Grand Strategy | Strategic Management | Swot Analysis

Grand Strategy: building your foundation for performance breakthroughs

by Daniel J. Knight Imagine you were able to maximize your opportunities, minimize your risks and achieve performance breakthroughs. You're probably thinking – "that would be great, how do I do it?" Well it's simple but this simplicity demands critical thinking and diligent effort. So if you're interested, let's find out how. Achieving this level of performance requires a deliberate strategy with a performance management and measurement system that enables you to scan the business horizon, focus your time, energy, knowledge, relationships and resources and execute courses of action that possess the highest pay-off, lowest costs and easiest implementation trajectory. You may wonder whether such a strategy formulation is worth your time and effort, especially if you're in a quickly changing business environment. This issue came up in a discussion with leading business writer and consultant Seth Godin. We concluded that business strategy drives growth and prosperity for businesses, both large and small. Godin said that for example Howard Shultz, founder and head of Starbucks Coffee, could have decided to open and run only a few stores, but you better believe that to grow Starbucks like he has he had to have a business strategy. So with that as introduction let's go through a step-by-step process for developing a business strategy with a performance management and measurement system for your business. Let's call it a "Grand Strategy" because it equates to a necessary precursor for all subordinate strategies and systems whether they be marketing, innovation or otherwise. There are 12 steps to this Grand Strategy process. The first 11 steps of this process are best developed as a living document with your top management team and a facilitator at an off-site meeting to avoid distractions. And step twelve, "Execute, Adjust, Execute" requires strong top management commitment, support and involvement. Step One. Ask "what's your 'Theory of Business'?" As philosophers tell us, there is nothing as practical as good theory. Briefly answer these four questions to uncover yours. What business are you in and where are you now?
  

Where are you going? How will you get there? How will you know you've arrived?

Step Two. Create a clear expression of your intangible business resources. These intangibles form an intellectual and emotional grounding for your Grand Strategy. They drive your business and business relationships. Without them, you won't be able to commit the time, energy and tangible resources that move your business forward. These intangibles are:

Values – high level concepts that you pour your life into regardless of financial return because they define you and your business. Some examples are family well being, charity

    Why are you in business? What does your business do and how does it do it? Who does your business. if anyone. Step Three. we will be a profitable business. Step Four. if we provide excellent products and services that please our customers at a competitive price. From your answers. Beliefs. technological expertise and customer relationships fit here. consumer demand. inflation and prices) and how will it affect your business? Who are your competitors and potential competitors? What relevant advantages and disadvantages do they possess?   . Answering the following four questions in a satisfying amount of detail provides compelling background information from which you can extract a hard hitting mission statement to move your business and Grand Strategy forward. suppliers and customer data bases. and making a difference in the world. unemployment levels. finance. knowledge about competitors." Capabilities – inherent knowledge and relationships that support getting work done for you and your business.key principles that state your assumptions about the cause and effect relationships that drive you and your business. costs of labor and materials.   What are your Values. who benefits from it and who. who supports it. For example. Write a "Mission Statement. wholesale. Perform an "Environmental Scan" by asking and answering the following questions:  What industry are you in (retail. production processes. Attitudes result in either positive or negative expressions such as "most people tend to be fair if treated fairly" or "most people will take advantage of you if you let them.and goodwill toward others. sales force knowledge. how much do they costs and how much profit do you expect to make from them? Answer these questions and notice the power of their focusing affect on your business.  Beliefs . suffers from it? How many different kinds of resources are involved in your business. and in turn how they react to you and your business. manufacturing. For example. Attitudes and Capabilities? List them. such things as patents. Attitudes – emotional orientations exhibited by you and your business toward others that affects how you view them and treat them. honesty and integrity. durable or nondurable goods and so on) and what are its trends? What is the economic situation (interest rates. develop a condensed and hard hitting Mission Statement." This statement provides you with the articulation of your business purpose or reason for being.

