Triggered by the sustainability crisis and the economic & health crisis as a result of the corona pandemic, we as Strategiemakers asked ourselves: does this time require a different way of making strategy? And, what types of strategy making are there? Based on interviews with customers and partners, we went to search for answers. We present our findings in a series of blogs.
Strategy making happens continuously
We always started our interviews with the question ‘what is strategy for you and your organization?’ and got a wide range of answers. Strategy is often described as a dot on the horizon: “it’s like a compass. A north star. That’s what you focus on” – as one venture manager in the technology sector describes it. It is often explained as a position statement. Something that helps companies to differentiate themselves from other organizations. It is about propagating expertise, following suit and linking actions to it.
Many aspects of the descriptions we heard are about visualizing the future of the organization. However, we also invariably heard that strategy is something that requires continuous attention throughout the organization: “For me, strategy is determining which path you want to take and which actions are needed” – manager at a large travel organization.
Strategy thus immediately becomes “an internal question, a change management task” as described by a government innovation manager. A new path or culture both require new skills to be able to continue on the chosen path.
Making strategy is a verb – something you should be able to do as an organization – because making strategy is something you do continuously.
Different typologies of making strategy
Does this view of strategy also match the way organizations make strategy today? How is strategy ‘made’ in organizations? Who is involved? Which skills are addressed? What value do organizations place at their core?
We discussed this with our partners and customers and we have come up with three typologies of making strategy: financially driven, customer driven and purpose driven (see picture).
Making financially driven strategy
Strategy is a business case driven process, analysing opportunities, driving optimization and roadmapping change programs.
Making a financially driven strategy is especially fit for a world where consumption equals prosperity and economic growth is encouraged. In this context, the focus is on profitable growth, increasing production, scalability and cost reduction. Organizations are often hierarchically structured to manage the complexity from top to bottom and to organize it as efficiently as possible. An example of a company that fits into this framework is General Electrics (GE), with its focus on maximizing shareholder value and annual employee performance measurements with associated bonuses or promotions.
Making a financially driven strategy is often primarily focused on maximizing shareholder value. The strategy is developed by creating an overarching plan for the coming years. Quantitative analyses are used to spot opportunities, be ahead of competitors and minimize risks. Financial scenarios color the direction for the analyses that are adjusted on a quarterly and annual basis, as one executive in the leisure sector describes: “Every 5 years we make a new update of our strategy, every year an annual plan. Our financial strategy is 7-10 years because of the long-term investments. We make an annual update of our long-term plan with financial scenarios.”
These kinds of strategy processes are mainly organized top-down from the boardroom and communicated to the rest of the employees. After which the rollout is carried out using optimization methods and success is measured on the basis of return on investments.
Making customer driven strategy
Strategy is accelerated in cocreation as a more creative and adaptive process, giving room for exploration and innovation while exploiting the existing business.
Customer driven strategy making has accelerated after the 2008 financial crisis when innovation and startups started to take off. During that period, organizations started to embrace the creative industry and started looking for ways to give design, creativity and entrepreneurship an important place in developing relevant propositions for customers. Apple is pre-eminently the company that has grown on customer value. A Dutch example is Coolblue with its slogan ‘everything for a smile’, 360 degrees marketing and installation service for the supply of household appliances.
Creating a customer-driven strategy is therefore primarily aimed at customer satisfaction and revenue growth. Strategy is not a multi-year plan, but is developed iteratively in short cycles. A board member in the mobility industry mentioned how this way of making strategy has gained the upper hand in their organization: “Our former 5 year plans have faded into the background. We now use the Lean Startup way of working; respond to what is happening around us on the basis of advancing insight.”
Methods such as business model innovation and Design Thinking are applied to collect customer insights and convert them into strategic opportunities. Strategy is developed in collaboration with the rest of the organization. New propositions are developed iteratively in collaboration with customers and target groups, ideally in true co-creation.
Making purpose driven strategy
Strategy is purpose driven, calls for long term imagination and is transformational. Strategy incorporates sustainability, innovation and is human centred.
Making purpose-driven strategy fits in a world where the sustainability transition is a hot topic. Sustainability themes are complex in nature and cannot be solved just like that. Collaboration between organizations in the public and private sector is important to create appropriate solutions for today’s societal challenges. It is a transformation to a new, healthy economy; one that is “designed to thrive, not grow,” as Kate Raworth (economist and author of the Donut Economics) describes it.
Patagonia has been reducing its footprint since the 1980s by making jackets from recycled polyester and greatly reducing the number of suppliers so that they have more control over all supply chain processes. In addition, they are the founder of the 1% for the planet alliance, where 1% of the annual sales of companies go to small environmental organizations.
Creating a purpose-driven strategy therefore involves creating positive contributions on all parameters; financial, customer, employees, environment and society. Organizations that adopt this strategy are looking for their role in the transformation to a new economy and a better world, as this board member of a pension fund puts it: “We are purpose-driven, we are there for the participant. We don’t have to make a profit. We measure value as money (maximizing the pension value), participant experience (NPS) and social value (including our CO2 impact). We want a good future for current and future generations. A good pension on a scorched earth is of no use to you”.
Strategy is developed by simultaneously working with the short and long term: a short cyclical approach to achieve a long-term purpose. In the implementation of this form of strategy making, we not only work with our own organization, but also with customers, chain partners, competitors, government and other stakeholders in order to achieve an impact together. ‘Soft’ principles, such as trust, culture and connecting are central.
What type of strategy making gets your organization into action?
By properly separating the 3 types of strategy making, it is possible to see the differences in value of the strategy, the methods to be used, the time horizon, the involvement of the organization and the approach.
Our research has shown that – when presenting the 3 types – organizations often predominantly use 1 of the types, more often unconsciously than consciously. Every organization includes elements from the other types of strategy making. One type is not better than the other. What fits at that moment depends on, among other things, the context in which an organization is located. One scale-up, for example, said: “We started with a lot of creativity, but the phase we are in has now changed. We now have enough ideas and just need to move on to reducing risk in the current ideas to get them to market.”
The 3 types of strategy we have described therefore help to make the unconscious use of strategy more explicit, or even to use it deliberately. When do you use one typology versus the other? This can be determined, for example, by the time horizon of the strategy to be made, it can depend on the financial situation of the company or it can be driven by a certain shift in the market.
We observed in our interviews that applying the typologies in parallel on different parts or units is also relevant. Not every part of the organization has the same context. Strategy has become a portfolio game. Organizations that are able to play chess on multiple boards increase their chance of long-term continuity.
Once it is clear which variant or combination best suits the organization and context, it helps to define a clear palette of skills and leadership style that are necessary for a successful strategy. For example, a financially driven way of making strategy requires more analytical skills, whereas making purpose-driven strategy requires strong co-creative skills to work in ecosystems. Working on the right skills goes beyond developing and executing the strategy. Skills are the foundation for transforming the organization into the future.
Questions such as ‘Which principles are leading for you in determining the type of strategy?’ or ‘What does it take to use a different type of strategy’ help to ask important follow-up questions, such as: Which leadership style is desired? Which strategic and future skills are already in your organization? And what skills are needed in your organization to use a different type of strategy?
We try to answer these questions in our next blogs.
Would you like to spar with one of us to investigate which typology best suits your organization? Are you interested in a little more depth about the required skills? Or do you want to do a scan in your organization for the available skills? Contact (call, app, mail) Myrthe (phone, email), Pascal (phone, email) or Floor (phone, email)