reading

Contents

List of figures

List of tables

PART 1 UNDERSTANDING STRATEGY

1 What is business strategy?

A clear view

What strategy is not

The choice of strategy

Avoiding pitfalls

Key questions

2 What strategic thinking can achieve

Creating value for customers

Understanding your organisation’s purpose

Creating value for the organisation

Key questions

3 The different views of strategy

The classical administrator

The design planner

The role player

The competitive positioner

The visionary transformer

The self-organiser

The turnaround strategist

Choosing the right approach

Understanding the different views of strategy

Taking account of the unexpected

Key questions

PART 2 DEVELOPING STRATEGY

4 Forces that shape business strategy

The past matters

The undiscovered country: the future

Key questions

5 Scenarios

Taking the right road

Avoiding business-as-usual thinking

Scenario planning

Using scenarios

Key questions

6 Involving and engaging stakeholders

Mapping an organisation’s stakeholders

Building a stakeholder map

Managing an organisation’s stakeholders

Moving beyond transactions

Key questions

7 Resources and strategy

The benefits of a resource-based view

Avoiding pitfalls

Understanding resources

Identifying resources

Accessing performance over time

Managing and developing resources

Benefiting from the interdependence of resources

Assessing why performance has followed a particular path

Upgrading your resources

Key questions

8 Strategies for growth

Organic growth

Mergers and acquisitions

Strategic alliances, partnering and joint ventures

Diversification

Specialisation

Balancing core and context

The perils of growth

Key questions

9 Developing a business strategy and thinking strategically

The essence of successful strategies

Developing a business strategy

Thinking strategically

Key questions

PART 3 IMPLEMENTING STRATEGY

10 Vision

Guiding visions at work

The characteristics of a compelling vision

Developing a guiding vision

Communicating the vision

Using the vision

Getting commitment to the vision

Avoiding pitfalls

Key questions

11 Leading people through change

Leadership lessons in an era of volatility and change

21st-century leadership

Developing your leadership style

Leading people through change

Key questions

12 Implementing business strategy

Leading change

Achieving employee engagement

The balanced scorecard technique

Avoiding pitfalls

Key questions

13 Strategic innovation

Understanding innovation

21st-century innovators

Building a culture of innovation

Bottom-up and top-down innovation

Deep-dive prototyping

Value innovation

Avoiding pitfalls

Key questions

14 Competitiveness and customer focus

The nature of competition

The impact of competition

Techniques for building competitiveness

Avoiding problems with competitors

Achieving customer focus

Techniques to ensure customer focus

Key questions

15 Sales, marketing and brand management

Pricing

Selling

Internet sales

Brand management

Customer loyalty

Key questions

16 Managing knowledge and information

The strategic value of knowledge and information

Techniques for managing knowledge and information

Information orientation

Organisational learning

Key questions

17 Managing finance and risk

Improving profitability

Avoiding pitfalls

Reducing and managing business risks

Key questions

18 Making strategic decisions

Operational business decisions

Decisions involving legal issues

Problem solving

International business decisions

Avoiding pitfalls

Key questions

Notes and references

Index

List of figures

4.1	The leadership spectrum
4.2	Population of Europe and Africa
7.1	A time path of performance
11.1	How active inertia works
12.1	Sears’s employee–customer–profit model
16.1	The Information Orientation Maturity Model
16.2	The cycle of learning
17.1	Assessing and mapping risk

List of tables

1.1	Nestlé’s winning decisions
3.1	Challenges for turnaround strategists
3.2	Choosing the right approach
4.1	Support ratios in selected countries
9.1	Analysing a business strategy: issues and questions
10.1	Vision: purpose and value
11.1	Characteristics of a trustworthy leader
11.2	Management styles
12.1	Typical goals and measures
17.1	Typical areas of organisational risk

PART 1

Understanding strategy

1 What is business strategy?

BUSINESS STRATEGY is the plans, choices and decisions used to guide a company to greater profitability and success.