SWOT stands for "Strengths. Who are your suppliers and potential suppliers? What mutual interests do you share with them? What natural conflicts exist? Who are your customers and potential customers and who are their customers? What segments do they fall in? What are the demographics that impact your business – age groups. then perform a SWOT Analysis." Your Strengths and Weaknesses are internal. customers." "Weaknesses. ethnics. After you complete your scan. Your Opportunities and Threats are external. The areas for you to explore under each SWOT Analysis category are: Strengths or Weaknesses         Customer Service Products Systems and Processes R&D Cash Flow Employee Training Employee Loyalty Others? Opportunities or Threats        Emerging Products and Services Technological Change New Markets Competitive Pressures Supplier Relationships Economic Conditions Others? . Step Five. investors and community) and what are their expectations?      Answer these Environmental Scan questions in order to possess the necessary business intelligence and insight to proceed to the next step. suppliers. economic status? What are their differences in terms of needs and preferences? What is the regulatory environment and how does it affect your business? What are the emerging technologies and how might they affect your business? Who are your stakeholders (employees." "Opportunities" and "Threats.

Ritz Carlton Hotels and Nordstroms lead with this discipline. Environmental Scan and SWOT Analysis." Step Six. not to be beaten service and solutions. Step Seven. For example. Business is just too hypercompetitive for you to succeed doing all three better than anyone else. Using your best judgment. and then make a judgment call. Trying to be all things for all customers puts you on a path to failure because customers will not behave in a way that profits your business. Product Leadership – emphasizes R&D and providing the best technology and quality available in products. These top six goals represent your "Strategic Goals" for achieving performance breakthroughs.emphasizes paying close attention to customers desires and providing them with total. Attitudes and Capabilities. use the following format: action verb + (restated idea) in order to (object). Determine your "Strategic Focus. select the top six ideas in terms of relevance and importance for improving the performance and competitiveness of your business. Mission Statement.   Picking one of these as your lead focus represents a smart thing to do. So now look at your: Theory of Business. Intel and Starbucks lead with this discipline. If you look at the time you spend on your business. Wal-Mart and Southwest Airlines lead with this discipline. Let's call this phenomenon "Hyper-Competition. This differentiation starts with you selecting a Strategic Focus for your business. brainstorm to generate ideas under each category/area. It means that you don't try to do all three equally well." From it we see the time lapse between finding a competitive edge and having it copied shrinking. For this translation process. Strategic Focus breaks down into the following three disciplines:  Customer Intimacy .Now. Beliefs. You begin this process by selecting your Strategic Focus and limiting your goal statements to the top six. These are:  Administrative and Operations – the time you spend keeping the routine day to day business running . Generate as many as ideas as possible. This imperative does not mean that you don't try to do well in the other two. Next. Values." Business is becoming more and more competitive. a goal statement would look like this: "Increase customer satisfaction in order to reduce customer losses and defections. Seek performance breakthroughs. Otherwise your products and services become commoditized. Hyper-Competition demands that you differentiate. Operational Excellence – emphasizes efficient operations and costs controls to provide the lowest costs. Pick your Strategic Focus and lead with it. you find it can be broken down into three categories. translate the top six selected ideas into goal statements.

level of satisfaction. incorporate this thinking into the succeeding steps of your Grand Strategy process. These Perspectives are:  Human Capital – the people talent in your organization and the systems and process that directly enable them to be productive. Based on this article. chronicled a transformation of Sears. Now. Financial Performance – the level of economic return provided to you and your owners relative to investment. You will learn how to develop these Perspectives and link them in the next step. Customer Capital – the relationship. Performance under this perspective is also compared to alternative investments like T-Bills. Structural Capital – the systems. might you not be able to improve and create superior Customer Capital which in turn would improve and create superior Financial Performance? What we have described here equates to a virtuous cycle which enables you to make more money for you and your owners and at the same time invest more in your Human Capital. an extraction of the Strategy Map for Sears follows: . A Harvard Business Review article." Let's start by looking at an example. training and retaining top talent and acquiring excellent people support systems.  Crisis – the time you spend solving unanticipated problems Breakthrough – the deliberate time you spend on creative efforts to improve performance What happens is that the first two time categories grow to occupy all your time and they push out your breakthrough time. Maintaining a Strategic Focus combined with developing Strategic Goals to execute amounts to the only workable solution to this challenge.    So imagine that you possess superior Human Capital by recruiting. structures and strategies that the organization owns and produces value with. Jan-Feb 1998. might you not be able to improve and create superior Structural Capital? And with superior Human and Structural Capital. This virtuous cycle in turn starts succeeding rounds of improvement which should cause an upward spiral to higher and higher levels of performance." Let's discuss the dynamics of Cause and Effect Relationships among your Strategic Goals. reputation. potential for referrals and loyalty which your organization enjoys with its customers. It stays in the organization when you turn off the lights. Given this superior Human Capital. Understand and apply "Cause and Effect Relationships. Step Eight. Develop a "Strategy Map. The Employee – Customer Profit Chain at Sears. Step Nine. There are four basic "Perspectives" that provide the framework for linking your goals in to your Grand Strategy. A good way to look at the people part is that it's what goes home at night.

