Monday, March 10, 2008

Crafting Strategy

A strategy defines what your organization will do and what it won't do.  How do you craft an effective business strategy?  How do you verify that your strategy will be effective?  In The First 90 Days: Critical Success Strategies for New Leaders at All Levels, Michael Watkins writes about crafting strategy and evaluating strategy.

Customers, Capital, Capabilities, and Commitments
The core of your strategy is your customers, capital, capabilities and commitments.  Watkins identifies the fundamental questions:

  • Customers.  Which set of existing customers will we continue to serve?  Which markets are we going to exit?  What new markets are we going to enter, and when are we going to do it?
  • Capital.  Of the businesses we will remain in, which will we invest in and which will we draw cash from?  What additional capital is likely to be required and when?  where will it come from?
  • Capabilities.  What are we good at and not good at?  What existing organizational capabilities (for example, a strong new-product development organization) can we leverage?  Which do we need to build up?  Which do we need to create or acquire?
  • Commitments.  What critical resource commitment decisions do we need to make?  When? What difficult-to-reverse past commitments do we have to live with or try to unwind?

Assessing coherence
Watkins writes:

"Does a logic underlie the market segment choices, products, technologies, plans, and goals that compose the strategy?  Assessing whether the elements of a strategy fit together calls for looking at the logic behind it to ensure that it makes sense overall.  Have the people who developed the strategy thought through all ramifications and practical aspects of implementing it?"

Assessing Adequacy
Watkins identifies three ways to assess adequacy:

  • Ask some probing questions.  Dos your bosss believe the strategy will provide enough return on the effort your group will expend to implement it?  Are there plans in place to secure, develop, and preserve resources with which to carry out the strategy?  Are profit and other targets high enough to keep the group on the right track?  Is enough money earmarked for capital investment?  For research?
  • Use the SWOT method.  Analyze the strengths, weaknesses, opportunities, and threats associated with the strategy.
  • Probe the history of the strategy's creation.  Find out who drove the strategy development process.  Did they rush the process?  Drag it out?  If the former, they might not have thought through all the ramifications.  If the latter, it might represent a lowest-common-denominator compromise that emerged from a political battle.  Any mistakes during the development process could compromise the strategy's adequacy.

Assessing Implementation
Watkins identifies ways to assess implementation:

  • Are the performance metrics specified in the strategy used to make day-to-day decisions?
    Are the performance aspects that management actually uses consistent with the strategy's emphasis?  What goals does the organization seem to be pursuing?
  • If the strategy requires teamwork and cross-functional integration, are people acting as teams and collaborating across functions?
  • If the strategy requires new eomployee skills, is a training-and-development infrastructure in place to develop those skills?

Key Take Aways
Here's my key take aways:

  • Clarify your strategy to identify what you will and will not do.
  • Craft strategy by addressing the fundamental questions around customers, capital, capabilities, and commitments.
  • Assess strategy by looking at its coherence, adequacy, and implementation.
  • Use the right questions to evaluate your strategy more effectively.
  • Use the SWOT method for assessing adequacy.

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alik said...

too good too good. And very timely!!

J.D. Meier said...

Timely and yet timeless ;)

Marc Woodman said...

Thank you dude :D