Your Strategy Needs a Strategy: How to Choose and Execute the Right Approach

These are just some of the issues addressed in "Your Strategy Needs a Strategy." The book is a practical guide to help you choose the best strategy for your environment. It also helps you better navigate the tools and frameworks you have available.

The book is based on the authors' Strategy Palette. This outlines five business environments, each of which requires a unique strategic approach. The authors show you how to identify your environment, and how to implement the best strategy for that environment.

What's most appealing about this book is that it's based on an impressive level of research. The authors all work at the Boston Consulting Group, and they rely on five years of studies and evidence from the BCG's Strategy Institute.

They surveyed 150 firms from a wide range of industries. They analyzed the conditions in various sectors over a 60 year period to better understand how business environments have changed over the decades. They also explored their Strategy Palette mathematically, by coming up with a computer model that simulates how various strategies perform in different environments.

The end result is a book based on evidence, research and fact, not opinion or theory.

Martin Reeves is a senior partner in the New York office of the Boston Consulting Group, and is director of the BCG Strategy Institute. Knut Haanaes is a senior partner in the Geneva office of BCG, and the global leader of BCG's Strategy Practice. Janmejaya Sinha is a senior partner in the BCG's Mumbai office, and a member of BCG's executive committee.

So, keep listening to find out how to tell if you're operating in a classical market, how to develop a strategy when your industry is constantly changing, and how to identify and overcome blind spots.

"Your Strategy Needs a Strategy" has eight chapters. Five of these are devoted to the five business environments within the authors' Strategy Palette. Here, you learn what defines the strategy approach that works best in each environment. You learn when to use it, how to apply it successfully, and the tips and traps to watch out for when you implement each approach.

The authors devote a chapter to the eight critical roles that you play, as a leader, when it comes to creating and implementing these different approaches.

Finally, there are several useful appendices. One of these is a self-assessment quiz that lets you see how you currently approach strategy.

Let's start by taking a look at the authors' Strategy Palette, which is the foundation of the book.

According to the authors, business environments are shaped around three key areas. The first is predictability. Can you forecast what's happening? The second element is malleability. Can you shape what's happening? The last element is harshness. Can you survive what's happening?

When you put these three dimensions together into a matrix, you get five unique business environments.

The first environment is Classical. You can predict it, but you can't change it. Your goal here is to be big. The second environment is Adaptive. You can't predict it, and you can't change it. Your goal here is to be fast. The third is Visionary. You can predict it, and you can change it. Your goal here is to be first. The fourth environment is Shaping. You can't predict it, but you can change it. Your goal here is to be the orchestrator.

The fifth and last environment is Renewal. This environment is a bit different because it focuses on resources. In a Renewal environment, your resources are severely constrained so your goal is to be viable.

Now, let's look at a few of these elements in greater detail, starting with Classical, the first business environment. This approach to strategy will probably be most familiar to readers.

Leaders who take a classical approach are in an industry that's relatively stable and predictable, which means that the competitive advantage is sustainable. Competitive advantage can be based on differentiation, superior scale, or outstanding capabilities.

As an example, let's look at UPS and FedEx. These two organizations work in a classical environment because their industry is relatively stable, and they operate on a massive scale.

The classical approach to strategy is to analyze, plan and execute. The authors say this three-step process is probably very familiar to most people, because the majority of tools and frameworks have developed out of this approach. When people talk about strategy in general, this is what they're usually referring to.

Look for the following factors to tell that you're in a classical business environment.

First, your industry's structure is stable and so is the competitive environment. Your industry is mature and not easily shaped, and its development is predictable. And there's growth, but it's moderate and constant.

As you'll see in every chapter, the authors go into great detail about how to apply each strategic approach. Again, the classical approach is to analyze, plan and execute.

One insight that really stood out for us was about culture. Specifically, the type of culture that classical organizations should build in order to thrive.

When your environment doesn't change much, it pays to support the pursuit of excellence. So the culture needs to be disciplined, focused, analytically minded, goal oriented, and focused on accountability. People need to have a strong sense of shared purpose.

Think about UPS for a moment. UPS is huge, and it shares the spotlight as one of the world's biggest shipping companies, along with FedEx. There's competition between these two companies, but one doesn't really get ahead of the other that much.

How do you think these organizations motivate their employees when their advantage doesn't change much? Their approach is going to be wildly different from that of a tiny start-up, that's fighting tooth and nail just to steal a bit of market share from a major competitor.

Culture can make a very big difference in a classical organization because these companies are enormous, slow to change, and not living on the edge like a start-up. When the culture drives and supports excellence, people will stay as motivated and "on their toes" just as much as in a start-up that's fighting for survival.

We like that the authors address the importance of culture in the different business environments. How to motivate and inspire your team is going to change with each approach, so it is a really useful addition.

As you might imagine, there's a lot that can go wrong with the classical approach. One common mistake is allowing the status quo to grip the organization. Being classical doesn't mean you don't change at all. You have to stay open to new ideas and be flexible, even in this environment.

