Friday, May 29, 2020

Principal Axes: The Three Capability Dimensions That Propel Corporate Strategy

Let’s talk about strategy.

More specifically, corporate strategy as a functional discipline, the fundamental value it creates (or should create) for an organization and its people, and the capabilities it requires in order to succeed.

This article is the first in a series that looks at strategy pragmatically, from a business operator’s point of view, and explores some practical, proven recipes to create and utilize a corporate strategy function that drives meaningful value. It’s my humble contribution to introducing some standards, common frameworks and best practices for strategy as a functional discipline. In this piece, I focus on the fundamental purpose and value of strategy, and I introduce the 'Principal Axes' framework to showcase the capabilities that need to be in place to realize that purpose and value.

Strategy is one of those words that everyone likes to use (a lot!), yet everyone ends up interpreting and applying it in their own way, to a point that its meaning – and value – is often completely lost. The same is true for strategy as a business discipline.

The lack of commonly understood and accepted definitions and standards in the realm of corporate strategy causes companies to miss out on the value they should be able to derive from the strategy function. Common standards, frameworks, processes and metrics are applied to all other horizontal functions – from finance to HR to operations to IT to sales and marketing. Strategy should not be an exception.

Plenty has been written about strategy by illustrious business thinkers and decorated practitioners. Harvard’s compilation book “HBR's 10 Must Reads on Strategy” offers a pretty good ‘tasting menu’ of the most influential writings on strategy. Porter’s Five Forces. Mintzberg’s 5P’s. The Balanced Scorecard. The Blue Ocean Strategy. Even Dilbert chimes in with a succinct view of what it means to be a company with a strategy. It’s easy to get lost in all the frameworks and catchphrases. But what should strategy as a function really do, how should it do it, and what does it need to succeed?

In my view, the most practical way to summarize all this theoretical exploration is as follows:

I. Purpose
The fundamental purpose of the strategy function is to provide the organization with a compelling and consistent north star that helps people up and down the chain of command make the right decisions and take the right actions at any moment – decisions and actions that help the company advance toward achieving its long-term objectives.

II. Jobs
In order to fulfill this purpose, the strategy function, when deployed effectively, does the following two critical jobs for the organization. It provides:
  1. Clarity of core values, vision, mission, objectives, and near-term execution plan
  2. Coordination of narratives, agendas, initiatives, KPIs, processes and execution activities
Clarity of purpose, vision and objectives sounds like an obvious necessity for any company, but it is startling how often it is completely lacking, despite capable leadership, motivated employee base, and a strong, profitable business. I have walked into formidable Fortune 500 companies as a strategy consultant and found complete and utter discord – each C-suite member telling a different strategic story, EVPs and SVPs struggling to define the strategic narrative for their organizations, expensive acquisitions made without clarity of strategic thesis or path to incremental shareholder value.
It’s the job of the Chief Strategy Officer (CSO) and the strategy function to work top-down with the CEO and conduct the bottom-up internal and external analyses to define and distill the strategic vision and objectives, and make them crystal-clear and readily available to the entire organization.

Having unified vision and objectives is one thing. Having coordinated and disciplined processes to communicate and execute on the vision is another thing altogether. Most companies do that quite poorly. Executing priority initiatives and delivering against KPIs is often left to individual business units and horizontal functions, each usually having very different levels of project management and execution capabilities.

A central group accountable directly to the C-suite, a corporate project management office (PMO), that oversees, harmonizes and coordinates strategic initiatives across the organization, is a rarity. PMOs are commonplace across IT organizations and as part of large transformation efforts, usually facilitated by a large consulting firm. The same value they provide for these technical programs should also be unleashed to coordinate the CEO’s portfolio of corporate strategy initiatives. The corporate PMO should be a standard component of any CSO’s responsibilities and org structure.

Doing these two critical jobs (i.e., providing clarity and coordination) well can create focus and consistency of business outcomes. Even more importantly, it can generate significant momentum and excitement for the company’s strategy both internally and in the marketplace, energize employees and clients alike, and do wonders for the corporate bottom line.

III. Capabilities
How does the strategy function fulfill its purpose and deliver meaningful value? What capabilities are needed to do the above critical jobs well?

