Think at London Business School: fresh ideas and opinions from LBS faculty and other experts direct to your inbox
Think at London Business School: fresh ideas and opinions from LBS faculty and other experts direct to your inbox
A recent academic study reported that even in high-performing companies with clearly articulated strategies, only 29% of employees knew what their company’s strategy was. This is no isolated finding – survey after survey reports that employees seem to be in the dark when it comes to their organisation’s strategy, despite claims by senior management that their vision is clear, clearly communicated and well understood.
This surely is a mystery. Organisations spend huge amounts of resources (time, money, attention and energy) to develop their strategies. They spend equally impressive amounts of time and energy communicating them to the rest of the organisation. Why is it that most of these employees claim to have no knowledge of these strategies?
There may be many reasons for such an unfortunate state of affairs – a difficult-to-explain strategy perhaps or maybe insufficient (or bad) communication by top management or perhaps passive listening or lack of attention by the employees. These are all possible reasons but three others stand out as the main culprits for this lack of clarity.
Strategy is all about making difficult choices—what the organisation will do and more importantly, what it will not do. The question that immediately arises is: ‘Choices about what?’ There is no agreed answer to this question but at the very least, there are three choices that need to be made—the who, the what and the how. Specifically:
The choices that we make on these three parameters constitute the organisation’s strategy. They define its position in the industry and they act as the boundaries within which our people can act with freedom and autonomy.
I have written elsewhere how to make these choices and who is responsible for making them. The usual question that people ask when presented with this simple point is whether these three choices are the only choices that an organisation needs to make in developing its strategy. How about the where, the why and the when people often ask? ‘Wouldn’t our strategy be incomplete if we do not make choices on these additional issues?’
Valid as this question might be, it still misses the point. The real problem that most organisations face is not whether they need to make three or four or five choices but how to get their senior managers to make any choices at all. The biggest strategic mistake that organisations make is not that they miss one or two choices in their decision-making; it is that they do not make choices at all, something that Michael Porter alluded to a long time ago.
It is amazing how many organisations fall into the trap of not making the required choices. One reason for this is the fact that these are not easy choices to make – ex ante, there are many possible answers to each one of the three questions. Should we target customer X or customer Y? Should we undertake distribution A or B? Should we offer service P or Q? Nobody knows for sure and even though analysis could eliminate some uncertainty, it will never eliminate all of it.
As a result, debates, disagreements and politicking will precede these decisions. Yet, at the end of the day, a firm cannot be everything to everybody – it has to allocate its limited resources among the various options. Hence, clear and explicit decisions need to be made. These choices may turn out to be wrong but that is not an excuse for not making the choices.
Another reason for the failure to make the necessary choices is the fact that saying ‘no’ to people is difficult and can often create bad feelings in the organisation. If, for example, the firm decides not to target customers in Latin America, then managers in that region will be upset because the firm will not invest resources in their region. They will oppose the decision and will be undoubtedly upset. Nobody likes to make other people upset—especially their own colleagues. Hence the desire to avoid saying ‘no’ to people.
There may be additional reasons but the end result is that organisations consistently and predictably fail to make the necessary choices that strategy requires. Faced with uncertainty, they invest some of their resources going after customer X and some going after customer Y - just to be on the safe side. In the process, they do a disservice to both X and Y (by under-investing in both) but at least they ensure that they do not make a mistake by choosing one that may turn out to be wrong five or ten years down the road. Similarly, faced with the prospect of upsetting some of their colleagues, they allocate their limited resources in projects and regions that do not fit with the organisation’s goals or direction. In the process, they underinvest in the things that deserve their attention but at least they do not upset their colleagues.
“It has become popular to claim that strategy implementation is more important than having a strategy or that ‘culture eats strategy for breakfast’.”
Failure to make choices leads to the first key reason why we have lack of clarity in strategy: instead of being a clear statement of the (difficult) choices that the organisation has made, strategy becomes nothing more than a vague and generic statement that lists all the wonderful things that the firm aims to achieve. It says all the right things so that nobody can really disagree with it but fails to state the one thing that will offer guidance to employees – the choices the organisation has made, exactly because no choices have been made.
When you read the annual report of any company, what you get is platitudes masquerading as strategy statements, a point also made by my colleague Freek Vermeulen. These offer no guidance or direction to employees. No wonder that these people complain that they have no idea what their organisation’s strategy is. They do not know it because the organisation does not really. have a strategy
Assuming the firm has made explicit choices on the ‘who, what, how’, these choices need to be communicated to the rest of the organisation. Often, this communication does not happen at all or is so ineffective that the strategy remains a mystery to the employees. However, even in the best-case scenario when the organisation has made the choices required and top management has spent time and energy trying to communicate these choices in a clear and explicit way, the probability is still high that employees will fail to fully understand what is communicated to them. There are two main reasons for this.
The first reason has to do with the words or language that are being used to communicate the strategy. These words tend to be so general that they can mean different things to different people. This, in turn, creates confusion and disagreements. Consider, for example, the phrase: ‘Think strategically’.
