Business environments are increasingly getting unpredictable by the day. Strategic decision making has become one of the most important assignments for any organization’s leadership. A modern-day executive must be able to transcend all the industry chaos and forge a right strategic path befitting the company’s high-level intent. The task of formulating and executing strategy has never been more difficult. Many tools and frameworks are constantly emerging each advocating a different outlook making it difficult for executives to select. Across all sectors, leaders are facing a dilemma in matching strategy to their business environment.
A unifying model called the strategic palette was developed by experts from Boston Consulting Group to mitigate the challenge of uncertainty and proliferation in strategic thinking. It was designed to help organizational leaders effectively match their strategic decisions to prevailing industry dynamics.
What is strategy?
A strategy is as a high-level plan designed to achieve one or more goals under the conditions of uncertainty. It is a rational decision formulated as a response to specific environmental occurrences present or perceived. Mintzberg provides five definitions of strategy each highlighting a different perspective (5Ps):
- A strategy is a plan: A conscious course of action predetermined to address a particular situation in one’s environment. This definition suggests that it must be intentional and future-oriented.
- A strategy is a ploy: It a maneuver designed to outwit one’s competitor or opponent in the market. Every industry is an aggregation of competitors forming a strategic group; strategy is what is used to create marketplace differentiation among them.
- A strategy is a pattern: It is an outcome of a consistent and proactive long-term process from the past behavior of an organization that has proven to be successful.
- A strategy is a position: It is a continuous search for convergence between the organization and its environment. Its primary aim is to fit the company internal resources, competencies and capabilities to its industry and competitive conditions.
- A strategy is a perspective: It is an ingrained way of thinking about a particular thing; the shape and character a strategy assumes always depend on the perception of the observer.
Having the right strategy is essential. It is paramount that business leaders embrace strategies that effectively match organizational situation incumbent. The strategic palette model highlights five archetypal options of formulating and implementing a suitable strategy. The framework primarily seeks to help organizational leaders identify strategic options for multiple dynamic business environments or different stages of a company’s lifecycle.
The Strategic Palette
Generally, when it comes to strategy, there is no one particular generic approach applicable to all problems an organization faces. Each situation must be handled independently according to changes occurring in the environment. A winning strategy must pass the fitness test; be well matched to conditions and pertinent issues operating in a company’s environment. It is the environment that dictates business strategy!
According to this model, there are five core types of business environment an organization operates in each differing along three dimensions:
- Predictability: Ability to forecast and predict future outcomes based on present day occurences
- Malleability: Ability to influence, shape or change the environment from what it is into what is desired
- Harshness: Ability to survive changes occuring in the environment using existing capabilities
When these dimensions combine the resulting outcome is a matrix highlighting five distinct environments. Each demands a unique approach by a business leader in the formulation and execution of strategy.
Five business environments and their strategic approaches
- Classical (I can predict, but I can’t change): In this environment, conditions are considered to be easily predictable, stabilized but difficult to change. The belief is that the market will remain stable with limited chance for disruptions and competitive advantage is easily sustainable through superior marketplace positioning. A classical thinker adopts a formalized process of strategy creation; market analysis to identify strategic fit, documenting a plan and continuous execution of chosen strategy efficiently.
- Adaptive (I can’t predict, I can’t change): This business environment is both difficult to predict and prepare long-term formalized plans. The market experiences accelerated change and uncertainty hence the only way to succeed is by creating adaptive strategies coupled with continuous experimentation. There is limited room for sustainability of competitive advantage, only cyclical temporal advantages are possible. Adaptive thinking demands continuous formulation of varied strategic options, carefully selecting, testing, scaling and exploiting the most successful ones.
- Visionary (I can predict, and I can change): This environment is both predictable and malleable. Business leaders can revolutionize their industry through product or process innovation. Organizations that succeed are the ones led by visionary leaders able to envisage a meaningful possibility, build a value proposition around it and persistentlyexecute until the realization of intended outcomes. The major source for competitive advantage is actively seeking ways to disrupt existing market by creating new and more attractive realities superseding current substitutes.
- Shaping (I can’t predict, but I can change): In this environment, an organization can shape an industry to its advantage but is unable to predict it. A firm seeks competitive advantage by trying to adjust an industry’s boundary in collaboration with other players. This approach is embraced predominantly to diversify risks and activate synergistic complementarity. Growth is achieved through cooperation. Shaping strategy is effectively applied when an industry is at its earliest stage of development providing a clear opportunity to rewrite the rules before stabilization and maturity.
- Renewal (Resources are severely constrained): This strategic approach is necessary when a company is experiencing a real mismatch between its internal and external business environments. An organization uses it when its current circumstances are so challenging that traditional way of doing business is no longer viable thus demanding implementation of radical changes to secure any chance of future survival. For this strategy to work, leaders must quickly recognize and react to deteriorating business conditions as early as possible stretching and leveraging available resources i.e. employing economizing measures.
Building a winning strategy is a masterful craft. The approach selected must always be dictated by the prevailing business environment. The ultimate goal of any strategic decision making process is to establish a perfect fit between an organization and its operating industry. Leaders must be dynamic in formulating and executing strategy.