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WHERE DOES STRATEGY COME FROM?

Strategy is a confusing arena, and rarely is the 'big worry' articulated. Namely, no one quite knows what strategy IS or where it comes from.

When a group of people get together and do a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis, where is the strategy? Is it nestled in there somewhere? Is it deduced? Is it induced? Is it intuited?

When companies get together to write up goals and plans and targets, to what extent is that 'strategic'? What makes it so, or not?

If a company's core purpose defines why we exist, and why it matters that we exist; if a vision tells us our destination, our largest future aspiration; if our values tell us how we will behave, the culture that will sponsor our vision and purpose; then strategy should be our best bet of how we are going to deliver our vision, in line with our purpose.

But how do we generate it? Let's look at a multitude of strategies and then see if we can wrestle this quandry to the ground.

Years ago, Hilton decided to standardize. Their strategy was about predictable, comforting environments wherever you went, with replicable features. Everyone knew what to expect at a Hilton. This became the gold-standard of predictable quality aimed at a median.

More recently, The Four Seasons decided to customize. They decided to have hotels which reflect the character of their local environments and which built their appeal in synch with where they were located. Certainly they standardized certain elements, but they encouraged their hotels to have personality and distinctiveness as well.

Wal-Mart decided to go for scale. It decided to partner with its suppliers. It decided to become a major player in key communities and use its scale for bargaining and pricing competitively.

At the other end of the scale, the Swiss Watch industry has resurrected itself by moving away from just telling time, to becoming part of the jewelry and 'lifestyle' business. It's positioning has been about 'identity' and 'success' and 'discernment'.

Dell decided to re-invent supply chain and create partnerships that allow it to focus on removing intermediaries and allowing people to 'custom build' their own computers. They flattened rivals who were far larger and more venerable than they.

In a very different industry, Body Shop created value through eco-consciousness and making a statement, allowing people to care for themselves while also caring for the planet. It leveraged our values as well as our desires.

Coke became a marketing and communication company with some R&D. It outsources its distribution and sales to bottlers in various countries. With minor changes in business model, Pepsi followed suit. Other giants in other industries also have started to take on at least the salient features of this same model, for example P&G.

The core strategy mantra is focus. But then GE came along and proved that you can be a multi-business conglomerate and still be the most valuable (in terms of market capitalization) company in the world, one of the most productive and one of the most admired. How? Leverage your financial strength, bet on businesses that can command industry leadership, become a leadership factory. More recently, by expanding into services, going global, and getting far more customer intimate.

IBM renewed itself by moving away from mainframes and into enterprise solutions and integrated solutions, into services and into consulting.

Pretty soon it will virtually stop making computers! At one time, computing and cache was IBM's positioning. Now, it trades on integration, services, solutions.

Southwest Airlines managed unbroken years of profitability by sticking to regional travel, taking unnecessary costs (like meals) out, focusing on punctuality, and by hiring and nurturing people who love engaging...people.

Singapore Airlines continues to rack up growing profits by aiming for the business and luxury market, and by providing some of the friendliest and most responsive service in the sky, backed by arguably the best hub (Changi Airport) in the world.

Richard Branson's 'cheekiness' and playing the role of 'little guy with style takes on big guy with arrogance' works wonderfully in airlines and megastores, and doesn't do so well in cola or trains. Yet Branson himself has become a lightning rod for possibility and a major part of Virgin's corporate brand strength.

The first Star Wars trilogy introduced us to new galaxies and vocabulary (May the Force be with you) and mind-boggling characters and modern-day myths. It became the most successful movie franchise in history. The prequels (just completed with REVENGE OF THE SITH) largely fell flat, focusing more on digital effects and things blowing up and having virtually no character or plot depth. We might have thought today's audiences would 'like' the change. They largely didn't. Go figure...

Federal Express still gets our vote when you have to get something somewhere, positively, absolutely the next day. Their hub and spoke system, their tracking, their fanatical commitment, all made their company into a verb as well as a noun (FedEx it).

In a far more experiential way, cafe culture was brought to North America with greater 'jazz appeal' thanks to Starbucks. Neighborhood meeting places, innovative confections, comfortable places to 'hang-out' -- $7 cups of coffee are now considered 'normal'.

Just today, the list of the 100 most valuable brands in the world was posted by Businessweek. Here is a smattering: eBay (55th), Google (38th), Nike (30th), Sony (28th), Louis Vitton (18th), Disney (7th), Coke (1st). Totally different strategies and realities, all producing extraordinary 'value-added'.

