How to harness the power of nonmarket strategy
Forward-thinking leaders proactively shape their external environment, turn uncertainty into certainty, and create substantial value in the process....
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Strategy
How to create a structure to make your business thrive
In an era of fast-changing markets, now is the time to change your approach to strategy. The ISC framework will put your organization on the right track.
In strategy formulation and execution, most organizations face a similar dilemma: how to develop a strategy and execute it to ensure value creation?
Against disruptive growth and fast-changing markets, accelerated strategy execution has become vital – all the more so when technology and disruptive innovation open ever more doors to new strategic possibilities.
That has challenged the dominant assumption that boundaries between industries are relatively stable, allowing businesses time to adjust to change. Empirical research, leading to publications such as Your Strategy needs a Strategy (Reeves et al., 2015) or The Essence of Strategy Is Now How to Change (Hunsaker & Knowles, 2020) now demonstrate the credo is invalid.
Businesses are addressing the shift through changes in the C-Suite. While the role of Chief Strategy Officer has flourished in the past two decades, ever more organizations are making space for the Chief Transformation Officer. Often, this function is created to look beyond strategy formulation to enhance execution in business transformation. That is paramount where an organizational set-up falls short in coping with a vast number of strategic initiatives happening in parallel at different levels and cutting across traditional divisional or functional boundaries.
But what are the choices to reinforce strategy formulation and execution? And how should the operating model look?
We turned to strategy practitioners across industries and geographies, and relevant academic research, analyzing different organizational structures for strategy development and identifying parameters influencing them.
Diagnose your approach to strategy and create a structure helping your organization to transform and excel
The most pertinent parameters were consolidated in a framework diagnosing Industry Dynamics, Strategy Development as is, and then deriving Choices (ISC). Each component includes secondary parameters dependent on the organization’s business ecosystem. Together, the information allows one to select the right strategy operating and governance model (see chart).
Consider the framework like setting a curser on each parameter’s continuum. Working through the ISC framework in order will help identify the ideal position of the “curser” for your operating model.
How to apply the ISC framework
1: Industry Dynamics Assessment: how stable is your business environment?
Start by asking how stable your industry environment is? The options include a classical, adaptive, visionary, or shaping type of strategy (ref. to Reeves et al. 2015).
Certainty of industry environment
- How predictable is the industry and its market development?
- Are the “rules of the game” relatively stable or do they change quickly and unexpectedly?
Influence on Industry Structure
- Can single organizations significantly influence industry structure and disrupt it easily?
Speed of industry dynamics
- What pace defines the industry? Are dynamics (for example, competitive landscape, innovation, customer demands) changing continuously and quickly?
Implications of your analysis:
- If the environment is certain, long-term plans based on analysis and predictions work well. But if the environment is highly uncertain, strategy needs to be adaptive and flexible.
- If the industry can be easily influenced and disrupted, short to medium planning is recommended and agility is required.
- If the industry is changing rapidly and frequently, building adaptive capabilities and change is important for the long-term. Strategies need to be adapted fast to react to competitive moves, innovation speed or changing customer demands.
Strategies need to be adapted fast to react to competitive moves, innovation speed or changing customer demands.
2: Strategy Development Assessment: what is your approach to strategizing?
The next step is to assess your strategy approach. What is your strategic time horizon (short vs. long-term planning) and what is the appropriate strategy approach? We also distinguish between two axes: strategy making (i.e., deliberate strategic planning vs. emergent and agile processes) and engagement (i.e., top-down vs. bottom-up processes). Both axes have significant impact on deriving the operating model for strategy enablement.
Strategic Time Horizon
- What is your time horizon? Does long-term planning (5+ years), medium-term planning (3-5 years) or short-term planning (1-2 years) prevail?
Ambidexterity of Strategy
- How similar or different are the strategy approaches (e.g., exploration, exploitation) in your organization?
Strategy Making
- Are you developing strategies deliberately (i.e., analytical and plan-driven approach focusing on the overall direction and viability of the firm for a given time horizon) or in an emergent process (i.e., design-led approach based on new insights, changed market developments or other changed circumstances warranting a shift in conducting business)?
