the desired results at the core of your Strategy Onion if people don’t understand their role in the financial strength of the business and discover ways to strengthen the bottom line.
The first article of the Strategy Onion series introduced results as the core of the Strategy Onion and the first reason you and your organization/function should create strategy.
The second article in the series talked about creating greater shareholder value by helping the organization manage costs and why it is important for your team to figure out how it contributes to revenue growth.
This is the second layer of the Strategy Onion and the second reason for doing strategy. In this article, we will explore competitiveness as the third layer of the Strategy Onion.
Whether you realize it or not, when you wake up in the morning of every working day, you must prepare to go to battle with those organizations and individuals that want to take a bigger share of the market from you.
The word battle seems like a stretch until you step back and analyze what is at stake if you fail to put yourself in a competitive position and fully engage and compete with your rivals in the marketplace.
You will not achieve the results you want and you won’t be able to give your shareholders the value they hired you to provide. If that happens, you may even fail to preserve your own livelihood as well.
Before you begin to assess your level of competitiveness, or your ability to fend off your rivals, let’s step back and discuss what it actually means. The academic definition of competitiveness is this:
“The ability of a firm or a nation to offer products and services that meet the quality standards of the local and world markets at prices that are competitive and provide adequate returns on the resources employed or consumed in producing them.”[i]
Your organization has chosen to bring your function into its value chain of activities instead of outsourcing your activity in the open market. What this means for you is that you and your team have to be clear about the competitive advantages you provide to the business in the short term, as well as the long term.
Your organization needs every part of the business to provide services that are competitive and help the organization achieve greater differentiation and performance in the marketplace.
So, the question is this: How are the activities performed by your job function helping to position your firm to be more competitive in your industry? If you are not sure, your team needs a strategy—a strategy that will close the gap between where you are now and where you need to be to become more competitive.
The next question you need to answer is this: What can I do personally to make my firm, my department, or my team stronger and enhance the competitive position of the company?
When you begin to answer that one simple question, you are beginning to craft a strategy.
Developing a strategy for your function or area of responsibility will help you do a better job of coping with, and fending off competitors and rivals. Remember, someone out there is eager to take your or your organization’s market share, so don’t get lured into a false sense of security. Position yourself and your team to help fight and win the competitive battle.
Part 3 of the Strategy Onion article series discussed industry competitiveness as a reason to create strategy because it helps you and your organization work more competitively in your industry.
In that article, we concluded that if you would like to become more equipped to cope with and fend off your competitors and rivals, you will need to create a strategy for your piece of the business within the business, so to speak.
Doing this will contribute to your competitiveness, and subsequently, the organization’s competitiveness. Many readers have likely asked themselves, “What can I do in my area to contribute to the long-term success of the business?”
Creating a favorable market position through your differentiation strategy coupled with your overall cost structure to create better margins and a premium price advantage is one way. That is what we will focus on in the fourth layer if the Strategy Onion.
A strategic leader works hard to get the organization into a position that will allow it to charge a premium for its goods and services. You need to create the right portfolio of products, with the right level of differentiation, in order to provide your customers with added value so they will say to themselves, as well as to others, “You are worth more, so I will pay more for your product.” In other words, you need to avoid becoming a commodity.
If you are commoditized, you will not be able to charge more for your goods and services because they’ll look the same as everything else in the market environment. A strategy will help you figure out how to ask for more money from your customers, and they will be willing to pay more because they get more value from your goods and services, which help them become more competitive.
How do you avoid becoming a commodity? You have to offer customers something special: innovative and unique products, features, experiences, opportunities, or benefits.
Customers need to recognize that you are different before they will be willing to pay a premium for your products and services. Differentiating factors can be very simple. It may take a little time to plan how you will accomplish this, but when you do, you will have an emerging strategy that moves your organization into a favorable position in the marketplace.
Likewise with cost advantages. Cost advantages include cheaper inputs, efficient processes, a favorable location, a highly skilled workforce, superior technology, and the reduction or elimination of waste. There are more, but these are the most basic forms of being a well-oiled machine (operational excellence).
