A strategy is a vision of desired change/outcome, and the way to get to that outcome.
- Decision makers across a company’s value chain must consider how to align to the outcomes desired by the strategy, and not get stuck in old thinking
- This consideration must be systematic, otherwise disconnects will occur, synergies will not be realized, and the strategy intent will be watered down over time
- When the desired strategy outcome is differentiated from the competition, and compelling to buyers, then behaviors and investments implemented across a value chain are hard to copy, leading to sustainable advantage
- This kind of change is easier for a new company than a well established company. That is why startups exist. That is why M&A can be a powerful strategic transformation tool.
The bohcay launch press release included this quote: “Systematic execution of synergistic strategy elements, is the difference between companies that execute their strategy with outsized returns, and companies that inefficiently deploy capital and assets, with declining market relevance.” This blog post unpacks that quote.
- Systematic: deliberate, conscious, programmed, over a long period of time.
- Synergistic: more than the sum of the parts; complementary to
- Strategic: aligned with a vision/belief of how a company will achieve its goals
There are certainly times when a technology, or product, can by itself be all the change needed for a company to have great success. “All the change needed” implies here, the company bringing the technology to market, uses, to a large extent, an existing and proven business model. An example of this is Juniper Networks, who had much better technology than the competition when it was launched, and who came to market with a reasonably traditional hardware manufacturing business model. For sure, there are many nuances in business model that could be observed, but that is a discussion for another time.
Many of us who love technology, look for scenarios like the one Juniper Networks entered the market with: a clear technology limitation (Scale/performance, Reliability,…), and a clear technology response (ASICs, memory bandwidth, mew modular OS,..). When the answer is better technology or a better product, we get to do the thing we love the most, focus on the technology, leaving other functions to copy and paste from somewhere else, so we don’t have to worry about that part too much. Our destiny is in our hands, because we are building the better mouse trap. Nothing wrong with that, whatever works is all that matters. There is no “religion” when it comes to winning.
The problem is that technology/product leadership is not always the strategy choice. There are many functions in a company, and all or them, given the right conditions, could be sources of strategic advantage for a company, or its competitors: service, sales, operations, and even legal (in rare cases). There are also more abstract umbrella concepts like “customer experience” that could be the source of competitive advantage.
Let’s consider a relevant example in today’s market. The subscription model is essentially a promise to deliver a service. New GAAP accounting rules imply this, as does common experience.
Sometimes a seller is tempted to pivot towards subscription offerings because they believe buyers want OPEX options instead of CAPEX, or because the seller wants a higher valuation from Wall St, based on recurring and/or software revenue. Both of these reasons may be sometimes true, but most of the time, they will not have a huge impact. To be successful with the subscription model, a seller has to rethink its value chain, shift from a product mindset to a service mindset, and create new services. Every function in the value chain of that seller has to internalize what subscription/service means to them, and change how they invest, and what they do, to create, deliver, and capture a service experience.
When a value chain has a unique focal point, employees and partners have the opportunity to organize around that focal point, and complementary activities can occur, leading to synergies and differentiation. To really drive advantage, the focal point must be considered systematically: when new operations systems are put in place, performance reviews, operations reviews, strategy reviews, etc. The focal point must be well articulated, measured, iterated on, and adustments made. Every functional leader must consider the change needed, the consideration must happen periodically over a long time span, and policy decisions must align to the desired outcome; the desired value proposition. There is, for example, an implied value proposition in a subscription model, a service value proposition.
Companies undergoing change need to articulate The Important of the new direction. That articulation must be easy to comprehend, and it must be driven by functional leaders who can work together and define what the new direction means for each function. When the new direction is differentiated from the competition, when it is compelling to buyers, and when synergistic activity occurs across the value chain, the buyer creates competitive advantage that is hard to copy – that is one of the hallmarkts of a great strategy: either the competition won’t or can’t copy.
Successful strategy identifies The Important, and then plumbs it through the value chain. A focus on The Important, by all those implementing change, leads to synergistic investments and action. A focus on The Important leads to efficient use of capital and assets, because it creates synergies. A focus on The Important is the shortest, most productive, and highest return path between information, Intent, and Impact. The Important needs to be well articulated, and it needs to become the focal point of change.
Focus on The Important, be systematic about it, pursue synergistic communication, investment, and action. When the strategy thesis is correct, or can be iterated on to become correct, adding systematic and synergistic action across the value chain will lead to outsized performance because it will lead to efficiency and advantage. The alternative is mediocrity, declining market relevance, and ultimately, extinction. Focusing on The Important is easy to say, but hard to do, especially if it requires change.