What drives your organization to make the most of your resources? Are you using your organization’s tools and resources to achieve sustainable strategic advantages? What’s stopping your competitors from copying what you do? Do you know why you’re successful and why others can’t beat you at your own game?
An excellent organizational strategy isn’t an accident. Great companies, that last, pay strategists like me a lot of money to derive the answers to the questions in that first paragraph. Why? For many/most companies, form follows function. They have a model that works, and that’s enough to keep things going in a positive direction. However, the data show – even for profitable companies, the long-term prospects are bleak.
Research in Motion and Blockbuster, two wildly successful companies, disappeared virtually overnight. They made money – lots of money… until they didn’t. No hoard of cash or stockpile of resources can stop a rational person from divesting themselves from an unprofitable business.
We covered the idea of Vision and Values in the last chapter; to start positioning you for sustained opportunities, we will think like logisticians and strategists in this chapter.
Spending on What Works Today is Not Strategy
Strategy, by itself, is a list of ideas. However, incorporate that list of ideas into your existing capacity, processes, and abilities. You will have a straight-line path leading you from where you are today to where you want to be.
General Bradley correctly referenced our tendency to over-rely on the common understanding of strategy. Most often, the entrepreneur, present company included, focuses too much on achieving the present and not establishing the future. It’s hard to take attention away from what works today. Often, it’s taken a whole lot of attention to get it to work in the first place! But, if we don’t regularly take a critical look at our logistics chain, its brittleness will destroy our best-laid plans. Consider the example of Research in Motion.
In 1999, Research in Motion’s (RIM) Blackberry smartphone emerged as a must-have device in the prosumer community. Until the entrance of the iPhone and various Android phones, RIM’s Blackberry was the cash cow in high-end phones, generating $20b in sales by 2011. Yet, within five years from the peak of RIM’s success, the company was on life support – with no viable options to re-capture its once incredible market share.
RIM’s story in three phases.
- Phase 1 market emergence – So Much Money! (1999 – 2004): Blackberry became the leader in prosumer cellular services & devices.
- Phase 2 market competition – Why panic? We still have So Much Money! (2005-2007): Blackberry faced emerging competition and critical failures to respond to changing market sentiment.
- Phase 3 market divergence – We should have focused on something other than money! (2008-2016):Blackberry slipped into obscurity. As the prosumer and consumer markets converged, a lack of strategic vision and leadership caused RIM to fall into obscurity.
RIM had an opportunity to use the success of Blackberry to create an environment where future products could be equally successful. However, they were focused on the next technical Blackberry challenge and not on a larger strategic vision for the company or their product portfolio. RIM spent too much effort improving a singular product with a limited lifecycle (Blackberry) and missed recognizing threats to that supremacy. When the market shifted towards consumer-prosumer convergence, RIM quickly became irrelevant. RIM’s advantage was being first to market. However, its technical innovation was marginal and readily copied and surpassed.
RIM went from industry darling to cautionary tale in a relatively short period. Despite a once-in-a-generation innovation with Blackberry, RIM failed to create a business model that could adapt to changing consumer demands. RIM’s failure to establish a strategic vision during good times set the seeds for its ultimate failure when competition emerged.
Are you making money today? If so, is your industry one market shift away from being irrelevant? Are you like Blackberry, content in your present equilibrium? Is there some reason others can’t take your profit from you? If you’re saying that you’re a service provider like a law firm or financial planner – LegalZoom & Robinhood would like to have a word with you.
If you struggle to envision your strategy, role-play the logistician. When your logistics chain is in trouble, what do you do? Diversify your sources and re-enforce your weaknesses. Create redundancies to re-enforce the items that have the most connections to other aspects of your value chain. Create an end-state that is less reliant on weak or uncontrollable links in the chain of events and supplies necessary to sustain your profit.
Activity: Thinking Like a Logistician
Sketch a map of the general items involved in providing one (or all) of your products. You might start with something like this.
