Deconstructing Strategy

I think that it is safe to say that most people entering the work force view strategy as some kind of mystical plan developed by all knowing executives using arcane skills. At the other end of the spectrum I don’t think that there exists a C-level executive who at least once didn’t wonder whether strategic planning wasn’t a ritualistic sham, a cosmic joke played on executives the world over. I know that I have experienced both feelings.

I like to think of strategy as the deployment of company resources to achieve a set goal. Strategic planning is the process of deciding the strategy. For example, in terms of human resources one possible decision regarding allocation of resources would be whether to hire more employees at a lower compensation or fewer employees at a higher compensation and presumably with higher output. Or maybe hire the lower compensation employees and use the savings to train them.

A commercial bank might decide what percentage of their loans should be corporate as opposed to retail. This can be further sub-divided to include types of corporates, sectors, tenor and geographies. A company might decide that it cannot profitably deploy all of its resources and therefore decide to pay a dividend or buy back shares. The possibilities are endless, at least in terms that the human mind can comprehend.

How can one develop a strategy if just analyzing the various scenarios is a daunting task? Synthesizing them into an effective plan is impossible. One school of thought has developed the idea that the answer is “strategic thinking” which views the development of strategy as an art using abstract thinking. I don’t know what that means. I believe that you have to pay someone a lot of money to learn that secret.

So if a purely analytic approach is too complex and the hocus-pocus approach contravenes your guidelines on the use of magical management, then what does work? If we move away from theory to practice, there seems to be a handful of applied solutions that bypass the planning stage:

  1. Stuck Strategy: Do what we’ve always done.
  2. Zombie Strategy: Do what we did in our previous company.
  3. Opposite Strategy: Do the opposite of what was previously done.
  4. Copycat Strategy: Do what we think the competition is doing.
  5. Gullible Strategy: Do what the latest management fad is as described in a book/seminar.
  6. Game of Thrones Strategy: Hand out resources to the most cunning and ruthless executives.

The Stuck Strategy seems the norm for the region as management tries to avoid rocking the boat. The opportunity cost is large for this strategy, although negative shocks can sometimes force management to make changes. The closely related Zombie Strategy is seen only once, when an executive is initially hired into the company. There is usually no further attempt to learn from the past. New executive hires also have the option of the Opposite Strategy: centralise what was decentralised, cut budgets that were expanded and investment in budgets that were cut, etc.

The Copycat Strategy is seductive as it is usually presented as the result of an analysis of the competitive landscape. In reality very little learning takes place. How can it? It is not as though competitors open their doors and invite people in to study them. Instead, we have mimicry: imitation of outwardly observable phenomena without any clear links to performance outcomes. This nearly always involves minimal investment: flexible working hours, personal days, change of brand, standing only meetings, social media. These may or may not create value but they are not elements of a strategy.

The Gullible Strategy I have witnessed actually stems from an honest desire to do something positive and at the least it shows some recognition that the first three strategies don’t work. Unfortunately, neither does this approach as the author of the book does not know your company. He might give you a few good ideas but that’s it.

The Game of Thrones Strategy is the saddest to see. It does not imply that all the executives decided simultaneously to play politics but is usually driven by a board and CEO who do not create the right culture nor discipline to control the environment. It then takes only one senior executive to kick off an internal war as there is a mad scramble for resources.

Depressing as all this is, there are solutions that are not overly complex to develop. I’ll describe those in my follow up article: Adaptive Strategy Construction.