Strategy: Three Questions (Part 1)
What Is Strategy?
Strategy is the subject of countless books, articles, and YouTube videos. While widely recognized as important, it has become a popular buzzword that has moved beyond its military roots to be widely taught at business schools and sold by numerous consultants. Strategy is characterized in myriad ways, but at its core, it means taking action to shape the future. At Kanbrick, we like simplicity and believe a good strategy answers three questions:
1. Where are we today?
2. Where are we going?
3. How will we get there?
Although the questions are simple, getting to good answers is like climbing a mountain – arduous and rewarding. We’ve found that the strategy process is often complex, confusing, and designed for Fortune 500 companies with large strategy teams and billions of dollars in revenue. While we don’t try to capture every nuance of strategy, in this note, we answer the first question “Where are we today”. We will add follow-up notes on Part 2 and Part 3.
Where Are We Today?
A proper diagnosis is important in strategy, and answering the question “Where are we today?” provides a jumping-off point for the process. Rather than developing 200-page slide decks, we’ve found that the most critical insights can be uncovered by examining 4 buckets (we’ve also included some illustrative sample questions):
1. Market Analysis
- Size: How big is the market and what are the key market segments?
- Growth: How fast has each market segment grown historically and how is that expected to change in the future?
- Structure: Who are the competitors, what is their market share, and what is the basis of competition? How has this changed over time? How is the market being disrupted?
2. Financial Analysis
- Revenue: What are the major revenue drivers (e.g., customers, products, geographies, etc.), how has this changed over time, and what are potential growth opportunities?
- Costs: What are the major costs, how have these changed over time (and what are future expectations), and what are improvement opportunities?
- Profitability: How has profitability changed over time? How do we compare vs. best-in-class benchmarks? What is the profitability mix (e.g., by customer, products, geographies, etc.), and how is it shifting?
- Balance Sheet: What is the current capital structure, what are opportunities to reduce net working capital and capex, and do we have ample liquidity and manageable debt?
3. Customer, Value Proposition, and Operational Performance
- Customer: Who is the target customer? What is the overall customer experience and retention?
- Value Proposition: What products / services do we offer customers? What do the competitors offer? How do we compare vs. competitors on key purchase criteria?
- Commercial Processes: What is the effectiveness of commercial processes (e.g., sales, marketing, product development, technology, etc.)?
- Operational Performance: What is the effectiveness of operational processes (e.g., distribution center, call center, etc.).? How do operational metrics (e.g., percentage of shipments delivered on time, cost per package, website availability, etc.) compare to historical levels and best-in-class performance?
4. People and Culture
- Talent: What is the quality of our team? What are the critical roles and quality of people in these roles? What are the biggest challenges that we must address?
- Culture: How empowered, engaged, and committed are our people to their work? Is our culture aligned to our strategy? How do we perform on key talent metrics (e.g., employee engagement and retention)? What are our biggest opportunities
Analyzing your business drivers builds a fact base to understand the current state and identify what your business does well, opportunities to improve, and future positioning. While imperfect, we’ve found the “SWOT” framework – strengths, weaknesses, opportunities, and threats – is useful for identifying and prioritizing the key drivers your strategy should address. We recommend leaders brainstorm SWOT independently first, then collaborate to prioritize the company’s most critical drivers together (e.g., identify the 5-10 most critical drivers).