What entrepreneurs should not do
"The essence of strategy is to know what not to do," said strategy guru Michael Porter. Why this truth is especially true for entrepreneurs in these special times, in which form of crisis strategy does not help anymore and why strategy routines help to avoid these crises, you will learn in our episode on the occasion of the virtual live podcast for the German Association of Medium-Sized Businesses on the occasion of our book release on November 23, 2022.
Why entrepreneurs need a real strategy
The guiding question in this episode is: Why does a true entrepreneur need a formulated business strategy?
The corporate strategy is the plan by which set goals are to be achieved. Every company should have such a plan. Because - without a plan everything is nothing or it is left to chance. There is a nice quote about this from Michael Porter, the strategy guru "The essence of strategy is knowing what not to do."
Unfortunately, for every entrepreneur the day has only 24 hours and we as humans only have two hands and one head. Without a proper plan, that's not enough, because there's so much to do.
Above all, it is important to know exactly what does not need to be done right now. So it's all about the right focus! Because every company has only limited resources - in terms of capital, people, time and its own capabilities. That's why entrepreneurs should ask themselves the following questions:
- Where do we currently stand?
- What goals do we want to pursue in the first place?
- And what do we need to tackle to achieve these goals?
We live in times of great challenges
We are currently living in very special times. It is not usual that so many challenges arise at once - climate crisis, pandemic, increased ESG regulations.
Added to this are the supply bottlenecks. There is a shortage of materials everywhere, and when they are available, they are incredibly expensive. The shortage of skilled workers is causing problems for everyone. The ongoing war in Ukraine is causing markets to disappear. And all this after two years of the Corona pandemic - during which the capital cover of many companies had already suffered greatly.
This creates a tense situation for many entrepreneurs. Especially since it is foreseeable that most of the current challenges will drag on for quite some time and experience shows that after overcoming one challenge, the next one is not long in coming.
How strategic work manages to address these challenges
What is to be done? The first step is to analyze the situation. Current issues - especially the macro issues that affect not only companies but also society as a whole - are divided into relevant and less relevant issues depending on their influencing factors.
Such an analysis always takes place at different levels: At the corporate level, the industry and market level, and the macro level. In addition, there are the various trends whose further development is written in the stars - for example, the aging process of societies or possible new pandemics.
This is why it is so important to use the situation analysis to gain clarity about the initial situation and the resources currently available. The influencing factors and their development in the near and distant future must also be taken into account. What are the challenges and threats? The short- and long-term goals must be aligned with these.
In summary: A precise situation analysis is required - which, by the way, is part of the StrategyFrame®. In our book, this is underpinned with corresponding visualization. There you will find the different points concerning market, competition, customers, trends and general environment.
Situation analysis in pressure situations (one's own realities)
One's own realities play a significant role in StrategyFrame®. In the current pressure situation in which most companies find themselves - except for a few profiteers - it is certainly not easy to keep a clear head and focus.
Routine processes and the simultaneous adjustment to changes in environmental conditions are part of the everyday tasks of entrepreneurs and managers.
The alternative - burying your head in the sand and hoping the storm will pass - is not an option. Therefore, it takes quite a bit of effort - at least with regard to one's own realities. Here, it is worth taking a clear, rational and considered look at the good results achieved so far in order to reproduce or even improve them in the future.
Not in every crisis a new strategy makes sense or is the first step
Currently, companies are in different crisis situations. Different types of crises would be, for example:
- Sales crisis
- Strategy crisis
- Earnings crisis
- Liquidity crisis
Especially in the sales and strategy crisis, entrepreneurs should think about a new strategy at an early stage and ask themselves the following questions:
- What does this situation have to do with our previous strategy?
- Which results are due to external factors?
It is also worthwhile to make the strategy a continuous process. It is not very effective to develop a strategy and then conduct the next situation analysis only two years later. Our time is too fast-moving for that, with its permanent changes in the environment and circumstances.
For example, you need to review your sales force when there is a sales crisis, while also tracking changes in demand or customer preferences. At best, you should act with foresight in both areas. In doing so, you should always have your ear to the customer together with the marketing team.
The earnings crisis also requires serious thought. Are the products or services needed on the market or are they no longer profitable enough? It is therefore necessary to review profitability or the two elements of profitability:
- Sales (revenue)
- Costs
Both should be managed simultaneously.
These examples alone show that for any type of business crisis, there needs to be a plan that specifies what actions will be taken when certain circumstances or crises occur.
The challenge of complexity
The greatest challenge for companies today is to keep an overview of the complexity and to keep an eye on all possibilities and important levers in order to be able to react and act adequately. This is because all decisions made are interdependent, which means they have side effects that are not always currently visible.
