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Tenet #3 - Ten Tenets of Strategy

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by Larry Pendergrass, Principal

In my last blog, Ten Tenets of Strategy –Tenet #2, I argued that a company’s long-term defendable differentiation is its set of core capabilities, the set of business processes that are integrated throughout its value chain to deliver a unique customer outcome. This is not the same as a core competency. For example, designing low noise circuits is a competency. But the collection of tools, processes and policies that allow the company to deliver new products in half the time of its competition is a capability. Capabilities are focused on delivering a valued customer outcome, and are much harder to copy than a core competency.

Through this blog, I offer Ten Tenets of Strategy, gained through years of personal experience and discussions with key thought leaders. These Ten Tenets are offered as guidance for the development of your strategy.

  1. Your core competency is not your strategy.
  2. Compete on core capabilities, your set of business processes integrated throughout your value chain.
  3. Make hard choices. Decide what you will not do.
  4. Focus on customer outcomes. Design your strategy through the customers’ eyes.
  5. Analyze and design for the industry forces.
  6. Understand and analyze the landscape of possible customer outcomes.
  7. Know your competitors and their strategies profoundly.
  8. Diversify around your core capabilities.
  9. Balance the stakeholders.
  10. Strategy is dynamic. Adjust as necessary, but with caution.

Here is the third of these Tenets:

Here is the third of these Tenets:

Tenet #3: Make hard choices. Decide what you will not do.

Strategy is at least as much about what you will not do, as it is about what you will do. One of the biggest failings I have seen over my career is the inability to decide what not to do. There are many reasons for this failure to focus, for fighting battles on too many fronts. Companies may be afraid to take one step back in order to take two steps forward. It may cost revenue in the short term to produce a more focused strategy and greater revenue and profit in the longer term. Additionally, there may be emotional attachments to a business or to particular customers, causing delays of tough decisions on strategic focus. There may be a fear of how “narrowing the focus” will be received by customers or employees in the business. And in companies where the net has been cast widely for ideas for products and services, there may be a reluctance to pass by some of these ideas for fear of shutting down the idea flow from employees.

You may have heard the quote from the Nobel chemist Linus Pauling: “The best way to have a good idea is to have a lot of ideas.” And this might seem to argue for keeping a lot of different initiatives going, waiting to see which ones will get traction. But Linus Pauling was actually quoted by biologist Francis Crick as saying: “If you want to have good ideas you must have many ideas. Most of them will be wrong, and what you have to learn is which ones to throw away.” Yes, you need a lot of good ideas, but most importantly you need a good filtering process. And you need to kill ideas as early as possible so you can put resources into incubating the best ideas. The key is in creating processes to identify, evaluate and sort out which are the best ideas, those ideas that fit with your strategy.

The ethical violations and debacle at Enron has been studied heavily by business pundits. What is sometimes lost in the noise of this failure is why a strong, growing, powerful company found itself in the situation of hiding losses and breaking the law. There are great lessons in the early years of Enron of how to grow a business by identifying your core capability and expanding into adjacent markets. But by casting the “idea net” too broadly, dispersing the new business generation responsibility widely, failing to stick to its core strategy and capabilities, Enron began to take on significant losses from failed business, businesses started by well-meaning people across the company. Enron became a company in deep financial difficulties. Before the ethical challenges that made the news, Enron was in trouble.

What is the problem with keeping all ideas active? There are generally several problems that can bring a business down if trimming is not done in time, and continually. The first is the real cost of keeping projects, products and services that don’t fit with the mainstream strategy active. Mainly it’s the cost in materials, labor and overhead to keep the business and projects going. But there are also many hidden costs that could overshadow the visible costs. Perhaps the more significant hidden cost is the opportunity cost due to the loss of key personnel’s attention and time outside of the company’s core value creation processes. While nurturing products and services that are not a part of your key strategy, this lack of focus will make it more difficult for you as a leader to drive a common vision to your employees and partners, decreasing enthusiasm and buy-in for a given direction. It will also muddle the message for your customers.

To have a solid strategy that will allow your organization to become passionate, aligned and efficient at execution, you need to identify and communicate what you are not going to do as clearly as what you are going to do.

In the next blog I will discuss Tenet #4, creating your strategy through the customer eyes, and the power of identifying a unique and valuable customer outcome from which other aspects of your strategy will flow.

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