Strategic thinking at
the Business Level
“Strategy is a vision of what an organisation is to become; a position reflecting
decisions to offer particular services to particular stakeholders; a pattern of allocating
resources over time; and a plan of how to get from here to there.”
Top level managers have a responsibility to identify a destination and chart a route to get there. This is
particularly so in the current era (after the global financial crisis), as strategies need to be realigned to address
radically different market dynamics. The destination needs to be appropriate, empowering, and in harmony
with the organisation’s mission and external environment.
Preparing a strategy requires a process, and there are as many approaches as there are consultants. There
may not be one ‘best’ approach, but there are clearly basic principles:
(i) Use an external facilitator to develop and administer the strategy process, and to document the
outcomes (but don’t use a consultant to develop the strategy);
(ii) CEOs should brief the strategic leadership team and play devil’s advocate, but not be part of the
strategy development team (otherwise there is a risk of forcing a particular direction and/or group think);
(iii) CEOs should use the strategy process to observe senior executives from a strategic perspective and
evaluate how their capabilities, attitudes and behaviours align with the proposed strategy;
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Written by G B Lorigan, Director, Institute for Strategic Leadership. www.leadership.ac.nz Copyright, 2010.
(iv) the board of directors, as the ultimate client and shareholder representative, must evaluate and
approve or reject the proposed strategy.
At a practical strategy development level, the major stages are:
Situation Analysis
1. Identify the purpose / mission of the organisation
2. Determine the time-frame for the strategy
3. Identify the current situation of the organisation
4. Distil the 5 or 6 key issues that the organisation faces and needs to deal with
Decision-making
5. Consider the strategic options that would address the key issues
6. Develop the selection criteria
7. Choose the strategy that is best-fit with the criteria, and aligns with the risk appetite of the board
of directors (who represent the shareholders / owners)
Implementing
8. Prepare an implementation plan
9. Identify the risks and develop contingency plans
10.Review the mission
11. Create a vision that encapsulates the destination metaphorically and get buy-in to the strategy
12.Establish a list of metrics that define success, using a “before and after” approach
13. Gain approval for adoption and implementation
Step 1: An organisation’s purpose (its mission) is effectively ‘True North’. It reminds the senior executives
and board what their core business is, and thus shapes strategy. For example, at a strategic ownership level a
technology start-up may be in the business of building up the company to be sold in 3-5 years time, whereas
a family-owned operation may be a long-term involvement business that aims to provide work for family
members and staff, where profits are important but not the number one goal. The technology start-up will
need to focus on innovation, global scalability, revenue generation, and brand. The family business, however,
will need to focus on product quality, customer service, customer relations, and cash flow. The start-up
is effectively a cattle beast strategy (preparing for sale) whereas the family business is a cash cow strategy
(providing cashflow to fund salaries, suppliers and tax). Publicly-listed companies fall somewhere in between.
Their owners are uninvolved in the day-to-day business, and the managers are effectively ‘agents’ who run
the business on behalf of the distant owners. Share price (as recorded on the stock exchange) is effectively
a proxy for the investing public’s view of the quality of the organisation’s strategic leadership, the company’s
strategy, its future growth opportunities (measured in terms of projected earnings per share) and the
organisation’s ability to extract free cashflows (which are a measure of shareholder value).
Step 2: Having clarified the mission, the next stage is deciding on a time-frame for the strategy. This will
depend primarily on the nature of the organisation. Mining companies and defence forces will typically plan
10-15 years ahead, because they are heavily asset-based and this is the life-span of the assets. Government
departments will align their planning cycles with the term of government. Companies involved with fast
moving consumer goods (FMCGs) typically plan 3-5 years out, recognising that markets are volatile and rapidly
developing. Strategies are typically reviewed annually, but savvy senior leadership teams will think strategically
at all times and be open to emergent opportunities within the planning time-frame.
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Written by G B Lorigan, Director, Institute for Strategic Leadership. www.leadership.ac.nz Copyright, 2010.
Step 3: This involves clarifying current position, including resources and capabilities. Numerous strategy
tools exist to aid this process, including PESTE analysis (Political, Economic, Social, Technological and
Environmental), SWOT analysis (Strengths, Weaknesses, Opportunities and Threats), and Porter’s Five Forces
analysis (relative power of Competitors, Substitutes, Suppliers, Customers, and ease of market Entry/ Exit).
The Five Forces analysis determines the overall profitability of the industry in which the organisation competes.
Government and not-for-profit organisations should also include a stakeholder analysis.
Step 4: Once appropriate analyses have been completed, the individual findings are integrated and
summarised, and five or six issues distilled. These key issues provide a ‘sounding’ of where the organisation is
currently situated (relative to mission) in terms of capabilities, weak spots, opportunities, and risks.
Step 5:
With key issues identified, the CEO and strategic leadership team (SLT) are in a good position
to consider alternative scenarios and strategic options (usually associated with growth or consolidation). A
number of frameworks can be used to identify discrete options in terms of market type and placement,
cost, operational efficiency, innovation, or customer relationships. The business may decide to shoot for
the position of number one in the market (increasing market share, which is particularly important when
competing in mature markets where there are few growth opportunities), diversify product/service range
(related diversification), enter into new markets (geographic expansion), or get involved in new products
or technologies (unrelated diversification). Unrelated diversification into new markets with new products is
clearly the most risky strategy, and needs to be considered in the light of the organisation’s risk appetite. Risk
appetite is central to strategy development and is measured by a number of metrics, including capital-at-risk
(CAR) - in simple terms, how many Dollars, Euros or Pounds could be lost by the business in a given period
without being seriously at risk of becoming insolvent?
Growth along the above lines can be achieved organically or through acquisition, and may involve geographic
expansion or consolidation. Both approaches have associated risks. Developing new products and markets
takes time, and the learning curve is marked by costly – and potentially fatal – hazards. Similarly, acquisitions
normally involve paying a significant premium, while key talent, clients and IP often walk out the door along
with the previous owners and/or managers before the ink on the sale-and-purchase agreement has dried.
Strategies involving incremental improvements on the current capabilities of the organisation and those of its
competitors are unlikely to have a significant impact if (i) one or two competitors already have a dominant
market share (e.g. Air New Zealand and Qantas), (ii) the industry sector is over-crowded and hypercompetitive (e.g. the trans-Tasman sector, where Air New Zealand and Qantas compete with seventeen
international airlines from other territories) and (iii) the barriers to exit are high (i.e. the cost of exiting the
market is high due to sunk costs) and competitors stay in the market and compete on a marginal-cost basis
(e.g. Emirates or Lufthansa) or even at a loss.
This is where Blue Ocean Strategy (BOS) comes in. Its goal? To find new blue ocean space where there are
no existing competitors, by redefining market boundaries. BOS is a process of looking at a market in a totally
different way. It involves selecting a target market group (particularly non-customers) of the organisation
and adjusting product / service offerings to suit. This will involve providing more of some product / service
elements, doing less of some elements, eliminating some elements, and introducing some completely new
elements. BOS involves looking outside the box, and integrating and developing hybrids of different offerings
from different markets. For example, an airline competing in the long-haul market (e.g. New Zealand to
London) might target business travellers who downgraded during the Global Financial Crisis from business
class to economy due to cost-saving and face-saving issues. Applying BOS theory and processes to this
target market might give rise to a new hybrid concept, such as ‘BusinessClassroom’. This could involve the
cabin being fitted-out like a classroom, and an executive education facilitator being employed to provide
participants with a Blue Skies Strategy tutorial and workshop en route. Harvard Business Review reading
material might be emailed out with the travel itinerary, along with a course outline. Business executives
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Written by G B Lorigan, Director, Institute for Strategic Leadership. www.leadership.ac.nz Copyright, 2010.
would meet prior to the flight in a boardroom at the business class lounge at the airport, along with
other BusinessClassroom ‘course participants’. Executives would be allocated to learning groups based
on compatibility of their product / market interests and industry sectors. During the journey, the course
participants would be provided with tutorials and breakout sessions, and have the opportunity to develop a
Blue Skies Strategy en route. The cost of the fare would include all materials, tutorials and travel. Food would
be light and nutritious. Energising exercises would be facilitated every few hours to keep the participants
balanced and relaxed. Possibly an energy massage from trained flight crew mid-way through the trip would
be another component. The value proposition would be significantly different to standard first class and
business class travel, which focuses on luxury, comfort and generous space allocation. Boards and Chief
Financial Officers would be unlikely to disapprove of the fare premium for such a service. The airline would
differentiate itself from other airlines, and potentially gain significant numbers of new customers, in addition to
upgrade existing customers to a higher value service.
Undertaking a Blue Ocean Strategy process might involve sending a team of senior middle-managers to a
different location for a week or two to work in a different context on a strategy designed to ‘kill our current
business’. The strategic leadership team, however, needs to recognise that a Blue Ocean Strategy will take
significant time to implement, and attention needs to be given in the interim to improving the organisation’s
position within the highly-contested ‘Red Ocean’ market space in which it has traditionally competed.
Step 6: The selection criteria for evaluating a list of alternative scenarios is tailored by the strategists to fit
the situation. Such criteria typically include the 5-6 keys issues identified in step 4, along with ‘alignment with
mission’, and ‘fit with risk appetite’. ‘Do nothing different’ is not typically a valid option, and is only useful as a
benchmark to show the importance of change and to overcome passive resistance.
Step 7:
To decide on the best strategy, the team needs to consider a wide range of options and think
about the organisation’s readiness for change. Unintended consequences of the change must be identified,
using systems thinking approaches. An organisation is made up of a number of internal systems (like a human
body) and is also connected to external stakeholder systems. New strategies, like new organs, are often
rejected both actively and passively by internal groups, or by political factions associated with external
stakeholder groups. No part of the organisation can operate in isolation from the other parts and systems.
A proposed set of changes, embodied in a new strategy, is likely to change the flow of information and the
distribution of assets among managers, resulting in different roles, power bases, and status. These changes are
likely to increase the level of politics, creating sub-cultures and factions that might passively or actively resist
and undermine the proposed strategy.
Step 8: Strategy implementation is as important (and arguably more important) than developing the
best strategy. Fifty per cent of new strategies fail, and seventy-five per cent of the failures are people-related.
Business involves people (staff, customers, shareholders); people typically don’t like change. They often
become passive resistant, and covertly collude to abort strategic initiatives they perceive as disadvantaging
them personally and collectively. Strategic leaders therefore require high-level change leadership skills and
the ability to manage organisational power dynamics. Strategic implementation is not just about logistics and
critical path plans; it’s also about inspiring and motivating people, particularly the funders and those staff who
implement strategy and engage with customers and other important stakeholder groups.
As Michael Hammer, the creator of business re-engineering (BPR) puts it:
“I wasn’t smart enough about [the people part]. I was reflecting my engineering background and was insufficiently
appreciative of the human dimension. I’ve learned that’s critical.”
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Written by G B Lorigan, Director, Institute for Strategic Leadership. www.leadership.ac.nz Copyright, 2010.
Another vital aspect to strategy implementation is timing. Many worthy strategies have failed because they
were implemented at an inopportune time in the business cycle, or at a point when sufficient funding was not
available. Air New Zealand’s takeover of Ansett in 2001 is an example:
“In the early hours of September 14 2002, Ansett Airlines, Australia’s second largest and oldest domestic carrier,
suddenly ended all flights after an administrator appointed by its parent company Air New Zealand declared
that it had no funds to continue operating.”
Step 9: All strategies have risks, and these risks need to be prioritised in terms of (i) the likelihood of it
happening and (ii) the impact if it did happen. A potentially tragic outcome, even if it has a low probability
of happening, must be given careful consideration, particularly if it could impact on people’s well-being, the
organisation’s survival, or the corporate reputation and brand. Developing a worst-case scenario is always
a good starting point, and should involve external critics (e.g. the board of directors or the venture capital
funders) who should play devil’s advocates and look at the strategic risks through an dispassionate lens.
Step 10: In the latter stages of the strategy development and implementation development exercise, the
strategic leadership team needs to review the mission of the organisation to check that their understanding of
the organisation’s purpose is still appropriate. For instance, a proposed change in ownership structure is likely
to significantly change the purpose and mission (for example, re-purchasing shares and privatising a PLC), in
addition to affecting the organisation’s culture and political dynamics.
Step 11: The vision exercise is as much about strategic communication as it is about strategy formulation.
The vision needs to be a short, empowering statement that gives a sense of direction and encapsulates the
culture and values in a way that inspires staff and stakeholders, and makes the typically long and arduous
journey worth enduring.
Step 12: The key outcome metrics are akin to a ‘before and after’ list of key measurements and
parameters, answering the question “how will we know if we are successful?” For example, how big will
the organisation grow in terms of revenue, profit, shareholders’ funds and share price (relative to existing
dimensions and results)? How will the number and type (in terms of capabilities and behaviours) of executive
staff change? How will our global footprint change? What will be our normative values, culture, attitudes,
behaviours? What will be our mix of employees and contractors? What will get people hired, promoted and
fired? How will our stakeholder and client mix change?
CONCLUDING REMARKS
Strategy text books always present conceptually appealing theories, concepts, models, frameworks and tools.
The student of strategy can easily gain an impression that strategy is a “scientific” management process. The
pragmatic strategic leader, however, should recognise that these concepts and tools are only aids to the ‘logic
of enquiry’ and communication tools. Of all the elements and stages of strategy development, the people
factor is the most complex and most vital aspect.
In addition to an understanding of human nature, power dynamics and change tactics, the strategic leadership
team (who will prepare and take responsibility for implementing the strategy) need an understanding of its
own group dynamics, personal preferences, blind spots and risk appetite. Recognising that organisations are a
lot like human bodies with a myriad of systems that inter-relate and interact, strategic leaders need to learn
and use system thinking processes to identify unintended consequences, so that they don’t shoot themselves
in the foot or create strategies that fail due to “organ rejection”.
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Written by G B Lorigan, Director, Institute for Strategic Leadership. www.leadership.ac.nz Copyright, 2010.
The concepts outlined in this article are framed in the context of private sector organisations. Government
and not-for-profit organisations are similar in some respects to commercial enterprises – they have a labour
market, a money market, suppliers, and users/clients. The fundamental difference is that government and
not-for-profit organisations have a political market that approves budgets and provides funding and subsidies.
It follows that political dimensions impact significantly on the criteria for selecting and implementing strategy,
and strategic communications require a much broader stakeholder engagement.
Strategic plans are merely a formal record of a strategy prepared for consideration by the board and the
organisation’s funders. In a fast-moving world, strategic plans start to go out-of-date as soon as they are
finished; hence strategy is not a process with a defined start and end, but something that is always evolving. At
a individual and collective level, strategic leaders need to continuously operate their ‘strategic radar’. The true
leader thinks strategically – using both the analytical left side and the creative right side of the brain – at all
times, not just during the annual planning session.
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Written by G B Lorigan, Director, Institute for Strategic Leadership. www.leadership.ac.nz Copyright, 2010.