How to mix the colours on the business ‘strategy palette’

Defining and executing the right strategy for your organisation is considered the key task of any business leader. Yet in an age of volatility, characterised by rapidly changing markets and disruptive competitors, finding that strategy is an increasingly elusive task. There is no shortage of ideas from management experts, many taking contradictory positions, so finding the appropriate fit is difficult. Strategy itself is in danger of getting a bad name.

According to the authors of a new book on strategy, ambidexterity could provide the answer. Martin Reeves, Knut Haanaes and Janmejaya Sinha, three senior consultants at Boston Consulting Group, have studied 150 companies from industries as diverse as banking, pharma, IT and agribusiness across the globe, analysed the conditions in different industries across a 60-year period, and conducted 20 in-depth interviews with chief executives.

The key, they say, is to recognise that there are five basic strategic positions, which describe where companies lie in any marketplace. These require certain approaches. Crucially, however, these are not fixed positions but rather form a “strategy palette”. At times, companies will need to blend two or more colours to find the perfect approach. The default positions are described as: classical, adaptive, visionary, shaping and renewal.

“Business environments essentially differ along three different dimensions: predictability (can you forecast it?); malleability (can you shape it?); and harshness (can you survive it?),’ says Reeves.

Predictability

But are there any businesses left that can say with confidence that they have predictability in their market? Reeves feels that there are, albeit with nuances. He points to confectionary giant Mars Inc as an example, noting that “there’s not much chance of market disruption from a digital chocolate bar”.

Many of Mars’s iconic brands, such as Milky Way, Snickers, Mars Bar and M&M, have been category leaders since the first half of the 20th century, and the company also enjoys leading positions in other markets, such as pet food and chewing gum. Scale is critical here, and the approach is simple. The company prizes discipline and efficiency, with a tiny headquarters staff running a $34 billion (€30.7 billion) empire. “Planning is possible in firms like this, and you can determine your optimal position based on scale and differentiation,” Reeves says. “You can execute with great discipline.”

Nonetheless, he notes, there are traps in this approach, including an over-emphasis on short-term budgeting at the expense of longer-term strategy and an overly conservative approach to innovation.

Adaptive firms, meanwhile, adjust their strategy to react quickly to opportunities. Fashion retailer Zara’s short and fast supply chain is a classic example. Its pre-season commitment of only about 20 per cent of its range contrasts with an industry average of 80 per cent, allowing it to react quickly to new trends, resulting in a doubling of average industry profit margins.

The lesson, Reeves says, is that an adaptive strategy is called for when forecasts are not reliable because of changes in technology, consumer demand or competitive offerings. That’s an increasingly common circumstance. Until the 1980s, less than a third of business sectors regularly experienced turbulence. That’s grown to two-thirds now, he says.

Adaptive firms essentially need to manage a portfolio of experiments. Failing fast is important here. Over the past 10 years, Google, for example, has both launched and killed about 10 to 15 products annually, without major customer or organisational resentment.

“Experiments should be individually small, large in overall number and quick to come to a conclusion . . . Adaptive firms continuously validate what is working in practice and iterate frequently on their portfolio. While a classical strategist could think that an adaptive strategy sounds like ‘try something and see what sticks”, objective data,rather than disputable gut feel, governs every decision,” Reeves says.

Visionary approach

A visionary approach, meanwhile, works when you have an opportunity to create or recreate an entire industry by applying a bold vision. Timing is vital. Too early, and customers may not be ready for the vision; too late, and you risk being seen as a follower. The DNA diagnostic venture, 23andMe, is cited as a good example.

Shaping strategies are ones where your approach allows you to position yourself at the centre of an attractive market, often by pulling a series of other stakeholders together. Novo, a Danish pharma firm, managed to capture a staggering 60 per cent of the insulin market in China, by going into partnership with doctors and regulators in education around the problem of diabetes, a major health issue in China.

Renewal strategies focus on troubled companies that need turnarounds. “Our studies showed that 75 per cent of these firms’ transformation efforts failed to create either short- or long-term impact. It’s a two-stage process that requires reducing discretionary spending and then innovating strategically. Most people can do the slashing, but the second phase, which requires a completely different skill set, is much more difficult,” Reeves says.

Bringing combinations of these approaches together – making palette choices – is the key challenge. Polychrome, it seems, is the way forward. One way of doing this is to have an ecosystem like Apple’s, recognising that both internal and external strengths need to be leveraged. Creating the game-changing iPhone in 2007, Reeves notes, involved combining a visionary approach (to develop the concept and the new chip technologies), an adaptive approach (to adjust components to changing consumer needs) and a classical approach (to achieve assembly scale and efficiency by outsourcing production).

Your Strategy Needs A Strategy: How to Choose and Execute the Right Approach, by Martin Reeves, Knut Haanaes and Janmejaya Sinha is published by Harvard Business Review Press