This even works at the national level. A previously occupied and decimated country like Vietnam has rebuilt infrastructure, provides security and stability, is attracting foreign investment, and continues to grow at 8-9% per annum. Its strategy is to educate its people, provide stable markets, use money for real development. Other countries that have received billions in aid money, continue to spiral downwards and founder.

So, back to my key question. What is 'strategy'? Where do successful ones come from? And is the success IN the strategy or in something else?

The purpose of providing the list above was to illustrate that you can win with ALL kinds of strategies, in all kinds of markets. It seems to come down to a combination of 'core competencies', 'dramatic differentiation', 'economic optimisation' and 'passionate execution'. Let's look at these each in turn.

The core competencies argument was made famous by Gary Hamel and C.K. Pralahad. Many people have decried this, arguing that you have to know future competencies not just today's competencies for this to help. I therefore think the articulation is unfortunate, left to itself. What we mean here is those corporate abilities (proprietary R&D, methodology, processes, historical expertise, brand positioning, talent pool) that allow us to produce a superior result consistently. Something that lets us be the best in some area. Our first plank of strategy has to be to deliver an oustanding experience, if not identically, then at least with a high degree of predictability so that we become an important and valued part of people's professional or personal lives. We have to do something 'better' than almost anyone else.When you look at any of the brand eulogized above, we see how true this is: from Louis Vitton to Sony, from Singapore Airlines to Southwest, from FedEx to Starbucks, and so on.

Dramatic differentiation asks the next core strategic question: How will we be different from our competitors in an area where we excel and can produce a superior value experience? Only then will we stand out, only then will our brand have 'stickiness' in perception. Only then can we either get the benefits of scale, or charge a premium, and/or create excited and loyal patrons who develop an emotional bond with us. Of course every company THINKS it's different and unique already. And in some ways each company clearly is, but not necessarily in a way that adds value to the heart and mind of the customer and consumer. Our 'distinction' has to be a different way of expressing and delivering our core competencies.

So, whether it's FedEx giving us a way to track our packages and making pick-ups easy, to Dell's 'desk-side' delivery of computers, to Cirque Du Soleil combining theater and circus for adults, to Virgin Atlantic providing flying environments that are chic with staff to match, whether it's the design and attractiveness of an IMac, or the ubiquity of Microsoft as an operating environment, to the encouragement to browse at Border's bookshops, the excitement of a Sony Playstation, the pulsating energy of a day with Tom Peters, the unforgettable opening strains of STAR WARS, to the 1-click check-out on Amazon.com -- all these are ways to distinguish both WHAT as well as HOW we do what we do.

You can, of course, also make the experience of your genius, your essence, distinctive to your employees. That way, feeling different, they EXPRESS the difference, as they serve and interact with your customers. So whether it's GE's famous 4 E (Energy, Energizing, Edge and Execution) model and meritocratic leadership development processes that differentiate it from other employers, the 5 interviews per hire at The Four Seasons, the personal empathy and care lavished on team-members at Southwest, or the tapping of innovation and thereby commitment at FedEx, these are all ways to make sure your team radiates and embodies a difference that matters.

The third strategic plank is 'economic optimisation'. Here we mean that the bullseye we're painting, an amalgam of our greatest talents as well either a distinctive value space and/or an original way of delivering it, has to also have another texture. It has to be an area where the profit pool is deep enough to deliver on the financial aspirations of the company. And if we feel this is precisely the right area for us (say coffee or athletic equipment) but the profit pool ISN'T deep enough, then we have to add ancillary services and 'innovate from that core' to CREATE new profit pools.

So, FedEx sensed there was already a deep profit pool for people wanting documents quickly and reliably delivered. GE Capital understood that its triple A financial rating gave it many options for leverage that would be of great value to other companies. However, say for Starbucks, it had to add atmosphere, creative blends, and INVENT a space that didn't exist before. Most of its sites are now WiFi Hotspots as well. They looked for mall/airport/train station locations. All of this innovation re both location and atmospherics, adding teas and juices and snacks, made it a more universal location.

Nike had to link athletic wear with championship performance, with the spirit of excellence. It had to provide not only footwear, but all the other accoutrements of this life-style, replete with a 'feel' in their stores that meshes with the champions they have chosen as their advocates and spokesmen.

To justify its premium, Virgin produced a business class competitive with First Class on other airlines, and provided complimentary limo pick-up, and both arrivals AND departure lounges. The arrivals lounge was particularly attractive for those arriving at odd hours. They could snooze, shower, get their clothes pressed, have breakfast, and THEN head out. For those on just a one day trip, this could eliminate the need for a costly hotel at all!