Any CSO, any strategy executive – and really anyone who is trying to act in a strategic capacity – need to be able to do three things well, to operate comfortably in the following three dimensions, in order to succeed (see Figure 1):
  1. Upward. Zoom out vertically to see the bigger picture, understand the industry and competitive dynamics, and zoom back down to connect that with daily execution tasks
  2. Forward. Project longitudinally into the future to anticipate what is to come, predict and envision future competitive moves and business outcomes, and adjust current plans accordingly
  3. Across. Reach laterally across the organization to receive inputs from all functions and stakeholders, to propagate the corporate vision, and create organizational cohesion and consistency of execution
Figure 1. The Three Dimensions – or Principal Axes – of Core Capabilities for Corporate Strategy

The vertical (or Upward) dimension is what I call the “Google Earth ability of good strategists. It's the ability to zoom out of the task-level details (the ‘street view’) and to elevate to a higher level (‘the planetary view’), see the bigger picture, the patterns, the larger goal. Then put the day-to-day tasks in context of that bigger picture.

Seeing the bigger picture and using it to illuminate daily execution tasks has some considerable benefits: it showcases the macro patterns and interrelations within the industry, it helps people make connections, and most importantly, it helps imbue tasks and projects with meaning and purpose.

One of my favorite professors at Columbia Business School, Michael Feiner, who wrote the bestseller “The Feiner Points of Leadership”, says that good leaders help their hardworking teams see that they are not just “chiseling stone”, but that they are “building a cathedral”. CSOs, and their strategy function as a whole, should be able to effortlessly zoom in and out of the Google Earth dimension to visualize, conceptualize, synthesize and communicate down the bigger picture and the larger goals.

The longitudinal (or Forward) dimension is what I refer to as the Chess Master ability of good strategists. It is the ability to envision and anticipate what is to come. It requires one to visualize complex ‘trees’ of multiple probable scenarios, consider the ‘if-then’, or cause and effect, relationships between their own actions and those of others, and predict the most likely outcomes. This capability enables the creation of compelling, differentiated, future-proof strategies that have a high probability for success.

There are many examples of business leaders who excel at this, but there’s probably no better poster child for this ability than Apple's founder, Steve Jobs. Probably the most impressive display of this ability comes from his “Lost Interview” with Robert X. Cringely. In it, among many other prophetic predictions, Steve Jobs foresees the impact of the internet on communications and commerce. The year is 1995. Amazon has just barely been incorporated. And there, 25 years ago, Steve Jobs envisions the explosion of e-commerce and online banking, the significance of net neutrality, the rise of ‘emerging brands’ and ‘direct-to-consumer’ (DTC) marketing. CSOs and their teams have to possess this mental ability to ‘time travel’, to envision and anticipate, and to reflect this gleaned knowledge in their company’s current plans and actions.

The lateral (or Across) dimension is probably the least glamorous and most overlooked capability strategy executives (should) master – I call it the ‘Symphony Conductor’ capability. The Wikipedia entry for “conducting” offers the following definition: “The primary responsibilities of the conductor are to unify performers, set the tempo, execute clear preparations and beats, listen critically and shape the sound of the ensemble, and to control the interpretation and pacing of the music.” This is what so many great companies that have either a weak or no strategy function are missing.

The CSO organization should play this unifying role at each phase of the strategy process – from the single vision, mission and long-term objectives in the purpose phase’; to the coordinated portfolio of proprietary assets, products and services, and M&A transactions in the planning phase’; to the centralized PMO processes, timelines, governance and KPIs in the execution phase’.

These three dimensions of core capabilities should be used systematically by CSOs and strategy leaders to build out and evaluate their own functional departments, and to make sure they are capable and equipped to do the jobs of corporate strategy well and fulfill its core purpose. CEOs should expect their corporate strategy unit to perform capably across all three axes of strategic value-creation: elevating the organization’s thinking, future-proofing the corporate vision and strategic plans, and orchestrating a well-synchronized execution of all critical initiatives.

But the 'Principal Axes' framework of strategic capabilities should also be used by other functional leaders – and really anyone across the organization – to set the internal standards, nurture higher-level strategic thinking, and ultimately deliver clarity of vision and consistency of execution.

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