Industry Analysis and 3 to 5 Year Strategic Moves

Industry Analysis and 3 to 5 Year Strategic Moves

What if you were an army general with a battle to win? What would you want to know?

You’d probably want a map. A map tells military strategists what the territory is like, where the ground is high and low, and where there are rivers and roads.

But maps do more than portray the terrain. If you’re a general, you want to know where the enemy troops are. You want to know how many of them there are and what kind of firepower they can muster. You’ll also want to identify other variables that could influence the battle, so you can think about how to deal with them.

In this chapter, I’m going to help you draw your map and populate it with information. I’m going to give you a framework for analysis and then take you through a disciplined process to make sure that you wind up with an accurate map, one that you can use to plan your actions.

This won’t be easy. This chapter is the big one, the hard one, the long one, the tough one. It’s going to be mentally taxing and intellectually draining, but when we’re through you will be ahead of most companies in the world.

Most firms don’t do this kind of analysis at all. They think that they “know” all about their industry. The fact is that they probably don’t. Researchers at the London Business School established that many business people don’t know the basic facts about their industry, even though they’re quite sure they do.

Warning: Do not take things for granted. Check and verify.

Many companies that do some industry analysis don’t do it in a rigorous, disciplined way. They spend a day at an offsite and pull something together. Or they hire a consultant to write a report, but they never discuss it.

Keep that in mind as you work your way through this chapter. It will be hard work. But when you’re done, you’ll have the information you need to create a winning strategy that will set you up for future success in your industry.

It requires that you leave no stone unturned. Sometimes when you turn over a stone, a nasty threat slithers out. You need to be aware of that and make sure you’re taking the right actions to deal with that threat. Alternatively, sometimes when you turn over a stone, you may find a jewel of an opportunity. What could you do to take advantage of that opportunity?

When someone calls me out of the blue asking if I can facilitate their strategic planning retreat in a couple of weeks, I usually surprise them by saying, “No!” Then I qualify that by saying: “Yes, I can help, but you need to do some serious homework first, and it is probably going to take you at least a month. When you’ve done that, I’ll talk with you about meeting to facilitate your planning process.”

The reason is simple: If you want to create a strategic plan that will set you up for future success in your industry, you have to do the analysis first. That takes time.

Each of the analysis exercises you’re going to work through will take you at least a week, and probably more. The whole analysis process may take you more than a month; it needs to be rigorous and thorough, or it won’t equip you to create a winning strategy that produces results.

So, if you’re ready, let’s begin working on your strategy with a bit of history.

People have done business since the beginning of recorded time. In fact, many of the old clay tablets that archaeologists have unearthed have contained business records. But while people have done business for thousands of years, they’ve only done strategy the way we will for about fifty of them.

Successful businesses have always had a clear idea of what they wanted to accomplish, and they often did some planning. But before July 1, 1963, they didn’t do strategy the way we think of it today. On that day, Bruce Henderson opened the doors to his own consulting operation, which would become the Boston Consulting Group.

Henderson is the father of modern corporate strategy. He added two things to the way businesses before him had looked at the business landscape. Henderson introduced the idea of competition and the concept that a company’s strategy should be the result of a rigorous and disciplined process. Almost every firm that helps companies develop strategy uses ideas and tools derived from what Henderson developed.

The other giant of corporate strategy is Michael Porter. Porter’s huge contribution was to create a framework for analyzing industries and competition that helps companies like yours ask the right questions to develop a winning strategy.

Consulting firms around the world adopted Porter’s methods. In her book, I’m Sorry I Broke Your Company, Karen Phelan describes how Porter’s work was required reading for consultants at Deloitte, Haskins, and Sells and at other firms. But those firms often make two fundamental errors when they apply Porter’s ideas:

First, they assume that, when you come up with a sustainable competitive advantage, it is somehow sustainable forever. Nothing lasts forever. You need to thoroughly analyze your situation every year. You must keep innovating and evolving in order to maintain a strategic advantage in your industry.

Second, many consulting firms act as if understanding the marketplace is enough for success. But just because you know something does not mean you do it well. Even good strategic decisions can result in failure with poor business execution and mediocre management. Consider this first analysis as the start of a recurring cycle of analysis and execution. The idea is to use the analysis to gain knowledge and then turn that knowledge into action.

