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Today's Insights: The Hard Questions to Ask When Planning Your Annual Strategy
Table of Contents
- 1. Developing an Annual Strategy
- 2. Strategy Therapy: A Transparent Approach
- 3. Simplifying the Strategic Planning Process
- 4. Answering Core Strategic Questions
- 5. Levels of Uniqueness in Strategy
- 6. Overcoming Competitive Instincts in Strategy
1. Developing an Annual Strategy
Many leaders think that developing an annual strategy is a complex issue, often requiring coordination of budget competition among various departments. However, leaders should focus on three key questions: Where are we? Where are we going? What are the feasible ways to get there? Shifting to a more honest and transparent "strategy therapy" approach can help address the difficult discussions that are often avoided but are truly important.
When annual strategic planning occurs, the process often becomes a spectacle for most companies—a budget competition ritual resembling a ball game, with participants becoming emotional and each department defending its own turf. Marketers feel embarrassed when non-marketers share "expert" wisdom, and salespeople are skeptical when they hear the term "stretch goal." Each business unit believes it is the most important, leading to a time-consuming and resource-draining process. Employees endure the torture of meetings, knowing that real decisions are often made in side-bars, pre-meetings, and post-meeting briefings. CEOs watch their teams compete for budgets, even though the company is constrained by profit and loss statements and stock prices.
2. Strategy Therapy: A Transparent Approach
To address these issues, companies should shift from "strategic planning" to "strategy therapy." Strategic planning is a rational, external, and analytical activity focused on the market. The answer to a healthier, more constructive annual strategic planning process lies not in more analysis, but in greater candor. Strategic therapy is an emotional, introspective exercise focused on self-awareness. This approach is not about team-building exercises or emulating traditional therapy; rather, it is about opening a path toward transparency and truth.
Strategic therapy uses the same type of analysis and structure as strategic planning, but it forces leaders to have the tough discussions they might prefer to avoid. The process simplifies the strategic planning exercise and fosters a more honest and constructive environment for decision-making.
3. Simplifying the Strategic Planning Process
The term "strategy" often feels complicated because academics, consultants, and other experts benefit from the perception of complexity. However, strategy is quite simple when broken down into three fundamental questions: 1. Where are we? 2. Where are we going? 3. What are the feasible ways to get there?
One of the reasons most companies fail to address these questions effectively is that they do not answer the question "Where are we?" honestly, based on their strengths and weaknesses. Many market leaders do not fully understand why they are ahead of their peers, often because their success is inherited from previous leadership rather than created by their own efforts. Similarly, non-market leaders may lack the confidence to challenge market leaders, believing they are inferior in all aspects.
4. Answering Core Strategic Questions
To answer the question "Where are we?" with a strategic therapy mentality, leaders must be willing to speak honestly about their core beliefs, strengths, and weaknesses without concern for appearances. The first step is to admit that there is a problem. Leaders should also ask themselves three sub-questions:
- What is the one factor that makes our business so unique? Is it the product, the company, or the timing of entering the right product category? Answering this question may be painful, but it is essential for a clear understanding of the business's true strengths.
- How unique is this element that makes our business unique? Just because something is a feature of your company does not mean it is unique within its product category. Traditional strategic planning activities can be helpful in answering this question if approached with ruthless honesty.
- How far are we willing to go to make this element truly unique? There are three levels of uniqueness—better, best, and different/unique. Most leaders stop at "better" without pursuing the best or becoming different. However, achieving true differentiation can significantly enhance profitability and long-term success.
5. Levels of Uniqueness in Strategy
The three levels of uniqueness—better, best, and different/unique—require varying degrees of commitment and innovation. "Being better" involves defeating competitors and becoming the market leader. This approach prioritizes cost leadership and economies of scale. "Being the best" focuses on enhancing price premiums through R&D, innovation, and brand strength. "Being different" involves design and differentiation, driving product, business model, and data innovation that increases profitability through cumulative sales and higher margins.
Our research shows that companies that become "differentiated" product category designers can significantly increase their profitability. However, most companies unconsciously choose a "winner" strategy, largely influenced by traditional competitive thinking. This mindset often overlooks the potential for creating new market opportunities through differentiation.
6. Overcoming Competitive Instincts in Strategy
In the field of strategy, competitive instincts can sometimes mask deeper, more important issues. Rather than focusing solely on taking market share from competitors, leaders should consider whether their innovative capabilities are up to the task of creating new market opportunities. For example, Tesla's mission to "accelerate the world's transition to sustainable energy" represents a "do it differently" strategy that prioritizes innovation and long-term value creation over short-term competition.
Leaders' fundamental beliefs about scarcity or abundance play a critical role in shaping their strategic approach. Those who prioritize scarcity tend to focus on winning market share, while those who prioritize abundance focus on innovation and category design. Strategic therapy encourages leaders to take a hard look at their core beliefs, embrace honesty, and pursue abundance as a path to creating new possibilities and the most brilliant strategies.