An inspired and clearly considered strategy provides the impetus for commercial success, whereas a weak or misunderstood strategy may lead to a company going out of business. Understanding what constitutes “strategy” is therefore crucial in developing a successful business, as is avoiding the tendency to label every plan and decision “strategic” when most are about implementing strategy rather than setting it. Equally important is for a strategy to be clear and effectively communicated to everyone with a role in implementing it, and to shareholders and other stakeholders.

A clear view

A focus on strategy will highlight where a unit or group of businesses can be more successful as well as those areas where it is weak, vulnerable or failing. It will show in detail where the business is making its money and why. This insight can be used to build profits, cash flow growth and shareholder value. Strategy indicates where resources (notably people, effort and finance) should be concentrated.

The process of developing and implementing strategy enables managers to understand their customers and competitors. Specifically, a sound strategy is grounded in an understanding of a business’s customers. This understanding is dynamic – the company is able to develop its products and approach in line with its customers’ changing preferences. Some of the strategies pursued by market-leading companies such as Microsoft and Apple involve anticipating what their existing and potential customers will like. Few purchasers of the Apple iPod were demanding a stylish new way to buy, download and play music before it was launched. Instead, Apple was able to combine developments in software, design, the internet and computer-chip miniaturisation with its understanding of what people would value to come up with a surprising product that caught the popular imagination.

Developing and implementing strategy strengthens a business in another important way. It makes sure that resources are devoted to the most important customers in order to retain their loyalty and get them to buy even more of the company’s products or services.

Strategy helps to highlight how profits can be increased through the development of product extensions (new products based on existing offerings), changes to the product mix (the range of available products so that they complement each other), adjustments to prices or cuts in costs. The process of developing strategy also informs thinking about which products and markets to abandon.

Another benefit of strategy relates to developing and implementing a firm’s internal organisation. A clear strategy shows managers where business skills need to be added or strengthened. It also highlights where productivity can be improved and why particular initiatives and activities have succeeded or failed. Above all, a clear strategy gives a company the impetus and focus needed to develop among its employees the culture, attitude and skills required to meet the needs of its customers profitably and in a rewarding way.

A business’s strategy provides a guiding view of the future that influences employees’ decisions, priorities and ways of working. People like to do work that is meaningful to them and that has a purpose. Strategy should provide that meaning and purpose. Those responsible for setting a business’s strategy often lose sight of the intangible and valuable contribution it can make to employees’ commitment, engagement, productivity and creativity. People work better and achieve more if they believe in what they are doing and have confidence in the direction they are going. Conversely, uncertainty or insecurity about the future breeds tension, lack of confidence and even cynicism, none of which are conducive to business success or personal achievement. A strategy that employees understand and believe in will help them develop their potential and attain new skills. In turn, this boosts self-confidence and increases self-awareness, both of which are qualities that intelligently managed companies need more of.

For owners or shareholders, strategy provides a way of measuring their business’s progress. Events ranging from recessions to acts of God may obscure the reality of a firm’s short-term performance, but what cannot be obscured is whether the right strategy and direction have been chosen, and the progress made in executing that strategy.

A strategy will not be successful if it does not provide benefits to customers. Indeed, they are more important than anyone. The crucial component of strategy is how it will result in greater appeal to customers. One business that has become adept in this area, growing steadily in a highly competitive and often turbulent market, is Cisco, which supplies networking equipment and network management for the internet. Its strategy is based on understanding what it can do to help its client achieve their goals, and then using this understanding to guide its decisions and focus its work. In short, customer success is the mantra behind client engagement.

Cisco and client engagement

At Cisco, people recognise that each client has different goals. Some are related to financial performance or market share targets; others are concerned with public-sector targets and governmental priorities.

Cisco places great emphasis on making sure that its approach focuses on helping customers to achieve their goals. Scott Brown, formerly vice-president, distribution for worldwide channels, says:

When we think about client engagement, the most important question we can ask is: What are we doing to deliver our clients’ success and help them achieve their goals?

