[BLANK AUDIO] My perspective on strategy is that it's not primarily about a point solution. I think that a lot of people make a mistake by confusing mission, vision, and strategy. The first thing I'd like to say is that I think that you need to understand what, exactly it is that you define as strategy. And let me start by saying that I think the mission of a corporation is all about its raison d'etre, it's reason for being. Why do I exist? The vision is about achieving a stated level of aspiration. For example, when Stanford set out to articulate its vision many decades ago, they said our vision is to be the Harvard of the west, that's an example of what a vision is. The way I think about strategy is that strategy is an integrated set of actions acquired to achieve a stated aspiration. Usually, that aspiration also involves creating a sustainable competitive advantage. But I would say, the first thing to get clear in your mind is that there is a big difference between mission, vision, and strategy and you need to first be clear about what your mission is. You need to also be clear about the level of aspiration you have and then your strategy is that integrated set of actions that you need to achieve the first two. And that's the first thing to get clear in your mind. Now, how do you go about achieving that and what are some of the things that you can think about as you set out to establish a strategy? What would some of those things be? The first thing that I would say about strategy is that at the end of the day, it is about allocating resources. Those integrated set of actions that you need to think about, it is about allocating talent, it is about allocating capital, including debt or equity or cash that you have. It is about making decisions on where do you allocate capital into a portfolio of decisions. In a way, it's a portfolio of initiatives that you decide to take. At the end of the day, one of the things that a strategy leads to is very concrete action. A second thing that I would say strategy is about is it's gotta be involving a set of facts and privileged insight. Strategy is not just about articulating to various levels of aspiration. You need to have a level of aspiration but you need to inform strategy with a set of facts. That is why any good strategy usually sets out to understand a comprehensive set of facts and figures about your competitors, about you're own business model, about your customers, about the market and about uncertainties in the world that are going to potentially change some of those other variables. They're going to make is the world going to be growing or not, what about the geodemographic sets that you're talking about, a lot of the facts are not givens. The past is known but you need to understand how that fact base is going to evolve given some current trends. Sometimes there are uncertainties associated with it and that's where i would say another element of strategy that comes to play is to understand the different uncertainties that may impact your business and to treat them as variables as opposed to givens. Back to my earlier point, strategy is not about just establishing a point answer. It is about establishing a set of future potential outcomes and then making some decisions against it. Let me give you a couple of examples. When I talk about establishing a fact base or privileged set of insights, what I mean on the fact base is that you really do need to understand at a great level of analytical rigor, what it is that you're talking about from a financial point of view, from what is the insights on your customers. How much pricing points, what your competitors are charging for similar things and how you think these are going to evolve different parts of your business model. This is a very important part of strategy. Also, understanding what markets you're playing in and when I say that it's not only product types of markets, it's also geographic sets of markets. Which combination of segments and which combination of geographies are you playing in? That is a very important consideration that any strategy needs to take into account. When I talk about uncertainties, what I think you need to be thinking about is, which are these sets of external considerations that might change? Let me give you an example, I said that one of my areas of research was on the area of regulatory strategy. Many people consider the rules and regulations associated with their industry to be a given and that they will never change. But actually, what happens often is that the rules of the game can change because society may deem them to be unacceptable. In fact, between any business and society, there is an implicit contract. And that contract may say, for example, we will let drug manufacturers charge what they believe to be a fair price and we'll let the market decide what the price is. Except if society decides that the price that's being charged whether it's for the pharmaceutical or whether it's for the kilowatt hour of the electricity or whether it's for the price of a landline telephone at home, they may decide that we need to have a regulated price. Or it could be the price of a stamp. Sometimes society says those prices are too high and they ask the government to intervene, or a regulator to intervene and to change it. Or sometimes a regulator can say, we've had a monopoly, which is the case in telecoms. For many, many decades, until the 1980s, every country had a monopoly in telecom until somebody decided that actually it might be good to introduce mobile telephony competition. That then could change the rules of the game. Instead of one operator, there were two, then three, then four, then five and the whole set of rules governing how they interact with each other and who can have a license and how much they can charge for the services became an