How ‘REAL’ is your small business strategy?

McKinsey recently came out with an article discussing what makes for a bad strategy that I found extremely interesting.   I believe there are a number of things referenced in this article that small business owners could derive value from by exploring in more detail.  I break down each of these ‘four perils of a bad strategy’ as it relates to small businesses so its leaders have the tools to assess and revise their strategies.

The purpose of the McKinsey article is that by laying out these key perils of bad strategies, leaders will be able to spot them which gives them a better chance of actually creating good strategies.  There are a number of case studies that point to the fine execution of a good strategy and it always seems simple and obvious in retrospect.  However, good strategy doesn’t always come easily and in a nice structured box.  Instead, “a talented leader has identified the one or two critical issues in a situation – the pivot points that can multiply the effectiveness of effort – and then focused and concentrated action and resources on them.  A good strategy does more than urge us forward toward a goal or vision; it honestly acknowledges the challenges we face and provides an approach to overcoming them.”  Alternatively, “Bad strategy ignores the power of choice and focus, trying instead to accommodate a multitude of conflicting demands and interests.”

Four hallmarks of bad strategy

Failure to face the problem

The article effectively defines that “strategy is a way through a difficulty, an approach to overcoming an obstacle, a response to a challenge.”  If the challenge is not defined, it is difficult or impossible to assess the quality of the strategy.

This is a very common challenge for small business owners.  I frequently experience leaders who do not take the time to break-down the true difficulty or challenge that is facing their small business.  This usually involves a substantial amount of mental and physical energy, not to mention time, that is often hard to justify for small business leaders.  However, not spending the time and energy on it is likely negatively impacting your business.  “If you fail to identify and analyze the obstacles, you don’t have a strategy.  Instead you have a stretch goal or a budget or a list of things you wish would happen.”  A few questions to get you thinking:

• How do you work to define exactly what your business challenges are?
• What is the process in which you define and size-up these challenges?
• How do you create strategy to overcome these challenges?

Mistaking goals for strategy

One of the strongest leaders of our time, Jack Welch, is known for his stretch goals saying “We have found that by reaching for what appears to be impossible, we often actually do the impossible.” The point of this peril of bad strategy is that simply having a goal doesn’t mean you have a strategy.  It is great to say that you are going to generate revenue growth of 20% and net profits of more than 20%, but just saying so doesn’t make for a good strategy.

As much as I am a fan of Jack Welch, his philosophy on a stand along basis as it relates to strategy is not enough.  I am a big believer of ambition and stretch goals as a philosophy but what most small businesses lack is clarifying what the point of leverage is that is actually going to get the business to perform to that stretch goal level.  In the example above, breaking down exactly how you are going to generate revenue growth of 20% and keep your net profit above 20% should be laid out in tangible and realistic action items.  A couple questions to ask yourself:

• Does your small business have goals?  If so, what are they?
• Do you have tangible and realistic coherent action steps that will allow your business to achieve these goals?  If so, what are they?

Bad strategic objectives

The article discusses a very common problem when it comes to creating strategy and that is having fuzzy strategic objectives, also known as having a strategy that has includes numerous strategies and so many action steps that nothing actually is a priority.  “A leader may successfully identify the key challenge and propose an overall approach to dealing with the challenge.  But if the consequent strategic objectives are just as difficult to meet as the original challenge, the strategy has added little value.”

Small business leaders need to be able to “build a bridge between the critical challenge at the heart of the strategy and action – between desire and immediate objectives that lie with grasp.”  This means making choices on which challenges are the priority and creating specific action steps that are also prioritized to ensure they are actually done.  The inability to choose creates a lot of problems for small business owners when it comes to developing their strategy, however is a common reason bad strategies exist.  A couple questions to ask yourself:

• How many strategic objectives do you have?
• How many action items do you have for each strategy?
• Have you done enough to bring clarity to which strategy and action items have priority over others?

Fluff

The final hallmark of mediocrity and bad strategy is superficial abstraction that demonstrates a lack of thought.  This can look a number of different ways but if your strategy has buzzwords, or if after reading it the reader doesn’t really know what it means, you probably have ‘fluff’ in your strategy and you need to add more tangible thought to your strategy.

Good Strategy

A suggested underlying structure for a good strategy looks like this:

• A diagnosis: an explanation of the nature of the challenge.  A good diagnosis simplifies the often overwhelming complexity of reality by identifying certain aspects of the situation as being the critical ones.

• A guiding policy: an overall approach chosen to cope with or overcome the obstacles identified in the diagnosis.

• Coherent actions: steps that are coordinated with one another to support the accomplishment of the guiding policy.

 

If you and/or your small business could use support in creating and managing the implementation of an effective strategy, please contact us at ryan.goral@separtners-llc.com.  We would be thrilled to support your small business.