-01.png){kind=logo}
“For a strategy to influence action, it must be remembered. To be remembered, it must be understood. To be understood, a strategy must be simple.”
Personalization and Customer Experience
Strategy is how a company makes, keeps and grows its value. It is the difference between what a customer is willing to pay for good or service and what it costs to make it. Good strategies make customers willing to pay more or help cut costs. But many businesses fail because they don't execute their strategy well. To make a strategy work, it should be simple and clear. Leaders should ask three main questions:
1) What key things will cut costs or make customers willing to pay more?
2) What are the big challenges we need to overcome?
3) What must we win to succeed in the long run?
A company can turn a good strategy into real success by answering these questions.
It’s interesting how much time is spent by senior executives formulating, articulating and hoping to execute strategies. Yet, strategy is still one of those business terms to be fully understood. Companies, like McKinsey & Company, Bain & Company, BCG, among others, charge clients tens of millions of pounds to articulate a strategy for their businesses—it underscores the importance of this essential part of every business.
Strategy is defined as how firms create, capture and sustain economic value. Economic value, in simple terms, is the gap between what a customer is willing to pay for good or service and the cost of producing it. Strategy, then, is about the things that will move these needles—significantly increase willingness to pay and hold it there, or significantly cut costs and hold it there—Exhibit 1. To simplify strategy, it is important to distinguish the difference between strategy formulation and strategy execution. It helps to uncover the reasons of why great strategies end up having no impact on an organisation—it is because of the lousy execution. The reality is, in most cases when a company fails to execute its strategy, the strategy itself is a large part of the problem.
For a strategy to influence action, it must be remembered. To be remembered, it must be understood. To be understood, a strategy must be simple. Any strategy that is too complicated to execute is not a strategy, it is a book or report.
The question that leaders must think about is how can you distil a thick, complicated strategy document down to its simple essence—that can be understood, remembered and acted upon.
This can be done by answering three simple questions.
“Strategy is about the things that will significantly increase willingness to pay and/or significantly cut costs.”
Typically, in most organisations, it is not 100 or 1,000 things that will increase WTP or decrease product/service costs, it is a couple of things. Getting clarity on those key drivers of value creation is the first question that executive leaders have to answer to simplify the strategy. The second question you have to answer to simplify your strategy is, “What are the critical few challenges?” This is not a laundry-list exercise to fill up flip chart after flip chart about everything that we have to do—please don’t. This is about a management team coming together and coming to a shared agreement, “What are the three, four, five obstacles that, if we could overcome them, would ensure we could create economic value?” These can be external obstacles: competitive dynamics, regulation, etc. They can be internal ones: a risk-averse culture, for instance, lacking capabilities, etc. The important thing, though, is managers come to a shared understanding of what those obstacles are. The third question leaders have to ask and answer to execute the strategy is, “What are our must-win battles?” It is one thing to understand how to create value, it is another to get an agreement on the obstacles. But how you translate insight into action is by understanding what are the couple of battles that we have to win companywide, in the mid-term—the next couple, two, three, four, five years—that if we could win these battles we'd be assured we could overcome the major obstacles to value creation?
If, as a management team, you can take your complicated strategy and distil it down to its simple essence—value creation, critical challenges, must-win battles—you can bridge the gap from strategic insight to effective execution.