The challenge is to make sure that the focus is consistent globally and from top to bottom within the company. Cisco’s experience shows that several things are essential.

Understanding what constitutes customer success

This requires an understanding throughout the organisation of what constitutes success for each customer so that everyone shares the same goal and is clear about what it is. For instance, the Cisco badge that forms part of every employee’s security pass highlights the most important elements of the company’s culture such as open communication, inclusion, trust and teamwork, but it also makes clear that all those attributes serve a single goal: customer success.

Getting the measurements right

If you measure things that are important to the customer and the company, it helps to reinforce their importance among employees – so it matters that you get what you measure and the way you measure it right. The old adage “what gets measured gets managed” holds true, and to determine customer success Cisco uses a wide range of measurements including customer satisfaction, customer loyalty and the number of franchises within a business.

Getting the compensation structure right

The size and nature of their remuneration or compensation package matters greatly to most people. Getting the compensation structure right helps generate positive behaviour and gives people the incentive to do the things that need to be done. At Cisco, a substantial portion (approximately 20%) of executives’ pay is linked to customer satisfaction.

Managing performance effectively

At Cisco people get feedback on the measurement of results and know that their compensation depends in part on how good those results are. This reinforces the focus on the customer and benefits everyone involved.

Collaborating and sharing expertise

If a new Cisco client has a specific need and the experience or expertise to address this resides somewhere else in the business, there is an expectation that help will be forthcoming. Collaboration is fostered and managers communicate the standards of professionalism and integrity they expect.

Using technology to communicate

Cisco’s focus on customer success benefits from a network-based approach in which communication includes videos from sales leaders, regular information about client successes, examples of how customers use technology, and details of what has worked and what has not. For a company selling networking equipment none of this is surprising, but this kind of communicating is standard in many big companies.

Developing skills and insight

Once the principles of client engagement are understood, practical aspects that a manager can develop include the following:

Dialogue. The ability to question, empathise and listen is crucial for establishing rapport with customers and ensuring their success.
Coaching. Encouraging people who have attained leadership positions because of their results and technical expertise to share their skills and experience is essential.
Knowledge. A sufficiently deep knowledge and understanding of a client’s industry, market, customers (and what they want and value), competitors and overall market position is crucial to being able to make a difference.

What strategy is not

Although it is important to know what strategy is and why it is important, it is also useful to appreciate what strategy is not. There is much confusion about the nature of strategy. Strategy is not:

A vision or mission statement such as “Our strategy is to be a leading-edge provider/employer”. This explains neither where the firm is going nor how it will make progress. Consequently, it is not a strategy.
A goal, budget or business plan. Strategy is not a goal such as “We aim to be the best or number one”. This is, at best, an aspiration. Also, strategy is neither a budget nor a business plan, although elements of these may contribute to how a strategy is implemented.
Data analysis. Too often, data analysis leads to strategy, when what should happen is that strategic choices are made first and then refined and explored further using data analysis.

The choice of strategy

The development of strategy involves making decisions about:

Who to target as customers (and who to avoid targeting).
What products or services to offer.
How to undertake related activities efficiently.

In every industry there are several viable positions that a company can occupy. The essence of strategy therefore is to choose the one position that a company will claim as its own. An example of the difference clear strategic thinking and decision-making can make is Nestlé’s turnaround of Nespresso.

Clear strategic thinking: Nespresso

Nespresso is an espresso coffee-making machine consisting of a coffee capsule and a machine. The coffee capsule is hermetically sealed in aluminium and contains 5 grams (about one teaspoon) of roasted, ground coffee. The coffee capsule is placed in the handle, which is then inserted into the machine. The act of inserting the handle pierces the coffee capsule at the top. At the press of a button, pressurised hot water is passed through the capsule. The result is a high-quality cup of espresso coffee.

TABLE 1.1 Nestlé’s winning decisions

Who

Who should I target as customers?

