Strategy to Win Element 6 - Strategy Priorities

 

Strategic Priorities Drive Success

In this session, we will delve into the importance of deciding strategic priorities in achieving business objectives. We have already covered various essential elements, such as setting strategic objectives, conducting market research, analyzing the competition, mapping the customer journey, and developing a strong value proposition. Now, it's time to explore the meat and potatoes of strategy—the strategic priorities that will drive your organization toward success.

 

Understanding the Need for Strategic Priorities

When implementing strategic objectives that aim for growth and future success, one must consider the investment and development required to reach those goals. Often, companies are already operating at their best with existing resources, which makes incorporating new strategies a challenge. Without proper planning and alignment, many strategies fail to yield desired outcomes.

 

To overcome this challenge, it's crucial to identify the key actions, market segments to target, market share to gain, and costs to reduce. These elements will form the foundation of your strategic priorities—the roadmap to accomplishing your planned strategic objectives.

 

Bridging the Gap and Overshooting Objectives

Once you have defined your strategic priorities, it's essential to create a financial bridge that demonstrates how these priorities will close the gap between your current position and your desired future state. It's advisable to aim higher than your objective to account for unforeseen obstacles that may hinder progress. This approach ensures that even if failures occur, they will still bring you closer to your target. Remember, hitting targets precisely is a rare occurrence.

 

Strategic Priorities: The Big Goals

Strategic priorities are often referred to as "big" because they encapsulate the core aspects of your business. These priorities are usually discussed among senior executives and help define the direction of the organization. While it's not feasible to involve everyone in the decision-making process, it's crucial to engage your executive team in these discussions. The alignment and collaboration among leaders form the foundation of what we call the "leadership agenda."

 

Your strategic priorities should remain fairly constant over the course of a year or more. These priorities are game-changers that set your company on an accelerated path or redirect it toward new opportunities. They require substantial investments of time and resources. Think of them as ladders leaning against the right walls—major projects that must be accomplished to achieve your strategic goals.

 

Selecting and Limiting Strategic Priorities

When selecting strategic priorities, it's important to limit them to three. These priorities can include developing new products, expanding into new markets, increasing market share in existing markets, achieving significant cost reductions through innovation or automation, implementing impactful changes in IT or customer systems, and more. The reason for this limitation is that juggling more than three major projects becomes increasingly challenging and often leads to distraction and inefficiency.

 

By focusing on a limited number of strategic priorities, you can maintain clarity, alignment, and accountability within your organization. It allows you to dedicate ample resources and effort to each priority, increasing the likelihood of success.

 

Strategic Priorities as Measurable Outcomes

When defining strategic priorities, it's important to shift the focus from processes to outcomes. As senior executives, your stakeholders are primarily interested in achieving specific outcomes, such as market acceptance, sales growth, cost reduction, geographic expansion, or automation-driven efficiency. These outcomes must be measurable, allowing you to track progress and assess the impact of your strategic priorities.

 

Categorizing and Prioritizing Strategic Priorities

Brainstorming sessions are valuable for generating potential strategic priorities, but it's essential to categorize and prioritize them effectively. Remember, strategic priorities often involve multiple departments and consume significant time and resources. By considering urgency and importance, you can prioritize these priorities using Stephen Covey's quadrant framework, placing them in quadrants based on their urgency and importance.

 

Balancing Urgency and Importance

The quadrant framework helps identify the balance between urgency and importance in strategic priorities. It highlights the tendency to prioritize urgent tasks at the expense of important ones. By focusing on what's truly important, you can ensure that urgent matters do not derail your strategic objectives. For example, urgent capacity issues may require immediate attention, but you must also prioritize important factors like brand building, sales growth, or automation-driven cost reduction.

 

Linking Strategic Priorities to Outcomes

Strategic priorities should align to form your financial bridge—the plan to close the gap between your current state and your desired future state. It's essential to conduct financial analysis and evaluate different strategic priorities to determine their impact on achieving your objectives. Sometimes, doubling down on current markets may yield more significant results than geographic expansion. Challenging conventional thinking and seeking diverse perspectives can lead to valuable insights and ensure that your chosen priorities align with your financial goals.

 

Confidence through Financial Analysis

Financial analysis plays a crucial role in assessing the feasibility and impact of strategic priorities. It helps build confidence in the chosen initiatives by quantifying their potential outcomes and aligning them with the financial objectives of the organization. Through thorough analysis, you can identify the most effective path to success and make data-driven decisions.

 

Understanding ROI and Dilutive vs. Accretive Initiatives

Strategic priorities should not only be assessed based on their urgency and importance but also their impact on ROI. While growing revenue is important, it doesn't automatically guarantee an increase in ROI. Dilutive initiatives may generate revenue growth but could negatively impact margins and returns. On the other hand, accretive initiatives positively contribute to ROI. It's crucial to assess the financial impact of each priority and ensure they are aligned with the desired financial outcomes.

 

Prioritizing Strategic Priorities: An Example

To illustrate the prioritization process, let's consider an example. Suppose a company's priority is organic sales growth over a three-year period. In year one, they aim for a 7% growth, which is achievable based on past performance. By analyzing the financials, including revenue, income, and capital employed, the company can assess the ROI and the impact of each priority on the bottom line.

