The Strategy Practice Blueprint
Mihai Ionescu
Strategy Management technician. 20,000+ smart followers. For an example of a strong nation, look where European cities are bombed every day by Dark Ages savages. Slava Ukraini! 🇺🇦
I am talking in this article about the live, online, hands-on Strategy practice that we perform during the May-June edition of the Explaining Strategy course beginning on Wednesday next week, May 15. The truth is that almost all the Strategy-related courses that I have seen advertised are circling around the lectures that try to explain some theory and methodology, then try to convince you to use that in practice. But how to do that effectively ... well, that is something that you are left to mostly figure it for yourself. In the best case, you get some checklists of actions that you should do to implement the framework presented.
The first edition of this live, practice-focused Explaining Strategy course, which took place in Jan-Feb, was an extraordinary experience. First and foremost due to the 50+ high-quality people who attended it. It was an excellent opportunity to learn, allowing me to aim for an even better edition in the May-June edition.
This is the feedback received from course's first edition participants:
You can find out more about the course, in general, in the recently-updated article A Course to Remember. The way we effectively perform the Practice Session of this course is described in that article, but not explained in detail. That is the purpose of this new article.
The Strategy Cycle
For reference, the 2024 version of the Strategy Clockwork integrative framework that describes the dual-loop Strategy cycle is illustrated in this diagram:
The framework is presented in detail in the article Modeling Strategy.
The two core cycles, the Strategy Formulation and the Strategy Execution are based each on a model with multiple inter-related components. The relationships between model's components are an excelent playground for practicing Strategy. That is exactly what we do in the four Practice sessions of the course.
The foundation of such practice is a set of matrices that allow us to materialize those relationships. The overall trace of these inter-connected matrices is illustrated in this diagram:
Let's explain these matrices, one by one.
1. The Trends & Uncertainties Matrix
This matrix allows us to identify two fundamental components of our model:
They are both determined based on this diagram, built upon an initial diagram, courtesy to Woody Wade (Scenario Planning):
What do we use them for? The Trends & Weak Signals are essential for identifying the Paramount Challenges that our Strategy is aiming to overcome. The Uncertainties are the mould from which we define our Strategic Scenarios, the plausible alternatives of our macro-economic environment's future unfolding.
The matrix has 11 rows on the Y-axis, one for each PESTEL + Porter 5 Forces factor, and three columns on the X-axis, one for Trends, one for Weak Signals, and one for Uncertainties.
The difference between Trends and Weak Signals? The Key Trends can have an important impact upon our business starting from today. The Weak Signals have the potential of becoming Key Trends in the future, so we should take them into consideration, as long as their turning into trends is anticipated to happen within the Strategic Horizon considered.
Each cell of the matrix holds multiple Driving Forces (influence factors), each with an impact score (impact upon our business along the Strategic Horizon). The placement in one of the three columns depends on the level of uncertainty, and on whether their impact is current (Trends), or a potential future one (Weak Signals).
For more information on the Strategic Horizon, read The Strategic Horizon article and What Market Stages Do You Target?
2. The Business Portfolio Matrix
This matrix has an essential role in selecting the Strategic Choices of our new Strategy. It allows us to do two things:
The diagram below illustrates the use of this matrix.
To learn more about the Penta model, read What Is the Penta Model? and A Library of Choices.
This is a complex matrix that facilitates a selection of Strategic Choices for the new Strategy. The main matrix is supported by two enabling matrices, not illustrated in the diagram above.
For more detailed information on this subject read the Linking Jobs-to-Be-Done to Strategy article.
The main matrix has as many rows on the Y-axis as the Value Propositions identified in the second enabling matrix. The practice advises to select a maximum of top 2-3 Value Propositions for each of the two Competitive Advantages (Current & Next). On the X-axis are the 20 Strategic Choices types of the Penta Model.
Each cell of this matrix contains a % score that reflects the probability that the respective Strategic Choice can best enable the corresponding Value Proposition, together with the hypotheses employed for estimating that probability.
The output that is passed forward are the Strategic Choices that describe the Strategic Positioning Mix, one for each Value Proposition in our Business Portfolio. For more information about the ambidextrous focus of our Strategy, see: The Ambidextrous Strategy.
An interplay exists between the Strategic Choices and the Strategic Scenarios and it is based on a viability validation that should confirm that our Strategic Choices remain valid (leading to acceptable anticipated economic result) even in the worst Scenario. The diagram below illustrates this validation.
