Strategy: You Need One Now More Than Ever. Key Tips to Creating an Effective Functional Strategy

Hi. Today we’re going to talk about strategy, specifically why you need one, the steps to create one, and then how to execute it and make it happen. We’re going to do this in about 16 minutes.

You may ask, why do we need a strategy now? We’re too busy with everything else going on in the world. I would argue that you need one now more than ever. Because if you don’t have one, with everything changing as fast as it is, you’re going to get lost in the dust. If you do have one, now’s the time to say, is this going to be a relevant strategy in two years with everything changing? Or you can look at it and say, yep, my strategy is right on target, and I think I can explode this little bit of it, and get a little bit more out of it for my company.

I want to start with a story about my son. He started playing roller hockey when he was about 10. He wasn’t a very athletic kid, but this was the sport he wanted to do. I said, “Okay, I will support you.” So I drove him down. Honestly, I probably spent most of the games working on my computer, but a really interesting thing happened at the end of each game. There would be a group of parents, mostly dads, who would rip those kids skates off, grab them by the shoulder and marched them out of the rink, yelling at them so loudly, that all of the rest of us could hear, “You missed two shots! If you play it a little more aggressively, that might have played you more. Why did you let that guy check you?” I would cringe when I’d see this. At one point, I even said to my son, “Aren’t you glad I’m not that parent?”

One day, the Program Director came up to me and she was telling me how frustrated she was with the same parents because they were also yelling at her. “Get better coaches!” “Don’t let the bad kids play!” “You should be playing my son more often!” She said it’s just horrible. I said, “Well, what do you want?” And she said, “What I want is a hockey league where everybody can play.” I said, “I don’t know if that’s possible.” A couple months later, she put out a notice to all the parents saying, “We are going to be a family Hockey League. If you want to be in a competitive Hockey League, here’s some phone numbers you can call to get your child into a different league in the city.”

The point of this story is that even the hockey team needed a strategy in order to be effective. There’s a lot of companies out there that don’t have a strategy. What happens when that happens is you’ve got a CEO who thinks he or she has a strategy in their head, thinks maybe they’ve told the organization. But the organization each has their own idea, everybody about what we need to be doing every day to make this venture successful. Everybody’s making hundreds of decisions every day to get where they think we need to go. That could be terrifying. We certainly don’t want that to happen.

As we think about strategy, there’s no strategy, there’s bad strategy, and there’s good strategy. I’d like to start with no strategy. The company I’d like to use is Kodak. Kodak kind of invented the whole camera film thing, and was very successful for over 100 years with that product. But they didn’t really have a strategy. So when the market started evolving a lot more digital, they didn’t keep up. Ironically, Kodak went bankrupt the same week that Facebook bought Instagram for a billion dollars. Instagram had become the new way of taking pictures. So Kodak lost their whole company over not really having a strategy in keeping up with what was going on.

A bad strategy is just as bad as no strategy. I’d like to use JC Penney. JC Penney is a retail store that wasn’t doing very well. So they brought in a new CEO from Apple, which was a great, successful company, and asked him to transform the company. So he created a strategy for JC Penney. The problem was he kind of replicated what they were doing in Apple. He got rid of coupons—JC Penney used to do lots of coupons, Apple doesn’t do any coupons—so he stopped the couponing. He got all the clutter out of the store, and opened them up nine wide aisles. He taught the salespeople how to sell the same way Apple had been selling and he waited for success to come, and it didn’t.

Couple of big reasons. One, the Apple user is very, very loyal, the JC Penney shopper is not. Secondly, the Apple user spends a lot more money on Apple than the JC Penney user spends on closing the store. As we speak, JC Penney is filing for bankruptcy. So you’ve got no strategy, you’ve got bad strategy.

Now, what I’d like to share with you is what I think is great strategy. Southwest Airlines has had 46 years of profitability, which is pretty amazing. Their strategy is to become the world’s most loved, most flown, and most profitable airline. I had the good fortune of listening to their CEO talked to some executives over 10 years ago. He said, “We started this airline as a way to help families fly to vacations and to visit relatives they wouldn’t be able to do otherwise.” They were really clear about what they wanted, and they have stuck with that strategy the whole time.

If you look at the four things they’re doing to deliver that strategy, global scale of operations, this means every single plane they fly is a 737. That helps them in a lot of ways keep their prices down. They’re landing at smaller airports, which don’t have big landing fees. One set of change parts andreplacement parts, so much cheaper on equipment. One set of training materials for the pilots, and all the pilots are trained to fly all the planes, so lots of flexibility. Of course, there’s no meals, there’s no warning pass ticket seats, so they can turn a plane around in 20 minutes. Second thing they wanted is best brand image, and they’ve worked very hard at that. Highest popularity among passengers, they measure that every year. Then, highest profitability, and they’ve been able to achieve that. They had four strategies that really worked.

