Performance-Based Strategy

Many executives today are disillusioned with traditional approaches to strategy, or fearful about the cost in time, effort, and money. They need practical, simple tools that will lead to positive action and performance. The purpose of this book is to take over 50 years of combined experience in developing strategy for organizations and provide managers with effective tools that work and will enable people to act in ways that will drive outcomes. We structured this book around some of the most common questions executives ask in developing the strategy. For each question we provide a strategy tool and guidelines on how to properly use the tool to answer the key strategy questions. The goal for each tool is meaningful and actionable results in hours and days, instead of the more typical weeks and months. We provide guidelines for gathering and analyzing necessary data, how to present the data in a meaningful way that will drive decision making, and an example of how the tool was used successfully by an actual organization.

Strategy Question: Is there a simple, “real-world” definition of strategy?

Summary: We define strategy as an integrated set of actions and resource commitments that position an organization within the competitive environment so as to generate superior results over time. There are five key concepts to this definition. Strategy is integrative, encompassing all of the activities of an organization and the manner in which those fit together. It involves the commitment of organization resources — human, financial, capital, etc. — in ways that lead to effective action. These actions position the enterprise relative to all others within a competitive environment that includes customers, suppliers, and competitors along with external factors such as political, economic, and social trends. If the position in the marketplace is aligned with customer’s needs and wants, the firm will be able to achieve superior results and outcomes.

Strategy Question: Is there a simple way to structure my strategy effort?

Summary: Many people, excited to start their planning effort, simply begin at the wrong point. Our definition of strategy calls for “understanding a firm’s position within a competitive environment.” Marketing 101 provides a perfect guide to structure efforts in developing strategy. These are based on the four P’s — Product/Service, Price (or cost), Placement (or Channel — how do the firm go to market?), and Promotion (or advertising, web presence, etc.) relative to a given market. We offer this tool as guideline to (1) understand a firm’s markets, and (2) understand the competitive position of the product and/or service, price (cost), placement (channel), and promotion.

Strategy Question: How do we figure out the size of our market in the absence of hard data?

Summary: This tool provides a method to estimate market size in the absence of trade association information or confidence in existing market intelligence. It is a spreadsheet-based, bottom-up approach that builds market size based on a series of logical assumptions. Each assumption is tested and validated by internal and/or external subject matter experts before moving on to the next. The tool is somewhat iterative in nature, and two to three revisions from the first pass is not uncommon. The result is a reasonably accurate assessment of the market and the key areas of the market on which to focus attention and strategy development. This provides a basis for conducting meaningful strategic market analyses.

Strategy Question: How do I better understand the make-up of my overall market?

Summary: Assuming that the market has been properly sized, it is important to also spend similar effort to define segments and size these appropriately. This tool basically mirrors the approach of the Bottom-up Market Sizing Tool. At this stage, emphasis turns to breaking the overall market into actionable segments. Two to three iterations again are common to improve accuracy. The tool output casts the segments as a rectangular graphic, made up of one column for each segment. Segment width is representative of its size relative to the other segments. The width of all segment columns, added together, ties back and equals the overall size of the markets. The result provides guidelines for determining strategic market segments and niches, and how to best position the firm within those segments.

Strategy Question: Now that my market is sized and segmented, how do I better understand segment niches?

Summary: The Segment Niching Tool gets to the next important level of detail in the understanding of an organization’s environment. We use the Market Segmentation Tool output as a starting point. Here we further carve out key niches for further understanding related to product or service offerings. We add a scale to the segment columns of the Segment Niching Tool, and break the column further into sections whose size represents the percent of that niche to the segment. Like the segmentation tool above, understanding niches within the segments provides important information within the competitive environment. Here is where people can get mired down in infinite ways to niche a segment. We introduce our approach, based on numerous scars of wisdom, of niching based on only two questions: (1) “Why they buy?” — the main reason the product or service is purchased, and (2) “How they buy?” — the main way the product or service is purchased.

Strategy Question: Is there a simple yet comprehensive way to characterize the business health of my markets, segments, and niches?

Summary: Now that we have the markets segmented and niched, we need to research each segment relative to attractiveness. This can be simply an indication of segment growth prospects in the chosen planning horizon, or it can be a conglomeration of key elements important to the organization (market strength, opportunity for growth, margin yield opportunity, etc.). This tool takes the user through ways to evaluate the segments for use in prioritizing the importance of various segments to product/service and channel actions. We build on either the Market Segmentation Tool or the Segment Niching Tool by assigning an attractiveness code to the column heading (green, yellow, or red). We then recommend the organization rank order the segments, with the one chosen most attractive positioned on the far left, and those next bests located in decreasing order to the right. We have found the resulting one-page Market Map Tool output extremely helpful in simply conveying what is usually a difficult and very complex picture to explain and communicate.

