Strategy Formation: "What to make happen, where."

I. The Foundation

    The relentless pressures of dealing with operational crisis (which may well include finding the all-too-elusive customer) often relegate strategy to a third or fourth priority -- or to no priority at all. When it finally does get considered, one tends to rush into the creative challenge of forming it without adequate preparation. Before deciding where to go, one needs to understand exactly where one is. This understanding entails one photograph and one film.

The photograph 

    Balance sheets are static, a picture of where one is at the end of the year. They tend to reflect book values. Adjustments for market values are often pretty rough.

The film 

    Income statements are dynamic, a film of what is happening. They also need adjustment to provide the information needed for strategy. The aphorism "Cash is king" is more appropriately rendered as "Cash flow is king." And cash flow can be manipulated with LIFO/FIFO switching, aggressive loss-lead selling, etc.

    The photograph is re-touched and the film edited with accounting and financial tools. These include separating consolidated accounts into their component parts, re-casting cost accounting figures into transaction costs, discounting cash flows (IRR and NPV), examing the lease-buy decision for capital goods, ratio analysis, etc. These tools and techniques are beyond the scope of this web site.

    However they are critical. They are used to lay the foundation on which strategy is built. If the photograph and the film are incompletely understood or, worse,  misunderstood, then the foundation for strategy has not been properly laid.  The effectiveness of the strategy built upon it  will be truly in the hands of Lady Luck.

II.  Strategic ICE

    A company goes through various stages in evolving strategies. A triad of them can be presented by re-defining the ICE acronym previously introduced at "The Q-Ship Odyssey:"

Initiated by the   Competent           Entrepreneur (Top down. Start-up phase.)

Indefatigably   Communicated & Executed     (Bottom up influence.)

Inspired by the  Commanding      Evangelist    (Top down. Apple´s Steve Jobs.)

    The challenge common to the above is to create a strategy that leads to a sustainable competitive advantage. In his seminal article "What is Strategy"¹ Michael Porter writes about value innovation as the key driver for doing that. The three bases for successful strategies appear simple enough: (1) meet needs better,  (2) provide more variety or (3) offer easier access than competitors. However translating this simple triad into strategy is a task that is a little more complicated.

    In Henry Mintzberg´s seminal book, The Strategy Safari,² appears a sentence as complicated as the task itself: "Strategy formation is judgmental designing, intuitive visioning, and emergent learning; it is about transformation as well as perpetuation; it has to include analyzing before and programming after as well as negotiating during."  The frequently underestimated "negotiating during" is accorded a prominent position by Bridges, cf. the subpage "Negotiation Strategy."

    This very complexity has led to a penchant  by CEOs to delegate strategy formation, whether internally (to staff) or externally (to consultants). Depending upon the leadership qualities of the CEO and his team, and the nature of the industry (the competitive environment), such delegation may well be the solution of choice. That having been said, this complex and crucial task remains a fundamental responsibility of the CEO and his leadership team.

III.  Slippery, Thin, Treacherous ICE

"There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain of success than to take a lead in the introduction of a new order of things, because the innovation has for enemies all those who have done well under the old conditions and lukewarm defenders in those who may do well under the new." Niccolo Machiavelli (1469 - 1527) The Prince (written 1513, published post-mortem 1532).

IV. Tools & Techniques

    In Strategy Safari  the distinction between deliberate and emergent strategies is made, as shown in the figure reproduced below.³

 Footnote the text.

 INSERT PICTURE FROM SAFARI ABOUT DIVERGENT STRATGIES, page 11

    Deliberate strategies, whether proactive or reactive, are usually top down. They may be considered in terms of a Grand Vision, Core Competencies, and Focusing. Sometimes the real world does not cooperate. An emergent (reactive) strategy ensues, which may very well be bottom up.

    Despite the constant call for "active listening" to customers, the tools and techniques related to strategy mostly share a top-down orientation. At the subpage "36 Tools & Techniques" the more notable ones are briefly explained. They begin with the Japanese JIT (initiated 1949/50) and the Harvard SWOT (1950s) and end with India´s Doing Well by Doing Good, "DWDG" Model (2010) and Back-, Middle- and Front-of-Pack Analysis, "BOP, MOP, FOP," (2010). They include the time-tested work of luminaries such as Peter Drucker, Kenichi Ohmae and Michael Porter and new entrants, such as Jorge Vasconcellos´ Strategy Analysis with Lorenz Curves and Gini coefficients.