Strategy's Feasibility Validation
Mihai Ionescu, Senior Strategy Consultant, Owner Balanced Scorecard Romania, Author.
If our company would have unlimited resources available, we could build any new Transient Competitive Advantage we would see fit, as often as we want, going after the best possible opportunities in the market and effectively defending against any threats encountered. So we could afford to design a Strategy as bold as we could imagine and implement it as fast as desired.
But that's not the case, in any organization, anywhere in the world. Therefore we have to consider our constraints and limitations, which include, not for the least, our organization's capability to change and maybe to abandon, at least partially, the way we have worked until now and even challenge the anecdotal 'how things are done around here'.
Does this mean that we cannot formulate any Strategy we like? Well, we could, but if its implementation would either make us cripple our current Transient Competitive Advantage or require resources beyond our reach, or if we would have to confront challenges that we cannot overcome within the intended Strategic Horizon, it would be just a declared Strategy, not one that can be effectively brought to life. It would be an unfeasible Strategy.
But how do we know? How do we evaluate the feasibility of our Strategy, during the formulation process, before we commit to several annual Strategic Plans (or at least to next year's one) and to executing them?
The Strategy Formulation Process
You might have seen this Strategy Formulation workflow diagram before. It illustrates the main steps the process must go through and, in the context of the current article, it highlights the Strategy Feasibility Validation Gates that we have to use for checking if our desired set of Strategic Choices (the intended Strategic Positioning that defines our new Transient Competitive Advantage) can be supported within the constraints of our available resources (which have to be divided between continuing to support our current Transient Competitive Advantage and building the new one), as well as within the time frame considered (the Strategic Horizon).
Before discussing the two Feasibility Validation Gates illustrated in the diagram, let's clarify a little bit more the Best Strategic Choices Selection stage, because you can observe that the 'NO' exit from the two gates go back to it, if Strategy's feasibility validation fails at any of them.
How do we select our Strategic Choices?
Before briefly explaining Strategic Choices' selection, let's hear what Prof. Roger Martin (Rotman School of Management) has to say about this (HBR Video):
So, our where-to-play and how-to-win Strategic Choices have to go through a selection process, in order to be able to include in our mix of Strategic Choices only those that provide us the best combination of opportunities and the least exposure to anticipated threats for our business.
How do we do that? A more detailed approach than that mentioned, in general terms, by Prof. Roger Martin takes into consideration the Influence Factors that will impact our business, should we select one Strategic Choice or another. These factors are becoming more tangible if we look into the opportunities & threats that they may generate along our intended Strategic Horizon. But such opportunities & threats are not the same for all the possible Strategic Choices, as these factors have an anticipated impact on our business that is different from one choice to another.
Let's take an example. The scarcity of certain resources that are essential for our business (e.g. the alfalfa forage for our cattle farms is increasingly expensive due to the depletion of irrigation underwater resources, as alfalfa is water-intensive) may impact us significantly over the coming years, irrespective of our Strategic Choices, because of the anticipated increasing price of forage, in our example.
With one exception. If we choose to increase the backward vertical integration of our business, by buying several alfalfa farms, ideally in areas less dependent on underwater irrigation, then the impact of this Influence Factor on our future business will be less significant. So, this Strategic Choice rates well above the others, for this Influence Factor.
The selection process is taking each of our possible where-to-play and how-to-win choices (see the Penta Model, or any similar frameworks for the available Strategic Choices) and estimates the impact on our business, of a number of relevant Influence Factors, over the Strategic Horizon, for each choice, analyzed individually. The relevant Influence Factors may be provided by formats like PESTEL, Porter's Five Forces, or any similar structured Strategic Analysis formats. At the end of the process, we'll have a rating and ranking of our Strategic Choices, based on which we can select the potentialbest mix that defines our new Strategic Positioning.
But why does Prof. Roger Martin say that we should iterate as needed? Because we cannot build the required support for any Strategic Choices we wish to select, valid for the considered time frame, due to a set of Constraints (mentioned at the beginning) that we have to take into account and which limit our capability to make the corresponding changes, as much and as soon as we would like.
This is what the Strategy Feasibility Validation Gates will have to determine.
Strategy's Feasibility Validation Gate I
This is the lower-granularity Strategy's Feasibility Validation Gate. The input here is represented by the Strategic Coherence Gaps, which resulted from the analysis of the Capabilities System (core capabilities + supporting capabilities) that are required to support the selected Strategic Choices, compared with the existing Capabilities System. These gaps are not related to all the required capabilities, as some of the existing ones can support the new mix of Strategic Choices without any changes, but other capabilities have to be built from scratch, acquired, enhanced or re-configured.