Target individuals and households, not restaurants or offices

What

What products or services should I offer?

Sell coffee, not coffee machines

How

How can I best deliver the product to customers?

Subcontract the manufacture of the Nespresso machine to prestigious manufacturers

Take control of coffee side and focus on the production of high-quality coffee capsules

Sell the Nespresso machine through prestigious retailers Educate retailers so that they can teach the consumer how to use the machine

Sell the coffee capsules direct through the Nespresso Club

Nespresso was introduced in 1986 as a joint venture between Nespresso and a Swiss-based distributor called Sobal. The new venture, Sobal-Nespresso, purchased the coffee-making machines from another Swiss company, Turmix, and the coffee capsules from Nestlé. Sobal-Nespresso then distributed and sold everything as a system: one product, one price. Offices and restaurants were targeted as customers and a separate unit called Nespresso was set up within Nestlé to support the joint venture’s sales and marketing efforts, and to service and maintain the machines.

By 1988, the business had failed to take off and headquarters was considering freezing the operation. However, in 1988–89 Jean-Paul Gaillard, Nespresso’s commercial director, changed the strategy and made the business profitable. Gaillard decided that the coffee side of the operation had to be separated from the machine side. Since Nestlé was not in the machine business, he felt he had to focus on the coffee.

Production of the Nespresso machine was assigned to several carefully selected manufacturers such as Krups, Turmix and Philips. The machines were then sold to prestigious retailers including Harrods, Galeries Lafayette and Bloomingdale’s. It was the retailers’ responsibility, under the guidance and control of Nespresso, to promote, demonstrate and sell the machines to consumers. It was the responsibility of the manufacturers to service and maintain the equipment.

On the coffee side, the Sobal partnership was ended and the operation placed under Nespresso (later Nestlé Coffee Specialties). The target customer was changed from offices to households and the distribution of coffee capsules was organised through a “club”. Once customers bought a machine they became a member of the Nespresso Club. Orders for capsules were taken over the phone or by fax direct to the club and the capsules were shipped to the customer within 24 hours. The club covers around 60 countries and employs more than 9,500 people, compared with 331 in 2000. Furthermore, there is a strong brand loyalty, with over 3 million Facebook fans and 180,000 customers visiting Nespresso’s online boutique every day.

Avoiding pitfalls

All businesses need a strategy of some kind, and they should reconsider it as the business environment changes. But many get into trouble through lack of understanding or clarity about their strategy. The first principle, therefore, is that strategy needs to be as clear, simple and compelling as possible.

There are other principles that can help a strategy to be successful.

Create a unique strategic position for the business

Focus on who your customers are, the attractiveness of your offer to them (known as the value proposition), and how you can connect the two as efficiently as possible. The benefits of a unique strategic position are highlighted by the concept of value innovation, developed by W. Chan Kim and Renée Mauborgne in their book Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant.¹ This is the concept of defying conventional logic to either redefine or create a market. For example, for many years US TV networks used the same format for news programmes. They were aired at the same time and they competed on the popularity and professionalism of their presenters and their ability to report and analyse events. This changed in 1980, when CNN launched real-time 24-hour news from around the world for only 20% of the cost of the networks. Viewers, with their increasingly busy lives, valued news and analysis at a time that suited them, rather than having to fit around a TV channel’s schedule.

Consider the availability or potential availability of resources

Money and other resources are limited, even though the balance can be improved through alliances to bring in other kinds of resources such as knowledge and skills. Realistic decisions must be made about how to use them to the greatest benefit. For example, if a company wants to retain existing customers but expand the customer base, it must widen its product range and the range of value propositions. Toyota, one of the world’s largest car companies, has products ranging from small, economical vehicles to luxurious marques such as Lexus. This is in contrast to the UK car industry during the 1970s and 1980s, when one nationalised company, British Leyland, produced many more models than its competitors but failed to distinguish between any of them. The company’s resources were spread too thinly, with product development and marketing weakening rather than strengthening each other. In time, these issues combined with other problems, such as poor industrial relations and weak quality assurance, to create a tidal wave of other troubles that eventually submerged the firm.

