In 1936, the Zeppelin Company had a good operations model for the Hindenburg, but a bad strategy. They bet that they would be able to convince the U.S. to sell them non-flammable helium, but while they waited, they decided to keep going with the project and use hydrogen instead. Oops. Closer to our daily lives, approximately 10% of U.S. businesses and 80% of new products fail every year, so obviously we haven’t quite learned how to deal with strategy yet, nearly 80 years later.
In a sense, “bad strategy” is the biggest waste of all. When our strategy fails, it doesn’t matter so much that we have blenders piled to the ceiling on the shipping dock or our salespeople are just playing cards until the last week of the sales cycle. We can fix those problem symptoms with basic lean thinking and tools, but unless our strategy is good, we will still create tremendous amounts of waste for our customers, employees, suppliers, and investors because everyone is running faster and faster… in the wrong direction. How many of you feel like you’ve done a good job implementing Lean - becoming more customer-focused, shortening lead times, improving quality, freeing up capacity, and yet the promised new business never materializes? It’s all too common. Think, what exactly did you do to not just define, but improve your strategy during your journey?
You might ask, “But isn’t our strategy simply to follow our True North to create more customer value?” Sure, but that’s a bit like saying we’re going to go live on Mars by breathing air and drinking Tang. It may be true, but there are a whole host of details to work out first. Or you might say, “Yeah, but don’t we have ‘Strategy Deployment’ to do that for us?” Sure again, but Strategy Deployment is a good tool for deploying good strategies. If our strategy is misguided to begin with, we are just going to align everyone behind streamlined waste. There are many things most organizations (lean or not) miss on the road to creating, deploying, tuning, and re-tuning a good strategy, and the simple strategy tools like SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) are often too crude and ineffective for supporting modern businesses (especially once we get to real life complexities like portfolio management, positioning, branding, pricing, and competitive game theory).
So what makes a “good” strategy? How do we know that our North Star is good enough? Here are some questions to ask:
1) Is our strategy supporting a worthy purpose? Whether you subscribe to this business philosophy or not, here are two important facts: 1) Companies that focus on a commendable purpose do better financially than those that focus primarily on making money, and 2) Humans are intrinsically motivated by coming together as a group to serve a higher purpose they all believe in. “Making obscene amounts of money for other people” doesn’t naturally inspire anyone, but maybe “making capital available to support economic growth and jobs” might.
2) Do our products and services add real value for real customers? I’ve covered value in other articles, but the key idea here is this: the price of entry for any business is to create enough value for a customer to readily want to part with his or her money, time, attention, or sheep to solve a problem, perform a job, and create some positive experience or emotion. Make sure the value is defined and recognized by real customers and isn’t just what we think in our guts that our customers should want.
3) Do our products and services offer more value than the customer-perceived alternatives? Unless we somehow have a perpetual monopoly, we can’t forget “competitive strategy.” While we can continue to add more value through our value stream mapping and A3 thinking, there is still a threshold that has to be surpassed, and that means that our new movie theater has to offer more value than the local arcade, shopping mall, bowling alley, and Netflix, so customers choose us instead. Sometimes doing nothing and living with the problem is a viable alternative because customers have other, more important uses for their money, time, and attention. Why doesn’t every company pursue Lean? They obviously prefer their alternatives.
4) Is our source of value sustainable and inimitable (hard to copy)? When we do create a competitive advantage, we need to work hard to constantly defend it. The business world is awash in very successful second, third, and fourth movers (like Apple) coming in and taking over markets that other companies invested a lot of money and time creating.
5) Is there a way to capture some of the value we create and give it to ourselves and other stakeholders? Just as customers have alternatives for our offerings, so do our investors, employees, and suppliers have alternatives for our company, too. Working with us has to provide superior value and investment payback or else those that can, will leave for a better deal. It is a question of making the pie bigger rather than constantly fighting over who gets the biggest piece.
6) Do the right people know, understand, and realize how to support our strategy? Ah, now we are finally getting to Strategy Deployment. Everyone involved in investing in, creating, distributing, buying, and utilizing our great products and services needs to be aware of the strategy and what they need to do to support it. Are we telling them in ways that help them comprehend, buy-in, and engage? Do they know what specific problems they own and need to solve to sustain or expand our strategy?
7) Does our strategic process have built-in learning and improvement? No matter how good that off-site strategy session in Maui was, there are too many unknown and unknowable aspects of how a strategy might roll out to just let it fly on its own. Strategy needs PDCA, too! Maybe customers prefer Old Coke when it comes time to actually buy soft drinks, or our arch-rival gets to market two days before our big product announcement and steals all the thunder. We need to make sure our strategy process is always monitoring the market to guarantee that we can make the course corrections, small or sometimes huge, on time, to keep us all pointed in the same, good direction. And thinking ahead about potential failure modes and contingencies is also important for any type of planning.
8) Can we really pull this off? Strategies always sound better in the windowless conference rooms where we create them, than they do to our poor people who have to try to implement them in the real world. Do we really have the internal capacity, capability, and capital to pull this off? Does our plan include a process to go learn the things we need to get this done properly or are we just expecting a miracle? Maybe we need to start thinking about the “5 Hows?” of implementation?
While the tactical details may become quite complex, strategy is really nothing more than a continuous learning and problem solving process which defines: a) our critical few end objectives (no matter how distant or philosophical), b) our current state gaps to those objectives, and c) our tactical processes for bridging those gaps. As we run through each learning cycle, we see how the market reacts to a combination of our actions, our competitors’ / alternatives’ actions, and a myriad of other variables typically outside of our control. PDCA or OODA if you prefer (Observe, Orient, Decide, Act) is critical. But like all good PDCA cycles, we need to start by Grasping the Situation: What does our North Star need to be? And how do we know if that’s good enough?