But what is strategy? Why does it matter? And how can it help you perform your role better?
These are the big questions Dr. Mara Lederman, professor of strategic management at the Rotman School of Management, tackled in her keynote address at the 2019 CCCA National Conference. They are also the topics she covers as part of the CCCA’s Business Leadership Program for In-House Counsel.
Below, I’ve distilled the key lessons from her presentation to help you take action now.
What is strategy?
Lederman began her presentation by asking, “What is strategy?” While very important, it can be very confusing to answer in business contexts, as the word—and its counterpart, “strategic”—is thrown around carelessly.
She suggests looking outside the workplace first. For instance, she is currently trying to develop a strategy to get her children to make their own breakfast. In this case, the strategy is her plan to achieve the goal of more self-sufficient kids. It starts with articulating the goal, she explains, and then the strategy lays out the steps that you believe will allow you to successfully achieve that goal.
Now, apply that to your organization. What is its goal, or long-term performance objective? Sustainable growth? Increased profits? Excellent customer service? Your strategy is therefore the plan for how you are going to achieve that goal.
Lederman then asks the more significant but complex questions, “What makes it a good plan? Does it articulate the right things?”
To define the parameters, she looks to Harvard Business School Professor Michael Porter, recognized as the founder of modern management theory. He defines strategy as the creation of a unique and valuable position involving a different set of activities. To this, she adds the definition from former Dean of the Rotman School of Management Roger Martin, one of the world's top management thinkers: Strategy is choice.
Therefore, critical to a good strategy are three concepts: position (where do you compete?), choice (what are you choosing to do and, more importantly, to not do?) and uniqueness (what makes you unique?).
Strategy is about finding a unique position within your industry: Who are your customers? What do you offer them? In which market? Through which channels? And how is your organization uniquely able to deliver value to them?
Strategy is about being different, not about being better. To distinguish between different and better, Lederman offers the example of furniture shopping, where you have the choice of budget-friendly IKEA or high-end South Hill Home. You will find that each retailer is the best for different things. For instance, IKEA may be great for a student apartment but South Hill Home is the better choice to furnish an executive rental. These companies compete in the same industry, but they have chosen very different positions, and by being different, each is going to be better in different situations.
She also points out how their geographic locations suit their strategies. IKEA, for instance, is always outside of downtown because they need a large space for the showroom, warehouse and parking lot. Part of its strategy is that you can see the product and take it home immediately.
Strategic positioning ties perfectly into choice, as your position dictates your choices about everything. Companies with different strategies should choose to do different things.
This can be very hard, warns Lederman. Everyone says they want to be different, but then they look at their competitors and feel the need to do what they're doing. You can't be different and also do what everybody else is doing.
Indeed, strategy requires you to make trade-offs. It requires you to choose what you do, and by being good at those things, you are necessarily making yourself bad at doing other things—and those are the things you have to choose not to do.
She gives the example of highly successful Southwest Airlines. Its goal is to be a reliable, low-cost airline, and you can see the explicit choices it makes as a result. For instance, it only offers short-haul flights between mid-sized cities in the U.S., and it turns its planes around quickly by not offering meals or seat assignments. All of these things support their strategic position. However, what is really interesting are the things they don't do that we think make airlines profitable. For example, they don’t fly the lucrative international routes and they don't have business class. These trade-offs take a lot of discipline to make.
The essence of strategy is about being unique. Yet, from Lederman’s experience, many companies have an overinflated sense of just how different they are. You have to ask the hard questions: Why do we exist? What do we actually do better than anyone else? Would our customers easily replace us? Who would miss us if we disappeared?
To illustrate uniqueness, she gives the example of LEGO, a Danish company that was hugely successful in the late 20th century but that almost went bankrupt in the early 2000s. Then, by 2013, the company returned to profitability and continues to be profitable. What happened?
First, the near-bankruptcy in nineties was in large part due to LEGO’s response to the changing marketplace, with increased competition. To compete, for example, it expanded outside its play system, opening LEGOLANDs, creating video games, etc. Why did this decision hurt LEGO? Because it didn't know anything about theme parks or games. Jørgen Vig Knudstorp, the CEO who led the revival of the brand, sums up the one unique thing about LEGO: "We build bricks that fit together better than anyone else." So they sold the other products, licensed the LEGO brand and focused on the bricks—and revenues started growing.
As Lederman points out, while a highly important exercise, it can be very humbling realize there is only one or two things that make you unique.
Why does strategy matter for in-house counsel?
Lederman has three reasons why we should care about strategy.
First, strategy affects all the functional areas, including the legal department. It enables you to achieve your performance objectives. You need to think about what your clients really want, what you can do to really deliver that, and why you and your department are uniquely placed to serve them best.
Second, strategy affects all the lower-level decisions. Once you set up the high-level strategic positioning, it has implications for whom you hire, what services you offer, what technologies you use and more. You cannot do your role as in-house counsel properly if you are determining priorities and making trade-offs without first understanding your organization’s strategy. Even the set up of the department and what work you keep versus send out depend on the company’s strategy.
Third, if you have or aspire to have a seat at the senior management table, you need understand what people are saying when they talk about the organization’s “strategy,” “position” and “value proposition.” Only then can you ask the right questions and contribute in a meaningful way.
To close with some tools you can use, here are the questions Lederman suggests asking of yourself and your colleagues:
- Does our strategy articulate where and how we compete?
- Does our strategy make it clear what's truly unique about us, and what specific resources, capabilities and processes we have that are not easily acquired or imitated?
- Why wouldn't our strategy apply equally as well to our competitors?
- Does our strategy guide lower-level decisions?
- What actions does our strategy indicate we will not take?
- Is our strategy logically consistent?
- What would need to be true for the strategic choices that we're talking about to be the best ones?
- Have we articulated metrics to determine whether our strategy is successful once we implement it?
This article was initially featured in the Fall 2019 issue of CCCA Magazine.