Understand the importance of values and incentives

Strategy must be based on reality about both the external and internal environments. The external forces shaping business strategy include regulatory developments, demographics, economic growth and political stability (see Chapter 4). Internal factors include skills, people’s attitudes to their work, their commitment or “engagement”, the way they operate and the overall culture of the business. If specific aspects of employees’ work in achieving a company’s strategy are measured and incentives are given, they will respond accordingly and the strategy will progress. The converse is also true: if a company ignores the need to get people working in a way that is consistent with the strategy, progress will be haphazard at best.

Gain people’s emotional commitment to the strategy

Any strategy, however brilliant, will fail unless people understand it and are emotionally committed to its success. Therefore it is crucial to explain why the strategy is important to the organisation and the individual.

Be open to strategic ideas wherever they originate

Although the top people must decide a company’s strategy, there is a mistaken view that only they can develop strategic ideas. Ideas can come from anybody, anytime, anywhere.

Keep the strategy flexible

All ideas are good for a limited time, not forever. Continually question the answers to the “who, what, how” questions. Strategy should not be changed too often, but it will require adjusting to altered circumstances. Give employees the freedom to respond and to adjust without waiting for permission or instructions.

Most major businesses recognise the need to empower their employees and focus on their customers. Understanding how we have arrived at this way of thinking and the different views of the role of strategy is the focus of the next chapter.

Key questions

What are the most profitable parts of your business? In particular:
- What are the prospects in the short, medium and long term?
- How precarious is the business? Does it rely on just a few products, customers, suppliers, personnel or distribution channels?
What are the priorities when expanding? What must be done to achieve the benefits and avoid the pitfalls?
What do colleagues see as the best options? What are their views on potential opportunities and difficulties?
How well do your people-management policies reflect changing patterns of employment? In particular, are you co-ordinating the efforts and talents of all employees, enabling them to improve their skills and enhance the organisation’s prospects?
Are your operations unnecessarily bureaucratic? Could they be more flexible?
Is there the commitment to act decisively and consistently? How can the culture of the business or team be enhanced?
Do you understand how planned changes will affect people?
What are your success criteria and performance measures? How will they be monitored?
What is the medium- to long-term plan that will ensure the company’s success is sustained?
What are the priorities both within the organisation and externally?
How will your planned strategy affect other aspects of the business and, in particular, the principal stakeholders (notably customers and employees)?
How does your business involve customers? Are efforts made to understand what they want? Are you certain about what your customers value?
Is any part of your planning weak or lacking clear direction? Do you lack confidence in your ability to make the right decisions to meet the strategy?
Do you always consider multiple options before deciding? Is the quality of your strategic thinking narrow or uninspired?
Is your organisation afraid of uncertainty or does it enjoy thinking about it? Do people see it as a threat or as an opportunity? Is it a potential source of competitive advantage?

2 What strategic thinking can achieve

THE PAST DECADE has been tumultuous by anyone’s standards. It is understandable that many business leaders are feeling battered and are looking forward to the return of easier times, when countering a hostile takeover was simple compared with facing financial meltdown and market turmoil. This would be a mistake. Of course, it seems trite to say that the world is changing: it always has and always will. But the statement is not as simple as it may appear, as it comes with one important caveat: if you do not adapt, and quickly, you will be left behind. Like the inattentive wildebeest at the back of the herd, you will find that the result of not paying attention will, to be frank, be calamitous.

This simple fact has caught out many leading businesses – colossal firms such as Kodak, Bethlehem Steel, Chrysler, Daewoo, Firestone, Digital Equipment Corporation and others. In most of these cases, complacency and a commitment to the status quo escalated in a smooth, undisturbed fashion. The danger for any business is that lack of awareness and connection to the outside world will increase gradually, incrementally and sometimes almost imperceptibly, providing the foundation for most business difficulties. Firms that declined or failed did not do enough to understand or prepare for the future during the good times, and suffered as a result. In retrospect, countless business leaders recognise that good is the enemy of great; in other words, their firms were doing well, so they saw no reason to change. By the time they realised that the world around them had changed (notably customers, competitors and regulators, and sometimes even their employees) it was too late to respond.