One of the things the CEO said during that talk was, “We will never charge for baggage.” That was at a time when everybody was starting to charge for baggage. He said, “We want to keep the airline affordable, we’re not going to start charging them for baggage.” I thought, “Huh, we’ll see how that lasts.” Well, here we are, many, many years later, and to this day, they are the only domestic carrier that is not charging for baggage. They have principles, and the same strategy, and it’s worked for them all this time.

The other thing that’s important to understand is a strategy has to have a viable alternative, or it isn’t a strategy. I’ll give you an example. I’ll stick with Southwest. They did not go after the business traveler. That is a very lucrative market. They don’t even have a business class on their planes. They did not go to Asia, where is probably the most expensive market where airlines make lots of money. They didn’t try that either. They stuck with what they knew, and said, “We are not doing all these other things,” and that’s what helped them be successful.

So if you think of a company strategy that says, “We’re going to have great service and quality,” that’s not a strategy, because what’s the alternative? Lousy service and bad quality? No. But if you say, “We’re going to have the best service and the retail industry, and we are going to take back anything at any time with no questions asked for returns, if we don’t have it in the store, we are going to ship it to you overnight, and we are going to train our sales associates to a level that nobody’s ever seen.” That’s Nordstrom strategy. That is a strategy.

What Nordstrom has walked away from is low price merchandise. That is not in the Nordstrom store, and they have walked away from a whole bunch of customers because of that. There’s also not a Nordstrom store and every mall in the country. As a matter of fact, there’s entire cities that don’t have Nordstroms. They have chosen who they are and who they’re not. If you’re not able to say what you’re not doing, you don’t really have a strategy.

Here’s an example of a process to create a strategy. This is called the monitor process. It was created by Roger Martin. There’s actually a book called Playing to Win that was written by Roger Martin and A.G. Lafley, who was the CEO of Procter and Gamble. You can buy that book and get more details on this. You could hire Deloitte, who I think owns the consulting practice for this now, and they will come in and help your company consult. I’m going to spend just a few minutes talking to you about this. You can go off and practice yourself if that’s what you want to do.

The first piece of this is having a great aspirational vision. You need to invest a bit of time in this because the rest of its garbage if you don’t do this part right. This is where Southwest got it right. Their aspiration was we want to allow families to travel by air. That’s something the employees can wrap their minds around, the shareholders, the customers, everybody. It’s a great aspirational vision.

The next thing is where will we play? This is where you take the whole world and you start squishing it down into who are we. What markets cities, countries are we playing in? Physically, where will we be? What products are we going to sell? What services are we going to sell? How do we draw a box around that? Then, who are our customers going to be? You’ve got to declare that. Otherwise, you’re trying to do everything for everybody.

A good example of that is Jeff Bezos with Amazon. He decided he wanted to sell in 1995 something online. He did a lot of research and came up with books, because most everybody uses books and there’s lots of books out there. So there was lots of stuff to sell. So in 95, he started selling books online. Three years later, he was selling books in 46 countries, and said, “Hmm, maybe I’ll sell something else now.” He started selling music. Then, of course, it just exploded on and on. But he stuck with that strategy for three years, and it was a very deliberate strategy that was very successful for him.

The lesson on this one is the strategy isn’t etched in stone forever. If things change, if you accomplish what you set out for, it’s time for expansion or a new strategy. Once you know where you’re going to play, then you look at how you’re going to win. I’ve heard this described as building a wide moat. You don’t want to create something that, in a week or two, your competitor can come and copy because there’s no competitive advantage there. So you want to figure out, what are the elements of your strategy that are going to help keep you unique?

In this case, I use Starbucks as an example. Starbucks’ goal was to have a third space where people could congregate and feel comfortable. We have our house, we have our job, the third space was Starbucks. How did they do that? They put them everywhere. It’s pretty easy to go to a Starbucks. They design the Starbucks, so they have cushions, low tables, free Wi Fi, nice cups, and a bunch of things that make it nice to be in that space. Probably the most important thing around culture is they did a tremendous job of training their baristas. They don’t give them a prescription script to follow. They train them for what the company wants, what the culture wants, and then they let them go do it.