Strategy Question: How do I develop an effective plan and strategy in an environment that is highly uncertain, turbulent, and unpredictable?

Summary: An organization exists as a subset of numerous spheres of influence, including the overall environment, the economic forces within that, and the industry forces within that. The Strategic Environmental Scan (SES) uses a structured approach to survey each of those areas, compile responses, sort responses, forecast impacts of those issues seen as higher probability, and highlight those issues for plan consideration. Since a strategist can’t control these forces, it is important to understand the environmental forces to develop real-time course corrections within the planning horizon. The tool consists of a basic one-page framework along with a process to gather, assess, and organize information that the strategist can use to determine what environmental issues deserve serious attention in the development of the strategy and plan, which issues need to be monitored, and which can be ignored (for the time being). This tool builds upon Dr. Michael Porter’s gold standard Five Forces Industry Analysis and employs stakeholder input to ensure a full appreciation of the broad environmental factors.

Strategy Question: How do I assess the “business health” of my products or services?

Summary: The Product–Volume–Margin Chart tool is used to construct a picture of the “business health” of a product or service. The one-page chart is designed to provide a clear and concise “current state” business profitability picture by casting revenue of key product/service forms in Pareto fashion against a corresponding profit metric for each (we use Gross Margin) plotted in bullet point form. Concurrently the chart structure provides a means for quickly developing a deeper insight to product/service profitability issues that may exist. The PVM analysis is among the most helpful tools in our arsenal, and is one of the first, if not the first tool we use entering a new situation. Many companies we encounter simply have not pulled information together in this way, for a variety of reasons (numbers being held close to the vest, legacy ERP shortcomings, sales reporting buckets being different, etc.) The tool shows the user, especially those who have never done a comparison like this, how to structure the product/service forms, how to choose profit metrics and construct them if necessary.

Strategy Question: How do I assess the “market health” of my products or services?

Summary: This isn’t really a new tool per se, as it is based on the original Boston Consulting Group’s Growth–Share matrix and General Electric/McKinsey Consulting 9-box version. We base our tool on the 9-box version that plots a point for each product/service form relative to our preferred elements of “Competitive Position” and “Market Attractiveness.” The chapter explains how to breakdown the products/services, construct plot points for the matrix (in qualitative fashion that most companies can easily construct) for both the “competitive position” and “market attractiveness” metrics. The tool consists of a one-page, 3 × 3 matrix along with a process to gather, assess, and organize the information so the strategist can determine how the various products and services of the business are positioned in the respective markets, how well each is performing, how much each contributes to overall firm performance, which have potential for future performance, and what types of approaches might be appropriate for allocating resources. Once products/services are respectively plotted and grouped in common ways suggested, the output is extremely helpful in framing the competitive state and providing a baseline for constructive intercompany debate.

Strategy Question: What do our customers really value in our products or services?

Summary: What is your niche? If you haven’t surveyed your customers to see what they really value (and how you rank in those areas) you don’t really know. This chapter will cover a simple way to quickly gain market perspective from key stakeholders. A confidential questionnaire is developed targeting internal and external groups. Internally those who interact with customers are selected. Externally, channel partners and end-users, including those of competitors, are sought for comment. Key areas are for ratings are developed and integrated into the questionnaire.

Strategy Question: How do I understand my customers’ “willingness to pay” for my products or services?

Summary: We know our value proposition and what we are charging for our products or services. Are they in line? If not, a firm could be leaving money on the table on every sale, or conversely not even be asked to quote an opportunity. This tool helps to compare price, cost, and margin against the perceived value for each product/service form in key market segments. This tool will help to align the value proposition with the pricing structure. By comparing competitive pricing against the strengths defined by the value proposition, an understanding of customer’s willingness to pay can be defined.

Strategy Question: How do we determine and prioritize which products/services need action?

Summary: This very important tool helps provide a perspective on where product/service improvements are needed relative to performance and margin parameters. It is designed to provide a concise “current state” assessment of product/service offerings using three categories: (1) No deficiency — competitive in both Product and Price/Cost areas (color coded white), (2) One deficiency — Product performance or Price/Margin deficiency (color coded gray); and (3) Two deficiencies — Product performance and Price/margin deficiency (color coded black). When these product/service deficiencies are displayed relative to the most important market segments (ranked in decreasing order of priority), the tool output serves as an insightful baseline from which to scope, frame, define and prioritize product improvement and margin-enhancement projects needed. Your list of potential projects begins here. Many of the prior tools come together at this point. Through previous tools, the markets, environment, and the current competitive positions of the products or services are understood. This tool helps to define a structure to pull all this information together in a simple way to add perspective toward defining and prioritizing potential actions.