Practical strategic thinking that connects “big picture” strategy with detailed, practical implementation is one antidote to this. In fact, no one ever moved from good to great – or sustained leadership in their sector – by being complacent or failing to move with the times. Having strategies that strongly feature innovation and organisational agility (which simply means being unbureaucratic, flexible and entrepreneurial) is one way of avoiding complacency, moving with the times and making sure that the strategy works in practice.

Creating value for customers

Some successful businesses, notably Google, Microsoft, Intel and Facebook, are fortunate to have had founders who created exceptional companies by conceiving a massively popular product with few initial competitors that could then be constantly improved and developed. However, among the lessons on strategy to be learnt from these giants of 21st-century business is a perennial truth that affects all businesses, first enunciated in the 18th century by Adam Smith, a Scottish economist, who wrote:

The nature of things has stamped upon corn a real value, which cannot be altered by merely altering its money price.

In a rapidly changing world, the ability to create value will help to sustain success through even the toughest of turbulent times.

As Smith recognised, the ability to create value lies at the heart of successful business and commerce. For a price to be paid the object has to be valued; this underpins the theory of supply and demand that lies at the heart of market economics. Profitability requires that something is valued, and this is increasingly provided by the uniqueness of knowledge. The more abundant the supply of a good or service, the lower its price will be, even to the extent that it may not be profitable to produce and sell. But the more scarce the supply (or when competition is held back by barriers such as patents, expertise or other forms of knowledge), the more likely the good or service is to generate a profit. Where there are such barriers, the price of a good or service no longer relates directly to its cost of production but rather to its customer value, which in turn relates to its uniqueness or the costs that buyers would incur if the product were not available.

There are other important points about value. Every company’s mission is to create and protect value. It is at the core of an organisation’s purpose and, potentially, sets it apart from others. It is a source of competitive advantage and generates profit. The way to create financial value in a business is simple, well documented and unchanged since Smith’s time: a company earns an appropriate return on the capital that has been provided. In today’s global environment, shareholder value and total shareholder return (TSR – the total financial benefit that is generated for the owners of the business) are driven by market expectations of future cash flows, and these are based on a company’s ability to sustain performance and grow over the long term.

To build a profitable organisation that can secure sustainable growth, you need to consider how value will be created – and value creation starts with an understanding of the organisation’s purpose. Ask two questions:

Why is the organisation here?
What is it trying to achieve?

The answers will help you identify what it needs to do to achieve its aims. A vague idea is not good enough. An organisation’s success depends on a clear understanding of why it is there.

Understanding your organisation’s purpose

It is easy to frame business issues in terms of the activities to be undertaken. Although this is necessary, it omits one important ingredient: purpose. If you do not know the purpose of an organisation, it is highly likely that business plans and actions will miss the mark. Leaders need to step back from the day-to-day distractions and agree what the purpose is, and then look at all the business activities through this lens. This will ensure that everything from strategic development to managing operations will be focused on delivering real value and building a strong, resilient and successful business.

Essentially, business is about perpetually maximising profit. As noted earlier, to achieve this an organisation must offer something that other businesses or consumers want. Yet focusing on profit is only part of the equation. For some organisations profit is not their primary focus; for others, such as charities, it is of little or no concern. Looking at the motivation of these not-for-profit companies reveals how pivotal knowing the purpose of an organisation is for achieving its aims. An example of an organisation that blends the approaches of charitable and for-profit sectors successfully is Grameen Bank. Significantly, it reveals how much can be achieved by placing all business issues within the context of the organisation’s purpose. This can be applied to any business in any sector.