By studying the value chain in your organization, you can identify activities that are inefficient, expensive, or redundant and can begin to discover alternative solutions that will help to reduce waste and its associated cost. When the organization becomes a low-cost producer, it also becomes immune—for the most part—to the organizations who are able to wage a smart war on cost and create a different service or product are in a commanding position.
These firms can do exciting things that make it difficult for competition or substitutes to imitate. With strong profitability, these firms can do more innovation work, market, or acquire other businesses that create more synergies.
Once the organization moves into the position of lowest-cost producer, coupled with a favorable market position, and the premium its customers are willing to pay for its goods and services, the organization will become much more competitive, which will increase shareholder value, and will help move the organization closer to the desired results.
This is what creating a strategy is all about.
Part 4 of the Strategy Onion article series concluded that a strategy of differentiation will help you gain a favorable market position and will allow you to charge a premium for your goods and services.
And if you couple that with a formidable cost advantage, you will be unbeatable in the marketplace.
In this part of the Strategy Onion article series, we will explore how you can get into a position to offer unique value through operational excellence.
If offering unique value is your goal, you’ll need to achieve operational excellence. This will require functions, processes, teams, and individuals that are aligned and “fit” together well. Think of it as a new puzzle; right out of the box, the pieces fit snugly together.
Your organization will have to become a “well-oiled machine.” If your internal operating structure is running smoothly, you will be in a better position to charge a premium for your goods and services, produce quality goods and services, create value for your customers and deliver a good return to your investors.
I have always maintained that if you are dysfunctional with your internal operational aspirations, it will be hard to embark on new, exciting journeys that will assure your long-term success.
If you are just struggling to put out fires and keep your head above water, it is hard to discover new, innovative solutions, or prepare for major changes in industry, regulations, or geo-political shifts.
Having a strategy for every part of the business will help you figure out how to align your internal processes, systems, and activities. A good strategy that looks at operational effectiveness will point to the inefficiencies within the organization.
Then, as the leader of your job function, it will be up to you to address the inefficiencies and make sure your operational engine is running smoothly. All of the individual working pieces of an organization need to come together in order for the organization to become more nimble, effective, and aligned.
Many who study business strategy maintain that the essence of strategy is the ability to leverage your internal strengths and resources while you neutralize or minimize your limitations and weaknesses.
You need strategy to help you identify opportunities for improvement in the way you operate and deploy your resources and talents, and you need to identify how to eliminate the drag of inefficiencies that hold you back from achieving your vision, goals, and results that you desire, which are at the core of our Strategy Onion metaphor.
We believe that the bundle of resources and capabilities that you have control over are critical elements of strategic work. Your business can never be different or superior in any way unless all parts of the business are hitting on all cylinders.
Achieving operational excellence is part of the mix that creates an advantage for your business and will make the organization more competitive. Taken together, this will produce greater shareholder value and move the organization closer to the desired results.
I started this series of short articles to explore the role strategy plays in the business and why it is so important to the long-term viability of an enterprise.
I have tried to explain why every function of an organization has an important role to play in the formulation and execution of strategy.
Essentially every department or team needs a strategy that feeds into and fits with the grand, overarching strategy of the business.
The company’s strategy is the framework that guides the development of the supporting strategies from all areas of the business and creates real traction, meaningful execution, and change needed in an organization to survive and thrive in a competitive, demanding, and uncertain business environment.
Links to the five other articles in this series:
Part 1: Results & Strategy
Part 2: Increasing Shareholder Value
Part 3: Industry Competitiveness
Part 4: Favorable Market Position Using Cost or Price Advantages
Part 5: Operational Excellence
Before I conclude this series, let’s explore the final layer of the Strategy Onion metaphor that illustrates a variety of reasons that make our case that strategy is a crucial activity in business. The final element of this chain of reasons why everyone in the business should take an interest in strategy focuses on “taming” the external environment.