Engagement Process
- To what degree do you involve a small part (i.e., top-down with C-Level and Top-Management) or a larger part of the organization (i.e., bottom-up in collaboration with BUs, geographies and functions) in your strategy making process?
Implications of your analysis:
- Depending on the strategic focus (i.e. corporate strategy is typically 5+ years, whereas function strategies tend to be short-term), none of the time horizons should be ignored, as they concern different goals and stakeholders. The dominant horizon for strategic planning and the frequency of review will, however, influence the organizational level at which strategic planning should occur (corporate strategy office vs. business units).
- Big differences in strategic approaches increase complexity. Operating in high-paced and low-paced industry environments simultaneously requires different skills and execution capabilities, which is why strategy making is often cascaded down the organization.
- Deliberate strategy making is often conducted by the strategy office that either owns the process or supports the BUs in strategy making, guided by Must-Win-Battles defined at corporate level. By contrast, emergent strategy processes demand high flexibility and less planning, explaining why they mostly emerge bottom-up from the markets, BUs or functions.
- Top-down strategy making requires an operating model in which the strategy office is fully responsible for strategy formulation for the organization and its BUs. By contrast, bottom-up has the strategy office acting as an orchestrator assisting BUs, geographies and functions, enabling higher chances for budget approval from the board, with consequences for the operating model.
3: Choice of Operating Model for Strategy Office: how should your operating model of strategy development and transformation look?
The final step is a reflection and assessment on the role and operating model of the strategy office. By now, you should have a clear idea about the strategy development process for your organization and be able to evaluate which operating model best suits the strategy office. Three flexible elements should guide the design.
Strategic Growth
- Are you growing your business primarily through external activity (M&A, for example) or organically?
Strategic Activity
- What should be the strategic activity of the strategy office? Should it focus on strategy formulation (e.g., defining the direction of the organization and its BUs in terms of vision, competitive advantage and capabilities) or on strategy implementation (e.g., activities required to realize the defined strategy)?
Role of the Strategy officer
- Which role should the strategy officer have; internal consultant focused on gathering, analyzing and interpreting data for strategy formulation, deriving options and making recommendations; or coach and change agent focused on accelerating the implementation and ensuring the enactment of a defined strategy?
Implications of your analysis:
- Depending on the nature or complexity of the growth strategies, the strategy office’s activities can vary significantly. If growth is mainly achieved through M&A, capabilities need to be built to support that and manage the portfolio. If growth is mostly organic, responsibility will often lie with the BUs.
- The strategy office can play a role in formulating strategy, in helping strategy implementation (including change management & innovation) or both. But this determines the size of the strategy office and the capabilities and staff needed.
- The defined role of the strategy officer greatly influences her/his responsibility and decision-making power and shapes the operating model accordingly.
The model in practice
We recently conducted this test on a fertilizer company, whose strategy approach (based on a one-size-fits-all view and long-term time horizon) needed adapting. It was apparent that the existing operating model for strategy enablement was no longer effective to achieve growth ambitions. This was mainly due to the significant differences in industry context between the core business – phosphate and standard fertilizer – and the growth business – customized fertilizer, feeds – which required profoundly different strategy approaches and development. Applying the ISC framework identified a new operating model for the strategy office, leading to a newly defined role for the strategy officer. The latter function was combined with chief transformation officer to ensure responsibility for both strategy formulation and execution. Building strong capabilities in facilitating strategy formulation and assisting the different businesses with change management and execution will make the company more competitive and accelerate growth.
Creating a more transformational function for the strategy office also brings benefits in change management:
- Rather than exercising corporate control through the strategic planning process, cross-functional strategic initiatives can be governed more autonomously at operating unit level.
- Strategic planning at group HQ can focus on planning and conducting context-dependent strategic reviews, eliminating the often-heavy burden of annual strategic planning and concentrating on the added value of disruptive analyses.
- Moving from annual decision-making about resource investments and governing strategic initiatives to continuous assessment increases management’s ability to examine value-generating strategies and realize value.
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