Stop Strategizing. Start Creating

Nov 19, 2024

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In September 2001, the CEO of a major company announced a big decision. From a classical strategy viewpoint, it was highly strategic. You can find many such cases in textbooks.

A month later, another CEO made an important announcement. This decision wouldn’t have been called so strategic.

The first CEO's decision nearly destroyed the company and cost them their career. The second CEO's decision cemented their status as a tech guru.

These cases represent two fundamental approaches to strategy. One of them is an outdated path that’s gradually becoming obsolete.

One Tragic Step for the Man, One Giant Leap for Mankind

Until the 17th century, humanity believed in a geocentric universe. People thought the sun revolved around the Earth. But in 1610, Galileo Galilei delivered revolutionary news to Earthlings: their planet wasn’t the center of everything!

The Catholic Church didn’t like that at all. Galileo paid a very high price for his discovery.

I recalled this story a few months ago while listening to startups pitching their projects to an investment fund that had invited me as an expert.

All pitches followed the same logic:

1. problem

2. solution

3. scalability potential.

But just like the Pope nearly burned Galileo at the stake for his discoveries, classical management literature considers this approach dangerous heresy.

The classic strategy uses others' problems as merely fuel to win the market rat race.

Take, for example, the modern strategic ‘bible,’ Roger Martin’s “Playing to Win.” The very first chapter contains the ‘playbook,’ the set of five choices: a winning aspiration, where to play, how to win, core capabilities, and management system.

Me, me, me.

I call this playbook, which some LinkedIn "likes" chasers love to mindlessly copy, ‘me-strategy,’ or ‘geocentric strategy.’

A company is in the center of it, and everything revolves around it. But if you don’t make customers the center of your universe, they’ll become someone else’s.

Worshiping Shareholders? Don’t Expect Mercy from Customers

The first CEO was Carly Fiorina, and the company was Hewlett-Packard. In 2001, HP, struggling to maintain its market share, acquired its competitor, Compaq, for nearly $25 billion.

The deal didn’t save HP’s market position, and some experts consider Fiorina one of the worst CEOs in history.

The second CEO was Steve Jobs, who, in October 2001, introduced the first iPod. Those white earbuds catapulted Apple to unimaginable heights of success.

Fiorina did what was best for the business. Jobs did what was best for customers.

· Fiorina followed the classical management playbook: a company should grow, and everything else is merely a means to an end. This theory views M&A deals, market domination, restructuring, and similar moves as strategic.

· Jobs didn’t read the textbooks. He believed strategy was about creating value for customers. He said, “Manage the top line: your strategy, your people, and your products, and the bottom line will follow.”He believed in a ‘heliocentric’ strategy where a customer is the ‘sun.’

HP didn’t create new value for customers by merging with Compaq. Apple offered customers a way to keep '1000 songs in their pockets.' Feel the difference.

Order in Thoughts on Strategy Brings Order to Strategy

We can organize our thoughts on strategy in the traditional order:

1, What goals and ambitions do we have?

2. Who will be our customers?

3. What needs do they have?

4. What value will we create for them?

But this order in thoughts was only applicable to 20th-century markets, where customers had to buy what businesses produced.

Today, businesses have to produce what customers want to buy.

Apple, Google, Uber, Airbnb, Amazon, Tesla and many others didn’t start with big ambitions. They started with big problems and respective products.

They didn't buy market share to achieve success. Their products made them successful and they won market share.

Big problems are unmet customer needs. If the needs are prevalent, the solution is scalable.

So, try this order in thoughts on strategy:

What are our purpose and mission?
What big problem do we see around us?
What unmet customer needs does it represent?
How could we find a new way to solve it?
What goals and aspirations do we have in solving this problem?

I wrote a book, Red and Yellow Strategies: Flip Your Strategic Thinking and Overcome Short-termism, about the approach. Here is an excerpt from the book.

What does strategy mean?

Business success depends on the company's ability to create value for the six stakeholder groups: customers, employees, business partners, shareholders, regulators, and society.

Leadership in any company should create, maintain, and develop this ability by managing Value Waves, the sets of workflows that provide value for stakeholders.

Refer a friend

The primary objective of any business is building a great company by maximizing stakeholder value and striking a balance between various and sometimes conflicting stakeholder interests.

We should switch our attention from selfish short-term goals such as profit, EBITDA, or market capitalization to establishing conditions under which profitability and market value growth become the natural outcomes of our efforts.

It happens when we deliver so much value for our customers that they prefer our products over those of our competitors. And if we provide sufficient value for other stakeholders, they will support our efforts to build customer value.

We should stop pretending to care about our customers and business partners while tracking only financial results. We must stop crossing our fingers when we proclaim that the customer is a king or queen for us.

We shouldn't just play to win because winning means hitting a particular target in a specific time frame. We have to win to play and stay in the game for decades.

Strategy is a set of central principles that guide managers across all levels when making lower-tier decisions.

Central principles reflect the approaches we use and the tools we deploy to create value for stakeholders.

First and foremost, central principles address the following questions:

Which types and segments of customers are a priority for us?
Which of their needs do we address first?
What customer values do we create to meet these needs? Which products are, therefore, a priority for us?
What is our policy regarding hiring and staff development?
What corporate culture do we aspire to?
How do we regard product quality? What is our priority – high quality or low cost?
How do we manage costs?
What do we primarily invest in?
How do we work with business partners?
What contribution do we want to make to societal development?

The definition of strategy

Strategy is a set of short- and medium-term plans to maximize the value for all stakeholders. These plans are designed so that their implementation will lead to the company's development in the specified direction (purpose statement) and at the chosen pace. Implementing these plans should allow the company to build a business that is resilient to external changes and focused on long-term sustainability and growth.

Strategy is a set of answers to the question: "What problem should we solve, and why?" It is a number of projects on enhancing Value Waves.