Increase Employee Training and Development in the Relevant Areas . This would increase employee competence and satisfaction.Mission Statement "Be a compelling place to Work.Increase Customer Satisfaction   (What would it take to accomplish this Strategic Goal? Their answer was to create and maintain well stocked and attractive shelves and provide friendly and helpful service that causes increased customer satisfaction.Create and Maintain Well Stocked and Attractive Shelves and Provide Friendly and Helpful Service   (What would it take to accomplish these Strategic Goals? Their answer was to increase employee training and development in relevant areas.)   Structural Capital Goals . And this in turn would make employees able and willing to create and maintain well stocked and attractive shelves and provide friendly and helpful service)   Human Capital Goals . Shop and Invest" Strategy Map o Financial Performance Goals – Increase Revenues and Profitability (What would it take to accomplish these strategic goals? Their answer was to increase customer satisfaction to cause increased revenues and profitability) Customer Capital Goal .

5 percent increase in revenue.   (What would it take to accomplish these Strategic Goals? The answer was top management belief in the complete series of Cause and Effect Relationships and top management commitment of the time and resources for successful accomplishment.in order to cause an Increase in Employee Competence and Satisfaction.)  Financial Performance (Place Goals here) Example: Increase Revenue and Profits Customer Capital (Place Goals here) Example: Reduce Customer Losses and Defections by Increasing Customer Satisfaction Structural Capital (Place Goals here) Human Capital (Place Goals here) As proof of this Cause and Effect Relationship. And Sears realized a 4 percent increase in customer satisfaction in the 12 month period before the article was published and they were expecting revenues to increase by $200 million.3 percent increase in customer satisfaction resulted which in turn resulted in a . Sears developed and validated a predictive model that showed that for each 5 percent increase in employee satisfaction a 1. .

then generate these enabling goals and draw in the cause and effect relationship between them and the other goals. use your best judgment and assign your top Strategic Goals to one of the four Strategy Map Perspectives (see example below). the Structural Capital Goal of "Create and Maintain Well Stocked and Attractive Shelves" may be broken down and restated as the KPM "Mystery Shoppers Rating for Store Product Display and Appeal. For example. you probably won't get much change on the Financial Performance Strategic Goals because these drive the train. Some examples of KPMs follow: Financial Perspective KPMs: -Revenue . But take for example the above Strategy Map Strategic Goal under Customer Capital." You may find out that you don't care about all these customer losses and defections. Next. some of these customers may not be profitable so you indeed want to loss them. Translate your Strategy Map goals into "Key Performance Measures" (KPMs) and perform a "Gap Analysis. you find yourself restating this part of the goal to the more useful "Reduce Losses and Defections of Our Most Profitable Customers. percentage or ranking. But you often have to break goals down and restate them in measurable terms. On Customer." Do you see how the questions "So what. Continuing in the Customer Capital Perspective.you take a clean sheet of paper and place your Mission Statement at the top. Often the Human Capital Perspective Goals don't surface in your SWOT Analysis so they have to be generated as enabling goals to make your Strategy Map provide a viable basis to support your Grand Strategy. It reads in part "Reduce Customer Losses and Defections." First. who cares?" Using this question.So how do you develop a Strategy Map? The answer . Structural and Human Capital Goals. Lay out the four Perspectives underneath to form a Strategy Map framework.$xxx . a goal may already be stated in measurable terms. who cares?" helps you validate and refine your goals? It's an extremely value tool. Mission Statement: (Briefly state your Mission here) Start with the Financial Perspective and work your way down in order to validate your Strategic Goals. Step Ten.$xxx -Profit . In some cases. ask "Are there other goals (enabling goals) that should be developed and penned in to move the Customer Capital and Financial Performance Goals in the direction we want them to move?" If there are. In fact. Suddenly. You do this by asking for each goal "So what. translate your goals into measurable terms. Next move to the Structural Capital Perspective and then the Human Capital Perspective and repeat the process." Financial Performance Goals are usually stated in measurable terms so use these terms for your Financial Performance KPMs as appropriate. you usually have to restate them in KPM terms with a number.

