Insight Article: Strategy Series Question 1 – Where are we now?

Many business leaders find the process of developing strategy quite daunting. Part of the problem is that there is no one ‘right way’ to develop strategy and no single ‘right answer’; this difficulty is compounded by the fact that strategy development requires hard work and careful thought…however, as described by Sun Tzu, strategy is absolutely essential, in combination with the right actions.

There is also a conflict between simplicity and completeness… on the one hand, an organization’s strategy needs to be simple if it is to be communicated easily but, on the other hand, strategy development can be complex, involving trade-offs between multiple variables and forces. Richard Whittington, Professor of Strategic Management at the Saïd Business School in Oxford, argues that…

How do you ensure that the people involved in your strategy development can ‘learn how to think better and think differently’? At SKCI, we strongly believe one of the key skills in developing strategy is to ask the right questions and to keep asking them until you get credible answers.

5KQ – The Five Key Questions

We have developed a successful, effective way of managing the questioning process for our clients, the Five Key Questions for Strategy or ‘5KQ’ framework. Whilst the simplicity of 5KQ helps to demystify strategy development, it is also sufficiently open to allow the user to bring in other strategy tools as required.

SKCI’s 5KQ process is derived from the Five Basic Questions approach described by Max McKeown in his text The Strategy Book.

The rest of this article will look at how to use the crucial ‘Where are we now?’ question in strategy development, and we will delve into the other questions in future articles in this series.

Too often, business leaders and entrepreneurs have their eyes focused so much on the future that they overlook the basic first step; digging into the current situation and asking the question, ‘Where are we now?’ … And continue to ask this question until they get past generalities and management speak.

There are huge dangers in missing out this first question; not least that precious time, energy and resources can be spent in a direction that produces very little results.

The First Question – Where are we now?

Tennis champion Arthur Ashe is quoted as saying:

Whilst this is great advice for life, it is equally important for strategy development, or managing the life of a business.

Whilst this message applies to businesses of all sizes, it is a particular problem for entrepreneurs whose business model might involve a complete disruption of the status quo and applying innovation to transform the market… but even the most innovative and disruptive idea is no good if it cannot be implemented (e.g. if the company does not have the funds to develop it or the infrastructure is not ready for deployment).

A common pitfall in strategy development is to be too ambitious about what can be achieved in the short term, but insufficiently ambitious about what can be achieved in the longer term. Failing to answer the ‘Where are we now?‘ question properly is often one of the reasons for this.

As well as looking inward in answer to the question ‘Where are we now?’, it is important to look outward & forward too. Ask other people questions, do research into the figures, the organization’s reputation and what the staff and customers think.

As with any big question it is often helpful to break it down into a series of smaller questions, some of the most pertinent questions include:

• What is our current situation (both financially and organizationally)?
• What internal constraints are there on growth?
• How well do we understand the market? What market research have we done to substantiate our opinions?
• How do we compare to other organizations (not just our direct competitors, but similar organizations in other fields)?
• What makes us different from the competition?
• What do our customers think about us, and our competitors?
• Why do our customers buy from us? What are our USPs (Unique Selling Points)?

Why Is It Important To Ask This Question?

There is often a temptation to skip the ‘Where are we now?’ question and move straight on to the more ‘exciting’ work of charting the organization’s future path. But just as it is crucial for the military to engage in reconnaissance, so it is crucial for a company to understand where it really is and what forces it needs to contend with.

This question can also help to identify if there are any immediate crises or ‘burning platforms’ which need to be prioritised, and to give team members an opportunity to raise any issues at the start of the strategy development process… particularly important if there are issues that people are reluctant to discuss – the so-called ‘elephant in the room’!

Getting The Right People In The Room

It’s important to have the right people in the planning team. In general, we have found that diversity of views and roles helps to create better strategy in the long run.

Ideally, the strategy team should have between six and ten people (generally business leaders and managers) who represent all parts of the company.