Grameen Bank

Working as an economist at Chittagong University in Bangladesh in the 1970s, Muhammad Yunus witnessed the extreme poverty of the local population. He could see that the main reasons for people being trapped in poverty were that they had no access to credit, or the rates charged were so high that they were forced to live hand to mouth and were unable to grow their businesses or improve their standard of living.

The story began when Yunus visited a poor village with his students. A woman who made bamboo stools explained that she had to borrow money to buy the bamboo, and by the time she had paid back the loan after selling the stool, there was little money left for her to live on. This cycle continued, as the woman never had enough money to buy the bamboo and always had to get another expensive loan. It was clear that the exorbitant rates of interest being charged (often 10% a week) were preventing people rising out of poverty and building a secure future.

With no money to invest in their future, the cycle of poverty could never be broken. Yunus decided to use his own money and offer micro loans at affordable rates so that people were able to keep more of their revenue, thus enabling them to invest in the future, raise their standard of living and break the poverty cycle. The sums were small, amounts that other banks would not have been interested in – small returns on small sums would be considered not worth the effort. Moreover, the loans were given to people that other banks would have dismissed as too great a risk: they had no reliable credit history, no collateral and no obvious means of paying back the loans (the banks basically believed that poor people could not be trusted to repay the loans). Yet Yunus believed it could work. Not only did he feel that it was the right thing to do; he also believed he could minimise the risks and run the business successfully. Other banks and even the government advised him not to pursue this idea. He ignored them and, in 1983, formed Grameen Bank (which means village bank).

The reason for founding the bank was to help poor people escape from poverty by providing small, long-term loans at low interest rates. Key to making this work was trust and knowing who to lend to and on what terms. As a condition of taking a loan, borrowers were given financial advice. By insisting on this, it was more likely that ventures would be successful, which also minimised the risk to the bank. Yunus believed that poor people could be trusted to manage their finances, and he knew that it was the women who could be relied upon to run their business and personal affairs efficiently and responsibly and to repay their loans. Another important reason for its success is solidarity: 95% of the bank is owned by the borrowers themselves, giving everyone shared responsibility and commitment.

Today, the size of Grameen Bank is impressive: it has loaned over $9 billion through 2,564 branches to over 8 million borrowers in over 80,000 villages. It has the highest rate of successful repayments: 97% of loans are repaid. An important reason for this is the bank’s policy of mainly giving the loans to women (97% of the total). It is at the forefront of a world movement that aims to eradicate poverty through micro-lending, and its methods have been used in projects in some 58 countries, including developed countries such as the US, France and the Netherlands.

Grameen has enabled many families to cross the poverty line. As well as giving business loans, it helps to improve people’s lives in other ways. Housing loans have enabled people to build houses: almost 700,000 have been constructed. Loans for education have helped many to improve their chances of getting better jobs. The bank also awards educational scholarships to bright children, especially girls, as it is more difficult for them to get access to education in Bangladesh. It has been a lifeline for millions of poor people, proving that micro-credits work. These small loans have made all the difference, says Yunus, providing that “spark of personal initiative and enterprise” that helps get people out of poverty.

The bank provides something that so many people desperately need. Although most years have been profitable, its main purpose is to create something more than money – a better society – and it certainly does that. It is not surprising, then, that Yunus is known as “the banker of the poor”. For his work in helping people to rise out of poverty, he was awarded the Nobel Peace Prize in 2006.

The example of Grameen Bank highlights an important theme: the need for work to have meaning, which is increasingly significant and links with the fact that successful organisations have a clear purpose and create value. It also shows that issues of value and purpose are as relevant in the not-for-profit sector as they are in the commercial environment, possibly more so.

Helping organisations to define their purpose is a crucial benefit of strategic thinking. The following steps are useful when seeking to agree on the purpose.