example of a variable. Every element of strategy needs to take into account uncertainties such as what might be the regulations, rules of the game associated or laws that could include tax laws that can affect your business. That is another very important aspect of any strategy. Another area I'd like to draw your attention to is the whole area of what I would call biases. Any strategy needs to ask itself whether it has implicit in it a number of biases that may be affecting the answer that you are developing. An example of that might be what you call an anchoring bias. An anchoring bias might be, for example, a reference price that you've seen somewhere out there in the market. Someone else paid x for this company, therefore we ought to consider whether we should pay x plus or x minus. An anchoring bias is something that anchors your belief based on a specific data point that's out there and you may extrapolate to an unnecessary conclusion based on limited data. That's an example of an anchoring bias. Another example of a bias might be a confirmation bias. A confirmation bias might be you have a strong hypothesis that you think the answer is x and therefore, any indication that you find in the data that confirms your hypothesis, you tend to give overweight to in a strategy. Any strategy needs to take into account the fact that people, by definition, have a number of biases that they bring to it. A bias can also be achieved by virtue of who you ask to give inputs into your strategy. You need to actually take into account biases by asking yourself, am I running a process that allows me to de-bias some of the possible problems that might exist? An example of how you can do that might be, for example, let's say you're doing a merger of a company or an acquisition and you say, the bias in the room is we should do the acquisition. An example of something you can do go de-bias that would be to say let's write a pre-mortem analysis. Let's write all the things that could go wrong if this merger would go through. We would write the memo in advance to give voice to all the reasons why someone might articulate that this might be a bad idea. And that, in a way, is to say every strategy benefits from having an alternative hypothesis and to frame what that might be as opposed to saying there's just one right answer and this is what the answer is and it's only this one, there's no other possible future. Taking into account biases is something that is very important. Another way you can do that and to challenge a bias is to create a Team A or a Team B and a Team B might be charged with attacking whatever strategy that Team A might come up with. And you might do that by bringing in people from outside of the organization that have no reason to support any given strategy, they have nothing to gain by it, they just are there to challenge. I'm aware of several companies that have a challenging process where they bring in people that have different ways of thinking to come in and challenge the strategy. That's another thing that can be done. Back to my earlier point on thinking about geographies and markets, I would say that any good strategy needs to be granular in the way that it articulates possibilities. In other words, it's a set of micro strategies. How are you going to compete in China in mobile telephony in the data segment for corporations? That's an example of a micro granular strategy and any corporation actually, your basically figuring out where to compete and how to compete at a granular level. A good strategy thinks about that and also thinks about that and also thinks about where you are active and where you are inactive. Then for each of those granular areas, you ask yourself is the way for me to grow my value to do it through inorganic moves, in other words, by buying other companies or selling other companies, that's the way I'll create value? Or is it through organically growing, in other words, I do it myself? That's another important way to consider strategy is at the granular level. The last thing I would at a very high level is that any good strategy actually needs to be able to lead to an action plan and that's back to the integrated set of actions required to achieve a given stated aspiration level. You need to be able to translate a strategy into a set of actions, that's back to that allocating resources at the end of the day, what do you need to do? Are you going to put these people against it, my best leadership capacity, or I'm going to hire these people or I'm going to borrow money, or I'm going to go to the equity markets, or I'm going to sell this business? It leads to changes in resource allocation. One thing that's clear from the research and you can see this by some of the research that McKenzie did on the topic, is that corporations that are more active in the reallocation of portfolio assets, both talent and capital, are more successful than those that don't. And that is a trap many corporations find themselves in. They usually start their process by saying, where were we last year? And that's the baseline, and then you do it again, plus 5% or something like that. I think any integrated strategy needs take into account those tradeoffs and it also needs to take into account the leadership capacity that you actually have. That is another important thing, a lot of strategies sometimes operate as if there are no constraint, as if there's unlimited capacity to pull it off on the management and talent side and also, financially. It sometimes is useful to think unconstrained but then you do have to eventually come back when you're making your decisions to think through what are some of those constraints. In my experience, one of the biggest constraints is on execution, the likelihood that your execution will be successful, that is another important thing to think about.