 

Calculating ROI: The Importance of Accretive Initiatives

ROI calculations help determine the overall impact of strategic priorities on financial performance. By assessing the return on sales and return on invested capital, you can identify the financial implications of each priority. It's essential to maintain a positive ROI and ensure that the chosen initiatives are accretive to earnings, revenue, and ROI. This analysis allows companies to optimize their investments and prioritize projects that yield the desired financial outcomes. It also helps you to know which ideas to say “no” to.

 

The Importance of Clear Metrics and Analysis

Setting clear metrics and conducting thorough financial analyses are critical in prioritizing strategic initiatives effectively. Conflicting metrics and varying impacts on ROI can arise, necessitating a comprehensive understanding of each priority's financial implications. By carefully evaluating the potential outcomes and aligning them with financial goals, companies can make strategic decisions that drive growth and profitability.

 

Thinking Outside the Box: Acquisitions as Strategic Priorities

When charting the path from point A to point B, strategic priorities play a pivotal role in driving growth. However, relying solely on existing strategies may not suffice. That's when it becomes crucial to think outside the box and consider alternative approaches. Acquisitions, for instance, can be a viable option to fuel growth. In our example, there are two types of acquisitions to consider: strategic and bolt-on.

 

1. Strategic Acquisitions

A strategic acquisition involves integrating a company with a different customer base and distribution model that shares similarities in products and markets. By strategically acquiring such a company, it becomes possible to tap into new customer segments and diversify revenue streams.

 

  2. Bolt-On Acquisitions

On the other hand, a bolt-on acquisition involves acquiring a company that operates different products within the same market or competes in a different market with similar products. This type of acquisition allows for expanding offerings and capturing new market opportunities.

 

Embracing Disruption for Strategic Innovation

Disruption has become a prevalent topic in today's business landscape. Companies must actively address disruptive forces or risk falling behind. Creating a separate department or division, often referred to as a "skunk works" project, can help organizations compete against potential disruptors. By nurturing a culture of innovation and embracing disruptive technologies, companies can develop strategic priorities that align with evolving market trends.

 

The Importance of Disruptive Thinking

Clayton Christensen's "The Innovator's Dilemma" highlights the challenges companies face in avoiding disruption. Existing operational structures tend to resist change, hindering the ability to adapt to new market dynamics. To overcome this dilemma, companies should establish separate divisions or skunkworks projects dedicated to disruptive innovation. This allows for the exploration of new ideas and business models without the constraints of existing operations.

 

Learning from Disruptive Examples

Numerous real-life examples demonstrate the impact of disruption on established industries. Blockbuster, once a dominant player in the video rental market, failed to foresee the disruptive potential of companies like Redbox and Netflix. Despite recognizing the shift in consumer behavior, Blockbuster's lack of proactive measures and extensive market research ultimately led to its downfall. This example underscores the importance of staying ahead of disruptive trends and continually exploring innovative strategies.

 

Homework: Recording Strategic Priorities

To develop effective strategic priorities, it is essential to reflect on market research, internal analysis, and customer journeys. Start by recording the implications that arise from these elements and use them as a basis for identifying strategic priorities. Consider how each implication can drive growth, improve market position, or address emerging challenges.

 

The Power of Thoughtful Questions to Set Strategic Priorities

When developing strategic priorities, it is crucial to ask the right questions. Four fundamental questions come to the forefront:

 

1. What is the priority? Clearly defining the focus areas that will drive growth and success.

2. How will we measure success? Identifying key metrics and indicators that demonstrate progress and achievement.

3. How will we win? Outlining the strategies and actions required to achieve the desired outcomes.

4. What challenges do we face? Understanding the obstacles and potential pitfalls that may hinder progress.

 

By addressing these questions, business leaders gain clarity and confidence in their strategic decision-making.

 

Building Bridges with Financial Projections

Financial projections play a crucial role in strategic planning. They provide a tangible representation of the anticipated outcomes and help assess the feasibility and impact of strategic priorities. Financial bridges connect current financial standings to future projections, demonstrating the thoughtfulness and thoroughness behind the numbers. This process instills confidence and guides decision-making based on a solid foundation.

 

Recognizing Key Challenges

When formulating strategic priorities, it is essential to consider the competitive landscape and anticipate the reactions of competitors. Key challenges arise when introducing new products, expanding into new markets, or strengthening market presence. Business leaders must put themselves in their competitors' shoes and identify potential responses. This proactive approach allows for the development of robust strategies and contingency plans.

 

The Value of Teamwork and Delegation

Developing and executing strategic priorities is a collective effort that requires effective teamwork. As a business leader, it is crucial to assemble a qualified team capable of driving each strategic priority forward. Delegation and accountability are vital to ensure that the responsibilities associated with strategic priorities are effectively distributed among team members. Building a strong team is one of the most critical decisions a business leader can make.

 

Strategic Priorities vs. Tactical Initiatives

It is important to note that strategic priorities are not execution plans or detailed action steps. They serve as the foundation, providing a clear vision of where the organization wants to go. The next step involves developing tactical initiatives that transform strategic priorities into actionable plans. Tactical initiatives go into greater detail, outlining specific actions, timelines, and responsibilities.

 

Strategic Priorities are the Compass

Strategic priorities are the compass that guides organizations toward success. By asking the right questions, considering financial projections, recognizing key challenges, and fostering teamwork, businesses can ensure they are on the right path. Strategic priorities serve as a roadmap, setting the stage for the development of tactical initiatives that translate vision into action. With a comprehensive and thoughtful approach, businesses can achieve their audacious goals with confidence and drive.