PVSC – Purpose, Value, Strategy, Culture
The National Housing Federation announced today their first stage of consultation around the NatFed Code as it is affectionately known. As I think about codes one of the important functions of a code is to get the core principles right, this consultation then will focus on what the fundamental principles are as it engages with a wide variety of stakeholders.
One of those principles has got to be around strategy. Keeping the board strategic and ensuring that there is a golden thread holding purpose, values and culture together.
Any discussion on codes of governance should always include some thought around the importance of the role of the board in setting or contributing to strategy. Get the strategy wrong and business is doomed for failure! So, what do we really mean by strategy and how can we determine what is a good or bad strategy?
We can go as far back as the 6th century BC to find mention of strategy in military science, where General Sun said; “…all men can see how the battle is won by the tactics I use: what no man can see is the strategy whereby the victory is achieved.”
Despite this, the application of strategy to business is a relatively recent phenomenon and it is difficult to find any real evidence until the 1960s to make useful study of. In the modern corporate world, strategy can also be viewed from the context of corporate strategy and the theories it offers don’t always seem relevant for the average charity, social enterprise or SME. However, the principles are exactly the same across sectors and regardless of size and we can apply instruction to our specific circumstances.
You will see from the definition of strategy below the influence that military philosophy has had on the development of thinking around strategy. After a brief look at the history of the various strategic thinkers, we will see how this initial view has evolved.
Strategy- “…how you organise your business, (deploy your resources), to compete for the attention of customers in your target markets, (achieve your objectives), faced by competitors and other external factors that present threats to your business (defeat the enemy).
In looking back again to the 50s and early 1960s, strategy was focused around the development of large multi product firms. The strategy question would be; how can we maximise the opportunities that the markets are demonstrating? Peter Drucker author of ‘Concepts of the Corporation’, Theodore Levitt who wrote ‘Marketing Myopia’ and Alfred Chandler of ‘Strategy and Structure’ are names that we are familiar with. We learn about successful organisations centralising their processes and firms getting strategy right before determining their structure.
The shift however came in the late 60s and 70s. Key names such as Bruce Henderson and the Boston consulting group, Henry Mintzburg and H. Igorr Ansoff introduce more sophisticated and resource based interpretations. These writers encouraged organisations considering their strengths, capability and then the potential market.
Dominating the subject area after this have been Michael Porter, Tom Peters and Hamel and Prahalad who lead us to study competitive strategy and excellence dominating the thinking stretching right through the 80s and 90s. Current strategists such as Jim Collins who authored ‘Good to Great’, Taleb writer of ‘Black Swan’ and ‘Blue Ocean’ by Kim and Mauborgne, highlight the order of strategic thinking. Stepping outside traditional markets to create new markets, anticipating the unexpected and appreciating what makes a business survive and prosper over many generations.
Strategy in essence is very simple. Its application is not so. It is really about understanding where you want to go over the long term and knowing the best route to get there.
The challenge then is how do we determine where the end goal should be, how do we know which product or service to focus on. Should we go into a new market or capitalise on the one that we are in. How does the political or social environment impact on our decisions? All these questions help to determine the strategy to be adopted or not.
It doesn’t matter if you are a large multinational or a smaller enterprise, you can use the strategic tools and thinking to aid your understanding to help master the answers to the previous questions. It is to be noted however, that these tools are not the answers but they present sound mechanisms to assist you in reaching the answer!
The so called Boston Matrix can help in determining the products or services that need to be focused on and which ones to drop which is a little different from its original application of determining which company in the group to divest. Ansoff’s matrix will help to determine the risk in entering new markets with new and existing products and services as opposed to existing markets.
As we move past just preparing a SWOT (strengths, weaknesses, opportunities and threats) analysis and PESTLE, (political, economic, social, technological, legal and environmental) assessment, we try to use them to make strategic choices. How do we use our strengths to take advantage of opportunities? How do we measure the likelihood and impact of the factors identified in a PESTLE to determine what actions we need to take? Strategy then should not be confused with the tools and techniques that are used to help us determine our strategy and strategy formulation should not become the hindrance to strategy implementation.
Every organisation should be clear about it strengths and seek to maximise the opportunities available by having a clear understanding of the competitive and wider environment that it operates in. The directors should use this information to determine the strategy and then review and monitor it regularly. When an organisation knows where it is headed and it has a good understanding of where it is coming from as a foundation, it can ensure that this vision is shared with the stakeholders that will help it to plan the best route to get there.
A clear strategy will mean that you can articulate your vision, and your game plan for achieving the vision, often referred to as the mission. Three to six strategic objectives will give the long-term focus that the annual business plan objectives can be derived from and the board can monitor.
We are continually reminded that the board’s role is strategic but sometimes find it difficult to get the right balance at our regular board meetings, which by nature must have scrutiny, monitoring and control. One way of helping to maintain an appropriate focus is to review the agenda to see how much time is being spent on strategic matters and also ensuring that board appraisals link performance against the corporate/strategic plan.