We all live and operate in a sort of business ecosystem that creates a unique set of forces, or variables, that can have an enormous impact on our long-term success. Well-constructed strategy is designed to account for and help you manage the uncertainties, challenges, disruptions, and opportunities that could unfold.
In fact, when strategy work is done well, it helps you discover the silver lining in the headwinds, adversity, and uncertainties that buffet every business.
One convenient framework to help us access the issues and challenges in the environment is called PESTEL. Perhaps you have run into this framework at some point in your education or career. This is simply a tool to draw out and process information relevant to the external issues and forces that could affect your business in the future.
PESTEL simply stands for Political, Economic, Social, Technological, Environmental, and Legal, or regulatory, factors that affect us all—both in the short term and the long term. These external forces are not easy to control; in fact, we are generally at the mercy of these elements in the business ecosystem. But, we can influence, respond to, prepare for, and figure out how we might exploit these potential challenges and threats. We simply have to anticipate how these forces will impact us and hoe we can ensure they don’t derail us as we advance towards our vision and mission.
Let’s examine some of these very-real forces. Often, the political landscape shifts, philosophies change, and policies are pursued that can have a positive or negative effect on the long-term viability of our operation regardless of whether or not it’s the whole firm itself, a business unit, a function, or a team. Economic conditions create another variable that has a huge impact on every aspect of our lives. Interest rates, unemployment, inflation, and the overall growth or contraction of economies around the world have a profound effect on our success.
Social trends and preferences pose yet another factor that has a huge impact on whether or not our end products will meet the approval of buyers. Demographic shifts and buying habits change for many people. Likewise, the proliferation of technological advances affects companies, functions, teams, and individuals in potentially positive ways, as well as threatening ways. Individuals and institutions must figure out how to leverage these new capabilities to drive out costs, improve quality, and invent new concepts. This helps firms compete, and companies who can leverage technology better and faster will be in an advantageous position relative to their rivals.
Not to be overlooked are environmental factors, such as climate changes, solar flares, near-earth asteroids, tsunamis, and earthquakes. You name it and it can become a threat or opposition you need to be aware of. All of these natural phenomena can have a devastating effect on businesses that are not prepared. Everyone should complete some form of environmental scanning and assess a variety of environmental issues. Last but not least, everyone is affected by legal and regulatory changes.
Those who are charged with creating rules and regulations have an enormous influence on the business ecosystem. New rules can limit how a business operates, and they also create new opportunities for an organization to take advantage of. However, organizations need to remain nimble and quick in order to see the implications.
Strategy is the mechanism that enables us to deal with these daunting forces and dynamics that swirl around us all of the time. Strategy equips us to anticipate positive events and outcomes, helps us create contingencies, back-up plans, and make preparations in case these events attempt to sidetrack our efforts to achieve long-term goals, purpose, and desired results that are at the core of the Strategy Onion.
As they say, good companies know how to make lemonade out of lemons. They know how to take potentially catastrophic and negative events and convert them into opportunities. Strategy plays an important function in helping organizations maintain their equilibrium when disasters are near at hand, or when events open up vast new opportunities.
In the Strategy Onion Series, I have attempted to explain the reasons why strategy matters at many levels and how these reasons are connected and cascade in a simple linear sequence. I began this series with a notion that strategy matters because it enables us to fulfill the single most important reason for existence: the core result that we work towards. I will end now with the thought that strategy matters because it helps us tame and control the vast array of environmental forces that can put any organization in a precarious position at any moment.
I hope this discussion has added clarity and value about the need to spend at least some amount of your time, energy, and resources reflecting on, and trying to build, a slight strategic edge or advantage on competitors, rivals, or forces that can erode your strengths, advantages, and market position. I hope this series has been helpful, regardless of whether or not you create strategy for yourself, your team, your products, or your processes for an entire business unit.
Call us if you have any comments, thoughts, questions, or need help creating a strategy.