Maturing in Business Strategy

Strategic Thinking

By Jason Myhill and Paul Skivington

There are four phases to maturing in strategic thinking for businesses:

1. Financial Budgeting 

Found in all companies and is the process of setting budgets and using these to monitor progress. 

2. Financial Forecasting 

Similar to the first phase except that it covers a longer period of time and includes some sort of issue identification and business unit and product/ service portfolio analysis. 

3. External Consideration 

This phase is dynamic, adaptive and sometimes surprising, and is in constant search of a more attractive portfolio mix. This involves external stakeholder analyses; customers, competitors and suppliers. 

4. Managing Strategically 

This takes careful and thorough linking of strategic planning to operational decision making, thus weaving the strategic planning and everyday management into a single, seamless process that is inseparable. There are five attributes to achieve this strategic management:

  1. A future strategic issues framework;
  2. Not limited to the top echelons;
  3. A series of feedback loops to negotiate trade offs among competing objectives;
  4. A high level performance review system focusing of key opportunities and threats; and
  5. A system to motivate and reward strategic thinking.

The following are four rules of strategic thinking:

  1. Seek hard, fact-based, logical information;
  2. Question every unquestioned assumption;
  3. Look for opportunities to win at less to no cost; and
  4. Thinking indirectly and unexpectedly.

A Dedicated Team

Phase 4 above implies a complete and continuous cycle of execution. This is very demanding on the CEO without a dedicated resource monitoring and facilitating the links. The leading person of this resource is referred to as the Chief Strategy Officer (CSO) who is able to focus and speed up decision making. The CSO builds world-class strategy development and execution capabilities within the company creating a department specifically for this purpose, hiring people with strong strategy-related skills and competencies. In the long term the role of the CSO can also be an effective succession planning tool. Whilst not a pure strategist, the CSO handles three critical tasks, namely:

  1. Articulating the strategy of the organisation, explaining how everyone’s work relates to this and engendering commitment to strategic planning;
  2. Driving, immediately and with a sense of urgency, the changes required to execute the strategy; and
  3. Ensuring that decisions being made throughout the organisation are aligned with the strategy.

The following are key characteristics of a good CSO:

  1. Someone extremely well trusted by the CEO;
  2. A star player;
  3. A jack of all trades;
  4. Someone comfortable with ambiguity;
  5. An influencer with the ability to communicate across all levels;
  6. A master at multitasking; and
  7. A doer.

The following are high level principles employed in executing strategy:

  1. Mind the time horizons; defend the core in the short term, build in the medium term and create viable options for the long term;
  2. Balance strategy formulation and execution;
  3. Exert influence appropriately (having the title helps); and
  4. Be smart in, and develop IT and HR smarts.

An Interpretation

Strategy may be interpreted as integrated actions that create a sustainable competitive advantage. This advantage sets the tone and thus the direction of the business. Risk is what may prevent or aid achieving the strategy. The role of the CSO and his/her team therefore is to facilitate a lifestyle that works towards a common strategy and manages the risks for the company within all the entities and across all the functions throughout the length and breadth of the business. The following philosophy of strategy is defined as an interpretation:

  • Strategy is direction and direction sets objectives;
  • Without objectives there are no risks;
  • Strategy and thus objectives without context will be disempowering and end up being bad strategy;
  • Strategy must rule in paths that fit our scope and rule out those that don’t;
  • Risks can either be positive (opportunities) or negative (threats);
  • Good strategy can turn into bad strategy by a change in the context and thus scenarios help explore alternative futures;
  • Similarly good risk management can be turned into bad risk management by a future change in perspective;
  • Bad tactics can destroy good strategy, but no tactic can remedy bad strategy;
  • Good strategy and risk control has a greater chance of being converted into good results if there are a set of measurable outcomes to which people can aspire; and
  • Strategy and risk control is about understanding what you do and don’t control, what is certain and uncertain about the future and knowing how to avoid unintended, and possibly tragic consequences.

The team dedicated to facilitating strategy across the company ensures that there is a unified approach, accountability and efficient implementation. We have found that the best people to paint scenarios and shape the strategic direction are those who are expected to implement the strategy. Dialogue is as much about gestures and facial expressions as it is about what people actually say and therefore it is necessary to engage in face-to-face conversations. It is also important to encourage dialogue that is as participative as possible since the best strategists in a team are often the last people who want to speak up. In order to test assumptions a method that involves questioning to stimulate the participants into a re-examination should be adopted. The tools to aid strategic decision making with regards to company scope includes components such as product range, product chain and in sourcing versus outsourcing.

A Construction Scenario Game Board

The early bird stays alive

Taking two principal variables affecting the construction industry, one largely within companies’ control, the on-time delivery of construction, and one, outside of any company’s control, inclement weather (climate change/ environmental impacts), a 2×2 matrix or scenario game board can be constructed. This matrix presents a best-case scenario, a worst-case scenario, as well as two intermediate scenarios. Here is the board on which companies can position themselves.

