I suppose that if you pressed me on it, I’d say I consider myself a bit of an expert on strategy. It is my job after all. However I should also stress that the purpose of these essays isn’t just to teach you, but to teach me. Sometimes complexities arise in the field that give me pause, and I need to work them through here in order to restore my understanding.
This essay concerns just such a complexity, and I’ll warn you, it’s going to get pretty nerdy.
The issue that follows demonstrates exactly why business strategy is such a confusing and mismanaged subject. However I’ll endeavour to lay the matter out as plainly as possible so that you (and I) don’t end up more perplexed than we were coming in.
The topic today is the tension between what I’m going to call “operational” and “human” strategies – two very different approaches to the same question that are in constant unspoken conflict.
This was brought to my attention last week when a client sent me a strategic modelling technique I wasn’t familiar with. I won’t go into the specifics here as I’ve only skimmed it and wouldn’t want to misrepresent it, but basically it involves mapping out different aspects of your business on a chart that shows their varying levels of “maturity” and “visibility”. With this you can understand the dynamics between them, and know where to direct your attention and investment. It’s very clever, and clearly has the potential to reveal areas of opportunity a business can attack in order to steal a march on its competitors – e.g. by outsourcing a particular technology, buying a particular supplier or complementary business, or building on a prior innovation at the right time.
On the face of it, it’s pretty classic strategy wonkery – but what got me thinking deeper about it was this:
It largely disregards the consumer.
Now don’t get me wrong, the opportunities it unlocks do have the potential to deliver benefits to the consumer, and thus get market leverage. But those benefits are arrived at “inside-out”, via clever operational changes, rather by “observing the outside world” and adjusting the business’ offering accordingly. So to give a grossly simplistic example, an electric car brand might determine via this technique that it would be smart to buy a series of lithium mines in order to control that part of production cycle, which then trickle through to improved market strength in various ways — very effective, but the opposite of adjusting the business based on a reading of consumer priorities and perceptions.
This then is what I would call an “operational” approach to strategy: an approach which (if I was to be a little reductive) boils down to outmanoeuvring your competitors by consistently making smart organisational decisions, which give you hard “utilitarian advantage”.
Now let’s compare that to “human” strategy, which is more of an “outside-in” approach.
With human strategy a business makes its decisions primarily based on its understanding of the world its consumers inhabit, which would include things like:
- Consumer behaviours, needs, and desires
- Cultural understanding
- Psychology
- Relative perception vs. competitors
- Market conditions
- Etc.
…and then mapping them to its unique characteristics to uncover opportunities.
To give you an example let’s return to one of our favourites: Starbucks’ “third space” strategy, where they designed their stores to be “halfway between the office and home” – i.e. productive and high energy, but also comforting and pleasant. A valuable idea which hadn’t existed before.
This strategy, so far as I can see, couldn’t have been arrived at via the aforementioned model, or any other operational technique, since it was built first and foremost on an appreciation of consumer behaviours which sit “outside” of the operational machine (albeit with some overlaps). In that respect it is much more marketing driven than operational strategy would be, but, crucially, it is not pure “dressing” or “presentation”, since it also dictates hard operational changes.
The output is the same kind of thing, but the input is very different.
If we were to summarise this difference then, we might do it like this:
Operational strategy = “Inside-out”
Smart operational manoeuvres creating opportunities
Human strategy = “Outside-in”
Smart consumer understanding creating opportunities
Something like that.
When you see this divide, you can see how a lot of confusion arises. Basically when people talk about “strategy” they are often unwittingly talking about two different things. Yes, all strategy is the same in that it all ultimately seeks to create leverage. But the processes and philosophies by which you achieve that can be so varied as to almost be unrecognisable from each other.
So how do we reconcile all this?
First I think we need to get a basic understanding of when to use each strategic approach. When should we be operational, and when should we be human.
This is a topic I need to think about more deeply, but speaking broadly I would suggest that operational strategy should be the primary method for very large corporations, and brands in the technology and manufacturing spaces. Human strategy on the other hand should be the primary method for SMEs and consumer brands.
Why?
In the case of large corporates and technologically oriented businesses, operational strategy is effective primarily because such organisations have a huge number of moving parts. If you have your fingers in many pies, then it stands to reason that there is a lot to be gained by organising those pies effectively. In the case of technology businesses, there is also the consideration that market success for such brands tends to be extremely utilitarian. If you’re a cloud computing provider say (which was where the model I mentioned was developed), then you can achieve huge gains almost overnight via a technological tweak, or building smart synergies with other suppliers. The same can’t be said for, say, BMW or Zara, who are much more “holistic” by nature, and don’t have the potential to achieve a sudden “check mate” that destroys their competitors overnight.
It’s also important to note that many large corporates and technology companies aren’t especially brand driven – either because they have multiple “fronts” which prevents them from having a powerful singular identity (e.g. like General Electric), or are selling a commodity / widget style product where utility trumps all. This makes human strategies both more difficult to arrive at and less effective for them.
By contrast if we look at most consumer brands and SMEs, human strategies are far more accessible and effective. Firstly, such brands tend to be fairly one-dimensional, and so will usually (though not always) lack the potential for significant operational leverage. As a result they need to draw more on the outside world, and to create gaps in perception as well as competency. And this, secondly, leads to them being more brand driven: meaning they must integrate soft measures into their strategy, as well as hard.
I mean let’s be real, the operational differences between Haagen Dazs and Ben & Jerry’s are fairly minor; but the overall strategic gap between them is huge. This is typical of consumer brands; they can’t “kill” each other in a game of chess, so instead they must take ownership of their individual positions and coexist peacefully.
Ultimately we see this division largely reflected in the different parts of the strategy industry.
Large firms like McKinsey, or more academic strategy consultants, will most commonly find themselves working on operational strategies for big conglomerates or businesses with lots of organisational complexity that can be managed more effectively.
By contrast someone like myself who works mostly with consumer brands will lean more towards human strategies – letting the external value offering drive internal change, rather than the other way around.
In general I’d say this divide works pretty well, however I can’t help feeling that we all may be missing a trick. Although these tendencies I’ve outlined above will generally prove accurate, shouldn’t we begin every project with a both an instrumental and human approach, simultaneously?
I can only speak for myself, but that’s something I’m going to strive for. Strategic leverage can be found anywhere, so we’d be foolish to only seek it on one half of the map.
