Strategy Talk with Christian Underwood and Prof. Dr. Jürgen Weigand
Strategy: Glorified by managers & corporate leaders as the supreme discipline of corporate management, criticized by others as a waste of time.
In the new episode Hope is not a strategy in Strategy Talk #13 "Strategy - supreme discipline or waste of time?" strategy consultant Christian Underwood and Professor Jürgen Weigand, Deputy Dean of WHU (Otto Beisheim School of Management) discuss the importance of strategy in companies.
Glorified by many managers and corporate leaders as the supreme discipline of corporate management, criticized by others as a waste of time. This is the reality after more than 100 years of discussion about strategy and strategy development.
The incorrect application or even the absence of strategies and strategic decisions in companies has long-term consequences for business success and can even mean the end. A well thought-out plan for achieving goals is even completely lacking in some. In addition, many managers have problems defining the strategy and implementing it. But what is the reason for this?
In this episode, Jürgen and Christian tackle the big questions surrounding the myth of strategy. What is the definition of strategy? When is something a strategy and when is it just a short-term tactic? How do you make strategy tangible? How do you develop strategies correctly and how can you implement them to achieve your goals? You can learn all this and more in the new episode Hope is not a strategy #13 "Strategy - supreme discipline or waste of time?"
Detailed episode description:
The conversation starts with a quote about strategy from the book "Momentum" by the two advertisers Holger Jung and Jean Remy von Matt, which is then commented on by Christian and Jürgen:
"Strategy is a big word. Often oversized. When it comes up in a meeting, everyone freezes to a pillar of salt, and everyone hopes for the Messiah to show the way. But you have to realize that strategy is often just the tried and true remedy for the weak. Strategy is important (...) for those who can't make it with sheer performance."
While Jürgen has had the experience that the word strategy does not spread fear in his meetings, Christian reports that this is different in his consulting world. Particularly with medium-sized companies or in management circles, he has often found that strategy or a concrete plan of action is hardly given any importance. Here the question arises whether strategy is needed at all, since the operative business is probably running well perse. Strategy is often understood here as a plan that will be thrown overboard again tomorrow anyway and therefore does not generate any benefit - i.e., on the whole remains without success.
Nevertheless, strategy and performance always belong together for them. The only question is what is understood by strategy by definition.
Definition strategy
Strategy is a plan how to get from A to B. Here, A represents the current initial state and B describes the target state. Strategy thus helps to outline the path from today's state to the hoped-for state in the future and, if possible, to achieve it.
Strategy vs. operating business
Even while managing the operational business, one needs an orientation as to where the journey should go. Entrepreneurs and managers should ask themselves what their goals are and what they want to achieve with their operational business.
Strategic goal setting in organizations
Every company, regardless of the size of the organization, must develop a plan for achieving its goals based on its objectives. These can be goals that you want to achieve in a short period of time, or goals that are set for the longer term, and you should also define how you can achieve them.
- What resources can be used for this?
- What do you need in addition to what is already there today?
- Do we need completely new approaches?
At the end of the day, strategy also means thinking about how to achieve certain goals and what is needed to achieve them, such as a strategic plan of action.
In corporate reality, however, goals often have a generic effect and are defined by financial ratios. Of course, there is nothing wrong with pursuing financial goals, because at the end of the day, companies have to work economically and if they don't, they will inevitably disappear from the market. Nevertheless, qualitative goals are also needed, the achievement of which is defined as success.
Here one experiences that goals are set like: "We want to be the best.". But what does it actually mean to be the best? Does one want to be the best in one's particular market environment or does one want to possibly expand the market environment? Does one want to be the best in contact with customers? Or the best at developing and achieving sustainable goals? A good and correct approach is to think about why the company exists in the first place and then to derive from this what you actually want to achieve - in other words, to set up a certain plan. Jürgen gives an example from soccer: Do you want to participate in the Champions League, or perhaps you want to win it? Both are valid goals, but these must be underpinned with elements that express what you need to do and when, and where you currently stand. These elements can be qualitative or quantitative. It would determine what the philosophy of play is. Is the playing philosophy more defensive or offensive in nature? To implement this, you then need the right players. If you don't have them, then you need the financial resources and must generate them to buy the right players. If this endeavor does not succeed, then you have to do without and pursue a different strategy. The timing of training, on the other hand, would by definition be more of an operational goal.