Environmental change is inevitable. There are two aspects to this uncertainty which determine how well prepared a company will be for any such scenario. One being how large this change in weather will be and another being, how accurate weather predictions are to know when this may occur. In order to help protect from the extreme detrimental affects which inclement weather will have on a business it is best to remain above the horizontal line at a minimum. Companies who consistently finish projects late throw away profit and will eventually close their doors.

Mobile Fechnology (future technology) and Marketing

Taking two principal variables affecting mobile fechnology and marketing, a relatively controllable uncertainty, unification / fragmentation, and the other less controllable, market satisfaction, a 2×2 matrix or scenario game board can be constructed. This matrix presents a best-case scenario, a worst-case scenario, as well as two intermediate scenarios. Here is the board with our current global position.

The opinion of the strategists at Dynaminds is that power trading with reference to mobile fechnology and marketing will be when advertising spend is instantaneously converted to cash. This may occur through the mobile web, direct messaging and individuals being able to purchase using there telephone account. The money will then be deducted at the click of a button without a credit card whether on a mobile pay-as-you-go or contract. This will satisfy the consumer’s insatiable appetite for instant gratification with products or services.

Dedicate Sin Tax to Healthcare

Sounds unlikely, doesn’t it, yet if one considers the realities of the South African healthcare market, it isn’t a bad suggestion. In providing the service of healthcare, there is a constant tension between critical needs and economics. This places health care practitioners under immense pressure particularly when economics are low, or tend to decline; the exact case in the South African environment. In most countries, a mix of private and public services have developed and are all subject to the same key uncertainties. These key uncertainties are (A) Medical inflation, which has resulted in many of our population being unable to afford humane medical care. (B) Skills and talent, the lack of which has resulted in a shortage of professional and trained medical personnel. (C) Epidemic/s, which are increasing in reach, severity and frequency. These epidemics now also include lifestyle diseases which impact population health. (D) Consumer behavior, which compounds the pressure on healthcare facilities. (E) Technology, which is developing rapidly and can be costly if not cleverly managed and maintained. (F) Corruption, which undermines every aspect of healthcare that aims to prosper. (G) Equitable affordability, which infers that in an ideal world no matter what one can pay, everyone should have the same basic healthcare. Assessing both the impact of each, and the predictability of its occurrence, these uncertainties are mapped on the following predictability impact chart.

There are a number of factors that cannot be predicted, these are the unknown unknowns. Where possible, these should be considered and managed. The known unknowns are the very uncertainties that should be planned for and managed. They are the more likely scenarios. It is this insight that makes scenario planning such a fundamental tool for business. Within South Africa, there are two of the above key uncertainties which are having a deep and lasting effect on healthcare. Number one, the lack of healthcare talent and the inability to attract enough good people into the profession, and two, the ever increasing advancement of life style epidemics, of which HIV/Aids is just one. Taking these two principals, the first largely within the country’s control (talent) and the other to a large extent outside of the country’s control (epidemics), a 2×2 matrix or scenario game board can be created as shown in the picture below.

Most countries would like to see their attraction of skills and talent increase, while the likelihood of epidemics decrease, thus moving in the north easterly direction on the board. Attracting skills and talent requires business acumen and finance. Furthermore, if one considers that, most epidemics are in fact lifestyle based and are predominantly health conditions borne of lifestyle choices, one can see that in truth the most pressing epidemics in the country result from choices around alcohol, drugs, smoking and diets. Surely then, the cause could finance the effect. The effect of which uses a large portion of the healthcare budget. According to the national treasury R15.1bn has been allocated to healthcare in the 2008/09 budget. The national treasury estimate that sin tax should raise approximately R19.5bn within the same period. If this made up 80% of the health budget then the total would be R24.4bn. Is this not a good match and more importantly, a direct link between the two major problems facing the healthcare industry at present?

South Africa and its Electricity Crisis

Taking two principal variables affecting the country, one within the country’s control, the growth in electricity supply relative to demand, and one to a large extent outside of the country’s control, economic growth, a 2×2 matrix or scenario game board can be constructed. This matrix presents a best-case scenario, a worst-case scenario, as well as two intermediate scenarios. Here is the picture with South Africa positioned on this scenario game board.

How does South Africa move on the game board? Hopefully most South Africans including the governing leadership would like to see the economy grow and the electricity supply growth exceed the demand for electricity. This would then move South Africa in a North East direction on the game board, as indicated by the red arrow. The options that can be realistically done within the country’s control are listed below. It is believed that these options will take the negative scenarios as far as possible out of play and enable the country to thrive in the good ones;

  • Increase the capacity, and the effective and efficient operation of current generation plants
  • Increase the current efficiency of transmission and substation transformation
  • Deregulate the electricity supply industry and facilitate trade
  • Reduce the ‘red tape’ and speed up the development of generating capacity
  • Creative self sustaining electricity generating solutions at the nodes of demand
  • Incentive schemes for domestic, commercial and industrial demand side solutions
  • Import assistance and technology to build decentralised naturally driven generation