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December 7, 2012

2

The Role of Strategy in Sustaining Growth

by Jeremy Arnone

We see today organizations of all sizes attempting to keep their feet on ground that is slipping away from under them.  In many of these organizations, the tug of war between strategy and tactics is increasingly shifted towards the tactical, towards “doing” and away from “thinking.”  It’s easy to see why.  Tactics are straightforward to execute and provide instant gratification, whereas the creation and outcome of strategy is uncertain and can take years to make a significant impact, if ever.  For many – both organizations and individuals – the seemingly urgent drives out the important; the future goes unexplored; and the capacity to act, divorced from the capacity to think and imagine, becomes the measure of leadership.

The Key Question Confronting Every Organization

Most organizations will confront important questions:  How can we attract more new customers?  Why are our retention rates decreasing?  What impact can our brand have on short-term and long-term performance?  What are our customer segments, and on which should we focus?  Are there product/service changes that can target new buyer segments?  Should we grow via acquisition or international expansion?  How should we be thinking about innovation?  What are our competitors planning?  All of these questions ladder up to a broader question confronting all organizations:  How do we ensure an acceptable level of sustainable growth?

Achieving sustainable growth is not possible without paying heed to the twin cornerstones of growth strategy and growth competence. Companies that pay inadequate attention to one aspect or the other will struggle in their efforts to establish practices of sustainable growth (though short-term gains may be realized). In many organizations, the sacrifice of the long-term (strategy) on the altar of the short-term (benchmarking and copy the leader) is having a profound impact on long-term growth.

Today’s post will focus on the state of strategy in many organizations today.  Subsequent posts will cover why strategy is so misunderstood, ways to think about strategy in a metrics-driven organization, and how best to ensure effective strategic implementation.

The State of Strategy in Organizations Today

I’ve had the opportunity to work with a variety of organizations – from Fortune 500’s to start-ups.  Despite many differences, one thing has consistently stood out:  An inconsistent or nonexistent approach to strategy and the corresponding impact on the organization’s culture and long-term prospects for growth.  An honest assessment would conclude:  It’s a mess out there.

In many organizations, there is a nearly exclusive focus on operational execution – these are the tacticians.  This approach largely ignores the external environment and often includes only a superficial understanding of internal dynamics and culture.  Tacticians believe there are key levers and best practices that drive success in almost any environment, including areas like human capital, customer management, supply chain management, and marketing and sales.  We’ll see below that while operational excellence does impact growth, it can’t sustain it.

Other organizations use annual retreats or off-sites to strategize for the upcoming year – these are the planners.  This approach focuses on the planning cycle, where financial goals are enumerated, gaps based on current trends are measured, and a series of initiatives are articulated to help close the gap between trends and forecast.  This approach is largely a tactical planning exercise punctuated with the occasional burst of heroic (sometimes ill-conceived) “strategic” investments.  We’ll see below that this approach rarely makes a significant impact on growth.

Another group uses a set of analytical techniques to identify internal strengths and weaknesses and external opportunities and threats – these are the positioners.  Mapping internal capabilities against external realities, it is the strategist’s job to ‘position’ the organization within its environment in a way that makes its position unassailable from current or future competitors.  Based heavily on the tradition of military strategy, the ultimate goal is to amass resources with which to consolidate current positions while expanding beachheads into new areas.

Several years ago, strategy boutique BCG presented results from a longitudinal research study looking at growth rates based on different organization’s approach to strategy.  Below are the 3 approaches (plus industry growth) and their corresponding growth rates:

Screen Shot 2012-12-06 at 4.22.53 PM

Whether by chance or design, organizations that find themselves in a growing or transforming industry can maintain growth simply by treading water in a rising tide.  Organizations that don’t recognize this boost can be caught unawares when growth suddenly slows, however.  With the tactical approach, we see a very quick and significant boost to growth when best practices are instilled, but this boost can’t sustain growth long term.  The planning approach has little impact.  Within weeks, as immediate challenges need to be addressed, the agreed upon strategies are shelved until preparation for the next offsite begins.  Finally, the positioning approach yields the biggest and longest incremental growth rates, but also requires the most creativity and patience, two traits in short supply in today’s tactics-driven organizations.

In my next post, I’ll explore why strategy is so misunderstood in many organizations today.

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