Elevate

The Three Disciplines of Advanced Strategic Thinking

Rich Horwath
Wiley © 2014
192 pages
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Rating Take-Aways

9
9 Applicability • Strategy is the astute allocation of resources – “time, talent and capital” – in planned
activities to serve customers better than your competitors do.
8 Innovation
9 Style • Successful businesses are strategic. The right strategy is the best predictor of
profitability. Businesses fail because of bad strategy.

• Many firms treat strategy as perfunctory and occasional, instead of as crucial

and ongoing.
Focus • Leaders often have no time to think, can’t prioritize and end up putting out fires instead
of strategizing long term. Stop and give strategy the time it warrants.
Leadership & Management
Strategy • Sound strategy calls for a big-picture, “elevated” understanding of your business.
Sales & Marketing
• Strategic thinking has three elements: “acumen” for developing valuable insights,
Finance “allocation” for using resources wisely, and “action” for executing strategic plans.
Human Resources
IT, Production & Logistics • “Differentiation,” not price-cutting, is the best route to business success.
Career & Self-Development
• Strategy takes three disciplines: First, “coalesce” your best insights.
Small Business
Economics & Politics • Second, “compete” by making the right “trade-offs.” Third, “champion” your strategy.
Industries
• A great strategy may fail if your employees don’t understand or don’t rally behind it.
Global Business
Concepts & Trends

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getabstract

getabstract
Relevance
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What You Will Learn
In this summary, you will learn:r1) Why strategy matters, 2) Why many companies fail at strategy, 3) What
components make up a good strategy and 4) How to strategize.
getabstract
Recommendation
A 25-year study of 750 bankruptcies identified bad strategy as the primary reason businesses fail. Strategy is crucial,
but most firms give it neither the respect nor the attention it merits. Strategy expert Rich Horwath explains that
successful companies are, by definition, strategic, as is his book, which conveys valuable, concrete information
succinctly. He explains the links between strategy and success, and guides executives on how to think strategically.
getAbstract recommends Horwath’s authoritative lessons on making strategy an ongoing aspect of your business to
CEOs, executives, entrepreneurs and investors analyzing corporate strategies.
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getabstract
Summary
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“Elevate” Your Thinking
In business, you can’t see the big picture until you gain “elevation.” Seek an encompassing
overview so that you can understand what makes your businesses tick, how the parts work
together, how to differentiate it from its competitors, and how to provide value and service
to your customers. Leaders must think strategically so they can make the right decisions
getabstract and the best trade-offs – choices that lead to success.
“How do you come up
with a business model
that differentiates you This elevated view demands mental agility and the ability to sift through floods of
and that creates value information. Failure to think strategically can be disastrous. The Conference Board reports
for your customers and,
by doing that, puts you that 70% of the public companies that suffer a “revenue stall” will see their market
in a unique position in capitalization drop by more than 50%. Poor strategic decisions account for most revenue
your industry?”
getabstract stalls. When a firm’s business falters due to inferior performance, that pattern is likely to
continue for at least 10 years. Many times, this leads to complete collapse.

What Is Strategy?
Strategy is defined as “the intelligent allocation of limited resources through a unique
system of activities to outperform the competition in serving customers. Resources include
time, talent and capital.” The GOST framework can help you maintain a separate focus on:

getabstract • Goals – What are you pursuing? A goal is a general target.

“We argue and debate
like crazy about what
• Objectives – What do you specifically want to do? An objective is a specific target.
we’re not going to do • Strategy – A strategy sets the path for “how” you will reach your goals and objectives.
because we know that • Tactics – A tactic provides the specific answer to “how” you will proceed.
we can only do a few
things great.” (Apple
CEO Tim Cook) When you plan ways to mete out resources, your strategy becomes your general allocation
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schematic and your tactics are its specifics. Identify the “trade-offs” you must make among
“time, talent and budget” to meet your goals.

