Martin Reeves - Your Strategy Needs a Strategy: How to Choose and Execute the Right Approach

YOUR
STRATEGY
NEEDS A
STRATEGY

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Copyright 2015 The Boston Consulting Group, Inc.

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ISBN: 978-1-62527-586-8

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CONTENTS

YOUR
STRATEGY
NEEDS A
STRATEGY

CHAPTER 1

INTRODUCTION

Your Strategy Needs a Strategy

How to Select and Execute the Right Approach to Strategy

Strategy is a means to an end: favorable business outcomes. When we think about strategy, we tend to think about planning: study your situation, define a goal, and draw up a step-by-step path to get there. For a long time, planning was the dominant approach in business strategyin both the boardroom and the classroom. But effective business strategy has never really consisted of just this one approach. The multidecade plans that oil companies make would feel inappropriate to the CEO of a software firm that faces new products and competitors every day and that therefore adopts a more fluid and opportunistic approach to strategy. Neither would such long-term plans feel natural to an entrepreneur creating and bringing a new product or business model to market. What is this broader set of ways in which we can approach strategy, and which approach is the most effective in which situation? That is the central question of this book, and we will show that getting the answer right can deliver demonstrable, significant value.

Today, we face a business environment that is faster changing and more uncertain than ever because of, among other factors, globalization, rapid technological change, and economic interconnectedness. Perhaps less well known is that the diversity and range of business environments that we face have also ), requiring businesses not only to choose the right approach to strategy or even the right combination of approaches, but also to adjust the mix as environments shift.

One size doesnt fit all.

Prompted by the increased uncertainty and dynamism of business environments, some academics and business leaders have asserted or implied that competitive advantage and even strategy more broadly is less relevant.). Many CEOs are looking over their shoulders for the upstart competitor that may undermine their companys position, and many upstart companies are aspiring to do just that. It has never been more important, therefore, to choose the right approach to strategy for the right business situation.

FIGURE 1-1

Increasing diversity of environments

Heat map of range of strategic environments faced by companies

Source : Compustat (US public companies); Martin Reeves, Claire Love, and Philipp Tillmanns, Your Strategy Needs a Strategy, Harvard Business Review , September 2012.

Note: MCap, market cap.

* Standard deviation over ten years of annual growth in market capitalization (MCap) (log scale).

Absolute percent revenue growth averaged over the decade (log scale).

FIGURE 1-2

Increasing gap between winners and losers for US companies

Source : BCG analysis (August 2014), Compustat.

Note: EBIT: earnings before interest and taxes. EBIT margin across industries is based on an analysis of approximately 34,000 publicly listed, mainly US companies in years when net sales were greater than $50 million; computing quartile average within six-digit GICS industry (unweighted), then averaged across industries (weighted by number of companies per industry per year); excluding outliers (higher than 100 percent margin or lower than minus 300 percent margin) and industries in years with insufficient data points.

Unfortunately, it has also never been more difficult to choose the right approach. The number of strategy tools and frameworks that leaders can choose from has grown massively since the birth of business strategy in the early 1960s (). And far from obvious are the answers to how these approaches relate to one another or when they should and shouldnt be deployed.

Its not that we lack powerful ways to approach strategy; its that we lack a robust way to select the right ones for the right circumstances. The five-forces framework for strategy may be valid in one arena, blue ocean or open innovation in another, but each approach to strategy tends to be presented or perceived as a panacea. Managers and other business leaders face a dilemma: with increasingly diverse environments to manage and rising stakes to get it right, how do they identify the most effective approach to business strategy and marshal the right thinking and behaviors to conceive and execute it, supported by the appropriate frameworks and tools?

FIGURE 1-3

Proliferation of strategy frameworks

Source : Pankaj Ghemawat, Competition and Business Strategy in Historical Perspective, Business History Review 76 (Spring 2002): 3774; Lawrence Freedman, Strategy: A History (New York: Oxford University Press, 2013); research by The Boston Consulting Group Strategy Institute.

Note: 3Cs, Customer, Competitors, Corporation; 5Ps, Plan, Ploy, Pattern, Position, Perspective; 7Ss, Strategy, Structure, Systems, Shared Values, Skills, Staff, Style; PEST, Political, Economic, Social, Technological; SWOT, Strengths, Weaknesses, Opportunities, Threats; TQM, total quality management.

In researching and writing this book, we spoke with many business leaders, and our conversations confirmed their dilemma. Some opined that strategy as a discipline had been made less relevant by changing circumstances. Others explained how traditional approaches to strategy needed to be replaced by new and more effective ones. One executive even warned that the word strategy had been banished from use in his company. Many told us that in businesses as large and diverse as theirs, they couldnt conceive of using a single approach to developing and executing effective strategy.