Understand buyers’ motivations

Whatever product or service you are selling it is essential to know what motivates people to buy. Motivation and behaviour lie at the heart of creating value. People purchase a product or service for one basic reason: they expect it to improve their life. This is why they need to perceive the product or service as relevant. A successful product also adds something for the customer, such as freeing up time, boosting confidence, solving a problem, raising status, improving efficiency or making tasks easier. Clearly, the decision to purchase arises from the sense that the product or service will enrich a person’s existence in some way. In short, it delivers extra value.

Focus on customers – the people you serve

Success, then, relies on a product’s attributes adding value for the customer. This has implications for developing new products and repositioning or redesigning existing ones: a company must consider how it is adding value. Michael Raynor, a Canadian business writer, analyses the relationship between new products and purchasing decisions, arguing that when a product enriches someone’s life, it represents a disruption from the past. This makes sense; if a product offers little extra advantage over what is already offered, there would be no obvious reason for customers to choose your product over a competitor’s. Consequently, businesses can capitalise on this by aiming to disrupt customers from what they are used to, with products that break from the norm, giving them something that adds extra value to enrich their lives. In his book The Strategy Paradox, Raynor calls this “disruptive innovation”.¹ He adds that, because the future is uncertain, companies should remain flexible by developing a range of options to prepare for different situations.

Embrace uncertainty and change

The next step in finding a purpose is to embrace change. Many things affect a business’s ability to respond well to change, not least a lack of information to help guide the correct course of action. If companies do not keep relevant data, are not looking for signs of change, or have never thought about how to deal with possible scenarios, their ability to remain profitable or even survive at all will be limited. In this instance mindset is critical.

Understand the difference between cause and effect

When embracing uncertainty and change, it helps to appreciate the difference between cause and effect. Causation means “if I can predict the future, I can control it”, whereas effectuation means “if I can control the future, I don’t need to predict it”. Most people make decisions using causation, where they try to determine the best course of action; that is, they try to gain control of the future by predicting it. Successful business strategists, however, use effectuation, where they take action based on what they know, who they know and the resources they have available, rather than by analysing optimal courses of action. They evaluate opportunities based on whether the risk of the downside is acceptable, rather than the attractiveness of the predicted upside. Such strategists are confident that they can control the future so there is no need to predict it.

Creating value for the organisation

Establishing a purpose is an essential first step in creating value. Creating value is the lifeblood of an organisation; it is what connects it to its customers and differentiates it from competitors; it builds confidence among stakeholders and secures the organisation’s long-term growth. Every organisation’s mission is to create and protect value, but some do it better than others. Value is at the core of an organisation’s being and what potentially sets it apart from others.

Creating value is a huge topic, but it is fundamental to what strategy can achieve. It is complex: prone to subjective judgments, easily and swiftly eradicated and subject to unexpected fortunes, good and bad. It is also manageable: managers have the skills and ability to stay in charge and direct the organisation’s fortunes. There are common attributes that can help deliver value and secure long-term success, such as:

connecting vision, strategy and business processes with what is needed for the business to succeed – above all, putting mechanisms in place to make sure that people work towards the same goal;
positioning the organisation to deal with a range of possible scenarios, and then being able to hone in on what is needed when a particular scenario occurs;
aligning the range of initiatives with the organisation’s overall objectives and strategies;
inspiring the actions required by leading others appropriately;
focusing on the connections between stakeholders that will create value;
using the strategies, and their value drivers, to present a credible picture of where the organisation is headed;
making value creation central to evaluating and managing people and determining how performance is rewarded;
appointing one person to align strategies, actions and performance management.

The next chapter looks at how strategy and strategic thinking have evolved, and how we can build on the lessons of the past to create value and thrive at a time of complexity and change.

Key questions

How clear and compelling is the purpose of your organisation? What does it do?
What more could your organisation achieve?
What do your employees and customers want from your organisation? What would they value?
How does your organisation help people? What value does it create?
How scarce and valuable are the products or services provided by your organisation? How vulnerable are these to being adopted by others or undermined?
How could your organisation strengthen and develop over the next 12 months? What could it achieve, and how might it be different?