Bloomport U

I just finished the HBR case study “Strategy as a Work-In-Progress” which is an excerpt from the Harvard Business Essentials series titled “Strategy: Create and Implement the Best Strategy for Your Business”. While this excerpt was not potentially earth shattering like “Blue Ocean Strategy“, it was an excellent breakdown on the fundamentals of strategic relevance.

This article can be broken into about four ongoing steps to ensure your strategy remains relevant.  This challenges are to 1. Determine if the firm is meeting objectives, 2. Determine why the firm is/is not meeting its objectives 3. Keep on top of the market forces and 4. Watch for warning signs.

First, use the standard profitability ratios (ROE / ROA / and operating margin) to determine if the firm is meeting its objectives.  Use these metrics with “eyes wide open” as these indicators are just lagging snapshots that can point to issues, but may just as well obfuscate.  Note that there are likely cases where the firm is doing just fine even though the strategy is in the bottom of the CFOs desk.  I would argue that just because your FI metrics are working, it does not implicitly mean your strategy is working.

Second, move from the lagging financial indicators to the internal operational metrics (Kaplan and Norton’s Balanced Score Card) to indicate if strategy execution is working.  Note of caution… if your BCS is not in line with your missions, goals, and strategy, your BSC can lead you on a wild goose chase.

Third, conduct a regular Market analysis.  The article gives five deliberate questions as part of the Market Analysis exercise; however, I see this as less of a “one off” exercise and more of a way of life.  To explain, I call this “environmental scanning” and it means making it a weekly habit to scan your area of concern for changes on the horizon.  The executive who makes this a habit will be better informed and poised to take advantage of internal and external changes vs. the executive that waits until the obvious hits them in the head (Kodak).

Fourth: seek out and do something with the warning signs.  Linked to environmental scanning, watching the environment for new competition (which I do not see as a warning sign, but as confirmation that someone in the market has a winning strategy), and the appearance of new technology.

Key new points of learning in this article for me were:

1. Two steps to identify if strategy is working (Profitability ratios + BSC)
2. The recognition that financial metrics inside the BSC are primarily lagging metric, where as the other three are internal, can be viewed closer to real time and act as strategic levers.
3. Block new entrants by maximizing customer value surplus instead of the profit surplus.  Brilliant idea.. drive market share, deliver real customer value, and keep your profits low enough to keep new entrants out of the market.  Perhaps this is what Craigslist.org is doing?
4. Watchouts: new companies hold strategy for too long.  Not new, but a good reminder of how widespread this issue is.

Net; I just bought the Strategy Essentials Series on Amazon for about $12.00 used.  Should be a great read!