So if we already charge a premium, to justify it, we can provide ancillary support services that actually enhance the value of what we're offering. Like the consulting firm who charges $35,000 for a two day senior leadership offsite, but does design and interview work in advance, some coaching in the aftermath, and provides an implementation report and follow-up in the aftermath. The 'value package' justifies the outlay, whereas time units wouldn't.

If we don't charge a premium directly, we can attract additional revenue and profit streams by looking for adjacent services -- complementary benefits that we can offer. Like the pharmaceutical company that helps hospitals with their inventory management of medicines, ordering, dosage packs and more. Like GE in the latter part of the 90's, hitting double-digit growth with the same businesses, by offering services wrapped around their products that allowed customers to fully utilise what they were selling.

And sometimes we just CREATE a profit pool as we've said, as the Walkman did, or as FedEx did, or Victoria's Secret did (by bringing the idea and experience of lingerie from Europe to America) by looking at common frustrations that our competencies and differentiation can alleviate or actually transform into pleasures.

Finally, we come to passionate execution. This is the final and most potent key. Yet more nonsense has been written about this than almost anything. Entire cottage industries have sprung up claiming to offer the secrets of 'world class execution'. The key is in what we've termed it: passionate execution.

The final test of strategy, is that we have to believe in it. This is not a mystical exercise. Our belief is fertilized when something falls within the arena of our abilities and aptitudes (our core competencies or corporate genius), when it is distinctive enough to get us excited (if we're not excited, how do we expect anyone else to be?), and when there is enough profit to mine (either directly, or with adjacent services or offerings). With that, certainly we have the basis for intelligent belief. But if these are 'necessary', they are still not 'sufficient'. Somehow, this has to personally excite the people guiding and leading the organisation. Their slice of implementation and execution, their area of strategic accountability, has to be a personal 'turn-on'.

In the final analysis, we can acquire at least related competencies; we can find ways of delivering with distinction and differentiating ourselves with our internal and external customers; we can even create and educate future demand that gushes forth greater profits; but if and only if we are genuinely and passionately committed to this area -- this battleground and playground.

When senior leaders are passionate, execution will follow. Alas, however, still not automatically. There 'are' a few humble basics to get right:

1. Drive the (strategic) message home with passionate intensity...at every occasion. Not just in memos and e mails, but in the halls and corridors, in elevators, in coffee room conversations, in rides to the airport, as 'icing' in presentations, as a critical linchpin for all important business discussions.

2. Agree 3-4 key metrics for the strategy. Ideally one related to business results, one related to processes, one related to market development and share, one related to internal culture (what we measurably value, reward, pay and promote for). Make this dashboard visible. Make it a recurring agenda item in Board Meetings. Do a quarterly health-check that's published and explained to everyone. Link a part of everyone's bonus to the above.

3. Create milestones and 'quick wins' in the direction of the above. No one can know exactly how our strategy will finally be manifested. We have to get out there, make intelligent first moves that teach us what works and what doesn't. We have to post some runs on the board, we have to gather real momentum for the effort. We have to generate enthusiasm and possibility thinking/feeling/behaviour.

   We don't have to have absolute clarity on every aspect of the gameplan, but we certainly have to on what will deliver the metrics above -- worthy of the most innovative and engaged dialogue and debate drawing on multiple stakeholders that we can manage. And we need agreement as to what will produce some important, initial key 'breakthroughs'. These will produce the dynamic energy to move us forward, course-correcting and calibrating as we go.

4. Make heroes out of those who embody this strategy, whose priorities reflect these commitments, whose behaviour underwrites the collaboration required, and those who coach and develop their own team to passionately provide the performance needed to actualize the strategy. And make their heroism visible, sing it from the rafters, celebrate them, and explain WHY.

Do the above four, backed by the passionate excitement of senior leaders, and execution will follow.

So, to summarize. Where does strategy come from? From what we can do best, from what we can do distinctively and with personality, from where we can make increasing amounts of money, and from what we are most excited to make happen. Strategy is a jigsaw puzzle, and these are its key pieces. But the most often missing piece is passionate execution. While the disciplines of execution are critical, it is the passion for it which is the greatest leadership secret behind all strategy and all execution. Passion will always find a way. It will learn what it needs to, enroll who it must, find ways to communicate across barriers, invent new paths forward.

Strategy is then finally not planning. It is passion in action; it is our priorities vitalised; it is our vision finding a path to make itself real. If we start there, the rest will almost always follow.

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