3. The Activity System Matrix
On our path from defining our Strategic Choices to identifying the Capabilities System required for turning our choices into reality, the definition of the Activity System is a useful intermediary stepping stone for characterizing the Competitive Advantage instances of our Value Propositions, using the Fit Criteria types and the corresponding tradeoffs.
This matrix allows us to connect the Strategic Choices with the Activity System fit components (must-do Essential and Tradeoff Factors), one for each of the Value Propositions in our Business Portfolio, covering both the Current Competitive Advantage to be enforced and defended, and the Next one, to be developed and brought to maturity by the end of the Strategic Horizon.
On the matrix X-axis are the factors of the Reference Activity System Map and on the Y-axis are the Strategic Choices selected in the previous stage for each Value Proposition of both Competitive Advantages.
Each cell of the matrix marks the relevant Essential & Tradeoff Factors required for making each Strategic Choice work, together with the hypotheses employed for selecting those specific factors.
For more information on the Activity System, read Prof. Michael Porter's anthological HBR article What Is Strategy? See the section IV Fit Drives Both Competitive Advantage and Sustainability.
4. The Capabilities System Matrix
This matrix is allowing us to identify the Required Capabilities for supporting our Strategic Choices and turning them into reality. This is facilitated by the prior identification of the Activity System factors. The matrix allows us to map each Essential & Tradeoff Factor to the must-have capabilities that should be in place for achieving our Strategy. The Capabilities System uses a layered Reference Cognitive Model illustrated through these ten categories:
The matrix has the required Essential & Tradeoff Factors of the Activity System listed on the Y-axis and the 10 categories of the reference Capabilities System listed on the X-axis.
The cells of the matrix contain the relevant capabilities selected in each category for supporting the Activity System factors identified in the previous step, together with the hypotheses employed in making those selections.
5. The Coherence Gaps Matrix
The Missing Link between the Strategy Formulation and Strategy Execution is represented by the Strategic Gaps. The transition from the current Strategic Positioning Mix (what we had so far) to the new Strategic Positioning Mix of our Strategy for the future can be regarded as gaps-closing, but the most instrumental gaps to close during Strategy Execution are those between the Existing Capabilities System and the Required one: the Coherence Gaps.
The term coherence comes from the concept of fitness between the Strategic Choices and the Capabilities System required to support it. It has been first coined by the authors of The Coherence Premium.
The Coherence Gaps Matrix is mapping the Required Capabilities with the Existing ones and allows us to identify the gaps for each capabilities category. This square matrix has the Required Capabilities on the Y-axis and the capabilities listed on the columns X-axis representing our Existing Capabilities. The fact that we are not interested in existing capabilities not required for the New Strategy is important, reflecting a transitional concept described in various frameworks, such as Vijay Govindarajan (VG) 's Three Box Solution.
The cells of the matrix include a score that indicates whether the required capability is completely missing (100% gap) or it exists and can be reused, with a certain degree of redesign, development, or reconfiguration (X% < 100% gap). Each cell also includes the hypotheses employed in making that gap analysis.
The identified Strategic Gaps span the Strategic Horizon's full multi-annual timeline, however the Strategy Execution cycle usually spans only one year and is synchronized with the Operational Planning and the Budget cycle. This requires the identification of the Strategic Gaps that are targeted to be closed during the next execution cycle/year, for which we build the Strategic Plan.
6. The Gaps to Objectives Matrix
When Kaplan & Norton have developed and started implementing their XPP framework in thousands of organizations, the predominant source for the Strategic Objectives used to be the Value Gap. But those who wanted a more instrumental approach have identified the Strategic Gaps a more granular and explicit source.
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Since the Capabilities System, together with the Strategic Positioning layer, is structured in a way equivalent to the Strategy Map's perspectives (Outcomes, Stakeholders, Internal Processes, Enablers), it is relatively easy to build a matrix that allows us to aggregate the Strategic Gaps into corresponding Strategic Objectives. In practice, the Strategic Gaps may quite many, reaching or exceeding a hundred, whilst the Strategic Objectives of a Strategy Map must be in the 15-25 range, as recommended by the Kaplan-Norton BSC framework.
The cells of this matrix indicate the Strategic Gaps, placed on the Y-axis, that are aggregated into the 12 Strategic Objectives categories of a reference model known as the Reference Strategy Map placed on the X-axis.