I like Porter’s framework because it’s a straightforward way of analyzing the competitive landscape of your industry. He defines an industry as “a group of firms producing products that are a close substitute for each other.” So think of your industry in that broader sense. It’s not only the companies that sell what you sell; it’s also the companies that sell products or services that can easily substitute for what you sell. Include the key players in your value chain – from suppliers all the way through to customers.

I confess that when I studied this at university, it all seemed very abstract and theoretical to me. It wasn’t until I got out into the business world and began using the framework that I discovered how powerful it is. The framework becomes the way for you to describe your industry and the possible changes in it. It helps you decide what to do. Take a look at the diagram below.

Figure 2: Michael Porter’s Five Competitive Forces that shape industries

No alt text provided for this image

You’ll see “Rivalry among Existing Competitors” in the middle. Around the outside there are four dynamic forces that interact with each other through the Rivalry among Existing Competitors. The forces are the “Threat of New Entrants,” the “Bargaining Power of Buyers,” the “Threat of Substitute Products or Services,” and the “Bargaining Power of Suppliers.” We’re going to analyze all those forces in detail.

When you’re done with the Industry Analysis, you will have a map of the industry and a sense of the forces at work in it. Then you can begin to plot your strategy using that map.

Now, let’s review each of the forces in detail. For each one, I’ll offer you some general thoughts. Then there will be a series of questions that you need to answer. Don’t rush through this. You’ll get more value if you analyze one force at a time before moving on to the next.

I will ask you questions about your industry as it exists right now. I will also ask you to forecast what your answers might be to these same questions three to five years into the future. Some people challenge me by saying that it is impossible to predict what will happen that far out and that planning that far into the future is a waste of time.

I always smile and share this quote from Jeff Bezos of Amazon, who as you know, competes at the forefront of the rapidly changing tech industry:

“If everything you do needs to work on a three-year time horizon, then you’re competing against a lot of people, but if you’re willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people, because very few companies are willing to do that. We can’t realize our potential as people or as companies unless we plan for the long term.”

With that story, companies quickly realize that planning at least three to five years out is probably a good idea after all. Besides, I’m going to introduce you to a process in this book that frees you from dependence on long-term forecasts by using a cycle of analysis, execution, and review to create great results.

So let’s get right to it. Here is the first of Michael Porter’s Five Forces:

Rivalry among Existing Competitors

Increased global competition and commoditization are driving down prices in many industries. If you’ve got many competitors and they’re offering similar products and services, you don’t have much power. If your customers or your suppliers can’t get a good deal from you, they’ll go somewhere else. You must be meaningfully different from your competition if you want to have power in your industry.

There’s no right or wrong answer to any of the questions, but you may find that different team members have different ideas. That’s good, because it should spark conversation. To get the most benefit from that, I suggest that you do what I do when I work with companies:

Give everyone on your team the questions and have them come up with their own answers, without talking to each other. This is best done as a take-home exercise. Then come together and work out the group’s answers.

Here are your questions. The first ones are about the state of your industry.

  • Where is your industry today in terms of the industry life-cycle stage? Is it in the introduction phase? Is it in the growth phase? Is it a mature industry, or is your industry going into decline?
  • Before you go on, think about the future. Where will your industry be in terms of the life cycle within three to five years?
  • What is your industry growth rate today? What will it be within three to five years?
  • What’s the average net profit for firms in your industry? How do you think that will look within three to five years?

The answers you came up with about industry life cycle and growth rate will help you get an idea of the general trends in your industry. The next set of questions is about competition of all kinds and will give you an idea of who your competitors are and where you may have advantages.

  • How many competitors are in your industry? How many will there be within three to five years? Will the industry consist of a lot of small players, or is it going to consolidate and be dominated by a few large companies? Will there be more or fewer competitors within three to five years?
  • Who are the major players now, and who do you believe will go on to become the major players within three to five years? You may want to make some notes about why you’ve made those judgments; they’ll come in handy when you compare your list with the ones created by other team members.
  • What is your current market share versus your competitors? What do you expect it to be within three to five years?
  • How much money do you really need to win in this industry? How much capital do you need right now and within the next three to five years?
  • Globalization is significantly affecting many industries now. What impact do global competitors have on your industry? How will that change within the next three to five years? What companies and countries are we talking about? Why will they affect your market?
  • What about this concept of commoditization? In an industry that’s become commoditized, all the product and service offerings are perceived as essentially the same. When that happens, price is the only way to distinguish among competitors.

