Strategic coherence for tumultuous times

The strategy null set

If a company says it will cut capital investment and build new facilities, the incoherence is obvious. But if the company expresses ambitions of both growth and a higher return on capital, the incoherence may be masked. Consider this list of priorities generated during a business strategy retreat by the small executive team leading a Fortune 500 company:

1. Supply chain and process excellence.
2. Improve debt rating (move EBIT-to-interest ratio from 1.2 to 2.0).
3. Push return on invested capital above weighted average cost of capital.
4. Reverse market share losses with new product offerings with new capabilities.
5. Manufacturing technology: double throughput, reduce energy consumption by 25%, reduce emissions by 35%.
6. Better branding and image positioning.
7. Become the market leader in China for the category.
8. Stronger presence in Southeast Europe.

Leaving aside the fact that having eight priorities violates the very meaning of the word, the policies and intents themselves are incoherent. The list contains implied actions that directly contradict one another. Market share losses, debt problems, and low profitability are symptoms of past overinvestment in poor competitive positions. Large investments in new manufacturing technology and expansion in China and Southeast Europe are hard to square with the hoped-for improvements in the income statement and balance sheet. More generally, there is no concentration of effort—no focus—and this contravenes the fundamental principle of strategy. It is all too easy to create this kind of incoherence when a group treats strategy-making as a type of goal setting, where “goals” are interpreted vaguely as aspirations or ambitions to be “better.” 

Incorporating desires and aspirations into strategy can be especially problematic, placing unforeseen constraints on the very actions needed for strategic coherence. A large-scale agricultural producer, for example, may cite sustainable farming as a core value, but those farming practices may limit its strategic ambition to feed large populations. When values and aspirations multiply, each can create new limits on action, to the point where no action can feasibly satisfy them. Something will have to give. I call the “strategy” in such situations a “null set.” Some values held dear may have to be forgone, so it is important to be clear about what the strategy has to deliver.

Coherence and challenge

Coherence, on the other hand, emerges from a quest to define the most important challenges facing the company and to develop a strategy to meet them. This requires sharp focus. Experience, judgment, and insight are critical, because there are no automatic methods for generating solutions to difficult problems. Writing about solving hard design problems, industrial design specialist Kees Dorst nicely describes this sense of zeroing in: “Experienced designers can be seen to engage with a novel problem situation by searching for the central paradox, asking themselves what it is that makes the problem so hard to solve. They only start working toward a solution once the nature of the core paradox has been established to their satisfaction.” 

The crux of strategy. A strategy is a mixture of policy and action designed to surmount a high-stakes challenge. I underscore “high stakes,” because if the challenge isn’t really important, it’s not strategic. The crux of a challenge is what makes it hard—it’s what makes it a challenge—just as the crux of a rock-climbing route, such as an awkward overhang or a stretch of sheer rock face, is the most difficult part of the ascent. 

In dealing with strategic challenges, it is crucial to use the crux principles. First, accept a challenge only if there is a good chance of solving its crux. If the crux is so difficult that it resists solution, then that challenge should be set aside for another day. Don’t choose to fight losing battles if there are others you can win. Second, the crux of the most important, yet solvable, challenge is also the true crux of your strategic situation. Third, we gain coherence by restricting strategic actions to this true crux—or at least by not taking on more than one or a very few critical challenges beyond it. This type of focus automatically increases the chances of success and reduces the inefficiencies that arise from constantly trading off between competing interests and actions. 

A focus on challenges, rather than on goals and ambitions, is extremely useful for leaders seeking to stimulate thoughtful dialogue about the choices they face, and it helps avert the kind of haphazard decision-making that gives rise to strategic incoherence. By diagnosing the origin and structure of challenges and considering the actions required to resolve them, we come face-to-face with the need to make actions coherent and lay bare inconsistencies among proposed action-solutions. When starting strategy work, avoid the language of goals and ambitions and, instead, emphasize the logic of challenges, policy, and action. I start my own search for the crux of a challenge simply by asking, “What makes this situation so hard?” 

In early 2020, I led a small group of executives through an exercise aimed at assessing the challenges facing a technology company. (No one in the group was associated with the company we scrutinized, and the documents we read were all from public sources.) The technology provider had been an innovator, always on the leading edge of its industry. But by 2019, the company faced obvious challenges. Maturing technologies meant that innovation and performance enhancement opportunities were fewer and farther between. Forays into new product markets had failed, and the company’s culture seemed to be rooted in past triumphs. Add to this glitches marring productivity, plus fierce competition, and the company was facing a crisis. But what was the crux problem? 

In all, the group identified 11 key challenges. To pare down the list, the five participants scored each challenge, from one to ten, on its importance (how critical is it?) and its addressability (was there a good chance it could be surmounted over the next three to four years?). The two highest-scoring challenges—manufacturing problems and company culture—were dubbed “addressable strategic challenges.” The manufacturing challenges, which were judged to be more addressable than company culture, were clearly the crux issue for near-term survival. The culture issue was deemed the crux with respect to developing new growth platforms.