Each cell of the matrix contains the Strategic Gaps aggregated into each Strategic Objective category, together with the hypotheses employed in determining the respective allocation. From this to defining the Strategic Objectives, there is only one small step. In doing so, we secure the traceability between the Strategy Model components and the Strategic Plan model's essential components, the Strategic Objectives.
7. The Objectives to Initiatives Matrix
This matrix allows us to do two things:
The matrix lists the Strategic Objectives on the X-axis and the existing + new Strategic Initiatives on the Y-axis. Each cell of this matrix contains a % scoring of the contribution a Strategic Initiative may have to accomplishing a Strategic Objective. The cumulated scores for each objective must be 100%.
8. The Causality Matrix
One of the essential drivers of Strategic Planning is the principle of causality. We cannot accomplish all Strategic Objectives at the same time. On one hand, we don't have resources to handle so many underlying projects in parallel. On the other hand, accomplishing one objective (driven) is dependent on the prior or overlapping accomplishment of other objectives (driving).
Therefore, the cause-effect relationships between Strategy Map's objectives is very important. On the map, they are represented by arrows starting from a driving objective and pointing towards a driven objective.
This square matrix lists the Strategic Objectives on both axis, those on the Y-axis considered in a driver role, and those on the X-axis considered in a driven role. Each cell contains the score of the respective cause-effect relationship strength, typically on a scale from 0 (no relationship) to 3 (very strong relationship), accompanied by the hypotheses employed for giving it that score. What do we use the scoring for? It's the basis for deciding upon the modeling level. For instance, we may consider (and draw as arrows on the map) only the relationships scored 2 and 3, or only 3. Certain techniques allow us to further deal with the consequences of this modeling level decision.
What is the purpose of considering this causality? For oance, the possibility to evaluate the effects of direct and indirect Strategic Initiatives, considering the cause-effect relationship between diving and driven Strategic Objectives. This diagram illustrates the way we anticipate the outcomes along such relationships.
More details on some of the Strategy Execution matrices (6, 7, 11, 12) can be found in the article Matrices in Strategy Execution.
9. The Initiatives Outcomes Matrix
This matrix is the main instrument for defining the Lead KPIs on the Performance Scorecard that are associated with the Strategic Objectives and with their corresponding Strategic Initiatives. The cells hold the Lead KPIs that best reflect the output of the initiatives in regard to the corresponding objective. This matrix is an overlay of the Objectives to Initiatives Matrix, where an initiative may contribute to the accomplishment of multiple objectives. This means that on each initiative row, we have different Lead KPIs (reflecting the different contributions), at the intersection with the corresponding objectives columns.
The matrix lists the Strategic Objectives on the X-axis and the existing + new Strategic Initiatives on the Y-axis. Each cell of this matrix contains one or more Lead KPIs that measure the immediate effects (outputs) of the Strategic Initiative for accomplishing the corresponding Strategic Objective. A good guidance for defining these KPIs is related to the parameters that can anticipate the successful closing of the Strategic Gaps included into the Strategic Objective to achieve. The cell content is accompanied by the hypotheses employed for selecting those KPIs.
10. The Strategic Performance Matrix
This matrix is the main instrument for determining the Lag KPIs on the Performance Scorecard, measuring the final effects (outcomes) of the Strategic Initiatives after their Realization period.
The matrix lists the Strategic Objectives on the X-axis and the Strategic Gaps on the Y-axis. Each cell of this matrix contains, wherever there is a gaps-objective correspondence, one or more Lag KPIs that measure the final effects (outcomes) of achieving the Strategic Objective by closing the corresponding Strategic Gap. The consequence is that the Lag KPIs associated with a Strategic Objective is highly relevant for the corresponding Strategic Gaps to be closed, enforcing the link between the Strategy and the Strategic Plan (execution). The cell content is accompanied by the hypotheses employed for selecting those Lag KPIs.
The targets for the Lead & Lag KPIs are calculated based on a Targets Tree, starting from the Top Goals that are defined based on the quantified parameters confirming the successful overcoming of the Paramount Challenges. For more details on the Targets Tree, read the article KPI Targets and the Value Gaps Tree.
11. The Vertical Alignment Matrix
The purpose of this matrix is to reflect the contribution of SBUs (Strategic Business Units or Departments) to the organizational Strategy Execution, by identifying objective-by-objective the organizational Strategic Objectives to which each organizational SBU has a direct contribution.
The matrix has the organizational Strategic Objectives placed on the X-axis and the SBUs placed on the Y-axis. The cells of the matrix include:
When only one SBU shares that organizational objective, the weight is 100%. Each cell information is accompanied by the hypotheses employed for setting that weight (when different than 100%).
