The last person who should be the judge of whether you have a strategy is you.
Everyone has a strategy in their head. Or at least, something they vaguely label as “strategy”. But that’s not where strategy lives, in your head. Instead it lives “out there”. In the fabric of the business, the minds of your team, and the reaction of the market.
If you want to know whether you have a strategy, it is there that you should be looking. And it is those things that should be the judge.
So, to that end, I want to give you three simple tests to check if there really is a living breathing strategy in your organisation.
Let’s get straight into it.
I. The profit test
In the final analysis there is only one sure fire test of an effective strategy:
Do you make more profit than your industry average?
Everything else can be faked or forced – growth, sales, etc. – but this cannot. It is the ultimate settling point of strategic maturity.
The idea here is that ever industry has a generic norm which earns a certain amount of profit on average – let’s say for instance that an average cereal brand makes 30% (no idea if that’s true, I’m just making it up). This means that an unstrategic business, who have hustled and executed well, can expect that sort of return.
A strategic business however, is one as we know that has found a way to deliver unique value to the market. This in turn should mean that it 1) can charge more, and 2) needs to spend less to compete. It also might mean that its costs of production are less, if it’s a price leader. Either way, all of this adds up to an ability to make more profit.
Now, if you aren’t making more profit, and are still right in the middle of the pack, then I would be inclined to ask: where’s the leverage? Where’s the proof you’re doing something different?
You might be able to talk a good game, but ultimately if you’re not seeing greater returns, then I struggle to see the point.
(NB there are of course time-limited exceptions to this rule, for example when you are still growing into your strategic position, or in those rare cases where you are pursuing unprofitable growth as part of a long term push for dominance, a la Amazon. You should be able to tell pretty easily whether these apply to you!)
II. The decision test
An under-appreciated job of a great strategy is this:
It replaces you as leader.
You see as a business rolls along, invariably there are decisions to be made. Should we do this, or that? Should we go here, or there? Should we turn left, or right? And, in an unstrategic business, it is you who will make those decisions – one by one, each on their own terms.
Businesses with strong strategy don’t work like that. Because in them, that endless string of decisions is all directed at a clear and focused endpoint – the strategy. This means that many decisions simply melt away, because the “macro decision” of the strategy has answered them for you.
It also means that on a day-to-day level you personally should be “deciding” far less. Rather than telling your team what you “think” they should do, you can simply say “what does the strategy tell us to do?”. Naturally this won’t apply to every decision – it won’t tell you whether you should fire the guy caught stealing paper clips – but it will apply to the big ones.
The test then is to ask whether there is a clear “authority” in the business other than you. A decision making tool that people can refer to for reliable answers, without having to think from first principles every time. And furthermore, one that knits all the decisions together into a cohesive whole.
If you can’t point to such a tool, then, I would suggest, you can’t really point to a strategy either.
III. The panic test
The first two tests are somewhat sophisticated. This one isn’t, and is so much the better for it. Just do this:
Approach your team members individually, and ask them “what is our strategy?”.
Why is this called the panic test? Well you will know when you see the look on their faces when asked this most cruel of all questions.
I barely need to explain this one, you can probably sing it with me. Strategy manifests in coherent action. And who is responsible for that action? The team. And so who, out of everyone, should have the strategy at the tip of their tongue? The team!
This is obvious, and yet a business who could do this exercise without creating panic would class as a genuine museum-piece.
Now, in fairness, part of the issue here is the way the question is phrased. Due to the slippery nature of the word “strategy” it may be that people don’t readily connect the high leverage idea at the heart of the biz with the question.
However, assuming there is something which passes for a strategy, there must have been an occasion where you communicated it right? It must have been talked about? Been shared? It must have some sort of articulated life within the organisation? If so, then you know the way it is talked about, and therefore you can phrase the question to accord with that.
If not, however – if there is no piece of strategic information that has been hammered into people’s brains – then frankly you don’t even need to bother to do the test. You know there is no coherent answer they can give, because you never gave them one in the first place!
It’s a funny one this, the way that people think you can have a strategy without actually communicating the thing. Without making a fuss about it. Your whole job as a leader is basically to be a propagandist for the idea, so if you’re keeping it under your hat then you may as well not have one at all.
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If these seem like impossibly high standards to hit, you are right – this is why most businesses are unstrategic.
It stands to reason the majority would fail, just as it stands to reason most businesses aren’t the market leader. We are shooting for glory here, we are on a journey to a place where few ever get to tread.
Easy is not part of the deal.
What is part of the deal however, is the joy of the challenge. And if that’s your kind of thing, at least now you know the shape of it. Start working.
