External vs. Internal: The Difference between Strategy and Planning
As we enter the first days of October here in Minnesota, the leaves are turning, football is back and our clients are diving deep into their strategic planning for 2017.
When the concept of strategic planning arrived in the business world in the mid-1960’s, corporate leaders embraced it as “the one best way’ to devise and implement strategies, according to Henry Mintzberg, the internationally renowned academic and author of ‘The Rise and Fall of Strategic Planning’. By the mid 1990’s amidst the dot.com bust, however, strategic planning had fallen from its pedestal and planning departments were being dismantled.
“Strategic planning is not strategic thinking. One is analysis and the other is synthesis.”
– Henry Mintzberg
Mintzberg explained that strategic planning had become, “strategic programming, the articulation and elaboration of strategies, or visions, that already exist.” On the other hand, he wrote that strategic thinking is about capturing what managers learn from all sources (including both ‘soft’ insights from experiences and observations as well as ‘hard’ data from market research) and then synthesizing it into a vision of the direction that the business should pursue.
In his 2014 HBR article ‘The Big Lie of Strategic Planning’ University of Toronto Professor Roger Martin laments that “strategic plans all tend to look pretty much the same.” They have three major parts: a vision or mission statement, a list of initiatives, and a conversion of the initiatives into budgets. While they may produce better budgets, they are not about strategy.
| Strategic Planning | Strategy |
|---|---|
| Internally focused: planning, costs, capabilities | Externally focused: customers and competition |
| Short-term | Future-oriented |
| Controllable | Uncontrollable in long-term |
| Comfortable | Uncomfortable |
| Accurate, predictive | Imperfect, directional |
| Risk elimination | Risk management |
| Objectives, steps, timelines | Placing bets |
Strategy is about what we choose to do as an organization (and not to do) and why. It is about where to place ‘bets’. Strategy focuses on the revenue side, where customers make decisions about whether to give their money to us, to our competitors or to a substitute. This is the hard work of acquiring and keeping customers. It is uncomfortable because our customers are making the decisions, not our own organization.
How to escape the comfort zone: embrace the angst
Because the problem is rooted in our natural aversion to discomfort and fear, Martin writes, “the only remedy is to adopt a discipline about strategy making that reconciles you to experiencing some angst.”
How can we stay focused on strategy this planning season and not fall into the trap of planning and cost budgeting? Some tips:
- Focus on choices that influence revenue (i.e.: customer decision makers). This boils down to just two basic choices: 1) where-to-play (which buyers to target) and 2) how-to-win (how to create a compelling value proposition for those customers). Customers will decide whether or not our value proposition is valuable and superior to competitors’, and whether or not to reward us with revenue.
- Acknowledge that strategy is not perfect. Managers and boards need to shift their thinking to focus on the risks involved in the strategic choices (i.e.: placing bets) rather than insisting on proof that a strategy will succeed.
- Explicitly document the logic. The assumptions about customers, industry, competition, internal capabilities, and others that drove the decisions should be documented and then later compared to real events. This helps to quickly explain why a particular strategy is not producing the desired outcome.
- Invest in data-driven decision making. Placing bets inherently involves risks. Because strategy is not perfect and risk cannot be eliminated, the objective is to increase the odds of success by understanding and managing risks. This is where knowledge and insight into customer needs and competitive offerings and dynamics provides tangible value.
Alignment
Of course, successful strategic planning occurs when both strategy and planning are aligned. The strategic “sweet spot” is the value proposition that meets customers’ needs in a way that rivals can’t. It must include both the external view of customers and competitors and the internal view of our own capabilities.
When the core elements of strategy are aligned (customers – competition – capabilities – mission/vision), and when decisions are driven by solid external knowledge, organizations can confidently place its strategic bets in a way that both grows revenue and delivers it in a way that is profitable for the company.
Disruptive Forces in Financial Services
Competition in Financial Services has always been intense amongst industry rivals. Increasingly, firms find themselves competing with Financial Technology (FinTech) start-ups going after a selective slice of the market with a disruptive offer. Many FinTech firms have billion dollar valuations, are flush with cash, and are leveraging low cost, cloud-based delivery models. While incumbent firms have invested heavily over the years in a combination of technology-based infrastructures like ATM networks, branch office makeovers, online services and mobile apps, they still feel vulnerable to the threat of FinTech firms grabbing market share in specific areas like retail payments or online lending.
