As featured in Chief Executive Magazine written by Dale Buss. The full article can be found at: https://bit.ly/3RM4wCU
Many notable companies have made huge strategic gambits lately. Walmart is buying its first manufacturer, TV maker Vizio, and initiated stock grants for store managers. Automakers are announcing new, multibillion-dollar EV-battery factories. McDonald’s and Wendy’s are focusing on promotional pricing unlike anything they’ve done in decades. And nearly everyone has jumped into the AI pool.
CEOs like Walmart’s Doug McMillon and Ford’s Jim Farley are making these strategic choices amid accelerating global disruptions that began with the pandemic and continue to intensify. We’ve seen new wars, labor shortages, generationally high inflation, a U.S. commercial-office market collapse, massive regulatory salvos, global anxiety over climate change, pressures to change manufacturing footprints and an American political climate so polarized there are fears of partisan violence during the campaign season.
In this unprecedented environment, companies must be on top of strategy-making more than ever. Koppers CEO Leroy Ball reports that for this reason, the board of the $2.1 billion Pittsburgh-based industrial conglomerate will meet seven or eight times this year instead of the usual five. “It’ll be an iterative process that will occur over a year’s time, with all kinds of information, to align with a conclusion we’re all in agreement with,” Ball says. “If there’s not alignment in the organization to carry out a great strategy, it’s not going to work.”
Entire flocks of black swans are now populating some significant fields of change, such as geopolitics. “An organization might acquire a business because it’s the No. 1 player in the U.K. or Russia, and then along comes Brexit and the Ukraine war,” says Keith Goudy, head of Vantage Leadership Consulting. The latest kink: The Israeli-Hamas war and connected terrorist attacks in the Red Sea that are literally blowing up global supply chains.
Difficulty plotting a course through disruptive change is certainly plaguing carmakers pathfinding a route through the EV “revolution,” which stalled badly this year amid resistance by American car buyers. The setback exposed the vulnerability of automakers that devoted themselves to the transition, ranging from GM and Ford to BMW, and literally cost Hertz CEO Stephen Scherr his job because he bet the future of the rental fleet on EVs.
On the other hand, Toyota benefitted from CEO Akio Toyoda’s decision to stick with the company’s emphasis on gas-electric hybrids, which U.S. consumers have come to prefer over full battery-electric vehicles (BEVs).
Volkswagen’s EV strategy entails fence-straddling until the market clarifies. “Our approach is to use the same production facility to produce both ICEs and BEVs and adjust production capacity as we see the market and customer demand developing,” says Reinhard Fischer, vice president of strategy for Volkswagen North America, about how the automaker is utilizing its Chattanooga, Tennessee, assembly plant. “We’ve created a flexible environment.”
Another industry racked by strategic disruption these days is the packaged-food business, as millions of Americans opt to take Ozempic and other weight-loss drugs that significantly dull their appetite for calories, especially empty ones. The fallout included Oprah Winfrey’s stunning move to leave the board of Weight Watchers International and donate her 1.4 percent stake in the company after confessing that she, too, has turned to weight-loss drugs in her well-documented, decades-long battle against obesity.
“We are by no means complacent,” Kellanova CEO Steve Cahillane said on a recent earnings call about the former Kellogg Co.’s plans for its snack and cereal brands, including Cheez-Its, Pringles and Rice Krispies. The company has been strategizing changes such as a shift to smaller portion sizes.
Many companies are good at strategy-setting, but any CEO can be—if it’s a true priority. “You need to care about it,” says Dan Helfrich, CEO of Deloitte. “Resisting the tyranny of the present, and the gravitational force to spend all your time on internal-efficiency and operations topics at the expense of medium- to long-term strategy and culture—that’s what separates those who are great at strategy and those who aren’t.”
Here are some ideas from CEOs and others about how to become great at setting strategy when it seems more important than ever:
Start at true north. All strategy should stem from a company’s core raison d’etre. “Corporate values and our focus on people and customers don’t change as part of corporate strategy but rather form a foundation for how we achieve that strategy,” says Laura Ritchey, CEO of Radial, an ecommerce fulfillment provider. “That helps us make more step changes than small and evolutionary changes.”
For Iggy Domagalski, when he ran Tundra Process Solutions, “core values” were wrapped up in this mission statement: “We’re going to be the most trusted supplier of process equipment in western Canada.”
“So, when new ideas came in,” says the CEO of Wajax, a $2 billion (Canadian), Calgary-based industrial distributor and service company that bought Tundra a few years ago, “we’d always vet it against that. If it wasn’t about industrial process equipment, forget about it. If it was outside western Canada, forget about it. And if it didn’t lead to more trust by a customer—such as some business that was transactional or a commodity—forget about that, too.”
Examine your value proposition keenly. “What do you have that’s going to be differentiated because it’s different or better?” says Jan Babiak, former managing partner of Ernst & Young UK and a director of Walgreens Boots Alliance and other companies.
