The Better Strategy OS: A structured framework for thinking about strategy

This is the 3rd article in this series on The Better Strategy OS.

Article 1: Why you need a better strategy.

Article 2: The 3 pillars of making better strategy, and pillar 1 detailed.

How to think about strategy? A structured framework

What do you think about when you think about strategy? 

The content of your strategy discussions and the questions you need to answer depends on the level of strategy you‘re considering.

In general, in business, there are four levels of strategy:

1. Ecosystem strategy
2. Corporate strategy
3. Business strategy
4. Functional strategy

Although there will naturally be interaction, each level has specific issues, challenges, and paths to explore for potential answers.

For ecosystem strategy, the key question you need to answer is, where do you compete, and where do you collaborate?

If you collaborate, how do you structure collaboration? Loose or tight? Form an alliance or a joint venture, for example.

Think of airlines, which often belong to alliances, sharing loyalty programs and allowing customers to book flights across the alliance.

Corporate strategy concerns which businesses to be active in. It involves deciding whether to build a portfolio of diverse businesses to spread risk or look for synergies and build a portfolio of integrated companies.

Lufthansa, for example, used to be active in the private jet business but pulled out of it. That‘s a corporate strategy decision.

The generic paths to explore are:

• Diversification: Businesses outside your core industry
• Horizontal integration: Businesses within your industry
• Backward integration: Supplier businesses
• Forward integration: Buyer businesses

If you decide on integration, you need to decide where to look for synergies and what to integrate (resources, activities, or value propositions), how much you‘d like to integrate versus how much autonomy you want to give each business (centralization versus decentralization), and how you want to steer the integration (mandating it versus letting your businesses find the best ways on their own).

By the way, because it‘s called “corporate strategy,“ many believe it is only relevant to big corporations. In my experience, this question of which businesses to be active in is even more important for small and medium businesses. I‘ve seen many make big mistakes in this area, expanding into areas they couldn‘t handle or trying to force synergies where none could be found, for example. The stakes are usually a lot higher.

Lufthansa's entering and then pulling out of private jets because it didn’t work as expected didn’t have a big impact on the group. However, if a small or midsized business enters a new business and needs to pull out again, the impact will be much more significant.

Business strategy concerns how to compete in the businesses you‘re active in. It is primarily about deciding who your customers are, what you‘re offering them, why customers should buy from you (your value proposition), how you will do this (your business model), how you will make money, and what capabilities, resources, and organization you need to make all this happen.

Staying with our airline example, when Lufthansa had the private jet business, it outsourced the operation of airplanes to NetJets and focused only on marketing and sales. That‘s how it decided to do business.

Paths to explore for new customers (especially if you’re looking to grow your business) include going after underserved or unsatisfied customers, for example.

Paths to explore for how to compete and how to win include, for example, Michael Porter‘s generic strategies of low cost or differentiation, Treacy and Wiersema‘s three types of value propositions: operational excellence, product leadership, or customer intimacy, or the Blue Ocean Strategy concept of value innovation, which combines low cost and differentiation.

Paths to explore for new growth are, for example, new markets, new products, or a combination of these.

Do you stay within your core business, venture into adjacent businesses, or aim to transform your business completely with strategic innovation and new business models??

When we say „strategy“ in a business context, we usually refer to business-level strategy.

A good business strategy should answer these foundational questions and clearly outline your decisions. Else, it‘s very difficult, if not impossible, to have a winning strategy.

Obviously, merely answering the questions is not enough. For your business strategy to have the potential to be a winning strategy, there are additional criteria to consider, like, among others:

• Does the strategy outline clear choices of what to do, what not to do, and where to focus our efforts and resources, ideally on one or very few pivotal challenges?
• Do these choices position our company so as to create a sustainable advantage and superior value relative to our competition?
• Does this strategy create value for our customers? Is it clear why they should do business with us instead of our competitors?
• Is there an element of creativity and innovation that will create differentiation and competitive advantage?
• Is the strategy based on a theory, is there a clear logic that explains why we should be doing this and why we think it will work?
• Does the strategy provide a clear direction, unify all decisions, and direct actions to overcome our challenges and achieve our ambitions?
• Is it doable and accomplishable, given our existing resources and competencies? If not, do we have the possibility to acquire or develop them?

On a functional strategy level, the content depends heavily on the function, be it HR, IT, Sales, Marketing, Operations, etc.

Ideally, you’ll have clear frameworks for each, similar to the ones I outlined for corporate and business-level strategy.

For your marketing strategy, this could, for example, be the 4Ps framework.

That said, you should always ask and answer what activities the function needs to focus on to support the overall business strategy. What does every function, department, team contribute to the overall strategy?

There‘s no use in your marketing and sales strategy targeting the existing customer segment A with 90% of its resources, budget, and activities if you decided in your business strategy to expand into the new segment B.

In the same way, the challenges your functions focus on should be aligned and coherent with your overall business strategy. If your business strategy requires hiring new talent (which might be difficult to find) to build new capabilities, your HR strategy should focus on that challenge first and foremost.

Assuring alignment between your organization's strategies is the only way to successfully implement your overall strategy and progress toward your ambitions.

By the way, I focus much more on the “alignment” of strategies with my clients, than on the traditional “cascading” of objectives and communication.

Now, how do you create such strategies? How do you ensure you’re making progress toward your ambitions? How do you do strategy? These are some of the questions your strategy process needs to answer.

We'll dive into the systematic process of making better strategy next week.

How do you think about strategy?