When clients share these kinds of challenges with Line of Sight Group, our first inclination is to turn our eyes and ears to the external environment and to connect the dots around what is happening, as well as what is likely to happen. Thus informed, threats and opportunities emerge and become discussion points for the formation of strategic plans and subsequent go-to-market initiatives. Financial Services firms have a vast array of levers to pull when it comes to competing successfully. Technology is but one of these levers. Some firms find that their physical locations can be leveraged if they reconfigure them into optimized networks based on the specific needs of their clients. In some cases, they may opt for a smaller branch footprint but implement Interactive Teller Machines that match a specific financial expert with a client virtually. Other Financial Services firms are partnering with FinTech firms by bringing new offers into these networks and blending them into a portfolio of offers. Another tactic is to conduct hundreds of controlled tests annually (AB Testing) designed to gauge and measure consumer preferences and to then create new offers based on the results.
Line of Sight Group Financial Services clients utilize a number of methods to listen to the external environment in which they play. Some firms utilize strategic competitive monitoring on an ongoing basis to gather, sort and analyze value propositions, pricing and customer satisfaction levels. Financial Services clients who position large commercial offers utilize Win/Loss Analysis to understand why they win and lose deals. Firms seeking to enter a new market employ a Competitive Landscape Analysis to gauge the status quo and to look for unmet needs before making the move to invest.
By understanding the external environment on a continual basis, Financial Services firms can better navigate the ever changing mix of consumer preferences, technological advances and business model iterations to make good decisions. Technology is important, but rarely the only factor to consider.
Top Five Digital Health Trends for 2016: Disruption Can be a Game Changer if a Business Can Predict it
- Intelligent Automation – big data, digital apps and devices handle the basics allowing people resources to focus on higher value tasks
- Liquid Workforce – technology has enabled anywhere, anytime access to healthcare. Crowd sourcing and workforce flexibility are leading to better outcomes
- Platform Economy – technology-enabled networks and the ability for consumers, providers, payers, and employers to all access them yield better outcomes at scale
- Predictable Disruption – once the ecosystem is established, it becomes more powerful with the addition of new, innovative offers. Many are coming from outside of health care such as gaming and consumer-based technologies
- Digital Trust – as ecosystems grow larger, vulnerabilities increase. Yet, consumer demand for security and privacy remain high
Predicting disruption across digital health encompasses a dizzying array of forces at play – technology, economic business model, consumer engagement, regulatory, and more. A thorough understanding of the competitive landscape where you play is a great first step to take if your market is rapidly changing.
The Challenge of Being Different
In a past life, I held the position of a product manager for a company that was the leader in a substantial and mature industry. As a product manager, I learned many things:
- First I learned that the product manager role in any organization is extremely hard work and not for the faint of heart. I mean, who would even want the job of being in the middle of demanding customers, unruly salespeople, tentative engineers, anxious operations managers, out of touch managers and cautious finance and accounting folks? Sounds like a perfect job for a middle child, which I am not. In addition, even though we had good market research, I always felt like I was running in circles, responding to the largest customer or market anecdotes without a good sense of the real market needs
- Second, I learned that responding to those counter pressures was the safest way to operate. While it was considered ‘customer focused’, in the end, our efforts often resulted in product features and pricing models that looked pretty much like everything else in the market, even though internally we felt we had invented something unique
- Last, I learned that working to make my product line truly ‘different’ in the market required skill, courage, leadership, and even a little luck.
In her book ‘Different: Escaping the Competitive Herd’ Harvard Business Professor Youngme Moon describes the concept of ‘category blur’. Her argument is that once a product category becomes a blur to customers, they start to adopt a consumption posture directed toward the category as a whole, as opposed to the individual brands within it. Professor Moon says, “We [buyers] no longer see the trees for the forest so we cop a stance toward the forest instead.” On the other hand, what she terms ‘breakaway’ products and brands deviate from these stereotypes in such a way as to cast doubt on the validity of the original generalizations.
