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How to Think Systematically About Your Business Strategy

How to Think Systematically About Your Business Strategy May 10, 2021

Imagine, you are a summa cum laude of your class and have amassed significant knowledge of business models there are. Yet, you find yourself short of delivering what’s needed to confront the challenges and devise a plan that addresses the goals. It’s more common than you may think!

Orchestrating a strategy for business is a major undertaking; often requiring irreversible decisions that ensure success in the long run. It’s not unusual to get swayed by the details and slide into what Richard Rumelt terms a “bad strategy” domain that elaborates on trends, articulates grand goals and depicts nice diagrams to no avail.

To create a winning strategy, you could pick any business framework; could chisel your core competencies with Prahalad and Hamel, hunt for blue ocean territories with Kim and Mauborgne, or become competitive with Porter’s forces; but how do you translate these theories into executable business plans?

This part often gets lost in the discussions on business strategy frameworks. Stanford’s business school professors, Jesper Sørensen and Glenn Carroll bridge this gap between abstract visions and real situations by offering systemic thinking for developing and managing a strategy.

In this article, you will understand how to translate business insights into strategic plans. It will unravel the deficiencies in our current strategic thinking, and will take you through the examples of everyday challenges faced by business executives, and the three stages of strategic thinking you can adopt to formulate, develop and manage a successful strategy.

The problem in how we think about strategies

Corporate Executives

This lack of confidence is not new. A decade back only 28% of executives categorized their strategic decisions as good (McKinsey Quarterly Survey of 2009).

Sørensen and Carroll place a lack of disciplined reasoning at the core of this problem. Despite all the knowledge of major business strategy frameworks, and case studies, business leaders struggle to implement them in daily decision-making. And thereby feel underconfident about the strategies in place.

What you need is a clear view of the basic elements that tie the grand visions and a successful strategy together. But, how can you inculcate that level of strategic thinking?

Every strategy story is different; Walmart didn’t get success the same way as Apple did. When the success factors are so diverse, and the next strategic dilemma never looks the same, getting trained in theories and frameworks, but not on how to think strategically about the new and unknown conditions, will remain inadequate.

A constructive system of thinking to produce, evaluate, and revise strategies is the critical element missing from the training of business strategists.

Before we understand how you can use constructive argumentation to conclusively support (or reject) your strategies, let’s have a look at the challenges business leaders face every day with three industry examples.

Three Strategic Leaders, Three Challenges

Strategy formulation is no longer a once in a year process; set at the top and executed by multiple executives. Strategists, business leaders and managers must take important strategic calls daily, blurring the boundaries between strategy and execution. Here’s an overview of the three challenges, three business leaders faced.

Strategic Leaders

Kelly at Southwest Airlines

Despite recording profits for 40 years straight, Southwest Airlines’ CEO, Gary Kelly was under pressure in 2016 following a few continuous rough years, to reinvent the company’s old ways and explore new revenue streams and cost-saving schemes as used by its competitors. One such scheme was to raise new fees by scheduling advance seat assignments.

Southwest unlike its competitor always employed open seating policy. Kelly faced a classic problem faced by strategic leaders. The challenge before him was to speculate:

  • If the decline in company’s performance reflected underlying problems in business strategy?

  • What would happen if Southwest abandon its open seating practice? Thus, imagining scenarios of customers booking and not booking in advance.

Upon making a strategy map, it can be depicted that Southwest could have lost its low-cost advantage in the market with the new policy. Stanford professors found that quick flight turnarounds and teamwork enjoyed by Southwest were partially the results of its open seating rule.

Earp at AB InBev

In 2014, the board of AB InBev was concerned about the company’s non-presence in the craft brewing segment, considered the key in keeping industry innovative. Pedro Earp, then VP of Marketing was tasked with the responsibility of formulating the right strategy. Earp took the heavy acquisition route usually taken by AB InBev for new capabilities. The challenge arose when he realized that this approach turned AB InBev into a platform in the craft breweries segment. The acquired breweries functioned like original teams and continued about their business like normal, and in the process, AB InBev had become an ecosystem for craft breweries instead of innovating the segment internally as a participant or direct competitor.

The questions before Earp were:

  • Was it a good strategy (even though not intended initially)?

  • How will it develop in the long run, and change AB InBev’s market image?

  • How should it guide future decisions regarding acquisitions (a more pressing concern)?

  • How should this strategy be measured – the key performance indicators?

Fields at Tableau

Tableau made an unusual announcement in 2009, about launching a free version of its software that would be open for the public. Until then, Tableau catered to paid clients only in the private space. Ellie Fields, an engineer by education and then VP of Product Marketing was tasked with the responsibility of designing and implementation of new free version.

She faced the same challenges typically faced by product managers:

  • How should she design a free product that also encompasses the company’s overall strategy?

  • Should it be a standalone application or a part of the paid web version?

  • Should Tableau invest in creating a shared webspace for sharing visualization projects?

The answers to these questions may or may not always be found in theories and frameworks, and even when it is, the process will demand more – a systemic strategic thinking. In the next section, we talk about the three stages propounded by Sørensen and Carroll to think strategically about business problems.

How to approach strategic thinking? Three Stages

Regardless of the differences in the challenges faced by Kelly, Earp, and Fields, they share an important element, i.e. the need for logical reasoning to reach strategic success. It entails drawing conclusions from assumptions and ensuring their argument are logical.