Every one of us has been advised at one point or another to ‘think strategically’. We all agree that this is important and we all aspire to do it. But what exactly does this phrase mean? It turns out that ‘thinking strategically’ can have many possible meanings, such as:
These are just seven of the possible meanings of this phrase. Now ask yourselves: “What happens in an organisation when the same statement can have (at least) seven possible meanings?” The obvious answer is confusion and lack of clarity. For example, your boss might have meant ‘think long term’ when he/she asked you to think strategically whereas you may have though they meant ‘think collectively and cooperatively’. You proceed to do so but then your boss gets upset for not doing what he/she had asked you to do. This scenario happens quite frequently in organisations because senior management seems to have an insatiable appetite for buzzwords and generic statements.
Phrases such as ‘think strategically’ or ‘think outside the box’ or ‘be customer-centric’ or ‘be agile’ all sound good but mean nothing to people. They are too generic to offer any guidance and this is one key reason why the communication of our strategy often ends up confusing people rather than offering them clarity.
There is a second reason that undermines any communication campaign. Simply communicating the choices you have made is often insufficient – what you really need to do is to communicate the choice and the alternatives considered (and rejected in favour of the choice). It is the positioning of the choice relative to the alternatives considered that makes the choice clear to people.
This means that what you need to say is not: ‘We have decided to target customer X’. Instead, you should say: ‘We have decided to target customer X rather than customer Y or customer Z’. Furthermore, for people to appreciate that a difficult choice has indeed been made, the alternatives considered must not only be explicitly communicated to everybody but they must also be credible and viable alternatives.
For example, choosing to be ‘the leading supplier in our markets’ is not a credible choice. What alternatives to ‘leading supplier’ have you considered and rejected? Nothing credible comes to mind and this makes this statement a nonchoice.
How do you know if the alternatives you considered (and rejected) are credible and viable? A good test is to look at how many people in the organisation argued in favour of the rejected alternatives. If enough people supported the rejected alternatives or argued passionately in their support or if your eventual choice is not universally accepted, then that means that the alternatives were credible ones.
This is why explicitly stating what alternatives you considered (and rejected) is so important for your audience – it helps them see that you are being honest when you say you have made some difficult choices; and makes them appreciate even more the choice made.
So far, we have argued that employees do not know your strategy for two key reasons: (i) you have failed to make the necessary choices and as a result, you are communicating to people in platitudes rather than offering a coherent strategy; and (ii) even if you have made the necessary choices, the way you are communicating them to people creates more confusion than clarity. There is, however, a third and perhaps more sinister reason why employees often find themselves confused when it comes to strategy.
The choices made are always decided at a point in time, given the market realities that the organisation is facing at that point in time. Over time, these market realities might change – new competitors may emerge, different customer needs may rise in significance, new technologies may enter the industry and so on. Given the ever-changing market realities, the organisation needs to be on constant alert, changing and adapting its original choices in order to respond to the changes happening around it.
Here lies one of the biggest dangers to strategy – in its efforts to respond to emerging threats or exploit new opportunities, the organisation might slowly change its original choices. In the process, it might end up diluting its original choices and destroying its distinctive position in the market.
The manifestation of this will be top management saying one thing while the organisation is seen doing another. Consider an organisation like Edward Jones in the US that built its success on a very distinctive strategy — targeting Middle America and selling them financial products through an extensive one-broker office network on the promise of ‘peace of mind’. Imagine that in response to the arrival of the Internet and the growth of online brokerage, it decides to offer online brokerage to its customers.
“Failure to make choices leads to the first key reason why we have lack of clarity in strategy.”
The addition of this service may be seen as the most natural and obvious thing to do to exploit the rise of the Internet but in the process of doing so, Edward Jones will be diluting the distinctiveness of its strategy – it is no longer selling ‘peace of mind’; it is selling financial products like every other firm in its industry.
Over time, additional decisions like this one, taken one by one and in response to perceived threats and opportunities that emerge all the time, will lead the organisation to a place far away from where it started. In other words, it will be seen doing totally different things from what its original strategy was stating. Imagine being an employee in an organisation whose CEO is saying one thing while you observe the organisation doing another. Would you not complain that your organisation does not really have a strategy – no matter what your senior management is saying?
What is the solution to this problem? Surely the organisation must respond to the changes happening around it but how can it do so without diluting its strategy? One solution is to only undertake those responses (to the external changes) that fit its chosen strategy. For example, if Edward Jones is to embrace online brokerage, it will have to implement it in ways that reinforce and support its chosen customer base and value proposition.
An alternative is to accept that the responses will inevitably lead to a different strategy — accept this and more importantly, communicate the changed strategy to your employees. There is nothing wrong with changing strategy; what is wrong is to change the strategy without acknowledging this and pretending that the old strategy is still valid.
It has become popular to claim that strategy implementation is more important than having a strategy or that ‘culture eats strategy for breakfast’. Nothing could be further from the truth.
Imagine that your strategy is to knock down a wall in your house by knocking your head against the wall with vigour and passion. No matter what implementation strategy you use, it is highly unlikely that you will succeed. A strategy that is built upon the choices you have made on the ‘who – what – how’ and has been communicated to people the ‘proper’ way is a prerequisite to everything else.
Sure, you still need to implement it and you still need to have the right culture for implementation to succeed. But just like you’ll have to learn to walk before you run, a company needs to develop the correct strategy before it tries to implement it. Developing the correct strategy is not intellectually difficult – but it still requires strong leaders willing to make the difficult choices and willing to say ‘no’.
Professor Markides holds the Robert P Bauman Chair of Strategic Leadership at London Business School.
Think at London Business School
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By Costas Markides