Right now, you probably think you’re different, but are you really?

  • How differentiated are you from your competitors?
  • More important, what do your customers think? If you haven’t done so recently, you may want to talk to a few customers before you answer this question.

Another way to come at this is to answer these questions:

  • How price competitive is your industry?
  • Will this change within three to five years? Why?
  • Who in your industry has cost advantages?
  • Who will have cost advantages within the next three to five years?

Let me give you some thought starters. Consider the following:

  • Who in your industry has economies of scale?
  • Who has a leaner cost structure?
  • Which competitors are outsourcing? Companies often do that to reduce costs.

Now review those same questions, but while looking out three to five years.

Next, analyze sustainable competitive advantages. Start with your own company:

  • Do you have a sustainable competitive advantage, something that cannot be copied easily?
  • What about the firms you compete with?
  • Now, look three to five years out. What do you see then?

Here’s something I want you to look at closely:

  • Are any of your advantages really sustainable? Is anything a sustainable advantage that is based on intellectual property where underlying patents may be expiring? Be honest. How hard would it really be for a competitor to replicate what you do?
  • Which competitors are likely to engage in “spoiler tactics” like predatory pricing, price wars, or product dumping? This typically occurs in a mature industry, when some large players are desperately trying to hang on to the status quo. They may bring in teams of lawyers to prevent new entrants and substitute players from getting off the ground. How do you see it now and within three to five years?

Now, step back for a moment and consider:

  • What key moves do you think your competitors are likely to make in the near future? What about within the next three to five years?

Here’s the big question:

  • Based on what you’ve uncovered in Rivalry among Existing Competitors, what Strategic Moves do you need to make to address the issues you have identified, now and within the next three to five years?

Highlight your answers to this last question so you can revisit them later.

Threat of New Entrants

New entrants can easily weaken your position if it doesn’t cost much in terms of time, money, or skill to enter the industry. It’s easier for newcomers to enter if there are no incumbents with economies of scale. It’s easier if there’s little or no protection for key technologies or if new entrants can bring significant cost advantages to the market. On the other hand, if barriers to entry are high, your competitive position is somewhat protected.

  • Are there any industry barriers to prevent new entrants from coming into your industry right now? What about within the next three to five years?
  • What are the capital requirements that new companies must come up with in order to enter your industry? How much money do they need to get started and get underway? What about within the next three to five years; how do you see that changing?
  • Are there any new, potentially disruptive competitors sneaking in under the radar? Are they offering what the incumbent firms might currently consider to be “inferior” products? Are they starting to gain traction by serving the low-cost, low-profit part of the industry?

This is the classic “Innovator’s Dilemma,” a term coined by Professor Clayton Christensen who says, “An innovation that is disruptive allows a whole new population of consumers access to a product or service that was historically only accessible to consumers with a lot of money or a lot of skill.” This type of disruption typically occurs when the incumbent competitors offer products that are vastly superior in terms of performance or functionality. The new entrant offers a much lower-spec product at a dramatically reduced cost and starts gaining market share at the low end of the market. The incumbent competitors typically ridicule the new entrant’s offerings as being of lower quality. However, over time the new entrant evolves its product, and, before you know it, it has driven a wedge underneath you. Some examples of this are how the traditional print media viewed blogs, how the full-service airlines viewed “peanut-serving” Southwest Airlines, how Microsoft Office viewed Google Apps, and how American automakers viewed Japanese (and more recently Korean) cars.

  • What about learning requirements? Are some special skills, qualifications, licenses, or experience required to actually get into your industry? What are they now, and how do you see that changing within the next three to five years? Will those changes make it harder or easier for new firms to enter your industry?
  • Are supplies important? Think of supplies in the broad sense. “Supplies” could mean raw materials. They could also mean people with particular talents, or they could mean access to office space or production capacity. What does that look like now? What will it look like within the next three to five years?
  • Do new entrants need access to distribution channels? Think about a distribution channel as everything necessary to get the product in front of a customer. What does that look like now? What about within the next three to five years?
  • How loyal are your customers to existing firms? How loyal are your customers to you and your current competitors? Are your customers just as likely to switch and go with a new entrant to your industry? What does that look like within the next three to five years?
  • Is it hard or easy, expensive or inexpensive, for customers to shift to new entrants? Are there any sticky factors that make it inconvenient for customers to switch? Are there any lock-ins or anything that you can do to enhance loyalty and customer longevity? What about within the next three to five years?