The team members also need to be committed to the process and to supporting the outcome. If any members of the team are not fully committed, this is probably a symptom of wider dysfunctions within the organisation which need to be addressed separately from the strategy development process.

Tools To Help Answer Question 1

Using the right tools is an important part of helping people to ‘…learn how to think better and think differently.’

Whilst there are numerous tools that can be used in answering the ‘Where are we now?’ question, we have found that it normally helps to start simply with SWOT and PEST Analyses and work up to more sophisticated tools (such as Porters 5 Forces and the BCG Matrix) as required.

Starting with simple tools helps the strategy development group to gel as a team, as everyone should have views on strengths, weaknesses, etc. If used properly, the SWOT analysis can help people to think outside their own organisational ‘silos’ and identify links between seemingly unrelated issues and opportunities; its flexibility allows it to be used on a macro / whole company approach or to drill down to one particular service or department.

SWOT Analysis

Here we see a sample of SWOT analysis for NewTechNow, an imaginary technology company with a B2B product that includes both software and hardware:

NewTechNow has the potential for a very bright future. However, there are a number of clouds on the horizon, including the perceived weakness of the management team and the health of the CEO. The CEO’s health issues may, of course, be due to the him trying to do too much, as is sometimes expected from ‘visionary’ leaders!

There is also the question of how best to protect the IP and how to grow rapidly to a point where the company can define the market in which it operates.

One of the aspects of a SWOT analysis that is often forgotten is the importance of looking for links between items in different cells. In this example we have some obvious links, including:

• Visionary CEO / Lack of depth in the management team / Concerns about the CEO’s health / CEO decides to step down
• Disruptive technology backed by unique intellectual property (IP) / Visionary CEO / IP not properly protected / Overtaken by a ‘fast follower’ / Potential for unprotected IP to be copied
• Visionary CEO / Unstructured sales and marketing / Weak financial controls

Identifying these links is important as this knowledge is often the first step in the process of identifying any underlying changes that need to be made. For NewTechNow we can see that, whilst having a Visionary CEO is one of their greatest strengths, the SWOT analysis highlights that it is also a factor behind many of their weaknesses. With this insight it is possible for the NewTechNow CEO and leadership team to develop strategies to address this and go from strength to strength.

PEST Analysis

Here we see a sample of a PEST analysis for NewTechNow, the imaginary technology company introduced above: 

Whilst some of the factors identified in the PEST analysis overlap with those in the SWOT, this is not a problem as PEST is intended to identify the “big picture” Opportunities and Threats.

From this analysis we can see there are some points that will need to be addressed, for example:

• Growth Outside of Core Markets: Trade wars / Brexit / Political instability in some potential growth markets / Slowing of the world economy (especially the Euro-zone) / New data privacy and data protection legislation
• Gaining Size Fast: “Winner takes most” / Continuing user appetite for new technologies that solve real problems / AI and data analytics / Cloud computing
• IP Protection Challenges: High cost of protecting IP / Cyber-security / New manufacturing techniques / Political instability in some potential growth markets

When combined with the outcome from the SWOT analysis, these points probably indicate a need for further market research on the target markets and to focus on a small number of markets where the business can grow rapidly and become a major supplier.

Further Strategy Tools

In anything but the simplest of organisations, it is likely that further analysis will be needed to really understand ‘Where are we now?’ 

Some of the tools that can be helpful are listed in: SKCI Recommended Strategy Tools

We will discuss the detailed application of these tools in future articles.

Next Steps

Answering the ‘Where are we now?’ question is an iterative process but, at some stage, the strategy development team will need to move on to Question 2 in the 5KQ process: ‘Where do we want to go?’

The answers to Question 1 form the essential foundation for the discussions around Question 2, which will be examined in the next article in this series.

It is our hope that this information supports you on your Strategy Development journey, however in the vast majority of cases engaging a highly experienced Business Consultant, with a proven track record of business success, will help speed up your process, as well as delivering excellent quality outcomes. Wherever you and your company are in your Strategy Development & Deployment process, SKCI can help you.

Published Sept 13th 2020