The items you sketched out are likely most of your core processes. The things in your value chain that need protection. As you sketched out your map, you probably thought, “But wait! There’s more involved in each of these steps.” You’re correct. And as we discuss value chains more throughout the book, we’ll want to know where your core competitive advantages live in the value chain.
Now, take your sketch and figure out how you will break your processes. This fun exercise is called the Pre-Mortem. Don’t get too excited; you also must figure out how you will work around or through the critical failure. Here’s an example of one particular area of the map we built in the previous step.
At this point, you should start to see some patterns emerge in your solutions. In the example above, one way to harden the value chain for My Pizza Restaurant is to explore ways to store critical ingredients. Another way is to supplement the secret sauce with self-grown ingredients. At this point, it’s premature to say that those repeating supply chain hardening actions are tantamount to corporate strategy. But they should be noted to be part of the upcoming discussion.
At the end of this exercise, you should have ideas about hardening your supply chain (thinking like a logistician) and things your current and future strategy should directly impact.
A Strategy may be Complex, but It Shouldn’t be Complicated
Reading the previous section, one might come away with the visual of a strategy being a complex dance or a dozen plates spinning on sticks… while juggling. We did try to equate logistics and strategy; let’s be realistic, logistics is sometimes more magic than science.
You will soon see through me or others that every guru in the field ultimately carries a magic mirror in their pocket. The purpose of the mirror is to hold it up to organizations and help them to see what they already probably knew but didn’t realize. Like any good illusion, the mirror shows you what you want to see. If you see a business succeeding, you’ll see everything you’re doing right. If you see a failing business, you’ll still see everything you’re doing right. Odd that the same ingredients will lead to two different results. But that’s the magic of illusions for you.
From magic mirrors to magic bullets – if someone had a magic bullet for strategy – all they would have to do is patent it, sell it, & profit. Perform a quick Google search, and you’ll see many opportunities to pursue off-the-shelf strategy. Warning: if everyone is doing it, it’s not strategic. Like most involved skills, there are shortcuts to strategic thinking, and then there’s actually doing the necessary work:
- Reading this book
- Doing the exercises
- Investing in a strategist
- Making strategy cultural
In fairness, identifying strategic opportunities and building future tactical activities and investment is an involved skill. You already have many skills, for example, running a successful business, department, or team. Fortunately, you don’t need to add being an expert strategist, logistician, and plate spinner to the mix. You don’t need to be a strategist to act strategically. Though you DO need to be committed to learning the language of strategy – that’s why I’m here.
An area we will cover here shortly is the concept of strategic advantages, more succinctly: sustainable strategic advantages. These will be items that set you apart. They are the 80/20 of your business – the things that make 80% of your customers prefer you over a functional clone of your business down the street. Deftly held, that magic mirror we discussed also helps you see your advantages from your customers’ perspectives.
There is already something strategic about the way you approach business. Perhaps it’s not very well defined, but if you’re profitable, you have an advantage in some sense. Your advantages will become the seeds of your strategic growth. The best part about your advantages is that you already do them. For you, doing them is easy! For you, incorporating them into a larger strategy should be a natural evolution.
Strategy is Sustainable
You can derive a lot from the idea of sustainability, and it’s probably all correct.
- If sustainability means that the strategy can be maintained indefinitely, yes.
- If sustainability means renewing your strategy regularly to maintain effectiveness, yes.
- If sustainability means teaching your strategy to others in your organization and implementing it consistently over time, yes.
- If sustainability means desiring to invest personal and financial capital for an undetermined amount of time before a benefit becomes self-evident, YES!
Strategic thinking has benefits in the short term, but its long-term effect is to separate your business from the pack. One can look at Danaher Corporation for inspiration on this idea.
Danaher has become one of the biggest companies most people don’t know. The key to their success is focusing on enabling strategy to identify, incorporate, and inform their M&A (mergers & acquisitions) approach.
In 2010, Danaher Corporation was a large-cap conglomerate company with a substantial presence in five unique market segments. Danaher identified ideal acquisition targets and, through acquiring their business, determined how to retain more significant earnings than the previous operators had.
