At my job, we work with management teams and help them sort through tough strategic challenges. We are often confronted with the question of whether something is strategic or if it is operational in nature. It is a very common question
and not an easy one to answer. I’ve seen many teams wrestle with this. It’s never cut & dry but there are some ways to navigate it.
I’ve learned a few things in the past few years and want to share some thoughts. Ultimately, there is no black or white answer to this question. It comes down to the old saying, I know it when I see it.
Why does this matter?
This is an important question because working on strategy is always important yet rarely urgent. Leadership teams often don’t prioritize working on issues of strategic importance. This is particularly true in small to medium size organizations. Working on executing your strategy should be a big deal. If you don’t, you’re going to be stuck doing the same thing over and over again. Working on your strategy also means working towards taking your company to the next level – whatever that level is.
Let’s dive in.
Start with a north star
Some pretty basic advice, know where you’re going, clarify the penultimate goal of your company. This should not change ever. If you do not need to change it, it’s because you’re undergoing a radical transformation (think Netflix going from DVDs to streaming). If the vision is clear, it’s usually easier to work backwards from there.
Understand your core strategy
Your strategy isn’t something that changes often. This is about the fundamental nature of what the company does and what makes it work. There are many ways to illustrate what your company’s strategy is. A cool way to visualize your core strategy is with a flywheel. Most people are familiar with the Amazon flywheel. As another example, I love Sonder’s flywheel. It doesn’t matter enormously what tool you use to explain your strategy. What does matter is being able to explain it simply; we do X as a result we obtain Y.
Map out the next few years
Most organizations can’t have too many strategic objectives, usually three to five pillars that a company is working on. These should reinforce the core strategy and are “bets”. Bets in the sense that success is not assured.
A business case that exemplifies this is the Amazon Fire Phone. Let’s start with Amazon’s flywheel which is very focused on customer experience. They launched the ill fated smartphone project as a way to get closer to the customer. They believed that would be able to bring more value to the customer by allowing them to scan & shop for products. Ergo, more selection equals better customer experience.
They took a $173 million write down and probably spent more on R&D. So let’s assume a total cost of $400 million. At the time, this represented 0.27% of their market cap. It wasn’t a “bet the company” initiative but rather a bet that might yield a 10 or 100X upside. This failure forced them to go back to the drawing board and find other ways to get closer to the customer. They innovated with the Amazon Echo and the rest is history.
Working on anything strategic is usually about reinforcing the strategic objectives or pillars. This work tends to have a 1) relative degree of uncertainty, 2) something that is not being done today in a repeatable fashion.
Clarifying what is important versus urgent
Working on operational priorities is far from being unimportant. It’s about running the existing business and running it well. Oftentimes, operational tasks can become strategic if something is broken and needs to be fixed immediately. Nothing else matters if customers can’t get what they want. Operational excellence matters more in certain industries that have tight margins for instance. If you are a software company and you don’t innovate & ship your product, you’re in troubled water.
For a leadership group, it’s important to clarify what’s important today and what will be important in a few years’ time. Working on your strategy is about elevating your company.
A small but important caveat, not every company needs to transform itself. For example, longtime Disney CEO Bob Iger took the role of executive chairman and let previous head of parks and resorts, Bob Chapek step in as CEO. One of the assumptions behind this move is that Disney’s strategy is set and is on the right path. Instead of a visionary CEO, a more operational focused one is needed.
This is the biggest question a CEO and board should be asking, should we be focusing on our strategy or on our operations. The answer, you can say, is strategic.