So the trick is to align the entire system, such as internal organization, production, sales, etc., with the daily changes in the market. It is obvious that not everything runs smoothly in the process.
When executives are scolded in the business press for things not going well, they tend to forget that a company is a complex organization that has its daily multi-layered challenges even in the smaller mid-sized sector.
The simple solution for complex processes: The StrategyFrame®.
With the help of various modules of the StrategyFrame® - such as the already mentioned situation analysis or the target picture and the fields of action - you get a powerful tool at hand.
These are the three pillars of the StrategyFrame®, which supports you as a kind of visualization aid and guide throughout the entire workflow. Eight workflow steps are defined in the book for this purpose. These support entrepreneurs, managing directors and executives with the information that is important for this particular moment.
By the time of the liquidity crisis at the latest, no company will turn to a strategy consultant because it doesn't have the money to do so. In the best case, one should turn to this consultant much sooner, because an outside view can be of great advantage. It helps to keep an eye on events beyond one's own reality and to get to know other perspectives for once.
StrategyFrame® also makes it easier to establish strategy routines. It's like training. A one-time process will not have a long-term effect on the success of a company. That is why there are a few additional strategy routines in the StrategyFrame®.
Routine instead of one-off event
StrategyFrame® provides entrepreneurs with a tool with which they can develop their own strategies together with their own management team. Experience shows that the success of strategy development and implementation is much more likely when the company and management team understand the measures as their own strategy and are not dictated by external parties.
It is increasingly being recognized how important it can be to involve one's own employees in such processes. There is a study on this by "strategy&" - the strategy part of PwC. Several thousand managers in Germany were surveyed on the topic of strategy. Of these, two-thirds were of the opinion that the current corporate strategy was doomed to failure. One third even said that there was no strategy in their company.
Other studies in the U.S. highlight that strategies fail mainly at implementation because the processes have been too lengthy or employees have not been appropriately engaged.
This proves that it is an arduous journey from strategy formulation to implementation to execution. However, if you make this process a routine, it becomes a lot easier.
Strategy starts with the beginning - Just do it
With our book we want to inspire you to start processes and get them going. That's why it's more like a workbook. It contains blank pages to fill in, many tables and some visualizations to bring your ideas into practice in a simple way.
Especially for companies with a larger organization, StrategyFrame® is also available digitally at www.strategy-frame.com. Here you get the entire workflow including the process organization - all in one innovative tool.
Our approach is to ensure that companies have sovereignty over the strategy process - naturally always with the freedom to nevertheless - possibly selectively - take a strategy consultant on board.
For all companies that have steered their corporate ship without a major strategy up to now - but now realize it's not really working anymore - but have no experience in the strategy process, it's worthwhile to set up a structured process.
The development of such a process should always take place in the workflow, so that everyone - including new employees - can get involved in the ongoing process at any time. That way, you can easily get everyone on board.
How does remote strategy work?
Current challenges include the fact that, due to Corona, many management members and employees are still wholly or partially in home offices rather than on-site at the company.
The term "new work" keeps cropping up, but no one seems to know what it actually means. Older managers in particular are unfamiliar with the home office and tend to be critical of it. Especially when it comes to access to employees, there is a great deal of uncertainty.
However, it must be clear that these changes are here to stay. The wheel will not turn backwards, so the management team will have to think about which mechanisms are most effective here.
The basis for functioning can only be trust. If this is not present, the implementation of any strategy becomes difficult, if not impossible. Here, too, it is important to implement a framework - i.e., a strategy frame - in which employees can move and with which they can identify.
Often, strategy is understood as a process that bypasses or does not take into account the corporate levels. But this is also doomed to failure. Yet strategy can be a great thing - for everyone involved.
Strategy needs leadership - without strategy there is no leadership
That means - the company management is the captain and must give the team the direction, the path and the goal. Because only a clear perspective will create the necessary security and connection among employees.
It is bad when companies cannot clearly formulate their own strategy and leave employees somewhat disoriented. This brings uncertainty, which can only be transformed into security with clear leadership including a clearly formulated corporate strategy.
Advice of the day from Jürgen
What would be the first step for those who want to start a strategy process now?
The first thing to do is to think about where you are right now. Why are you where you are today and what has made you or your company successful? And what would you need to do to remain relevant and successful in the future?
The strategy process should then start from there.
Questions from the chat
At the end of this episode we answer questions from the chat - you remember - it's a live episode and listeners have the opportunity to ask questions.
