The 2 lenses of strategy
What is strategy?
The word strategy, which first started appearing in business literature around the 1960’s has many different meanings to different people.
The best definition I find is that of Michael Porter, arguably one of the greatest thinkers on strategy in the last 100 years. In his seminal November 1996 HBR article “What is Strategy” he defines strategy in the following manner: “Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value“. He goes on later in the article “Strategy is the creation of a unique and valuable position, involving a different set of activities“.
When a person says they need a strategy to complete a project, or they want a strategy to open a new office they are in fact not looking for a strategy, they are looking for an execution plan. They already know the goal, they need to know how to achieve that goal.
Strategy on the other hand is different *no pun intended*.
When someone needs a strategy, they don’t know the goal. They only know that the objective is to be different from competitors.
As Michael Porter also said in the article above “A company can outperform rivals only if it can establish a difference that it can preserve“.
I’ve worked with hundreds of leadership teams building strategic plans and so many times people mistake strategy for operational effectiveness. Let me be clear. Strategy is not operational effectiveness. Finding a way to build faster or apply lean to your company is not strategy. Operational effectiveness is essential to performance, but it is not strategy. Operational effectiveness is performing the same activities as competitors in a better way. Operational effectiveness is very important. But it’s not strategy. Strategy is not about being better, strategy is about being different.
Adopting this mindset, the organisation does not expend its energy to compete to be the best, it expends its energy in order to be different.
‘But it’s really hard!’ I hear some say. ‘Our market is commoditised and we sell the same as everyone else!’. There are an enormous number of strategies an organisation could pursue, the question is which would create the greatest impact. Which would best leverage the financials, capabilities and core competencies within the organisation as they currently sit.
Two strategy lenses
It is hard to be different in an established market. But if it was easy everyone would do it. And the return on effort for that difficult work is significant.
How then might one begin to consider what must be done?
There are two lenses to view the way you deliver your product or service.
What you do and how you do it.
What you do
What is it that you do?
If you run a plumbing company, your product would be plumbing services.
If you run a law firm, your product would be legal services.
If you run a company providing payroll software, your product might be payroll systems.
The point is, broadly what category would your organisation come under if you were completing a survey. You know, the ones that divide the entire business world into about 35 categories.
Throughout this article we are going to use a hypothetical strategy case study to explain the concept. Let’s call them Scott’s plumbing.
Now take a look at the image below I will call the ‘what spectrum’.
This does not include how you do it, things like cost, speed, on time etc. Only what you do. The products you sell within your category.
Where would your firm rate on the what spectrum?
For Scott’s plumbing, perhaps they would provide exactly the same products as their competitors. But they have performed a little strategic work over the years and as such the products they provide (plumbing services) are similar, but not exactly the same as the competition. They have an agreement with a filtered water tap company to sell their products which include boiling and chilled water dispensers. Something that none of their competitors offers. But overall they provide mostly the same products as competitors.
Again, this is not how you deliver the product, this is simply what your product is and the degree to which it is different from competitors products.
How you do it
Now that we have established what you do, and how different that is from competitors, the next question becomes how do you do it? How differently do you deliver your product compared to competitors?
If you run a plumbing company, consider the way you deliver the plumbing services to clients. Are you exactly the same as everyone else?
If you run a law firm, consider the way you deliver the legal services to clients. Are you exactly the same as everyone else?
If you run a company providing payroll software, consider the way you deliver the software services to clients. Are you exactly the same as everyone else?
Next take a look at the image below I will call the ‘how spectrum’. The question now becomes how differently are you delivering products and services to your clients compared to your competition.
For Officeworks, an Australian office supplies warehouse, they provide onsite parking (mostly) and the store is open typically from 8am till 9pm. Most competitors are closed at 5 or 5.30pm. So they provide a wide range of office products (a lot more products than competitors with more product depth), and that width and depth actually makes them different on the what spectrum, but this is two examples of how they are different on the how spectrum – onsite parking and opening hours.
If we go back to our plumbing company example, they have developed a brand promise to arrive on time. Also they have developed a system to ensure that the customer knows the job status and how long until the job is complete. Also they specialise in maintenance, only employing plumbers with more that 5 years maintenance experience. How they deliver their product is different in these ways.
Then let’s place Scott’s plumbing on the how spectrum.
Scott’s plumbing are doing a little bit on the what spectrum, and a little bit more on the how spectrum. But plumbing is hard! If I want a plumber I want to only get my plumbing fixed or replaced, that’s why I’m calling a plumber. It is a well established and highly commoditised market. Therefore the market forces may mean that Scott is forced to primarily focus on the how spectrum if he wants to become different into the future.
So we look at Scott’s plumbing across the what spectrum and also the how spectrum as shown in the image below.
Or put another way like this.
That’s not an awful result, most plumbing business are stuck in the commodity arena. They are providing exactly the same products as their competitors and delivering them in exactly the same way. They rely on relationships to survive and they struggle to increase prices. Due to the hard work that Scott has already done, he is outside the commodity arena.
Once we have plotted Scott’s plumbing against the what spectrum and the how spectrum we are able to consider Scott’s competitors, by asking who would a client spend a dollar with if not with Scott’s plumbing?
Then we can map these on the What vs How spectrum.
And finally, then we can look to the future and ask what is our strategy? How will we develop a unique and valuable position in the market?
Then we can build a strategic plan on the what vs how spectrum of where to take the business in 3 years.
In 3 years, what will be the value of Scott’s business relative to his competitors if he executes on that strategy? How much more would you pay to acquire Scott’s business in 3 years if they had the same revenue as the competitors?
Most leadership teams are stuck in the merry-go-round of execution. At best they spend time on tactics. But the most important value that a leadership team can do is to develop a strategy over time which differentiates your firm from the competition.