Harness a process. CEOs and advisers are all over the map on what framework to use for setting strategy, but most agree you need one. “Act on beliefs, not facts,” offers Rebecca Homkes, a strategist and London Business School lecturer. “I’m not saying throw away data or facts, but merely that the past is not a good indicator of the future, and linear models no longer will tell us what happens next. Beliefs are not religious dogmas but rather our formulated stance on how things will progress, based on a set of assumptions we will be testing along the way.”
In that process, she says, “CEOs should be asking ‘what could make us and what could break us,’ or what are their ‘kickers’ and ‘killers.’ Imagine the possible outcomes of strategy as a bell curve, with most scenarios falling under the fat middle. But there will be extreme outliers, [and] the strategy approach should identify these and set up to seize the opportunities as well as protect from the downside risks.”
Avoiding a potential “killer” was what George Oliver did when Johnson Controls sold its market-leading lead-acid car-battery operation for $13 billion in 2018. “It was a great business during the auto-industry recovery after the financial crisis” of 2008, recalls the CEO of the $27 billion commercial climate-control company, “but the issue was, when we projected business with the evolution of EVs, we weren’t going to be able to compete with lithium-ion batteries, given the billions of dollars others were spending in that space.”
Procter & Gamble last century famously produced a strategic-planning approach known as OGSM: objectives, goals, strategies and measures. “Of course you need to think outside the box, but great companies create a box first,” says Lars Sudmann, a board adviser and the former CFO of P&G Belgium. “Think inside the box to define what your strategy is. Then, everyone gets trained, so when the time comes, you can apply this thinking fast and go into deep discussions of strategy.”
Enterra CEO Stephen DeAngelis notes, “You can’t predict everything that’s going to happen because we live in a wacky world right now. But you can get so good at responding that you can mitigate a risk and exploit an opportunity better than a competitor can. [Develop] a set of preplanned strategies, and as you see market conditions change, you can pull that off the shelf.”
Get the right people in the room. This means players who are good at leading strategic change as well as helping set it up. “You want talent that understands scale,” says Maggie Wilderotter, a board member at Costco and former CEO of Frontier Communications. “Is the CEO able to scale with the business, and are executive leaders able to scale with the business? If the right people are in those top positions, that [capability] can cascade down through the organization.”
For putting together an approach, Fischer advises, “Bring in as many smart minds as possible, even if they have controversial positions.” And, says Helfrich, “Make sure people who participate in the strategy process are diverse. Increasingly, that means people from outside the organization, from the ecosystem of related industries and organizations.”
But be wary of consultants. “Their salesforces tend to be pretty good, but those people aren’t going to do the work,” says Bob Meyer, CEO of Phoenix Children’s Hospital. “You have to interview, not just accept what they give you in the proposal. They’ll put titles in the proposal as part of the sale agreement but not as part of engagement.”
Solicit customer input. More CEOs put customers in the strategy sausage-maker, too—figuratively, if not literally. “Focus on your profitability through the lens of your customer and the competitive environment out there,” says Wilderotter.
Tempo Software, for instance, taps its installed base and technology partners to come up with “indicators of opportunity,” says Mark Lorion, CEO of time-management platform Tempo Software. Radial gets feedback about “the delivery experience overall for our clients,” Ritchey says, “then works that backward to break down into actionable items,”
Several years ago, GM pushed Gallagher-Kaiser to develop a new piece of equipment that could be deployed more quickly than previous versions of the automotive-assembly plant paint shops that it installs, says Tracy Roberts, COO of the supplier that is part of $2 billion Kaiser Enterprise. “I challenged our guys, and in four months, we had a prototype built with a pretty sizable investment, and we hit it out of the park,” he says. “Now, we’re selling these products all over the place.”
Sudmann advises CEOs to “not only listen to what the customer wants but also understand that sometimes people can’t imagine what is possible. There’s a famous adage that if you’d asked people what they wanted, it would have been faster horses, not a car. The essence of strategy is to think ahead about what couldn’t be possible right now.”
Revisit time horizons. Helfrich warns that “if you’re locked into a strategy that’s five to seven years into the future, your inability to deal with unanticipated changes in technology, geopolitics or regulation can leave you very flat-footed, and that’s a recipe to lose ground competitively.”
Tempo Software includes looking at research and data in its annual planning cycle, says Lorion. “We get the executive team together and look at the data and thesis for the next couple of years and lay out a plan that looks out two years. Then, we break it down into the next year and into quarters and decide: what do we want to achieve along the way?”
Test the business model. When it comes to your actual strategy, Sudmann advises starting by identifying “the big megatrends that could affect your field. You can’t just assume linear projection; that has changed. For decades, [CEOs] have been a bit like, ‘We keep on doing this.’ But now, several megatrends—generative AI, geopolitical developments, climate change—if you bring them all together in a business model, how will it affect you?”
Scenario planning remains effective even in a world where earth-shaking developments multiply. “But you need multiple scenarios and the ability to be agile,” Helfrich says.