I’ve already touched on globalization. Let’s revisit it in the context of possible new entrants into your industry:

  • What is the threat of new entrants coming in from other geographic locations? What does that look like within the next three to five years?

When new firms attempt to enter your industry, chances are the existing firms aren’t going to sit still and simply let them come in.

  • When a new entrant appears, what sort of retaliation can they expect from existing firms? How is that likely to play out within the next three to five years?

Before we move on, there’s one more question:

  • Based on what you’ve uncovered in Threat of New Entrants, what Strategic Moves do you need to make to address the issues you have identified, now and within the next three to five years?

Highlight your answers to this last question so you can revisit them later.

Threat of Substitutes

Your power is affected by the ability of your customers to find a different way of achieving a similar solution or outcome to your product or service. Very often, new technology opens new possibilities that can result in competition. The compact disc replaced vinyl records, then online downloads and streaming replaced CDs. In each case, the technology provided a different way of delivering the same product: recorded music. That’s one kind of substitution. The objective is to listen to music, and the different technologies offer substitute ways to accomplish that.

There’s another type of substitution that’s often harder to spot. It’s the product or service that’s not in your industry but that helps a customer achieve the same goal as your product. If you’re in the lawn mower business, you obviously compete with all the other lawn mower companies. Customers can substitute a competitor’s lawn mower for your lawn mower.

But you also compete with anything that eliminates the need to purchase a lawn mower. So you compete with a lawn service that will mow the lawn, and you also compete with a low-maintenance yard design that doesn’t require mowing at all! Keep both types of substitution in mind as you go through the questions on the Threat of Substitutes.

  • What technology changes are on the near horizon, right now, that might impact your business model? What new technologies have been developed in the last few years? How might they affect your business model within the next three to five years?
  • What about structural changes in the way your industry operates that could also impact your business model? Is there anything going on right now? What about within the next three to five years?
  • What substitutes are available today? Make a list. How will that change within three to five years?
  • How does each substitute perform compared to what you’re offering?
  • How do customers perceive the difference between your product or service and any substitutes?
  • How willing are your customers to seek out alternative solutions or different ways of achieving the end result that you deliver?
  • How costly or difficult is it for customers to substitute one offering for another?

Look at these last five questions and consider: What will change within the next three to five years?

Finally, based on your analysis of the Threat of Substitution,

  • What Strategic Moves do you need to make to address the issues you have identified, now and within the next three to five years?

Highlight your answers to this last question so you can revisit them later.

Bargaining Power of Suppliers

How much power do your suppliers have to dictate prices to you? That power is determined by how many suppliers there are, their size and strength, how unique they are, and how easy or costly it is for you to switch to another supplier. The fewer supplier choices you have and the more you need their help, the more powerful they are. And, in some industries, your suppliers or your supplies could be the skilled labor you need.

  • Let’s start with a list of your major suppliers: How will it change within the next three to five years? Why will it change?
  • What about the cost of supplies? What’s the cost now? What do you see the cost being within the next three to five years, and why?
  • How much negotiating power do you have with your suppliers? How do you see that playing out within the next three to five years? Why?
  • Do you have access to alternative sources of supplies? Are you able to shop around? What does that look like now? What do you see it looking like within the next three to five years, and why?
  • How costly is it in both time and effort for you to switch suppliers? How is that likely to play out within the next three to five years?

Forward integration is when a firm moves down the value chain and begins to compete with firms it supplies. Manufacturers begin selling to retailers, for example, or wholesalers open their own retail outlets. Or perhaps your highly skilled staff quit to set up their own firm in competition with you.

  • What is the threat of forward integration in your industry, where the suppliers actually decide to get into your game? And what does that look like within the next three to five years?

Now take a moment to review your answers in this area.

  • What moves are your suppliers likely to make? What moves are they likely to make in the near term, but also within the next three to five years? And what are the reasons for this?

Finally, based on your analysis of the Bargaining Power of Suppliers,

  • What Strategic Moves do you need to make to address the issues you have identified, now and within the next three to five years?

Highlight your answers to this last question so you can revisit them later.

