To survive and prosper, firms must both do things right (be efficient) and do the right things (be effective).
Achieving success, for both the company and the individuals, require more than its own existence, it takes an intended strategy.
How do we define strategy? Let's call it a plan that links the present positioning and the future direction. Both the firm and the industry’s environment will influence the strategy, but by adding the word ‘intended’ we are referring to Mintzberg and the difference he develops between an intended and a realised strategy.
What is key is there will be a deviance between the outcome and the plan; it all starts with a planned strategy.
Whilst there are many ways to look at strategy, I can easily relate to Robert M. Grant who defines a successful strategy based on four key components as shown below. The attention paid to each of those will make the difference between the success (or failure) of various organisations.
Once the strategy has been defined and communicated there is still a huge element around its implementation. Robert M. Grant (2013) emphasizes this point:
‘The strategy process achieves nothing unless the strategy is implemented.’
In my career a framework called 'Profit Pool' has proven really useful to highlight new potential sources for profit and rethink the overall value chain. It focuses on profits and their repartition, and not on the revenue only.
It encourages organisations to look beyond the appearance (for example the net sales and relative margin) to build their strategies, and to fully understand where their margins are coming from, where the business is creating value (or not). It is about identifying the real origin of profit within the business.
Whilst there are few ways to look at profit pool, Gadiesh and Gilbert suggest a four step process:
- Define the Pool
- Determine the size of the Pool
- Determine the distribution of profits
- Reconcile the estimates
It is also important to review profit pools regularly, as the pools don’t stand still (based on company and industry environment) but also the business needs to anticipate the future changes. It also clearly reinforces the importance of protecting the Core Business and managing carefully some unprofitable business categories.
Whilst leaders always have good intention when investing their time and resources in a business, there is no guaranteed success that can come with one strategy or another. Looking at the past, at the competition, and being aware of the challenges of strategy and its consequences, remains the best advice.
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