A great example of that, for me, is I used to work at a place that had a Starbucks nearby. That Starbucks opened at 5am. Once in a while, I had to be at work at 5am, so I would go. The first time I walked in, I was a bit shocked, because this location where I worked was a very conservative neighborhood. I walked in and here was the barista with hair all over the place—nose rings, earrings, tattoos, and I it kind of took me back and I thought, “Wow, I didn’t expect somebody who looked like this to be in this neighborhood.” Then, in two minutes, I knew why he was there. It’s because he greeted everybody by name.

Remember, it’s 5am. It’s probably the same people coming in every day, and he started their drinks. I think, in some cases, he started the drinks before they got there. He talked to them about their work and their families. They went and sat down and one of the couches and wait until the drink was ready. It was an experience for them to start their day at Starbucks, and that man was perfect for that experience. That’s how to win. Culture is a huge piece of this that I’m not going to go into today, but you’ve got to get the culture right.

Once you’ve done those things, the backside of this is the capabilities, the processes, and the systems, and those must be attended to. If you want to have the most technologically advanced company, you better have a rockin IT department or that’s not going to happen. If you are manufacturing something and want the best service in the industry, you better make sure you have multiple suppliers, so that when there is a earthquake in Japan, you don’t lose your incoming materials, you better make sure you know where your trucks are all the time and put GPS on them, and you better make sure you can do fast changeovers in your manufacturing sites so you can meet the man. There are back office processes to any strategy. You must take the time to go through those as well and make sure you have the capabilities to deliver.

Once you’ve got the strategy, the next thing, which I think is really cool, is a journey map. So this is five years on one page. Every function can do one of these. The way it’s broken out is year by year. The theme is basically your elevator speech, what are we going to do this year and what are the key outcomes we expected that? The green sections are the metrics, what are the numbers we’re going to deliver on whatever my function needs to do? Processes and systems, I just talked about. Then, the blue on the bottom is really the culture and the behaviors that we want to enable the stuff on the top.

Here’s an example of my HR journey map that I created at the end of 2018. Now, the important thing is I’m still running on this journey map. I do not drop off 2019 and add 2024. I do this really hard today off site with my leadership team, which is a great team building every five years, and we create this. Now, every year, we tweak it. If the strategy changes, of course, I have to redo it. But otherwise, it’s a really nice five year roadmap.

I use it for lots of things. If we have a new hire, I can sit the new hire down and say, “This is what we’re doing this year. This is what we did last year. This is your place in this whole thing. This is what we need you to help us accomplish.” If I meet with suppliers, customers, or even my functional partners, I can say, “Here’s what HR is doing, here’s the help we need from you, and here’s what you should expect to get from us.” When my boss says, I thought, “We were working on this one thing,” I can show him, “No, that’s next year. Do you want me to pull it forward? I can, but that changes the resource need and the money.” “No, no, no, leave it to next year, at least I know you’re getting to it.”

So I printed this off, and I’ve got it actually laminated because I was wearing out the papers. I use it so often. It’s a wonderful document to keep yourself clear on what you’re doing. The other cool thing is, every month, every quarter, or every year, you can sit down and say, What did we accomplish? Are we on track? Where are we falling behind? What do we need to pick up or delay till next year, and maybe pull something else forward? It is definitely a living working document.

Final thoughts. Make sure your company has a strategy. If you are the CEO, this is your job. If you’re not the CEO, if you’re the functional leader of finance, or operations, or marketing, sales, HR, IT anything, I would contend it’s also your job. If your CEO isn’t doing it, help him or her. Use the monitor process, use some other process, it doesn’t matter, but have a declared living strategy.

The second thing is make sure you know what you’re not doing. The last time I did this, my boss and I sat down and I felt like we were trying to do too much. I said, “Okay, then tell me what we’re not doing.” He and I worked through this, and we ended up choosing things not to do that we weren’t able to declare to the rest of the company. Here’s the things we need to do, we need your help, and here’s the things we are not doing. So if this is your pet duck project, we are not working on it. You need to let that go or go work for somebody else where you can do the pet duck project, but here’s the things we’re working on. Building the capabilities and processes. Otherwise, it’s a piece of paper on the wall. Then, create a journey map because I think the journey map is really the tool to enable this to happen.

I’d like to end where I started, which is with my son. He played for three years for this team. It got a lot more casual after the super aggressive kids left. He became MVP at the end of three years, which never would have happened if those super competitive kids had stayed in league. So we had a happy son, we had a happy mom, we had a happy program director. In closing, I would say I feel like now more than ever strategy is super important. I would really encourage you to figure out what you want, and then go out and get it. Thank you.