Last updated on July 5, 2017
Introduction
The purpose of the strategy algorithm is to present a simple, parsimonius, and proven method for successful creation of a corporate strategy.
In corporations, the problems usually do not relate to lack of resources or options, but to complexity of having in fact too many choices. This can lead to illusion of superiority which is not a short-term problem since the corporation is protected by its existing buffers, but which will become a long-term issue when external conditions have tilted enough to cause a disruption driven by changing customer needs or competitors’ superior solutions. Therefore, any managing director or CEO needs simple guiding principles to reduce compexity into something manageable. The strategy algorithm (SA) is one such tool.
The strategy algorithm
The goal of the SA is to find a unique competitive advantage that the customers appreciate, that can be executed, and that is not the focus of any existing competitors. This goal is known as the strategic goal. The steps are as follows:
Phase 1
1. Define customer segments – what benefits are important for each segment?
2. Conduct competitor analysis – what segments are not focused on by any competitor?
3. Conduct internal analysis – what resources do we have and need to capture that segment?
Phase 2
4. Then, make sure 1-3 are co-aligned (=write out the strategy).
5. Then, define strategic projects to remove bottlenecks and create assets (=resources that serve the strategic goal).
6. Then, execute with strong focus (=anything that deviates from the strategic goal; discard).
Applying the strategy algorithm
As you can see, Phase 1 is geared toward research and planning, and Phase 2 toward implementation.
In step 1, you can use techniques such as:
- conjoint analysis
- personas (ethnography, interviews, surveys, social media analysis)
Conjoint analysis aims to find product attributes that customers most value. Another option is to summarize customer segments into personas that are fictive but descriptive characterizations of customer groups.
In step 2, “focus” is the keyword. Competitors can operate in the same market and offer similar products, but the main point is that they are not focusing on it (=their turnover is not dependent on it, they are not investing excessively in product development, marketing and distribution). In other words, by you taking the focus, competitors will remain at bay, because they have more important priorities. An example is Nokian Tyres – at one point, it was a generic tyre company, but as an outcome of strategic work they re-focused on “Trusted by the natives” guideline, i.e. winter tyres.
In step 3, you need to conduct a gap analysis of ‘what we have and what we need’. An example is Stephen Elop at Nokia – he recognized that the mobile world is moving to software ecosystems, and Nokia has redundant know-how about legacy mobile software. In hindsight, we can say he should have fired and hired much more aggressively to transform the company into a focused, competitive unit.
Acknowledgments
The thinking borrows heavily from the Master’s thesis of Lasse Kurkilahti (Turku School of Economics), as well as related works from Michael Porter, W. Chan Kim, Renée Mauborgne, and other strategic thinkers.