Use of the term strategy
The term strategy is encountered very often in everyday life and terms such as the correct vaccination strategy are mentioned. But is the term strategy actually used correctly here? Hardly any other word is so often misunderstood.
The example of the vaccination issue shows that a strategy is needed. The goal during the Corona pandemic was to vaccinate 80 to 90 % of Germans. A plan was needed to achieve this goal. The problem here was people's incentive. The incentive was too small, so they stopped at 70% vaccination rate.
Why people are afraid of the strategy
It is precisely this issue that causes anxiety when it comes to strategy. Strategy is never free of noise. With strategy, you don't move in a vacuum. The environment is changing rapidly, people are changing preferences and incentive systems, and you have to respond to that - you have to constantly evolve. So the definition of strategy is a dynamic one: it is not set in stone, but must always be adapted. In order for a company to achieve its own goals and record successes, it must always be addressed.
In a 2019 study by Strategy&, German executives were surveyed on the topic of strategy.
Here, 75% of respondents said they did not believe the strategy would be successful, and 33% said the difficulty was in implementing the strategy over the long term because market conditions change quickly.
However, the solution to this problem must not be to simply not have a strategy, but to develop one that responds to business needs.
Strategy has a long-term effect
It is important to understand that strategy has a longer-term effect. Because strategy means that I have the resources I want to use in the first place, and then you have to figure out how you want to use them. Furthermore, not all resources are flexible. For example, when manufacturing companies want to expand, they need new production capacities. These are very expensive and strategic investments have to be made first. However, if the investments fail, the production capacities are no longer needed. Then no one can talk about success anymore.
The Thyssen Krupp company, for example, sank 3 billion euros into the ground through a failed investment in a steel plant in Brazil - knowing full well that it would never work. What was missing here? Quite clearly: a sophisticated plan and an implementable strategy.
Strategy therefore also means thinking ahead, looking into the future and realizing that strategic decisions have longer-term consequences. Decisions with short-term consequences, such as price changes, are tactical measures. In reality, there is often a confusion here.
In the longer term, this means companies need to ask themselves important questions:
- Do we have the right business model?
- Will we still have the right business model in the future?
- Do we have the right customer group?
- Which customer groups will be relevant in the future?
What you invest in there cannot be undone overnight. Strategic decisions and measures are therefore fundamental and differ from tactical measures. These distinctions in the definition should be clear to everyone.
Strategy retreat as the last word in wisdom?
At the end of the year or beginning of January, many companies set a time to go into strategy retreat. The top management teams lock in and develop a new, grand strategy.
In principle, strategy retreats are to be considered positive. However, you also have to take care of the strategy for the rest of the year.
Strategy is a bet on the future and bets are always risky. That is why it makes sense to look beyond one's own thinking, to stay in contact and to sit down with more than one person to work on the strategic issues of the company. In addition to formulating the strategy, it is also necessary to implement it. This does not work with the CEOs alone. Here, you need the support of all executives, who must be involved in the process in order to achieve success.
That's why the retreat is definitely a positive approach to sit down together and deal with the strategic issues beyond the normal day-to-day business. But here, too, the rule is: after the strategy meeting is before the strategy meeting. In day-to-day business, unfortunately, the discussion of strategy ends after the retreat. Assistants then write it down and the strategy is shown to the stakeholders. Afterwards, however, the developed strategy document often ends up in the drawer because routine, everyday life and daily business return.
A study by the Harvard Business Review shows that top executives spend less than 10% of their working time on strategy because they are otherwise occupied with routines, meetings and operational matters. Implementing the goals of a similar strategy remains secondary.
This is precisely why it is advantageous in strategy development to take your eyes off the operational business during this period, and this works best away from the company.
Why it makes sense to get outside help with strategy development
When the executives get together to develop the new strategy, the same group of people sits together that usually gets together. People are swimming in their own juices and are therefore virtually blind to the business. That's why it's a good way to reach out to the outside world and get impulses from there.
