“Only a few generic strategies survive competition in the long run. This notion…is what really defines the positioning school.” Henry Mintzberg, 1998
Design Cannot Begin Until You’re Clear about Strategic Positioning
Strategy is an idea. It is intended to create efficiency and effectiveness by organizing activity and aligning decisions. It is choice that says we will do these things, but not those things. It defines how an organization means to generate superior economic value in a market. Organizational leaders cannot begin to think effectively about organization design until strategy is clear. Otherwise, there is no objective for a design to fulfill.
If you’re interested in building an organization that efficiently and effectively delivers products and services to your market, you must get clear about what you mean by strategy. This allows you to have effective conversations with your leadership team. You must also get clear about your strategic positioning. By doing these things, you align organizational energy and set the conditions for the creative pursuit of organizational objective.
Strategy as Strategic Positioning
Scott Fitzgerald is quoted as having said, “The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function.” If Fitzgerald had been considering strategy, he might have said five, seven, or even ten opposing ideas. You aren’t alone if you have an uncomfortable feeling that you don’t quite have the concept of strategy pinned down to your liking.
Several of the more familiar definitions of strategy are:
- Strategy as plan – a planned course of action intended to produce a desired outcome
- Strategy as position – a relationship between an organization and its environment
- Strategy as perspective – an organization’s driving force or mindset
- Strategy as pattern – a consistency in actions over time
My favored view in commercial applications is strategy as position. It sets the basic logic of how I intend to generate superior returns on my invested capital. This view of strategy is decidedly economic. Will I pursue operational effectiveness and be the low-cost producer in the market? Will I pursue product excellence and compete based on product/service differentiation, innovation, and speed to market? Or, will I become intimately familiar with a niche market segment and focus my attention on being the best at meeting its differentiated needs? Many readers will recognize these positioning frameworks as those of Michael Treacy and Fred Wiersema, or the more widely recognized Michael Porter.
All Strategies Must Eventually Lead to Activity
An integrated view of strategy is a set of reinforcing choices that defines an organization’s aspirations, where the organization will compete (enterprise strategy), how the organization intends to win in the market (business strategy), the capabilities that will be required, and the management systems that will create the capabilities. This model is useful because of its simplicity and orientation to work. It drives the strategy conversation to the capabilities and management systems that an organization must develop to enable strategy. Without capabilities and systems, strategy remains an idea. (Source: Adapted from Martin and Lafley, 2013)
An organization’s capabilities describe broad activity systems. Each company will invariably have many activity systems and may be good at many things. However, there is always a small set of capabilities that must form the basis of an organization’s strategic positioning. For example, if your strategic position is based in product/service differentiation then the ability to understand the market, innovate, and create demand must be core capabilities. Otherwise, you can’t effectively compete in your competitive position and your economic returns will be smaller than they otherwise might be.
Strategic capabilities are brought to life through supporting structures, processes, and measures. While capabilities are broadly descriptive of what an organization considers its core competencies, people are put into motion at the level of structure, process, and measurement. Capabilities and management systems describe how we organize people, how we do the work, and how we manage and grow talent.
Organization Design Creates Capability
Organization Design cannot begin until we are clear about strategy and the core capabilities needed to deliver it. As previously noted, successful competition is enabled by the integrated set of choices that not only define how the organization intends to create value in the market (strategic positioning) but also the capabilities and supporting systems that enable a competitive position.
ON THE MARK always begins a design process by looking at strategy. Experience shows that it’s common for a leadership team to be misaligned in its understanding of organizational strategy. There is no judgement in this statement. It’s simple recognition that there is ample source of confusion about what strategy means. It’s also recognition that many organizations are caught between strategic positions and must clarify how the organization will compete in the market. Without a shared understanding of this core issue, reaching effective and apolitical decisions about how to organize is difficult and time-consuming, or impossible. Leaders must align to a common design objective.
The current interest in organizational agility is also understandable as a capability. Some will argue that committing to a strategic position promotes rigidity in dynamic markets. This argument reflects a valid concern when the average length of competitive advantage is said to be three years and diminishing. The short answer is that strategic positioning is still valid. And, it must be augmented by the concepts of organization identity and strategic capability to perceive the environment, adjust strategic intent, test ideas, and implement those that work. Organizational agility does not eliminate the need for position. It highlights the need for additional organizational capability.
Strategy First, Organization Design Second
Strategy is the primary decision from which all organization design decisions will flow. There are several concepts of strategy. This helps explain confusion and lack of alignment when discussing the topic. I believe the most useful concept of strategy is that of strategic positioning in a market. It clearly defines the basic choice of value creation and initiates the path to effective design. With such a decision made, it is then possible to identify the key strategic capabilities that an organization must possess. Design for these capabilities.
A useful first step is to discuss your basic strategic position among organizational leaders. Do you primarily compete on low price, differentiation (added value and premium price), or laser-like focus on a market niche? Are you able to achieve unanimous agreement in your team? The benefit of this first step is that you will either confirm a shared understanding of strategic position or identify a need to clarify and align to strategic position. Afterward, you can create a conversation about the core strategic capabilities required to realize your basic choice of strategic position.
“When entering an organization, assume they are stuck in the middle and ask them to prove themselves to be otherwise.” Professor Chris Worley
Dan Schmitz is a Consultant at ON THE MARK. OTM’s experience and passion for collaborative business transformation that’s supported by pragmatism, systems thinking, and a belief in people is unparalleled. OTM has been in business for 29 years and is a leading organization design firm.