The authors provide a comprehensive list of traps that plague this strategic approach. There's also a great list of tips that will help you use the classical approach successfully.

The adaptive approach is very different. The environment is unpredictable, and hard to change. Organizations have to be ready to adapt quickly if they want to succeed. Being big and making small, incremental changes, like you'd do in a classical environment, would be disastrous here.

You know you're in an adaptive business environment if your industry is dynamic, and its development is unpredictable. This industry has high growth, it's immature, and it's based on changing technologies.

When it comes to developing a strategy in this environment, keep in mind that the plan and the implementation need to take place as close together as possible. And you can't have a fixed strategy. It has to constantly change and evolve, based on what's happening around you.

The first step to strategizing in an adaptive environment is to read change signals. This means watching the changes happening in your industry, and knowing how to tell which of these changes are trivial, and which are significant.

Of course, this is easier said than done. If you want to better understand the significance of a change, you need to uncover your hidden assumptions about what you really know, and what you don't.

There are three types of blind spots that can keep you from identifying a significant change. Here, the authors remind readers of former U.S. Secretary of Defense Donald Rumsfeld's famous comment about known unknowns and unknown unknowns.

For the authors, unknown unknowns – which they also call "double question marks" – are especially challenging. You can usually only spot these by changing your vantage point.

Another blind spot is the "underexploited known." The authors call these "elephants," and they happen when you don't make the most of new information. There's also a blind spot they call false knowns, or "unicorns." These are things you think you know and may need to challenge.

Identifying and overcoming any kind of blind spot is difficult. But organizations that operate in an adaptive environment have to work at it if they're going to succeed.

One way to do this is to look at your own firm through the eyes of a real or imagined enemy. You can conduct war games against your business model. Or, make it a practice to develop an opposing business case or opinion against every potential new investment.

Experiments are also really important in adaptive environments because your products or business model can become obsolete really fast. Once you see things changing, start experimenting to find out which approaches offer the highest potential for growth, or which are the biggest threats to your business.

There's a lot more you can do to strategize effectively in adaptive environments. The authors look at how to address innovation, organization, culture, and leadership in this type of market.

So far, we've looked at two of the five elements in the authors' Strategy Palette. The other three elements are covered in as much detail, and with as much precision, as these first two.

Let's have a quick look at chapter eight, titled "Lessons for Leaders." Here, the authors outline what you need to do, as a leader, to implement your strategy.

One of the first lessons is that it's unwise to use just one strategy. It's often best to use a combination of strategies because, chances are, you're operating in multiple environments over a long period of time. One strategy just isn't going to work long term.

As a leader, one of your biggest priorities is to keep your organization from settling on just one approach. Instead, think in terms of a collage of approaches. You have to apply different strategies to different parts of your business, at different times.

In order to make sure your strategy delivers, leaders have to adopt eight roles. And you have to know when to step into each one. One of these roles is a diagnostician. As a diagnostician, you need to constantly assess the degree of predictably, malleability and harshness in each of your business environments.

Remember, these are the three elements that dictate what type of market you're in. You'll only choose the right approach if you regularly analyze your environment. You need to look at geography, function and industry segment.

Another one of your roles as a leader is that of a disrupter. In this role, you need to be able to switch to a new strategic approach when you find that your environment has changed, and the old or current strategy isn't useful any longer.

The authors say that doing this isn't easy or natural. Put simply, it means that you can't rest on your laurels. What worked for you in the past won't necessarily work in the future. You have to be willing to be disruptive, and walk a new path when the time comes.

So, what's our last word on "Your Strategy Needs a Strategy"? We liked it, for several reasons.

First, there's no fluff in this book. It's all business, and the authors are very detailed with each strategic approach, and how to implement it.

We only covered a small fraction of the content here. There's so much information in each chapter, and each section relies on information and steps that are covered previously.

The benefit to this is that the book is constantly building on what you've already read. By the time you've finished, you'll have the knowledge and tools you need to identify the type of market you're operating in and, more importantly, how to apply a strategy that's proven to work within that market.

We should stress, and we think the authors would agree, that it's important to read the whole book. Even if you're confident that you're working within a certain business environment, it won't do much good to just read the chapter you think fits best.

The reason is that organizations and industries rarely stand still. Different parts of your business will probably operate in different markets at different times. So you need to understand all five of the environments in the Strategy Pallette in order to choose the right strategic approach, at the right time.

The authors do a very good job of keeping all the information in the book organized, coherent, and easy to reference. There are plenty of graphs and charts to help you visualize the ideas. And each chapter has several case studies that reinforce the specific approach they're talking about.

Our favorite part of each chapter is the Tips and Traps section at the very end. These are short, actionable nuggets of wisdom that will help you avoid common mistakes, and implement your strategy more effectively.

All in all, we have no trouble recommending this book.

"Your Strategy Needs a Strategy," by Martin Reeves, Knut Haanaes and Janmejaya Sinha, is published by Harvard Business Review Press.

That's the end of this episode of Book Insights. Thanks for listening.