Strategy consultants are often brought into the company, but the intention of many companies is often to have external consultants validate things that have long since been decided internally and to implement them. A truly newly developed plan rarely comes into play. Furthermore, strategy consultants have an interest in acquiring follow-up business and are therefore also eager for their own success.
But it is definitely advisable to let external people participate in the process. It needs someone who really looks critically at the strategy against all opinions, holds up the mirror with the brutal truth and puts his finger in the wound until all ambiguities are removed. Everyone should then have a common understanding of what the strategy is that is now to be pursued and what the elements of it are - because that is the only way to achieve long-term goals.
Strategy formulation is then followed by many other parts:
- What does it mean for the financing of the company?
- From plan to success: how do we go about it?
- What do I need to do in each area (such as marketing) to implement the strategy?
In the latter, the functional strategies then come into view, so it is important that in the strategy retreats it is not the smallest circle that thinks, but also the functional experts.
For a new and fresh look, top performers in the company who are not part of the management level can also be involved in order to contribute new ideas. Particularly when it comes to disruptive thinking, it is difficult for long-standing employees to think completely anew in the company or to redefine already existing processes.
Why even large companies have failed due to the lack of an outside perspective
When you've been doing things successfully a certain way for a long time, it's hard to take the blinders off left and right and think beyond that. You develop a certain stubbornness and basically hairs on the fact that it has always worked well up to now. So why should you do something different now and reinvent the wheel when many goals have already been achieved?
Large companies such as Nokia or Kodak, for example, have often failed because executives did not want to acknowledge that the environment was changing in such a way that their own business model was no longer sustainable in the long term. Sticking too long to what you've been doing can be disastrous. One should always keep in touch with the outside world.
External service providers, for example strategy consultants, who do not speak after the client's mouth and put their finger in the company's wound, can therefore be a great support to remain viable in the long term. Yesterday's experience shapes today's decision.
Royal discipline or waste of time?
So we have learned that it is not only the king who turns the corner with the salutary strategy. Since executives hardly spend any time on strategy in their day-to-day work, the waste of time is probably not dramatic either. However, companies should rethink here - so that more time is spent on a defined strategy.
Free space in the head leads to better decisions
Warren Buffet has a schedule in which there are whole weeks without appointments. This free space for the head is very crucial.
Especially with the pandemic and in these digital times and home offices, people are driven to quickly jump into the next meeting or conference. This does something to the human brain and leads to less calmness and not being able to think clearly anymore, to make decisions differently and to approach strategic questions consciously differently.
The human being is strongly dominated by everyday life. When acting under time pressure, less good decisions are made. In order to make better decisions, people need this freedom.
From strategy formulation to implementation
Implementation is the most difficult part of the strategy. Often, companies fail already at the communication to the various stakeholders.
Even the janitor should ideally know what strategy is being pursued and what he personally contributes to it and what can be achieved with it. However, if people do not know what is currently being implemented and why, then implementation is doomed to failure. In this case, the best plan is of no help if the implementation is poorly executed.
But there are also some companies that do not really have a strategy. 70-80% of the participants in Jürgen's strategy courses do not know the strategy in their company and do not know what value they contribute. The larger the company, the more often one experiences this.
Larger organizations have more serious communication problems and deficits. It is therefore hardly surprising that many do not know why they do something. They then act only because it has always been done that way or because budgets have been negotiated that then have to be worked off. Then often senseless projects are pursued, only so that the budget is exhausted. But can this really lead to success in the long term?
Better target management through OKRs
In the corporate world, the topic of OKR (Objectives and Key Results) has long been established. Here, goals are broken down in a cascading manner and made comprehensible. In his work with companies, Christian sees how difficult it is for people to set concrete goals and then classify what they do on a daily basis. It is also particularly important to check whether certain things make sense and then just not do them anymore. For example, meetings that have been established for 20 to 30 years can simply be dropped because they don't contribute to the company's overall goals.
There is hardly anything more difficult than defining goals. The easiest is quantitative goal setting, but again, you have to find a way to get there, and people are often overwhelmed with that.
Contact:
Need help planning your strategy process? Feel free to send an email to christian@underwood.de.
Thank you for your interest and until the next episode... ...Because HOPE IS NOT A STRATEGY.