Bargaining Power of Customers

Are there customers like Walmart in your industry? If there are, then you understand the bargaining power of customers. Walmart requires suppliers to meet detailed specifications for every product. Those specifications can include the packaging, labeling, and shipping details.

In general, the more important any individual customer is to your business, the more bargaining power that customer has and the less you have. For your industry, the bargaining power of customers is determined by the number of vendors they have to choose from, how meaningfully different they perceive you to be, and the cost to them of switching from your products or services to those of your competitors. Your customers also wield power to the extent that they can influence other customers to buy from you or not.

Let’s do some disciplined analysis of how things are in your business.

  • Start by making a list of your major customers. How will that list be different within three to five years? Why?
  • How much power do your customers have to set prices or dictate terms to you? What does that look like now? What is it going to look like within the next three to five years, and why?

Here’s a tricky one: How much can your customers influence others to buy from you or not? A few years ago, this was not a major concern in most industries. Then came the web and social media. Individual customers can now sing your praises or tell their tales of woe to millions. Here’s one example of how powerful that can be:

In 2008, musician Dave Carroll took a trip via United Airlines from his home in Halifax, Nova Scotia, to Omaha, Nebraska. While sitting in the airplane on a stop at O’Hare airport in Chicago, Carroll and others saw baggage handlers throwing bags, including his guitar, on the tarmac. Sure enough, when Carroll got to Omaha, he discovered that the neck of his $3,500 guitar had been broken.

He approached United workers in Omaha, but no one wanted to help. When he got back home and filed a claim, the airline denied it, saying he hadn’t filed it within 24 hours. After trying several different ways to get satisfaction, Carroll wrote a song. He titled it “United Breaks Guitars” and put it up on YouTube.

The video was viewed several million times in the first month after it was posted. The mainstream media picked up the story. People canceled reservations. The company’s stock price dropped. One pundit claimed that the incident cost United enough to replace Carroll’s guitar 51,000 times.

Granted that “United Breaks Guitars” is a particularly creative complaint about a very poorly handled incident, it still illustrates how customers now have a way to share their pleasure or displeasure about your products and services. If you’re in an industry where customers post ratings and comments about you and your competitors, you’re most at risk.

  • What is your customer’s ability to influence other buyers, and how do you see that playing out within the next three to five years?
  • What is the customer’s perception of differentiation between you and your competitors? You might think you’re different, but what does the customer think? And how different are you really? Be specific. What is that customer perception? How do you know? How will that change within three to five years?
  • How costly or easy is it for customers to switch to one of your competitors? How sticky are you? What sort of lock-in do you have? What sort of loyalty do you enjoy? Will that change within the next three to five years?

Backward integration happens when a firm moves up the value chain and begins to compete with firms that they bought from before. Retailers may establish their own distribution centers instead of using wholesalers. Your customers may develop their own offerings to replace yours, or they may decide to do it themselves rather than purchase from you.

  • What is the threat of backward integration in your industry? How will that change within the next three to five years?
  • Now put yourself in your customers’ shoes. What moves could they make within the next three to five years? How would that affect you?

Based on what you’ve uncovered in Bargaining Power of Customers,

  • What Strategic Moves do you need to make to address the issues you have identified, now and within the next three to five years?

Highlight your answers to this last question so you can revisit them later.

Whew! That was a lot of work – a good, hard analysis workout. But you’re not done with analysis just because you’ve gathered data, information, and perceptions about your industry. What’s going on in the world outside your industry that will affect your strategy? That’s what we’ll analyze in the next chapter.

PEST Analysis

You’ve done a lot of important analysis already. You’ve used Michael Porter’s Five Forces to gather information and impressions about your industry. Business Execution for RESULTS requires that you now zoom farther out and consider how changes in the world around you will affect your industry and your strategy.

We’re going to do some environmental scanning using a simple model described by the acronym PEST. PEST stands for the Political, Economic, Social, and Technological forces in the business environment. Those forces act on your industry from the outside, as shown in the diagram below.

Figure 3: PEST Analysis – macro forces that impact the business environment

No alt text provided for this image

Remember Sam Walton: In 1960, when he analyzed the general merchandise retail industry, he noted that people like Herbert Gibson were moving into discount retailing. He experienced that as a threat within his industry.

But he also looked outside his industry and analyzed what was going on in the country, and that analysis supported the idea of discount retailing. Americans were riding the post-World War II economic surge. The Baby Boom was adding to the number of potential customers. The government was building roads, including the Interstate Highway System, to connect cities and towns. And Americans were driving more and more cars.