Strategy Question: How do I get the right product/service specification defined in timely fashion?

Summary: Potential projects have now been suggested for action. Getting the right specification in timely fashion is now critical. Many companies take months to define a specification, and when done suffer because an “everything is #1” mentality hamstrings the development team. QFD is a powerful yet expensive and time-consuming method to defining specification attributes. The Poor Man’s QFD Tool incorporates the intended rigor, but in a timely and resource friendly fashion. This tool provides a powerful way to define a specification for a product/service development project, especially when there is no prioritization clarity for the improvement parameters. For each feature attribute, a specification is developed by a multi-functional team considering market and business needs. Those line item attributes are then “forced ranked” against each other. Compromises in each line item specification, if necessary, are made respecting the rank order chosen, with lower ranked items giving way to those of higher rank. The resulting prioritized list of feature attributes defined is then used to manage the development project. The chart also serves as an excellent one-page management summary highlighting status against both the given specification and performance relative to the best competition.

Strategy Question: How should we approach our internal cost reduction/value enhancement efforts?

Summary: Cost reduction and process improvement techniques are everywhere. The tools all work, but how do you know which tool to use when? You can waste precious time and demotivate your teams if the wrong approach is chosen. But where to start? It is a dilemma for all of us. This chapter discusses the basics of each improvement approach. It is in no way a comprehensive treatment of each, but it is thorough enough to steer the user to the right approach. The tool provides guidance regarding proper selection among numerous methodologies and techniques currently ubiquitous in business literature. Overviews of three major cost reduction/process improvement approaches are discussed, (1) Seven Basic Quality tools, (2) Lean Manufacturing, and (3) Six Sigma. The Process Improvement Clarification Tool helps direct the user to the appropriate approach based on the user’s knowledge of the process state. Real-world examples are used to help users select the right technique for the right situation.

Strategic Question: Are we properly outsourcing key elements of our cost structure?

Summary: Questions regarding whether to “in-house” or “outsource” various aspects of a firm’s product/service delivery is one every company has to wrestle with. Implicit in that decision is the strength or viability of the supply chain in comparison to the capabilities of the organization. This tool brings the entire outsourcing question into quick focus. The Strategic Outsourcing Matrix uses a 9-box structure to help organizations better understand and position those key activities that comprise their cost structure. Sorting criteria are (1) the ability of the organization to be cost competitive in providing each particular component or process, and (2) the criticality of that component or process to the function of the product or service. The plot points then fall into three categories: (1) “Distinctive Competencies” — those activities that are critical to success and cost competitive that must remain and be nurtured in house; (2) “Strategic Alliances” — those activities critical to success but beyond the company’s ability to do themselves; and (3) “Outsourcing candidates” — those items neither critical to success nor internally cost competitive that should be considered for outsourcing through normal supply chain management. The output format of the chart, contrasted with the organization’s “current state” provides a mechanism for discussion, definition of potential improvements, and a means to arrive at consensus for action plans.

Strategy Question: How can we enhance our reputation with our customers in the most effective and efficient manner?

Summary: In the structure and flow of this book, various tools have already dealt with some big issues that naturally impact channel partners. Product/service performance and Price/Cost are among two of the biggest areas that have already been addressed. So, we ask ourselves what additional actions can we take to become a better channel partner. These relationships are extremely important. At this point we refer back to the material on process improvement techniques and now suggest turning these toward customer facing process issues. The Pareto Chart (the 80%/20% rule) is discussed in terms of setting a method to measure and gather data, target setting, problem solving against that target, and monitoring improvement progress. This provides guidance and suggestions to focus process improvement tools toward the customer facing part of the organization. Suggestions and approaches are discussed. In cases where the company does not have a metric for the item at issue, a simple quality tool is introduced to provide timely definition of the issue.

Strategy Question: How do we effectively communicate our brand to our customers and our market?

Summary: Many firms have a sense of the organization’s “brand.” We define brand as “the promise of an experience” to the customers. Firms need to identify the elements of the customer experience that are valued by the customer and determine the brand experience the organization wishes to convey is consistent with the experience of the customer. This tool uses a simple survey process methodology to determine whether the brand experience the organization wishes to convey is consistent with the experience of the customer. A simple X/Y chart is used to array the firm’s offerings based upon the customer’s perception of the brand experience. Comparisons with competitive firms can be included in the analysis. The results provide insight into the effectiveness of promotional and communication efforts intended to develop brand awareness among customers.

Strategy Question: How can I prioritize among all the potential opportunities in front of me?