The Vertical Alignment of the objectives propagates to each SBU's corresponding cause-effect relationships, Strategic Initiatives, and KPIs + targets.
For more information on the Alignment process, read: Alignment: Using the Balanced Scorecard to Create Corporate Synergies.
12. The Horizontal Alignment Matrix
The purpose of this matrix is to reflect the contribution of internal supplier SBUs to the achievement of their internal customer SBU's Strategic Objectives.
This is a square matrix that has on both X-axis and Y-axis the organizational SBUs or Departments that participate in the Alignment process. On the Y-axis the SBUs have internal supplier roles, and on the X-axis they have internal customer roles.
Each cell of the matrix contains the internal client SBU's objective for the accomplishment of which the internal supplier SBU must define a corresponding supporting objective. The cell content is accompanied by the hypotheses employed in deciding the respective horizontal alignment relationship.
13. The Strategic Risk Matrix
This matrix facilitates the development of the Strategic Risk Management system, built around the Strategic Objectives. The risks related to an objective are evaluated based on relevant Risk Events, grouped in ten Risk Factors (Financial, Commercial, Technological, Operational, Security, Environmental, Regulatory, Legal, Customers, and Employees).
This matrix has the Strategic Objectives listed on the Y-axis and the Risk Factors on the X-axis . The cells of this matrix contain the Risk Events that are relevant for that objective & risk factor, if any, accompanied by the hypotheses employed for selecting those Risk Events.
For more details on the Strategic Risk Management, read the article Strategic Performance & Risk Integration.
14. The Risk Exposure Matrix
This matrix is essential for monitoring Strategic Objectives' exposure to their identified Risk Events. This is performed through the Risk Scorecard that displays two KRIs (Key Risk Indicators) for each Risk Event. One is based on a parameter relevant for the potential impact of event's occurrence upon the Strategic Objective's accomplishment, and one is based on a parameter relevant for Risk Event's occurrence likelihood (the two main risk dimensions).
Both KRI types use in most cases a scale of 1 (low) to 5 (high) for their values, but do not have targets as the KPIs do. The equivalent of the targets is represented by the Risk Appetite, which is set for objective's Risk Exposure calculated as a KRI multiplier of [ impact x likelihood ]. In consequence, the Risk Exposure uses a scale from 1 (low exposure) to 25 (high exposure).
This matrix has the Risk Events listed on the Y-axis and the two columns for impact and occurrence on the X-axis. The cells contain the KRIs used to calculate the Risk Exposure, accompanied by the hypotheses employed for selecting the parameters that represent those KRIs.
15. The Risks Mitigation Matrix
This matrix sets the context for Risk Events' mitigation with the Risk Mitigation Initiatives (RMI). Unlike the Strategic Initiatives, the RMIs are not scheduled for a specific time. They are initially setup and then only triggered and launched by the risk exposure status of their corresponding Risk Events (in relation to the specific Risk Appetite).
This matrix has the Risk Events listed on the Y-axis and the two columns for impact and occurrence on the X-axis. The cells contain the RMIs used to reduce the Risk Exposure on the two risk dimensions, accompanied by the hypotheses employed for selecting the parameters that represent those RMIs.
These are the 15 Matrices that represent the backbone of the Strategy Execution practice blueprint. If you want to assure a reasonable level of disciplined rigor in managing your organization's Strategy, this blueprint is not optional, it is the mandatory best practice to follow.
Observation: You have noticed the employment of hypotheses within each matrix's cells. They are recorded in a Hypotheses Register, and monitored for validity confirmation, as soon as that becomes possible. The hypotheses that are based on external environment parameters are monitored for validity confirmation in the Early Warning System (EWS). Both the register and the EWS are the foundation of Strategy's adaptability.
For more insights into this topic, read this:
Are you serious about mastering the PRACTICE OF STRATEGY? There is no better way to reach the required level of insight and practice ability than the next edition of the Explaining Strategy course starting on May 15.
Strategy Management | Bridging Theory and Practice
5moThis article is incredible for explaining how to implement the various components of the strategy clockwork. Thank you for your continued contributions here. Am I correct that no internal strategic analysis is done until the coherence gaps matrix step? If so, is it safe to make decisions about strategic choices while considering only external environmental factors? It seems to me that solutions to be delivered should depend at least to some degree on an organization’s core strengths and weaknesses.