Dottie Schindlinger, executive director of the Diligent Institute, advises “assigning probabilities to different eventualities within the next six months, such as the war in Israel: What is the probability it will spread, bringing in more countries and affecting the supply chain and human capital? What parts of your business might it affect, and what is the game plan? Then assign probabilities ranging from, say, it’s a company-ender for us to [eventualities] with 1 percent probabilities. You won’t spend all your time and resources getting ready for that small probability versus something with a high probability in the next three months.”
Volkswagen has tackled EV uncertainties with three possible scenarios, one of which is the “most optimistic,” Fischer says: Donald Trump regains the U.S. presidency and “overturns all the legal requirements” for EVs. “We don’t know if it’ll be Trump or Biden, but at least we’ll have a plan ready to pull out of the drawer and execute, instead of saying, ‘What are we going to do now?’”
Build in flexibility. “The best organizations are not afraid to say there are mutual scenarios that hang off our core ambition,” Helfrich says.
“That’s OK, versus declaring ‘Project 2030’ or whatever. The best CEOs are doing that well and doing that intentionally.”
Babiak adds, “Part of strategy isn’t just thinking about the future or war or pandemic, or a competitor doing something, but making sure you are practical as you develop your vision. It’s important to have a goal, but it’s also important that you know when to pivot away from it while continuing to do business.”
Koppers, for instance, has emphasized development of new products and processes stemming from its chemical expertise to help the company go into new markets, such as coatings for EV batteries. “We want to create other options for competitive products that help move up the market prices for all of our products,” Ball says.
Avoid analysis paralysis. Given the stakes involved in strategizing, it’s easy to fall into a slog of decision non-making. To avoid that, Sudmann promotes a method he calls “time boxing.” “We give ourselves one and a half days and then summarize the resulting strategy in 10 minutes,” he says. “No phones are allowed, and you go through the most important parts of your strategic direction. You ask, say, seven questions and then, ‘Let’s go,’ and at the end of the day we’ll have answers. All on one page.”
Simply aiming to go fast can break logjams, Lorion says. “Being willing to trade decimal-level precision, on a plan that may be 48 months, for speed and agility and quickly iterating on strategy is where business leaders are best serviced,” he says. “Begin with a vision and a longer thesis that looks at our role over time, but then break that into bite-size pieces teams can quickly iterate through in a quarter.”
Reckon with tech. The digital imperative is simply assumed in strategic planning these days. “The number of organizations choosing not to invest in modernizing digital underpinnings is almost zero,” Helfrich says. “It’s the execution of digital transformation, and how comprehensive it is, and how the user or customer experience is paired with underlying digital transformation, which creates differentiation.
“In some ways, AI is the same. Companies are viewing generative AI as a cost-efficiency play or an innovation play, and we are pushing them to view it as the latter.”
Decide what you’re not. This choice is made at the point of strategy. “What markets do we want to be in?” Lorion says. “What customer segments do we want to be in? And what markets will we not be in? We define what we hope to be in a fairly narrow, well-articulated market opportunity.”
Wajax’s Domagalski says he has “fallen into chasing the shiny-bumper trap over the years, not realizing there are only a few things we should be focused on. We didn’t realize just how destructive that was for our company. Every quarterly management meeting, we would say, ‘We have all these brilliant ideas,’ and the team would roll their eyes about a strategy shift when we had just been getting going on another one. We didn’t realize how damaging that was. Now we know we need to laser-focus the entire company on something and block out everything else.”
This process can involve planning to let go of existing customers or forego new ones, especially in a base of U.S consumers whose purchases are increasingly politicized. “You can’t be all things to all people,” Babiak says. “Do I want to serve California, or do I want to serve Texas? It really can come down to that.”
Try things. Every strategy should provide room for experimentation and testing that could lead to future major opportunities—or to nothing at all. At Gallagher-Kaiser, executives call these initiatives “science projects.” They might be as simple as a new idea for a piping material or a new substance for paint finishing, and often involve the company’s accelerating attempts to demonstrate sustainability. “We put it on the docket to try to achieve it or see if the idea has any validity,” Roberts says. “Not, ‘I want to come up with an idea and kick the can down the road.’ Put a time limit on it, and say, ‘In 24 months, I want this developed and a process put in place. Or we move on.’”
But some CEOs advise against a strategy that calls for doing too much. “Any organization has the bandwidth to work only five or six major initiatives at any point in time,” Meyer says. “You need to be very focused to get anything done. Most healthcare systems attempt to be all things to all people, end up trying to do 30 things at once and accomplish nothing. We’re focused on completing strategic initiatives and getting them implemented.”
Bring people along. “When you’re ready to launch into something, you need to build awareness and create a deeper understanding,” says Goudy, who urges CEOs to avoid suddenly springing a strategic shift on their workforces. “Don’t start telling people without involving them first. Say you need to do things differently, and then get their input, versus, ‘This is what we’re doing.’ People will see it more as their own.”
Leverage the board. Presumably, directors are brought on because of their experience and big-picture perspective. Strategy-setting is a time for CEOs to avail themselves of those insights. “CEOs need to have trusted advisers who’ve been through something similar and can help them steer around,” says Schindlinger. “A group of intelligent, calm, cool heads is more important than ever.”