Unlike other buy-hold conglomerates, Danaher focused on retaining close control over operations, even after subsidiary companies grew to be very large. Danaher also operated differently from newer buy-sell private equity models (Blackrock), where a private equity firm would buy a depressed value property and sell it after improving its value. Danaher would hold and explore acquisitions of same-space businesses to augment or ‘bolt on’ to further add value to the property.
If Danaher was interested in a company, it was because that company had very specific properties:
- They were in a market segment with particular criteria; and,
- Danaher believed the company was a vehicle to take them to #1 or #2 in that segment.
When Danaher pursued entirely new market segments, they also did so with a formulaic approach derived from strategy:
- The market for the product was > $1b
- Core market growth established at 5-7%
- Low market volatility
- Fragmented market participants w/ valuations of $25-100m
By targeting markets precisely, Danaher knew they could successfully deploy their secret weapon (their sustainable strategic advantage), the Danaher Business System (DBS). The DBS minimized overhead to improve short-term margin. Moreover, the DBS brought a consistent set of tools to each new subsidiary to integrate and optimize the new subsidiary’s business production processes for long-term alignment and growth.
If this sounds complicated, few organizations have done and can do what Danaher did. However, from the inside, it was straightforward. The strategy was cultural. Adhering to its strategy, Danaher kept its overhead structure lean after acquiring new companies. Even with each company having dramatically different leadership models & value chain characteristics, Danaher remained focused.
Before an acquisition, Danaher evaluated whether a business characteristic, including its leaders, would fit into their DBS process. In the Danaher model, individual leaders were not sacred cows; productivity – measured against their policy deployment (PD) tool, was the metric that mattered. As a result, DH quickly separated itself from the underperforming aspects of all newly onboarded businesses, including wasted production resources, unwanted products, and even executives and other staff.
Danaher’s Goals Enabled by Their Strategy:
- Danaher wanted to become the most innovative and lowest cost manufacturer of the products they sold.
- They sought a market position within each product line, either first or second, or with very distinctive market niches.
- Their acquisition process was replicable and consistent.
- Their targets were clear, and their willingness to wait for opportunities to open new markets was cultural.
- DH used their DBS toolkit to significant effect to enable the strategic vision, especially the performance deployment tool (PD).
- DH chose not to pursue markets based on intangible products, for example, financial services.
In a world where another conglomerate, GE, is flailing, and hedge funds are gobbling up distressed businesses to refurbish and resell, between 2010-2022, Danaher’s Market Capitalization grew from 23B to ~200B.
Would the DBS work in law or other professional services? If it were adopted and adapted, you bet it would! DBS would likely be successful in several industries if adjusted appropriately. However, the concept of fit is at the crux of the strategy conversation. Danaher Business Systems works for Danaher because Danaher developed it to enforce its vision and strategy. By Danaher for Danaher. For them, it’s easy to use and follow and takes the guesswork out of big decisions.
Note: Using an unmodified DBS for your firm would be a mistake. However, being influenced by Danaher and other business systems while you create your tools is the conversation we’re talking about in this book.
Strategy is Consistent & Scalable, but so are your Problems
Recall that Danaher used their DBS at $20b valuation and at $200b valuation. Apple, Aldi, Edward Jones, Amazon, and many other names you know every day also have distinct corporate strategies that have changed little since their early days. They all religiously distill their strategy into brand statements, market decisions, investments, expansions, M&A decisions, and other opportunities.
If you’re constantly redefining your strategy, you spend far too much time thinking about what you need to do rather than doing it. We’ll discuss the re-alignment of strategies and the challenges and opportunities they bring in a later chapter. Some organizations successfully orient their strategy to new market realities over time, Proctor and Gamble, or to new markets, Amazon. However, for every P&G, there are several Blockbusters, RIMs, and other cautionary tales.
Activity: Mapping Your Magnets
Before we start the next part of this discussion about Creating Your Magnets, take a piece of paper and write 5-10 of the essential processes involved in one of your departments.
Here’s an example of a Marketing Magnets diagram in a typical law firm: