Video Transcript: Your Strategy Needs a Strategy

This was the very helpful advice I received just a few seconds before entering  the conference room of a major retailer to discuss, you guessed right, strategy.  Meet a strategist. Don't mention strategy. A moment of blind terror. But I'm a  rational guy, two questions popped into my head. One was, how can I re script  this entire meeting in two seconds? That was pretty scary. So I had another  thought, which was, what did this guy mean? Maybe I could sort of argue this  out, but I have to confess, I sort of knew what he meant, strategy, a slightly old  fashioned, faintly pompous word, probably conjures up the images of the arcane processes of strategic planning that are generally very complex and you find In  all large companies, lots of analysis, lots of planning, all in the name of  improving the competitive advantage of the company. It's this classical concept  of strategy which is increasingly being called into question, and not just by our  CEO friend. Take the whole idea of planning, as one executive succinctly put to  me, we spend three months of the year planning, and then the plan is obsolete  within a month. Does that make sense? Not really. I'll take one of the big ideas  of strategy. BCG's founder said that bigness was a very big idea, the idea of  scale advantage. If you're the biggest in your industry, you'll probably be  advantaged on costs. You'll probably make more money scale advantage. Let's  look at some data. What proportion of the three largest companies across all  industries do you think are also amongst the top three in terms of profitability? Is it 50% perhaps maybe 25% maybe 5% let's look at some data here. Is that  number across 65 years for all companies in the US? And the answer is, I'm not  particularly overwhelming, 7% so big really is not as beautiful as it once was,  and neither are some of the core concepts of strategy. So maybe strategy is  dead, killed by technology or something like that. Maybe I should look for a new  job. But it can't be so simple. Surely, in these complex, turbulent times, don't we  need great strategy more than ever? Think about the gap between winners and  losers. For example, let's look at the top 25% of profitable companies and the  bottom 25% in profitability of all companies in the US across the same 65 year  period. Now let's see what happens crocodile jaws. Winners are winning bigger,  and losers are losing bigger, and the gap is getting wider. We need to make the  right choices and have great strategies more than ever. And furthermore, just  consider how long it takes to go from being on the green line a winner to being  on the white line a loser. If you reach into your pockets, I'm sure you're all  carrying a smartphone, and it probably isn't a Nokia phone, because they don't  make smartphones anymore. They were so they were supplanted by Apple, a  company that had never made a smartphone before. They supplanted a 60%  market share leader in a highly technology intensive business with high fixed  costs, high returns to scale, high regulation and fully global and very complex  and in less than five years. And this is, of course, just one of many examples I  could give. So what's going on here? How can strategy be both more important  than ever and increasingly questioned? It really does seem like strategy itself 

needs a strategy of some sort. Let's try and make sense of that. Let's strip  strategy of all its complexity and nuance and just what is it? Well, it's basically  getting a job done. It's a tool, and the job is winning competitively in a particular  situation, and we can capture those particular situations, I think, with just three  very simple questions, can we predict it, and can we plan it? Can we shape it,  and can we survive it? Now, there are all sorts of changes that we've talked  about that are going on in business across the last 10, 20, 30 years, technology,  globalization, social feedback loops, but I think strategically and. The most  important change is that business has been stretched by the forces of change  across more of this space. So we still have very predictable businesses, ones  where technology change isn't so fast, where strong brands protect against  change. And we have very unpredictable businesses. We have businesses that  haven't changed for decades and are not easily shaped. We have ones that  have just been bought into being and therefore are infinitely shapeable. We  have high growth hit technology businesses that have very favorable conditions, and we have declining businesses in declining markets meeting very harsh  conditions. So the question is, what approach to winning would apply across this huge diversity of environments? What's the approach to strategy that maximizes your chance of winning given this incredible diversity? Well, it doesn't exist. This  sweater is not here. There is no one size which fits all. The approach to strategy  has to match the situation. This shouldn't surprise us. In fact, mathematicians  have actually logically proven that there can be no universal approach to  strategy across all problem sets. It really just depends upon the problem. So  let's rethink that question of how to win in different environments, and get a feel  for what's the best approach to strategy in five very different types of  environment. Let's go back to this space first. Let's start with a familiar, classical  environment. We can predict, strong brands, limited technology change,  perhaps highly regulation. So we can plan, we can analyze and plan and  execute in the classical manner. And that's just fine if you're in branded  household products or confectionery or a host of other industries. But what if  you're in a turbulent technology industry where it's virtually impossible to  forecast and you're in an adaptive environment. Well, we can't plan, so we  shouldn't try. It's a waste of time. What can we do instead? We take a leaf from  biology and we experiment. We adapt. The mantra becomes experiment, select, scale up and iterate. A very different way of thinking about strategy. Think about  the environment of the entrepreneur. Entrepreneurs get actually to shape and to  predict. How could they do that? It's because they are creating their environment by creating products such as 3d printing or personal genomic services. So the  mantra of a strategy is very different. Again, you Envis envisage something  which doesn't exist, and you realize that in reality, and you exploit it, a very  different way of thinking about strategy. Think about the exotic environment of  the shaping environment. Here we have the ability to influence, but not the 

ability to predict. How could that be? That's because an ecosystem of many  companies are collectively reshaping an industry. Think about, for example, the  digital commerce businesses of Alibaba, or the software or hardware  ecosystems of Apple. Here we see an ecosystem at work, and the thinking is  much more about influencing, collaborating, orchestrating, and coevolving, than  about necessarily only competing. Then the penalty box, the renewal  environment, if a company is talking about transformation or something of this  sort, then basically it's gotten out of step with this environment, and it faces very  harsh conditions. And the objective here is not competitive advantage, it is mere  survival. And the mantra is different. Again, this is about focusing activities,  freeing up resources, and then transiting to another approach to strategy, five  very different environments, five very different ways of thinking about strategy,  all unleashed by one extra question. And that extra question is, what is the  approach to winning in the particular environment that I face now you're  probably thinking which of those approaches would work with my business, and  that would be precisely the wrong question. And that's because all large  businesses operate in multiple markets with multiple products, multiple lines of  business, they face different conditions, each requiring their own approach. And  furthermore, conditions change across time and increasingly quickly. So really,  this is about choosing the right approach to winning in the right part of the  business at the right time, and leaders today, I think, have a very key role in  making sure that this strategy collage is vibrant, dynamic and in tune with the  changing environment. Back to reality, the scary meeting, the door opens. What  did the CEO really think that technology had killed strategy, that we could  somehow replace strategic choice and thought with Agile action or lean or  something of this sort? No. What he actually meant was that the single  approach to strategy that the company had been adopting for years, classical  strategic planning was no longer adequate for the diverse circumstances that  the different parts of that business faced. This business and business in general, in a way, are exiting an extraordinary period of business history where we  believed that we could create success by analyzing and planning and by  adopting one approach to strategy. Strategy is more important than ever, but we  need to adopt the right approach in the right situation. We need to apply the  whole palette of human ingenuity, ingenuity to the science of winning. Thank  you.