- The implementation of the strategy is where most of the strategy plans of the large consultants fail, as they impose their standard model on companies and do not take care of the implementation. That's why people either use a small consultancy or a hands-on interim manager to develop and support them. Would you agree with that?
Christian:
That can be one way. But it is more important to ask why the strategy implementation fails. On the one hand, it fails because the acceptance is not there if the strategy comes from outside and the participation of the own management team is missing. Certainly, it can be important to have a strategy coach at your side for a certain time.
But the fact is, if a company does not make strategy its own strategy and does not allocate time and resources to it, then even a consultant cannot help. It doesn't matter if it's a big or small consultancy - they can't be responsible for "your" strategy. You can't outsource that responsibility.
Jürgen:
The more the strategy comes from within the company and is supported by it, the more likely it is to work.
- You can see that the home office is now declining again somewhat. How can bosses be convinced of the home office principle in 2022?
Christian:
We need a strategy for this, too. And at the moment, it is not uncommon for this topic to give rise to emotional discussions. That's why my advice is to look for a good amicable arrangement with the workforce. With all the advantages and disadvantages, there is always a middle way. This also includes the willingness of the team to work in the company from time to time and to take advantage of the personal exchange.
Jürgen:
Due to the pandemic, the pendulum has swung more in the direction of home offices in recent years. However, it has been noted that there are people who miss just the face-to-face encounters at work. Especially when the pendulum now seems to be swinging back, this requires a certain balance. A middle course and flexibility are called for. Whereby mutually agreeable arrangements between employees and management play a major role.
- The details of the strategy process can be worked out remotely using appropriate tools. Face-to-face workshops are clearly better for formulating the goals and the strategy because, for example, you can better assess the body language of the participants.
Jürgen:
Exactly. And that's how we set it up in the book. The strategy formulation should take place physically in presence. It is precisely because of differing opinions and convictions that proper moderation is needed in order to make progress with the strategy in the company.
Christian:
In Corona times, this was also implemented completely digitally. Nevertheless, a lot can be lost in the process. That's why you'll find tips and instructions in the book for designing physical appointments and collaborating via the digital tool. The tool is designed so that it can be used in any situation - remotely at home or together in a workshop.
The advantage: you work with a database and don't have to spend an endless amount of time on Powerpoints and Excel spreadsheets. In addition, coffee and lunch breaks as well as possible evening events should not be underestimated. These are helpful for discussing conflicts and issues that cannot always be conclusively clarified in the call on the side. This is an important part of the strategy process.
- For SMEs, the end-to-end approach is important. A consultant must not only develop the strategies, but actively accompany the implementation: This is the only way to measure the success of the practice consultant or interim in the end.
Christian:
Anyone who always thinks of strategy only in terms of one part has not understood the process. It has to be end-to-end, because at the end of the day, the only thing that counts for all entrepreneurs is the bottom line. And that is also the case with strategy.
This is not measured by the fact that a nice meeting took place at the beginning and something was pinned to the wall. Even the StrategyFrame® - if it is not implemented and things are not thought through together - will not be enough for success. Appropriate resources must be made available to implement the measures. It also needs a trusting environment and appropriate support.
- In my experience, the consultant or interim manager should be the one who supports, structures, and moderates the process and brings the necessary tools. The strategy must come from within the company. How do you see that?
Jürgen:
That's what we keep emphasizing: The strategy must come from within the company. Anything that is imposed from above or from the outside will not find the necessary acceptance and employees will not feel comfortable with it.
- A listener asks if the episode can be heard later.
The podcast will be available on the website https://www.strategy-frame.com/pages/hoffnung-ist-keine-strategie as well as on Apple Podcasts, Spotify and other platforms. And we'll share the video of the event on YouTube.
Finally, Ms. Janzen has one more question or comment. She would like something on the subject of the market or benefits for the user.
Jürgen:
When companies talk about strategy, they always bring up the customer focus. But often the intention behind this is to treat customers the way they have been treated up to now - without giving much thought to what actually happens to the NON-CUSTOMERS.
Why don't they become customers? As a company, you have to think about who profitable customers are. Who do you want to reach and with what? What benefits can I create for my customers? And always relative to the current competition.
Christian:
That is the important thing! We have to differentiate: What can we do differently or better than the competition? To find out, it's worthwhile to go to the customer's site and see how they deal with my products - regardless of whether they are consumers or B2B customers. And the right conclusions must then be drawn from these experiences. You're allowed to talk to your customers in the process, to understand their needs and notice their changes. That's exactly where the "strategy making" begins.
So it's a matter of going out, testing, observing practice, and determining what else is needed. The best way to do this is through permanent feedback, which is easy to instrumentalize.