Good strategy antidote to creative destruction

With time just about all businesses fall prey to ‘creative destruction’. Economist Joseph Schumpeter saw ‘creative destruction’ as a driving force of capitalism, based on the inevitable up and down — birth and death — fortunes of both small entrepreneurs and big business. But there is an antidote to the onset of creative destruction.

Recent business history shows those that survive in the longer term had a strategy, a distinctive approach, a competitive advantage. In practice, genuine strategy is a rarity, most of the time the word ‘strategy’ refers to an operational plan.

Strategy is tough, it requires insight and effort, in contrast to a plan which focuses on simple operations, which is relatively easy to do. Having a plan labelled strategy, often with a lot of exotic adjectives, designed to impress the gullible, is simply fluff.

Nothing to do with strategy

“Most corporate strategic plans have little to do with strategy. They are simply three-year or five-year rolling resource budgets and some sort of market share projection. Calling this strategic planning, creates false expectations that the exercise will somehow produce a coherent strategy” says Richard Rumelt. McKinsey refers to Rumelt as the ‘guru of strategy’, whose easy-to-read 2011 book Good Strategy, Bad Strategy is fast becoming a classic.

“Core work of strategy is always the same: discovering the critical factors in a situation and designing a way of coordinating and focusing actions to deal with those factors” notes Rumelt.

Good strategy has what Rumelt calls ‘the kernel’ which has three elements: 1) diagnosis, 2) a guiding policy, which is the signposts, setting the direction, and 3) coherent action, the ‘nitty gritty’ details of what is to be done by who, and when.

The problem in formulating strategy usually begins with a shallow diagnosis. When you are feeling a touch unwell and go to your physician, the doctor begins with a few friendly questions, to make you feel at ease. ‘How is the family? Are you sleeping well? Are you feeling stressed at work? would be the common conversation starters.

This initial banter, taking the pulse, is the equivalent of a SWOT, a superficial way to get things started, not to be confused with the literally hundreds of analytical approaches to business diagnosis. A revealing MRI-like diagnosis of the organisation has to cover four dimensions: Finance, marketing and sales, operations, and people and engagement.

Heart of the matter

The essence of the problem at the diagnosis stage is being able to see things differently. After all, if you are looking at the market exactly the same way as your competitor, what really has changed? Chances are you will come with the same old ‘cut and paste’ approaches to trying to get ahead.

So how does one see things differently? Yes, crunch the numbers and see what the surveys say. What is required is a blend of a solid analytical approach, with a dash of creative thinking.

Chances are an insightful strategy is not going to be found, and created in a hotel conference setting, or in the board room. “Doing the same things, and expecting different results, is the definition of insanity” is how Albert Einstein expressed it. Eureka-like revelations can come at the most unexpected times and settings.

There is a need to get out to where the business happens, listen to the customer, and benchmark with trends globally. Design thinking is always helpful; how does the customer see things? What are their needs and wants, and ‘pain points’ in purchasing your product or service?

In our Google information age world where answers are on that computer in your pocket, your smartphone, the art of diagnosis is being able to ask the right questions. If you are doing this correctly you should begin to feel a bit uncomfortable, uncovering tidbits of data and information that you did not see before.

Constant disruptions

Times have changed from the days of Michael Porter’s ‘engraved in stone’ wisdom. In his book Competitive Advantage, published in 1985 he stated that on a value chain there were only three ways to formulate a strategy: 1) cost leadership, as in, be the least expensive, 2) differentiation, for instance, deliver high quality, or 3) focus on a niche market. And, one had to choose one of these, according to a Harvard professor of business, you could not risk getting stuck in the middle.

Now in our age of platforms and ecosystems, all that has changed. And it will shift again in our times of uncertainty and constant disruptions. At some point in time, once innovative business-defining platforms like Facebook, Amazon, Uber and Jumia will seem as old-fashioned as a pager or, a telex machine.

But what won’t change in an ability to create a distinctive profitable strategy is that ability, to just plain: see different, think different.

Some 2,500 years ago Sun Tzu made exactly the same point:

“If your enemy is secure at all points, be prepared for him. If he is in superior strength, evade him. If your opponent is temperamental, seek to irritate him. Pretend to be weak, that he may grow arrogant. If he is taking his ease, give him no rest. If his forces are united, separate them. If sovereign and subject are in accord, put division between them. Attack him where he is unprepared, appear where you are not expected.”

Thanks to algorithms and artificial intelligence, perhaps the manager of the future will be able to key in a few variables and out will pop the perceptive profitable strategy. But until that time, don’t worry, you still have a job to do.