The “Top 10 Strategy Challenges”

Most executives recognize the need for smart strategic thinking, yet few know how to
develop a strategy. Research with 500 managers identified the top 10 strategic challenges:

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 1. “Time” – Managers suffer excess responsibilities, endless to-do lists, and pressure to
deal with immediate tasks and problems. Most lack the time to think strategically.
getabstract 2. “Commitment” – Employees don’t know what a company’s strategic plan is, so they
“If strategy is how can’t get behind it. The Harvard Business School reports that 95% of employees don’t
to achieve the goals
and objectives, it’s know about or don’t understand their organization’s strategies.
impossible to gain 3. “Lack of priorities” – Don’t give every concern the same weight. Make trade-offs.
full engagement and
proper commitment 4. “Status quo” – Strategy implementation usually requires change. Some employees will
from employees [when] get more resources, some fewer, and some will lose the resources they have. Those who
rolling out the strategy
if they don’t know what lose resources will dislike the strategic changes.
it is.” 5. “Not understanding what strategy is” – Many people mistake strategy for “mission,
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vision, goals, objectives and even tactics.”
6. “Lack of training [or] tools for thinking strategically” – Many managers lack
experience or education in planning or setting strategy.
7. “Lack of alignment” – Large firms have many different constituencies which often
don’t operate in sync and sometimes conflict. This hinders executing a unified strategy.
8. “Firefighting” – Executives can’t think and act strategically if they spend all their time
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“Time, talent and putting out fires. They must adopt a reflective “let’s think about that” style.
budget spent on fighting 9. “Lack of quality [or] timely data and information” – Strategy requires astute
urgent but unimportant
fires are resources interpretation and application of data. It calls for developing quality insights about
that can’t be properly creating value for customers. Information is the “core of strategic thinking.” Executives
invested elsewhere
to support...your who lack access to timely data operate at a strategic disadvantage.
strategy.” 10.“Unclear company direction” – The people at the top must set clear directions.
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But some executives don’t want to reveal their plans because they fear providing
information to competitors. However, leaving everyone in the dark makes planning
nearly impossible.

The Three Strategic Disciplines

When you find yourself too busy to think, reorient yourself to the following three strategic
priorities by asking, “Am I working on an activity that is important to the execution of the
getabstract strategy, or is it an urgent but unimportant issue that’s taken me off plan?”:
“A good idea
unsupported by a
financial formula 1. “Acumen” – You have the ability to develop valuable “business insights.”
for success remains
nothing more than a
2. “Allocation” – You utilize your available resources wisely.
good idea.” 3. “Action” – You execute your strategic plans to achieve your goals.
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Strategic thinking also requires practicing three disciplines:

1. “Coalesce”
The first discipline is bringing together in a unified way the ideas and data your business
needs to compete. Strategic thinking demands developing quality insights, and that often
demands pattern recognition – seeing the context in which a problem recurs.
getabstract
“The next time you Work through the six “levers” or basic issues on the “Strategy Spectrum” to identify the
hear [people] blaming
the economy or
data you must pull together: 1) What products or services do you offer? 2) Who are your
headwinds for their potential target customers? 3) Why do they need what you sell? 4) Where can they access
poor performance, your offerings? 5) When can they gain access? and 6) What activities will you undertake
smile and hand them a
mirror.” to bring them in?
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The “Value Mining Matrix” helps you focus on your current and potential customers and
the steps you take to deliver value to them. Plan your value creation, value delivery and
value capture strategy on three different “time horizons”: the first 12 months of activity,

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 the second and third years, and after the first 36 months, by which time you may need to
refresh your business model.

getabstract Strategy’s single goal is to increase profits. Pursue these actions to achieve the earnings
“While checking you want:
lots of tasks off a to-
do list each week
may foster a sense • “Differentiation” – Develop a special product or service.
of accomplishment,
activity doesn’t always • “Neutralization” – Eliminate the gaps between you and a rival product or performance.
equal achievement.” • “Productivity” – Make your processes more efficient so you can cut costs.
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• “Waste” – Avoid any effort that does not provide “new value.”

All of these steps require innovation, but differentiation may be the most pivotal
strategic need. In a study, more than 4,000 executives agreed that attaining “competitive
differentiation” is their “number-one business challenge.” A survey of more than 25,000
firms showed that those with the best return on assets succeeded through differentiation,
not through lowering prices.
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“If you can’t read the 2. “Compete”
business landscape, This discipline requires assembling a strategic system that gives your firm a competitive
you risk leading your
organization in the advantage. You must know where your company stands in relation to its rivals. As former
wrong direction.” Harvard Business School professor Theodore Levitt said, “Everything is differentiable.”
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Determine if your organization is a “leader” – on top and focused on protecting what you
have while working to expand wherever it can; a “challenger” – looking to increasing brand
awareness and build the business; or a “spectator” – a reactive, “me-too” operator stuck
on the fringes?