The concept of ‘different’ implies the ability to compare and contrast one against another – for both customers and product managers. In order to deliver products that are truly different product managers must start with knowledge of his or her own product, production and pricing capabilities, etc. (the internal environment). At the same time they must have deep knowledge of the competitor’s products and capabilities along with buyer needs, perceptions and behavior (the external environment). In addition, since the external environment is constantly changing as customer needs change, competitors change, and technology and other trends drive change, the awareness of differences must be continuous. (Refer to the difficult role of the product manager above).
When we started working with one of our very good clients several years ago, the senior executive told me, “We have launched so many new products and product improvements over the years that have failed.” He added, “They not only cost money but hurt our reputation with customers, and we know that solid investment on the front-end is critical.”
It is the external environment where Line of Sight Group helps our clients. Our approach is to help product management professionals improve their effectiveness by collaborating with them to ‘out-smart’ their competition by identifying the disruption that represents opportunities and threats before their competitors do. We help them benchmark the competition, watch their ever-changing external environment and help them connect the dots. They apply the insight to close gaps to reduce risk and Identify ‘white space’ opportunities to make their products truly ‘different’.
As noted above, sometimes being ‘different’ requires a little luck beyond the leadership and hard work of a product manager. Sometimes that luck comes in the form of additional knowledge and insight – and it can mean all the difference.
Profiting From Change: How Some Health Care Organizations Are Navigating Industry Chaos
For every industry there is a ‘current state’ and a ‘future state’. The space between them is called ‘change’….and in an industry like health care, the term ‘chaos’ is more appropriate. This chaos can represent either opportunity or threat, depending on an organization’s ability to understand and respond by making the right decisions and investments. Innovation is happening at a pace never seen before in the health care industry. Political and regulatory change, technology change, demographic and societal change are all driving new market needs for consumers, providers, payors and others. From telemedicine to population health management to connected health, to social patient experience and crowd-sourcing solutions, the pressure on organizations intensifies as they jockey to fill those emerging market needs.
In the midst of all this change, executives are trying to make the right decisions to survive and grow. Product managers and developers need to place bets on new products and innovation, chief marketing officers need to invest in campaigns that position their organizations effectively, and sales executives need to compete ‘in the trenches’ against a dizzying array of competition. CEOs and other leaders need to bring all of these functions together to create strategic plans. Beyond making sense of the chaos, how does an organization gain the confidence to make the right investments in order to grow and not get left behind?
Unfortunately, there is no silver bullet, no single solution.
Although no one can tell the future, some organizations are better at preparing for it than others. How is it that companies like Catamaran (now part of OptumRx), Coloplast and Express Scripts are recognized by Forbes in its latest list of the most innovative companies, while others seem to be paralyzed?
One way in which we’ve observed health care organizations change their mindset has been when they apply their expertise on the clinical side to their business strategy. These organizations are mining data from many sources and analyzing it in a longitudinal, systematic manner. They use the information to identify opportunities to engage directly with consumers, their providers, health coaches and others to close gaps in care. The concept has been applied across the health continuum in wellness, chronic condition management, pharmaceutical safety and adherence, population health management and many others. Optum’s Care Management program, Express Scripts’ Rational Med, Healthways’ TargetTM and Humana’s Gaps in Care programs are only a few examples.
What if this model could be applied to business strategy?
While there are distinct challenges with applying this model to business strategy, the basic model is something we’ve been applying for our customers for nearly 15 years to give them clarity about the changing world around them and the strategic moves that can help them grow their business. They apply this insight to everything from training their salespeople to developing new products and services to making high-stakes technology investments and more.
For health care organizations that are heads down, charging hard and working to meet growth and profitability goals, it can be difficult to take a breath and consider the benefits of applying systematic market and industry intelligence to strategic decisions. Applying the concepts of what they already know gives them a place to start. The basic notion of using empirical data to make decisions and perform interventions that improve outcomes is at the heart of healthcare….and at the heart of strategic intelligence applied to your business to improve growth and profitability outcomes.
If you will be attending the American Telemedicine Association conference May 14 to 17 in Minneapolis, please stop by booth #1325 to say hello and learn more about how Line of Sight helps organizations like yours make sense of, and grow, amidst the chaos.
