May 28, 2014

Strategic choices should be customer driven

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Roger L. Martin‘s recent HBR article on adaptive (= reactive) strategy vs proactive strategy got me thinking.

In his article, he disagrees with the VUCA driven school of thought that claims that, due to the increased volatility, uncertainty, complexity, and ambiguity in today’s world (hence VUCA), strategy is now fast reaction thinking. People that regard strategy as planning are likely to take this approach. However, as Roger also explains in his book, strategy is not about planning. It’s about making difficult choices and organising your company around these choices.

The funny thing is that I notice two kinds of investments in many companies:

  • Companies make investments as a reaction on competitor actions or changes in customer behaviour (rather than proactively looking for new sweet spots).
  • The same companies proactively make big strategic investments in future (perceived) needs.

So I ask myself, how strategic are investments of the second kind?

Let me give some examples:

  • A company notices a decline in the amount of sales per product, so they invest in expanding their product range, hoping to increase sales volume and revenue.
  • A company has an internal capability, for example logistics at a retailer, that suffers from lower quality or efficiency, so they invest in modernizing this capability, in order to improve quality or cost efficiency.

While these investments may be valid, more often than not, they are the result of an internal assessment, rather than a customer driven strategic choice. While they may slow down a decrease in profit temporarily, typically by lowering cost, they often divert attention from the real issues.

Take the first example: is offering a broad product range your differentiator? Is the fact that you offer a wide range of products the reason why customers buy from you and not from your competitor? If not, don’t simply expand your product range. Your brand image will become blurry. It will become even harder to distinguish yourself from your competitors. Rather, find out why your current offering is suffering. Do customers buy somewhere else? Do they buy other stuff? Has your product become a commodity and do your customers expect additional features or services? Next, define where and how you want to compete in such a changed environment. Only then, it’s time to start thinking about projects.

In the second example, you should find out why your internal capability is subpar. Do customers expect faster delivery times or more delivery choices? Will they buy lots of the same products, or many different things? This will influence how you should optimize your logistics capability, so that’s where you should start designing your future way of working.

The point is that thinking this through and acting upon the result of such thought processes is hard. Simply adding a product or improving some internal capability makes sense, everyone can see the potential benefit. Defining where you really want to stand out and then deciding on what to do and what not to do, and actually going through with that decision and saying no to other ideas, that’s tough. Tough, but critical.

(By the way, Roger’s book Playing to win, co-authored by A.G. Lafley, is a much recommended read.)

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