For those familiar with Blue Ocean Strategy's methodology, the Strategic Coherence Gaps analysis, described here, is somehow equivalent with the BOS Four Actions Framework.
To know more about the Capabilities System, take a few minutes to watch this introductory video, courtesy of PwC's Strategy&, former Booz & Company (related to their Capabilities-Driven Strategy CDS model):
To learn about the Capabilities-Driven Strategy model, but also what the Coherence Premium is, read 'The Essential Advantage: How to Win with a Capabilities-Driven Strategy' (2010), by Paul Leinwand and Cesare Mainardi (former CEO of Booz & Company).
So, the Strategic Coherence Gaps analysis shows us what gaps in our Capabilities System do we have to bridge / fill, in order to support the mix of Strategic Choices that we have selected. But can we do that, considering the applicable set of Constraints and the given execution time frame? That's what this Feasibility Validation Gate tells us.
By performing a high-level allocation of resources (human, technical, financial) to the most important change actions anticipated for closing the Strategic Coherence Gaps, we can evaluate if these actions are feasible, so we can take the evaluation to the next gate (the 'YES' exit from this gate), or we realize that the Constraints and/or the time frame limit makes such changes impossible or too risky (the 'NO' exit from this gate). To go into more detail about the Constraints mentioned earlier, we should consider at least the following:
Resource Constraints - The high-level analysis shows that we cannot make available or we cannot attract, within the considered time frame, the human, technical or financial estimated resources needed to perform the changes anticipated for building the required Capabilities System.
Strategic Tension Constraints - Cesare Mainardi, explained in his 2010 article 'The Right to Win' that there is a 'basic tension in Strategy', between the current set of Capabilities, the current Transient Competitive Advantage and the new set of Capabilities, to be developed or re-configured, as required by the new mix of Strategic Choices that define the new Transient Competitive Advantage. In other words, we need to maintain the support for the current set of Capabilities, in order not to cripple the current Transient Competitive Advantage, before the new one takes its place.
Cultural Constraints - In certain circumstances, the change actions that have to be taken for building the required Capabilities System have significant implications for the way business has been done within the organization, so far. This may involve the level of Leadership, the focus on Innovation or Adaptability, the style of Teamwork, or of the Relationships between departments, teams and people, or with the external stakeholders, and so on. In other words, rather than having 'Culture eat Strategy for breakfast', don't challenge the organizational Culture and don't feed it with a Strategy that tries to change too much, too soon, in this area.
So, what do we do if this validation fails? We go back to our rating and ranking of Strategic Choices and select the next best combination of Strategic Choices, obviously, bringing less opportunities and possibly exposing the business to more threats, but we know now that there is no feasible way around this.
Strategy's Feasibility Validation Gate II
This is the higher-granularity Strategy's Feasibility Validation Gate. The input here is represented by the breakdown of the Strategic Gaps to be bridged / filled in each year of the Strategic Horizon time frame, as well as by the high-level preliminary Strategic Plans for each year (only the Strategic Gaps aggregated into Strategic Objectives and the high-level organizational Strategic Initiatives).
This validation gate is focused on the feasibility of the sequenced Strategic Initiatives (high-level programs / projects, at organizational level). What is relevant here is the estimated availability of the Initiatives' project resources, as well as any technical stumbling blocks for delivering the expected effects of the Strategic Initiatives.
On the financial side, for instance, we look at the estimated StratEx (the cumulative Strategic Initiatives' budget) for each year and perform a validation with the Strategy-adapted multi-annual Budget for the respective years. The Strategy-adapted Budget is the Budget in which corrections have been made, considering the anticipated effects of the successful Strategy Execution, especially on the revenue side.
The validation analysis tells us if any anticipated resources required to roll-out the high-level organizational Strategic Initiatives (mainly human and financial resources) would not be available, at the required time, compromising Strategy's execution or significantly reducing its expected results.
If this analysis validates the high-level, preliminary Strategic Plans (the 'YES' exit from this gate), then we can move into the Strategy Execution process and kick-off the full Strategic Planning activities workflow for the next year.
If the feasibility validation fails (the 'NO' exit from this gate), the first short-loop iteration (not illustrated in the workflow diagram, for granularity reasons) is to try to reshuffle the Strategic Gaps bridging / filling between the years of the Strategic Horizon considered, as long as the obvious causality relationships between them allow that. If this doesn't pass the feasibility validation either, then we have to return to the Strategic Choices selection stage and select the next best combination of Strategic Choices.
Again, bringing less opportunities and possibly exposing the business to more threats, but we know, once again, that there is no feasible way around this.
As always, feedback, critics or questions are more than welcome and have a guaranteed reply (if required) from my side.