Political, economic, social, and technological changes all made it possible to draw more customers from a wider area to large discount stores. These were the outside forces working on the retail industry, and they made discount retailing a great strategy.

We’re going to analyze each of the PEST factors. As you do the analysis, I want you to make notes about how the PEST forces will affect your industry and what actions you’ll need to take in the coming years. Let’s begin with a look at political forces.

Political Forces

What are some of the political factors that could potentially impact your industry? Here’s a list of possibilities; you can come up with others. Remember that if you do business in more than one jurisdiction, you should analyze the political forces in each one.

  • Which political party is in power?
  • How stable is the political situation where you do business?
  • What specific laws and regulations govern your business?
  • Make a list of the important political and regulatory factors. How do they affect you now? How will that change within the next three to five years?
  • What Strategic Moves do you need to make as a result of any political threats or opportunities that you see, both now and within the next three to five years?

Highlight your answers to this last question so you can revisit them later.

Economic Forces

What are the economic factors that could influence your industry? Here are some factors:

  • Economic growth
  • Interest rates
  • Exchange rates
  • Inflation
  • Availability of credit

You should be able to identify other factors. If you do business in more than one country, you’re likely to have different economic factors and answers for each one.

  • How attractive is your industry to outside investors in venture capital or private equity? How about conglomerates looking for acquisitions?

Think about all these forces and how they affect your industry today and also how things may change within three to five years.

  • What Strategic Moves do you need to make as a result of any economic threats or opportunities that you see, both now and within the next three to five years?

Highlight your answers to this last question so you can revisit them later.

Social Forces

Social factors are changes in the way people live and act. They include changes in demographics and in the number and distribution of people, and also sociological factors like values and habits.

  • What social factors could influence your industry?

Among demographic trends, it may be the aging of the population in your area or the age distribution of the workforce itself. Think about the attitudes of the people that you employ and those who are your customers. Perhaps there are health or environmental issues that specifically affect your industry.

  • How about the way people communicate now and are likely to communicate in the future? How could that impact your industry? Think about the online behaviors of people, whether your own staff or your customers.
  • And what about society’s changing beliefs, attitudes, and values? How do you see those impacting your industry?
  • What Strategic Moves do you need to make as a result of any social threats or opportunities that you see, both now and within the next three to five years?

Highlight your answers to this last question so you can revisit them later.

Technological Forces

Technology is one area of life where we see changes almost daily. That’s an exaggeration, of course, but even if you’re young you can trace significant changes in technology that have happened in your lifetime. Look at their influence and think about other changes in your industry that will be driven by technology.

  • Think about new technologies that will specifically touch your industry. What new technologies are affecting you right now? What about those that you think are likely to make a mark within the next three to five years?
  • What is the rate of technology adoption or obsolescence in your industry? How quick are people to embrace new technologies?
  • The mobile Internet and social media are changing the way we do business today. What do you think that’s going to be like within the next three to five years?
  • What are the hot new technologies in your industry right now? How will they change the industry within three to five years?
  • Who are the technology leaders in your industry? What are they doing today that you may be doing within three to five years?
  • Are there any technologies out there that could completely disrupt your current business model?
  • What Strategic Moves do you need to make as a result of any technological threats or opportunities that you see, both now and within the next three to five years?

Highlight your answers to this last question so you can revisit them later.

OK, you can take a breath now. You’ve had another good workout with the environmental scanning.

You’ve determined your BHAG. You’ve done a thorough industry analysis and identified your Target Market Customer. You’ve chosen a Value Discipline and decided what your Core and Non-Core Activities should be. You’ve made some decisions about how you will market yourself to your customers with your Strategic Position and Brand Promise. Now it’s time to put all those things together and make some key decisions about what you need to get done within the next three to five years so that you can set yourself up for future success and accomplish your BHAG. We call these decisions your 3 to 5 Year Strategic Moves. That’s what this chapter is about.

I need to make one important point before we go on. Most of the time I want you to follow the advice of Philip Kotler:

“Companies need to operate with one eye focused on the short term and one eye focused on the long term. Short term is about projects related to improving the current core business and meeting the needs of today’s target customers.

