Adventure of Strategy

If you were able to ask just one question of a client, with the assurance that the answer would give you a good indication of their level of satisfaction with your firm's services, what would that question be? Fred Reichheld's article The Microeconomics of Customer Relationships (subscription or purchase for $6.50 required,) in the Winter 2006 edition of the MIT Sloan Management Review, has the answer. It is:

"One a scale of 1 to 10 where 1 is 'not at all likely' and 10 is 'extremely likely,' how likely is it that you would recommend us to a friend or colleague?"

Depending on the answer, clients would be categorized as promoters (scores of 9 and 10,) passive (7 or 8) and detractors (6 or less.) Note that passives do not straddle the 50% or even the 60% mark. Anything less than 70% is viewed negatively.

General Electric, already the 9th largest company in the world by revenue, is using this model to try to drive its organic growth rate from 5% to 8% pa. According to Reichheld's data, a promoter has a net present value (NPV) to the firm of 1.5 and 2.5 times that of an "average" client (i.e. a passive.) On the other hand, a detractor frequently has a negative NPV. Sometimes, a surprisingly high negative NPV. The article explains how a firm can calculate these figures for themselves and also how to use them. A summary follows:

The "Adventure" of Strategy?

Absolutely!

The theorists of the 20th Century did us no favours by making strategy into a dry, analysis driven planning process that, to top it all, almost always failed to yield the results that were expected. We've all heard the cracks about only 10% (or less) of strategy ever being executed.

This blog aims to present a different picture of strategy. What can be more exciting, besides practice itself, than working out the best possible future that your firm can take, and then moving it in that direction? For as long as it has readers, this weblog will bring you regular high quality snippets and insights into the sharp side of strategy. The side that is interesting, stimulating, provocative and, yes, even adventurous. Most certainly challenging and enjoyable.

Strategy in the 21st Century is different. Very different. Our understanding is growing of complexity, chaos theory and other emerging areas of study that have fundamental impacts on professional service firm strategy. Technology advances also mean that new tools are solutions are available, to dramatically improve the chances of successful execution. Opportunities that were inconceivable a decade ago are opening up and, for those not wide awake, a considerable range of new threats too.

We live indeed in interesting times!

The most up-to-date strategic thinking is preoccupied with execution. A sub-optimal strategy that is actually executed is far more valuable than the perfect one that never leaves the managing partner's bookshelf.

Resilience is another common theme in modern strategic thinking. Because the market is changing so fast, and the possible futures that may transpire is so wide, it is dangerous to craft strategy that makes too many rigid assumptions about what the future might hold. It is far more sensible to take steps to ensure that the firm develops the resilience and agility necessary to thrive under a range of possible futures. There are five conditions that such a strategy needs to meet:

1) The strategy must be crafted with execution foremost in mind and is an ongoing process, not a periodic planning cycle.

2) Competitive or business intelligence is a critical aspect, also not only "once off," but as an ongoing formal function in the firm.

3) Strategy needs to be communicated and accountability delegated as deep as possible into the firm. Technology makes this dead easy to do.

4) The firm needs to constantly feed back on what is working and what needs to be amended. Organizational learning is a critical strategic skill. Here, too, advances in just the past year or two have made this far easier than ever before.

5) Innovation is critical, despite the fact that so many firms struggle with it.

This blog is committed to helping firms migrate from old-style strategic planning to the new model and crafting highly competitive, resilient strategies using the most modern and up-to-date thinking.

And, in the process, transforming the work of the strategists that craft these strategies.

Enjoy!