Formulate and revise your strategies through a set of these three core activities: visualization, logical formalization, and constructive argumentation.

Visualization, Logical Formalization, and Constructive Argumentation

First Stage: Visualize with strategy maps

Make a strategy map. A strategy map is a diagram of a strategy argument that links the ideas, resources, and actions to each other using directional arrows to show how the cause leads to effect or inputs lead to outputs. Use the power of visualization to devise, articulate, and revise your strategic arguments. A good mapping exercise can even lead you to question or reject the validity of your desired outcome.

Visualization stage is about discovering the connections between concepts and harnessing different points of view.

Let’s understand the process with an example of Walmart.

i. Start by determining your destination. Ask: What are you trying to explain or what is the conclusion you are trying to reach?

You may have lofty goals and multiple conclusions you may be trying to reach. When so, perform the mapping exercise individually for each desired conclusion.

For instance, Walmart has maintained dominance in retailing business for years. The reason being its famous low-cost products than its competitors. If were to understand the causes behind its success, our intended conclusion would be: “Walmart has low costs than its competitors.”

ii. Find plausible explanations for the tentative conclusion.

Once the conclusion has been framed, identify and write down the possible explanations that could lead to this conclusion. This step is central to the strategic process. At this stage, the causes don’t have to lead directly to the conclusion. They may be dependent on another cause to make it happen. You can do this individually or adopt carefully curated brainstorming sessions.

Quick tips if you consider brainstorming: Keep fixed timelines; encourage active participation; include more standing postures and snacks on the table for easy conversations; and generate as many ideas as possible.

In the case of Walmart, since the goal is to identify plausible explanations for its low-cost advantage, the following picture emerged for Sørensen And Caroll.

Brainstorming Ideas for Walmart’s low-cost advantage

Underline the key resources and assets, and Bold the distinctive capabilities

iii. Cluster and refine the ideas.

Once you have a diverse set of plausible explanations for your conclusions, try to cluster these ideas together. In the case of Walmart, the factors involving interaction with suppliers (private-label products, high volume purchasing, etc.) can be clustered in one, and the distribution abilities (sharing of best practices, cross-docking, etc.) in another.

This process of clustering may seem mysterious, but it’s a creative process. Business leaders often detect patterns and similarities owing to their industry intuition and experience.

iv. Storm and synthesize by making a map.

Finally, make the map. Begin with a clean sheet and mark the relationship between the goal you started with to the ideas you have generated. This will create a map depicting how different factors impact one another.

Place your conclusion on the extreme right and write a causal sequence. Say: Private-label product lines ¬ Bargaining power over suppliers

Walmart’s low-cost advantage

A tentative visualization for Walmart’s low-cost advantage

Source: Sørensen And Caroll

Second Stage: Formalize logic for the strategy

This involves checking the validity of your argument and translating it into a formal logical representation. One of the biggest benefits of this stage is – it brings coherence. It takes directly from the discipline of logical reasoning and syllogism.

While the first stage was about going to lengths for finding conclusions, this is about making your explanations logically coherent, and guaranteeing that the assumptions taken for the strategy are true and will hold (in this case the relationship between bargaining power and lower costs).

Make your strategy arguments in propositional form. Such as:

IF Premise (W1): If a firm has bargaining power over suppliers, then it will have lower costs.

IF Premise - Statement 1: Walmart has a bargaining advantage over its suppliers.

THEN Conclusion - Statement 2: Walmart has low costs than its competitors.

This step checks if the engines of your explanation are correct and hold as per proved theories. It achieves two things: simplifies and makes strategy arguments logically coherent; taking you further from abstract to reality.

Third Stage: Constructive Argumentation

The final stage is putting your arguments open for everyone to argue (without arriving at ‘arguing blues’). Great strategists who achieve lasting success encourage constructive argumentation, advocated from the times of Socrates. The hitch for strategists is to ensure the “constructive” aspect at this stage. Create the right environment and maintain it.

The main reason for Netflix to continually reinvent itself despite daunting challenges is that we were taught to ask, “Can you help me understand what leads you to believe that’s true?”
– Patty McCord, Former Chief Talent Officer, Netflix

While the first two stages improve strategic reasoning, the power of argumentation lies in three reasons: arguments with a well-chosen group lead to better decisions, arguing leads to buy-in from stakeholders, and it can change how people think about a situation. You could advocate a culture of “arguing, but holding your proclivities once the conclusion is reached, and working toward a common goal.”

This process offers both creativity and flexibility to the thinking, as well as the structure of logic to make a strategy stand tall.

Skills business strategists need but aren’t taught

The tools of logician and philosopher aren’t typically foddered in business and management schools. This is where business strategists need to strive. Know-how of logical syllogism will help executives and managers articulate strategic arguments and validate them.

Case study analysis often focussed upon in business schools, isn’t comprehensive. If leaders are to think systematically about their strategies, they need to develop general skills as well.

Many leaders possess a shallow knowledge of their chosen course of actions. They can’t identify on a deeper level the needs that their business fulfills, and unique points that distinguish them. If top business leaders can’t do this, imagine the confusion at three or four levels below. (Cynthia Montgomery in The Strategist)

Advanced skills in constructing arguments, debating, and assessing strategy arguments are essential strategy tools often missing from executives’ arsenal.

Add these to your skills toolkit and sharpen your power of strategic thinking.

Learn how TSI business strategy certifications can help you hone your strategic acumen, here.

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