.xx -Number of Suggestions Adopted – xx -Number of Employees Fully Qualified for Their Position – xx So translate all of your Strategy Map goals into KPMs.x/y -Time to Market for New Products – x months -Inventory Turnover – 100% every x months   -Mystery Shoppers Rating of Store Product Display and Appeal – Grade -Mystery Shoppers Rating of Employee Helpfulness – Grade Human Capital KPMs: -Employee Turnover .x% per period -Average Days missed per Employee – x% -Employee Satisfaction .-Cash Flow . Satisfied and so on -Number of Suggestions Submitted .x% Highly Satisfied.$xxx Structural Capital KPMs: -Ratio of Sales Persons to General and Administrative .$xxx -Revenue per Employee .$xxx -Return on Investment – x% Customer Capital KPMs: -Customer Retention – x% -Customer Satisfaction – x% -Customer Profitability Segment 1 .$xxx Segment 2 .

you usually have to create estimated numbers. Prepare a "Scorecard" to keep track and drive your Grand Strategy. You then break these Targets down into quarterly aiming points to begin to close the gaps. Again you'll want to put in place a research. Next develop your desired "Targets" for each KPM. Again. use your available financial numbers. For the status on Financial KPMs.Now you're ready to perform your Gap Analysis. Step Eleven. Start this process by determining where you are on each KPM. Here's a format with examples to illustrate how to prepare one. But you'll also want to put in place a process to collect data and refine these KPMs as you move forward. but for the status on Customer. analysis and benchmarking process to collect data and refine these Targets as you move forward. this initially amounts to an estimating process based on your best judgment and level of ambition. percentages or rankings. Grand Strategy Scorecard Perspective/ Goals KPM Quarterly Target Actual Status* Data Source/ Owner Financial Performance Increase Profitability ROI 12% 13% (+) CFO Customer Capital Increase Customer Satisfaction Sat Rating 95% 94% (-) Customer Service Structural Capital Create and Maintain Well Stocked and Attractive Shelves Human Capital Grade AA(0) Mystery Shopper . These initial estimates are okay because you want to put a stake in the ground. Structural and Human Capital KPMs.

Step Six. Adjust. And with your strong leadership combined with openness to involvement and feedback. A Fortune Magazine study in June 1999 found that many CEOs were fired because they failed to execute their strategy. Step Seven. to keep your Grand Strategy and Scorecard up to date and on track. . your Grand Strategy will move forward and achieve the breakthroughs you desire in marketing. Beliefs. Tennessee. Execute. Seek Performance Breakthroughs. Grand Strategy Steps Summary        Step One. a consultant from Nashville. As a friend. Perform an Environmental Scan. Otherwise improvement won't occur and things might even get worse. you'll get your total organization's brainpower and energy behind your Grand Strategy. says "All organizations are perfectly designed to achieve the results they are getting. Things really have not changed much since then.Increase Employee Satisfaction Sat Rating 90% 90% (0) Human Resources * (+) = ahead of target / (0) = on target / (-) = behind target Once you have this Scorecard you have the centerpiece of your Grand Strategy. People tend to support what they help build. Execution and appropriate adjustments are imperative or you've only done an academic exercise." Don't confuse creating your Grand Strategy with taking action. Determine your Strategic Focus. Now move on to implementation. you form a small team of high performers. Finally. Step Five. In this way. you'll realize strategic goal linkage and alignment from the top to the bottom of your organization. innovation and performance improvement. Answer "what's your Theory of Business?" Step Two. This team should be prepared to facilitate and help you with implementation across and down through the organization. Step Four. Write your Mission Statement. Step Three. Step Twelve. Attitudes and Capabilities. And with this linkage and alignment. Identify your Values. Execute. Mike Kipp. Perform a SWOT Analysis. Now the Grand Strategy process demands real work and organizational change.

Develop a Strategy Map.     Step Eight. Translate goals into KPMs and Perform Gap Analysis. Adjust. Step Nine. Step Twelve. Step Ten. Understand and Apply Cause and Effect Relationships. . Execute. Step Eleven. Execute. Prepare a Scorecard to track and drive Your Grand Strategy.

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