The long term is NOT about performance improvement. It is about forgetting the past and reshaping the business to compete more effectively in the future. Often, this demands bold, disruptive strategic moves away from the present to reshape the company for future success.”

I want something different in this chapter. I want you to use only your long-term eye. Be patient, we will get to the short-term “right now” stuff very soon. But before we do that, you need to get clear on the long-term strategic direction you should be heading in.

In this chapter, I want you to think about the long term and nothing else. Let’s return to Professor Kotler to see what that means. That part about “reshaping the business to compete more effectively in the future” is what this chapter is all about. Many experts think that it’s the hardest part of making a strategy work.

Gary Hamel says,

“The single biggest reason companies fail is they overinvest in what is, as opposed to what might be.”

Peter Drucker says,

“The temptation of business is always to feed yesterday and starve tomorrow.”

Keep that in mind as you think about the future of your company.

The first thing you must do is go back over the work you’ve done so far:

When you worked on your Industry Analysis, I asked you at the end of each section to list and highlight the Strategic Moves you should make within the next three to five years to address the issues, opportunities, and threats you identified along the way. I also asked you about the future benefits you will need to offer, the geographies you intend to operate in, and the core competencies you will need to compete in to effectively serve your customers in the future. Pull out those lists now. It’s time for you to make some important strategic choices.

I’m going to describe how I do this when I’m working with a client. You should modify the process so that it works for you.

The first thing I usually do is ask my client to go back to the previous exercises and capture all the suggested Strategic Moves that they’ve come up with so far. Put them on a board or a wall so that everyone can see them.

Before you go on, step back and admire your handiwork. Those suggestions are the result of a lot of hard work. You should feel good about what you’ve done so far and excited about how that hard work will make a difference for your company. Take a couple of moments to do that before you move on.

When you see all these Strategic Moves in one place, it becomes obvious that you cannot possibly do everything. You have to make some choices about what’s most important.

Some of the moves you listed will appear contradictory when placed next to the others. That also requires choices.

Some moves will obviously need to be discarded, because some of your earlier suggestions may not be aligned to the subsequent decisions you made. Eliminate all the moves that clearly no longer make sense. Some may not seem as important now when you see them compared to other moves.

Now, from what’s left, you must identify the critical few things, what Dr. Joseph Juran called “the vital few.” These are the moves that, if you implement them well, will position your firm for future success in your industry.

These are the big long-term things. You will start working on them now, but they will take a good three to five years, and maybe even longer, to fully play themselves out.

Remember the advice from Jeff Bezos of Amazon:

“If everything you do needs to work on a three-year time horizon, then you’re competing against a lot of people, but if you’re willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people, because very few companies are willing to do that. We can’t realize our potential as people or as companies unless we plan for the long term.”

By extending your time horizon, you lower the amount of competition. Any time you drop down into the “here’s what we have to do now,” stop and force yourself to pull back and focus with your long-term eye. This is where a consultant can be of great value – to keep you focused on the forest and not the trees, to keep you focused on the destination and not the stone in your shoe that is troubling you right now.

At this point I refer to the advice of Jeff Immelt, the CEO of General Electric. He says,

“Every leader needs to clearly explain the top three things the company is working on. If you can’t, you’re not leading well.” 

Your challenge now is to prioritize your list and choose the top three things you must do within the next three to five years to set yourself up for future success in your industry and move you toward achieving your BHAG. Here’s how I do that with a client when I’m there in person:

I ask those in the room to vote individually on their top three 3 to 5 Year Strategic Moves. Then everyone goes to the board and marks the items they voted for. Suggested moves that get a vote stay on the board. The others are removed. Sometimes we simply make a separate list of the moves that got a vote.

This leaves you with a much smaller list of things to consider. The team should debate each item that is left and choose the top three, ranked in priority order. That’s very easy to say, but it takes a lot of work and, occasionally, some very hot debate.

Don’t go on until you have identified the three most important things you must do within the next three to five years and put them in priority order. Congratulations, you are now well on your way to creating a winning strategy. There’s still one more important thing to do. Yes, you’re all responsible for working to make each thing happens, but you also need to make one person accountable for making sure each one gets done.

When you’ve chosen your 3 to 5 Year Strategic Moves and assigned accountability for each one, then it’s time for a Reality Check (SWOT Analysis)….

Excerpted from the book: Business Execution for RESULTS, by Stephen Lynch

***

Until next time…
Stephen

Previous Posts