Stress-Testing Your Strategy

To make it easier to think, I've jotted down the key points in short phrases rather than long paragraphs. There are a few questions here that deserve careful thought:

1. Who is your real customer?

Allocate resources to the customer — this is the supreme principle. McDonald's first customers were property developers; later they were consumers. Visa's customers were regional banks; Mastercard's were global banks.

Harvard Business School's customers are not the students but faculty and staff around the world.

Does every one of your partners understand what the real customer values?

For example, P&G executives go shopping with customers.

2. Five ways to organise to create the most value for customers

Low-price strategy

Walmart: the vast majority of resources go to purchasing, marketing and merchandising — lowest price, lowest cost — while store managers have very few resources and can't adjust the shelves, lighting or air conditioning.

Local value creation

Push resources down to the regional level so they can create value for local customers. Restaurant chains are an example: different regions want different desserts and spices.

Global excellence standards

GE / L'Oréal: organised by business unit, so wherever they are, customers get the best core product.

Dedicated service relationships

IBM, Sibal and other technology companies have many different types of customers across different markets.

Specialist expertise: Google, hospitals, university R&D departments: R&D gets the most resources, and at Google R&D and the market-facing side are kept separate.

Can you pursue two strategies at once? It depends on the industry. If yours is a low-price industry and you spread your strategy thin, someone will come in, focus purely on low prices and steal your customers.

Ask yourself: have you minimised the resources going to people who don't serve the main customer? Investor relations, HR, community affairs… here, "just enough" is fine. Frugality frees up resources for customers.

Seen this way, my company scores pretty low…

3. Setting KPIs

If you measure everything, you end up with an endless list of metrics. You have to find the metrics for the most critical outcomes. How do you find them? How do you set them? Step 1

From a "competitive strategy" perspective, you need to look ahead. How? Imagine failure: five years from now your strategy has failed, your best people have left and your customers are gone — on which dimensions did you fail? For different companies, it might be… - not staying at the technological frontier, not keeping up with digitalisation; - land costs too high, over-expansion, too much debt, political turmoil - losing distributors, too little R&D, no successors for frontline staff

… Step 2

Build metrics and performance accountability: who executes and follows up? Is it tied to rewards? What are the consequences?

Scoring myself, I still come out very low.

4. Controlling strategic risk

Risk usually comes from people, and people are prone to mistakes when facing "pressure + opportunity".

To avoid people rationalising "mistakes", set clear boundaries that remove the ability to rationalise, like the Ten Commandments in the Bible.

Ask yourself: does everyone in the company know which behaviours are forbidden? - Use a code of business conduct to constrain ethical behaviour; - Protect goodwill by prohibiting certain actions

• Stay tight on strategic priorities by being clear about which opportunities to avoid.

Say no to 100 good ideas that fall outside your strategic priorities.

Have this kind of strategic discipline — we will not pursue an opportunity unless it meets these conditions: - Top 1 or 2 in market ranking - 15% average annual growth - Revenue greater than… - Able to command a price premium and competitive advantage - Standardised product - A clear exit strategy

…

5. Getting the team to think like winners

Set internal and external benchmarks

Revenue growth

Improved margins / profits

Cost savings

Improved cash flow

Customer acquisition

Customer satisfaction

Cross-selling

Individual rankings

Department rankings

Encourage cross-departmental innovation

Make "span of accountability" > "span of control". Make people responsible for things beyond what they control — more responsibility with fewer resources — and encourage an entrepreneurial spirit in your partners. An entrepreneur is: an individual who pursues opportunity regardless of the resources they currently control.

Allocate costs. Get teams to pay attention to the costs other departments generate.

Build cross-functional teams

Matrix accountability

That said, there's one thing we need to remember:

Doing all of the above is like going to a restaurant and ordering every dish on the menu!

What matters is asking the right questions, and avoiding lists of: - too many customers - too many metrics - too many values

…

Force yourself to make hard choices.

I really didn't know how to make strategy before. Now I've caught a tiny glimpse of how it's done — the rest is practice.