How is the way of strategy making changing?

 ove "etriggered by the sustainability crisis and economic & health crisis due to the corona pandemic, we at Elemental wondered: does this time demand a different way of strategy making? And, what types of strategy making are there really? Based on a series of interviews with customers and cooperation partners, we went in search of answers. In a series of blogs, we present our findings. 

Strategy making is ongoing

We always started our interviews by asking "what is strategy for you and your organisation?" and got a wide range of answers. Strategy is often described as a dot on the horizon: "It's a kind of compass. A north star. That's what you focus yourself on" - as described by a venture manager in the technology sector. Many times it is explained as a positioning issue. Something that helps companies differentiate themselves from other organisations. It is expressing expertise, showing colour and tying actions to this.

Many aspects in the descriptions we heard were about visualising the future of the organisation. However, invariably we also heard that strategy is something that requires continuous attention throughout the organisation: "Strategy to me is determining which path you want to take and which actions you want to take" - manager at a large travel company.

Strategy thus becomes directly "an internal issue, a change culture task" as described by a government innovation manager. A new path or culture both require new skills to stay on the path taken.

Making strategy is a verb - something you have to do can as an organisation - because making strategy is something you do continuously.

Making different forms of strategy

Does this view of strategy also match the way organisations make strategy today? How is strategy 'made' in organisations? Who are involved? What skills are addressed? What values are central to it? 

We discussed it further with our collaboration partners and customers and arrived at three typologies of strategy making: financially driven, customer driven and purpose driven (see picture). 

Making financially driven strategy

Strategy is a business case-driven process, in which analyses of opportunities, optimisations and roadmaps drive the change plan.

Financially driven strategy making fits especially in a world where consuming equals prosperity and economic growth is encouraged. In this context, the focus is on profitable growth, increasing production, scalability and cost reduction. Often, organisations are hierarchically structured to manage complexity from top to bottom and set up as efficiently as possible. A good example of a company that fits into this framework is General Electrics (GE), with its focus on maximising shareholder value and annual performance measurements of employees with associated bonuses or promotions.

Financially driven strategy making is often primarily focused on maximising shareholder value. Strategy is developed by creating an overarching plan for the coming years. Quantitative analyses are used to spot opportunities, be ahead of competitors and minimise risks. Financial scenarios colour the direction for the analyses that are adjusted on a quarterly and annual basis, as described by an executive in the leisure sector: "Every 5 years we make a new update of our strategy, an annual plan every year. Our financial strategy is 7-10 years because of long-term investments. We make an annual update of our long-term plan with financial scenarios." - board member leisure sector

These kinds of strategy processes are mainly organised top-down from the boardroom and communicated to the rest of the employees. After which the roll-out is carried out through optimisation methods and success is measured based on return on investment. 

Creating customer-driven strategy

Strategy is a co-creative and adaptive process, creating space for exploration and innovation, in addition to exploiting the current business.

Customer-driven strategy making accelerated after the 2008 financial crisis when innovation and startups began to take off. During that period, organisations started embracing the creative industry and finding ways to give design, creativity and entrepreneurship an important place in developing relevant propositions for customers. Apple is pre-eminently the company that became big on customer value. Another great Dutch example is Coolblue with its slogan 'everything for a smile', 360-degree marketing and installation service when delivering white goods machines.

Customer-driven strategy making is therefore mainly focused on customer satisfaction and revenue growth. Strategy is not a multi-year plan, but is developed iteratively in short cycles. A board member in the mobility industry mentioned how this method of strategy making has prevailed in their organisation: "Our former five-year plans have faded into the background. We now use the Lean Startup way of working; responding to what is happening around us based on progressive insight." 

Methods such as business model innovation and Design Thinking are applied to gather customer insights and turn them into strategic opportunities. Strategy here is developed in collaboration with lower echelons in the organisation. New propositions are developed iteratively in collaboration with customers and target groups, ideally in true co-creation. 

Purpose-driven strategy creation

The strategy is purpose and transformation-driven with long-term imagination at its core. It is sustainable, innovative and puts people first.

Purpose-driven strategy making fits into a world where sustainability transition is talk of the day. Sustainability issues are complex in nature and cannot be solved overnight. Collaboration between organisations in the public and private sectors is important to create appropriate solutions to today's societal challenges. It is a transition to a new, healthy economy; one that is "designed to prosper, not grow", as Kate Raworth (economist and author of the Donut economy) describes.

Patagonia has been reducing its footprint since the 1980s, making jackets from recycled polyester and greatly reducing the number of suppliers so that they have more control over all supply chain processes. They are also the founder of the '1% for the planet alliance', with 1% of companies' annual sales going to small environmental organisations. 

Purpose driven strategy making is thus about creating positive contributions on all parameters; financial, customer, employees, environment and society. Organisations adopting this strategy are looking for their role in the transition to a new economy and a better world, as this pension fund board member mentioned: "We are purpose-driven, we are there for the participant. We don't need to make a profit. We measure value as money (maximising pension value), participant experience (NPS) and social value (including our carbon impact). We want a good future for current and future generations. You have no use for a good pension on a scorched earth" - pension fund board member.

Here, strategy is developed by working simultaneously with the short and long term: a short-cycle approach to realise a long-term purpose. In the implementation of this form of strategy making, work is done not only with one's own organisation, but also with customers, chain partners, competitors, government and other stakeholders to jointly achieve impact. 'Soft' principles such as trust, culture and connecting are central.

What type of strategy making puts your organisation into action? 

By properly pulling the 3 types of strategy making apart, it is possible to see the differences in value of the strategy, methods to be used, time horizon, organisational commitment and approach.

Our research has shown that - presenting the 3 types - organisations often predominantly use 1 of the types, more often unconsciously than consciously. In doing so, each organisation also takes elements from the other types of strategy making. One type is not better the other. It depends, among other things, on the context in which an organisation finds itself, what fits at that moment. For example, one scale-up said "We started with a lot of creativity, meanwhile the phase we are in has changed. We have plenty of ideas now and we have to move precisely to reducing risk in the current ideas to get them to market." 

The 3 types of strategy we have described thus help to make the unconscious handling of strategy more explicit, or even deploy it deliberately. After all, when do you deploy one versus the other typology? This may be determined, for instance, by the time horizon of the strategy to be made, it may depend on the company's financial situation or be driven by a certain shift in the market. 

We observed in our interviews that a parallel application of the typologies in different parts or units is also relevant. After all, not every part of the organisation has the same context. Strategy has become a portfolio game. Organisations that are able to play chess on multiple boards increase their chances of long-term continuity. 

Once understanding which variant or combination best suits the organisation and context, helps to define and clear palette of skills and leadership style needed for successful strategy. For example, a financially driven way of strategising requires more analytical skills, where purpose-driven strategising, on the other hand, requires strong co-creative skills to work in ecosystems. Working on the right skills extends beyond strategy development and implementation.

Skills are the basis for transforming the organisation into the future. 

Questions such as "What principles are guiding you in determining the type of strategy?" or "What does it take to adopt a different type of strategy making?" help to ask important follow-up questions, such as: 'What leadership style is desired then? What strategic and future skills are already in your organisation? And what skills are needed in your organisation to adopt a different type of strategy making?
We will try to answer these questions in our next blogs.

Would you like to spar with one of us to explore which typology best suits your organisation? Are you interested in a little more in-depth information on the skills needed? Or would you like to do a scan in your organisation on the skills available? Contact (call, app, e-mail) then Myrthe or Pascal .