Summary: Many times, managers face the need to make choices from numerous options given imperfect, if not limited information. Often, the decision needs to be made very quickly, if not “now.” It is also the case that there will frequently be more to do than there are resources available. A 9-box sorting matrix, using even qualitative information, is an effective way to arrange options toward making a selection, or narrowing down to two or three options for more detailed investigation. Plot points can be sized, color shaded, or altered in other ways to help add clarity to the decision making. The user is encouraged to modify the sorting criteria to meet their specific situation and need, and other potential sorting combinations are suggested. A 9-box sorting matrix is presented, in this case using “cost” and “benefit” sorting criteria. This tool helps provide a structure to make a decision amongst numerous options. The resulting one-page output can also serve as formal support material in a meeting or presentation situation.

Strategy Question: How do we successfully manage our product/service improvement projects?

Summary: The executive has a defined improvement need, and a well thought out specification toward a project to address it. Now the project needs to be done on time. The Milestone Project Management Tool is a structured project management format. It is formatted after classic “stage gate” approaches, with some clever additions that allow it to also serve as an overarching management tool. Each stage gate represents a major element of the development process. Individual tasks supporting the major stage gate item are listed within that heading. By defining these line item tasks, the executive can shape the management tool to fit the particular situation. Color coding completed, ongoing, and incomplete tasks provides a great visual management technique for multiple ongoing projects. The user will be given examples of stage gate milestones (such as Milestone 1 — Project Charter, Milestone 2 — Specification Development, Milestone 3 — Prototype Development, Milestone 4 — Proof of Concept, Milestone 5 — Development, Milestone 6 — Commercialization, etc.) as well as numerous task line suggestions for each stage gate. The user will be encouraged to construct the milestone headings and task line items that make the most sense for their individual situation.

Strategy Question: How can I track the status of multiple initiatives in a timely and easily understood fashion?

Summary: Waterfall charts have been part of business comparisons for some time. Many times these take the form of tables comparing current figures against a budget or standard by fiscal period. We use this same type of comparison format and use it to graphically convey information relative to project status relative to target dates. This simple tool provides a quick and effective method to present meaningful data. This one-page chart visually tracks progress of multiple projects or activities. By using the waterfall format, an executive can track schedule status along with highlighting slips and accelerations. The unique feature of this tool is the immediate highlighting of status. If a project continues on schedule, the project line appears as a continuing horizontal line on the waterfall chart. Slips or accelerations are shown by movement of the line away from the horizontal. The visual nature provides a method to update numerous initiatives in a format that can be reduced to management by exception if desired.

Strategy Question: How can I keep my performance goals relevant and continually driving proper action and achievement?

Summary: We have never been smart enough to know in January what will be business critical next December. Strategy also needs to adapt to a changing environment. How many times have we found our people working in December on a goal with incentive dollars attached that became obsolete in March? We suggest an alternate approach. We advocate 90-day goals to integrate key activities. A format for implementing this is discussed in the chapter. ALL managers, directors, and VPs are judged and incented on the same exact goals, ensuring both cross-functional cooperation and focus on those most critical interim activity milestones. Since our activities are already integrated and multi-functional, 90-day objectives are set at the beginning of each quarter. We have typically allocated 25% of the management and executive incentive program to 90-day goals (with the remaining 75% made up of more traditional revenue, profit and margin metrics). These quarterly MBO tasks need to be significant. In our experience, this has been the single best way to ensure leadership alignment with integrated activities to increase the probability of meeting organizational goals.

Strategy Question: How do I keep everyone on the same page?

Summary: This tool suggests a communication protocol that guarantees important areas of the company get the information they need to stay focused on the important initiatives. A suggestion is also made advocating for open communication, perhaps a sharing of previously closely held data (financial results, etc.) further into the organization. Communication is critical to both aligning employees to action and controlling the ever-present organizational grapevine. Structured formal communication is highly effective and a format is suggested. The more people are aware of the organization’s goals and targets, the higher the probability their attention will be focused on those goals. Also discussed are areas of informal communication that leadership can undertake.

Strategy Question: Is there a way to help me follow through on the changes I personally need to make?

Summary: You are not doing yourself or your organization a favor by neglecting changes you need to make to be more effective. You know what you really need to work on. If not, your boss, Board or peer group can probably help you. The Ten-Quarter Tool provides a simple method to identify a behavior you want to change, forces you to be aware of it throughout your day, and gives you a method to reinforce repetition. Here is how it works. You determine the behavior you want to improve. You take 10 quarters and put them in your left pocket. Your goal is to do the new behavior 10 times each day. Every time you do it, you move one quarter from your left to your right pocket. At the end of the day your goal is to have all 10 quarters in your right pocket. Kind of simple, right? Yet it works. You jingle a bit when you walk, but the weight of 10 quarters and the noise emanating from your pocket reminds you of the task at hand.