Analyze your competitors to assess your advantages. Consider how you compare in market
“position,” expertise, capacity, “resources [and] activities,” clientele, the marketplace need
you meet, value delivery, consumer “advantages,” and “value proposition” or “message.”
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“The inability to Institute the necessary competitive balances among your efforts to provide “quality,
elevate thinking in convenience, cost, service” and “selection” to your targeted customers. Never try “to be all
order to set strategic
direction can have
things to all customers.”
devastating long-
term effects on an 3. “Champion”
organization.”
getabstract An effective strategy doesn’t help unless you can implement it, so the third discipline
calls for leading your team to think and act strategically. Champion your strategy. “Fight
for, protect, defend and support” it. Communicate your strategy to your employees and
make sure they support it. Offer social proof – that is, demonstrate senior management’s
commitment to the ideas you want employees to rally behind. Use the compelling “power
of story” to present your strategy to your workforce. Secure the commitment of everyone
who is part of its implementation.
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“Having a high- Kodak, an iconic American company, demonstrated the dangers of failing to get everyone
performance car
(tactic) doesn’t help you
behind a new strategy. The common perception is that the photographic digital revolution
reach the other side of swamped Kodak, a leader in film. In fact, Kodak’s senior executives saw the handwriting
the river if there isn’t on the wall and redesigned its strategy so that it could become a digital photography
a bridge (strategy) to
cross it.” leader instead. But Kodak’s middle managers didn’t support or implement the new
getabstract strategy. They remained stuck in the past and clung to Kodak’s success with film. Their
recalcitrance caused Kodak to lose its leadership position in the photographic industry, and
it never recovered.

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 When Is It Time for a New Strategy?
Double-check your strategy when:

• You reach or adjust your goals – New goals need new paths.
• Your consumers’ needs change – Stay alert to what your customers want.
• An innovation disrupts your marketplace – Know who is delivering enhanced value
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“Great strategy...comes
to your customers and how your firm could compete or do better.
from managers who can • Rivals create a new value – Now, they’ve changed the rules of the game. Catch up.
think strategically.” • You gain or lose capability – Either way, your firm will need a new strategy, to capitalize
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on your new opportunities or to deal with your diminished situation.

“The Strategy Scaffold”

To gain the elevation you need for a strategic overview, stand on a scaffold built of three
planks: your company’s “purpose,” your business model and your “strategic direction.”
Strategic thinking requires elevation, but don’t think about reaching for a metaphoric
30,000-foot view “to see the big picture.” Like everything else, you can overdo elevation.
At 30,000 feet, all you’d see are clouds and broad terrain. For a better view, consider an
elevation of 1,000 feet, where you can see “buildings, homes, bridges and roads.” Use this
perspective to develop your company’s strategy.
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“Any business today
that embraces the With a new strategic initiative, conduct a “Before Strategy Launch Review.” Identify your
status quo as an goal. Determine your approach; determine its main challenges and how you’ll handle
operating principle is
going to be on a death them. Continually monitor its results. Ask, “What went right?” and “What areas need
march.” (Starbucks improvement?” When you complete, adapt or discard a strategy, conduct an “After Strategy
CEO Howard Schultz)
getabstract Launch Review.” Ask, “What happened? “How or why?” And, “What did we learn?”

Smart strategy requires smart tactics. Don’t spend time and money on activities that don’t
move you closer to your goals. Sort your tactics within a four-box “Tactical Evaluation
Matrix” with “efficacy with customers” on the horizontal axis and “differentiation” on the
vertical axis. List your tactics and position them within the matrix in one of four quadrants:

1. “Antes: tactics effective but similar” – These tactics, like the ante that starts a poker
getabstract game, are routine, but they work.
“Too many
organizational leaders 2. “Drivers: tactics effective and differentiated” – These tactics are your best bet. They
say they have a strategy differentiate you from your competitors, and they’re efficacious and profitable.
when they do not...A
long list of things to 3. “Waste: tactics ineffective and undifferentiated” – Don’t bother. These tactics don’t
do, often mislabeled as work and they’re ordinary.
strategies or objectives,
is not a strategy. It is 4. “Fool’s gold: tactics differentiated but ineffective” – These tactics make your firm
just a list of things to stand out, but they don’t earn profits.
do.” (Professor Richard
Rumelt)
getabstract Strategy should not be a perfunctory, fill-in-the-blanks annual activity. Make it a regular
component of your daily operations. Have your managers engage in regular “strategy
conversations.” These discussions rely on candor, openness and willingness to listen to
others’ opinions with an open mind. Put in the time to give strategy the priority it deserves.
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About the Author
getabstract
Former chief strategy officer and professor of strategy Rich Horwath is CEO of the Strategic Thinking Institute. A
frequent lecturer on strategic thinking, he is the author of six books.

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