The Spirit of Strategy

Strategy can only be as powerful as the spirit behind it. The lack of understanding of the spirit of strategy is the missing link for most managers who are unable to deliver on their strategy. According to a study by Marakon, less than 20% of even well-formulated strategies are executed successfully and, on average, firms deliver only 50% of the financial performance their strategies promise. That’s why strategy is a serious issue because that’s the foundation for superior performance.

That Apple makes high quality products is a fact that is well understood. Steve Jobs not only believes in quality but he’s obsessed by it. In an interview he even insisted that it’s not good enough to believe in quality products. Mr Jobs thinks companies have to approach the making quality products from a scientific point of view. This means understanding the reason behind making quality products. For most organizations this thinking is not well understood and even in cases where the most senior managers understand it, that understanding is usually a luxury everyone in the company can’t enjoy.

But that’s a very big mistake. Strategy defines a company’s unique approach to competition. The motivation behind this approach is what I call spirit of the Strategy. This spirit of strategy is what gives life to the strategy. The Organization that wins is the organisation in which everybody has a shared understanding of the motivation behind their approach to business.

You see, Apple didn’t take a premium approach to competition for the fun of it or by a desire to make more money. The premium approach was rooted in the founder’s obsession with quality. One wonders if this was why his exit from the company had it crumbling until they brought him back. I believe that Mr Jobs deep commitment to quality was the strength of the company and the keeper of their strategy.

Consider Mr. Job’s advice to Mark Zuckerberg. In the early days of Facebook when it appeared they have hit the wall and many people were offering to buy Facebook, Mark Zuckerberg went to ask Steve Jobs for advice on what the right move should be. Steve Jobs simply emphasized on the need to reconnect with the mission of the company. He advised Mr Zuckerberg to set out time, break away from the noise to focus and gain clarity on the purpose of Facebook.

Mark travelled to India and for a month meditated and travelled through the country. Seeing how people connected, and having the opportunity to feel how much better the world could be if everyone has a strong ability to connect reinforced for him the importance of what they were doing at Facebook.

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Mark returned from the trip, rejected all the offers for the company and committed to push on with his mission to “connect the world. The rest is history, Facebook is one of the most successful companies in the world. It was not just about a great strategy but a commitment to something bigger than monetary gains.

Cases have been written out of why legendary executive, Ron Johnson succeeded in setting up a very successful Apple Store but could not replicate the same in J C Penny. While there may be a lesson to learn about poor business analysis, ignoring advice from other people and a whole lot of other lessons, I think there is more importantly a lack of clarity about the spirit of J C Penny which every strategy must align with.

In an interview with Inc. Magazine, Ron Johnson recalled a time in the early days of setting up the Apple Store when he spoke up to Steve Jobs about something really bothering him on their way to a meeting. It was about how the store ought to be organized, a situation that will require a complete redesign of the Store. Mr Jobs initially resented this idea because he knew how expensive it was to redesign the store.

While at the meeting ten minutes later, Mr Jobs eventually got up and told everyone, “Well, Ron thinks our store is all wrong,” Jobs said. “And he’s right, so I’m going to leave now. And Ron, you work with the team and design the store.”

Even though it would take longer to open the store because of the redesign, Jobs knew that it was worth taking the extra time to get it right. Why did Steve do this? Because he is connected to the Apple mission. That mission is the substance of their strategy, it is the spirit of the strategy. A commitment to the spirit of the strategy transforms the executive to a seeing executive, sharpens his/her discernment and creativity. But that’s not all, the more connected the manager is to the essence of their strategy, the more his people will. When the manager slips into strategic inertia, everyone sleeps with him/her. This is usually the beginning of lousy performance.

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The only reason why Ron Johnson was able to discern the right tactical approach here was because he understood ab initio the spirit of the strategy of Apple. It was his clarity about Mr Jobs obsession for quality that enabled him point out the tactical misstep in the Apple Store business strategy. This might have been what he missed in J C Penny where his concern for sleek and trend obscured his vision of who the J P Penny customer is and what will resonate with them. Mr Ron’s intervention at J C Penny was a clear disaster. Mr Ron is a veteran executive, When he joined JC Penney in 2011, shareholders were so hopeful that everything will turn out right that the stock price of the company went up by 17%. But by 2012 instead of growth, sales last fell by 25 percent, resulting in a net loss of $985 million.

In an interview with Jim Aisner, Director, Media & PR at Harvard Business School, Harvard Business School marketing expert Rajiv Lal identified part of why JC Penney got into problem in the first place. According to Rajiv, JC Penney had lost their identity as there was no clear reason why someone would go there rather than all the other available options including Walmart and TJ Maxx. They lost their identity, but that didn’t just happen, they first lost themselves. In other words they lost their essence, the spirit of their business approach, so they failed.

The first thing Mr Ron Johnson would have done was a rediscovery of this essence before enacting his three pillar strategy. You can’t reposition a business suffering from strategic inertia without first waking them up to their original essence. When failing organisations reconnect with and recommit to the essence of their existence, the certainty of recovery is almost one hundred percent.

The case with IBM wasn’t any different. With a 70% control of the information technology industry profits, the company was a clear industry leader. By 1990, they were the second most profitable company in the world. Between 1991 to 1993 however, the company lost nearly $16 billion.

How did this happen? First, computing moved away from the mainframe architecture (responsible for huge portions of IBM’s revenue and profits) to the client/server model. Second, computers became commodity hardware with interoperable parts running interoperable technologies. This interoperability pushed prices lower, but IBM’s managers could not break from their high-margin mainframe sales to compete in other areas.

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Why did this happen? Why didn’t IBM see what was coming and reposition themselves? It’s not hard to know why. It is the spirit that lightens the path of the executive, it is also the spirit of the strategy that energizes the manager to do what must be done, take decisions that must be made and take the approach that must be taken.

The situation was turned around as a result of CEO Lou Gerstner’s strategic insight. The information technology industry moved on and IBM stayed behind. Its core business in mainframes has died as a serious computing arena, and IBM is organizationally unsuited to compete in the PC market. Mr Lou knew they can’t survive without building this strength. Sadly, they did not have the resources to build this capacity. In an interview with 30 days after his arrival at IBM, he stated that his concern was to ”… get the fix done quickly in the company.”

According to Thomas Watson Sr, who forged the disparate pieces of C-T-R into a strong, unified company that became IBM that, “It is the policy of this company never to be satisfied with what we have and always to anticipate the demands of the future.” IBM had definitely lost touch with the essence of those words and reconnecting with those words was the power that will save IBM.

According to an article by D. Quinn Mills in the MIT Sloan Management Review, Lou Gerstner did not take IBM on a new course as much as he returned it to its roots. For decades, according to Mills, IBM had a strategy of supplying one-stop shopping for information services to large firms but the company strayed from that strategy in the 1980s, and as such confused and angered its customers, but has now returned to it. This was the major thing the new CEO did to turn the company around, it is reconnecting with it’s spirit.

In the face of uncertainty and a fast changing business world therefore, a true commitment to the spirit of your strategy is the pathway to superior performance. Organizations that do this will survive and thrive, organisations that neglect this will regret it.

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