Much of the material in this chapter is based on extensive research at Stanford and the article “Organizational Vision and Visionary Organizations” (California Management Review, Fall 1991). We need not go into all of the theoretical underpinnings and background research of the framework here. The essence of it is that a good vision consists of:

1. CORE VALUES AND BELIEFS

1. PURPOSE

1. MISSION

The Process

Setting strategy involves the following basic steps:

First, review the vision of the company. If you haven’t clarified your vision, do so. In particular, ensure that the current mission is clear. As you recall from Chapter 4, your mission (which is the third component of vision, after core values and beliefs and purpose) is analogous to the specific mountain you are going to climb.

Next, do an internal assessment of the company’s capabilities. This is analogous to examining capabilities and resources of the expedition team.

Third, do an external assessment of the environment, markets, competitors, and trends. This is analogous to studying pictures of the mountain, examining weather reports, assessing new trends in technology that might help you in your ascent, and paying attention to competitors who seek to reach the summit ahead of you.

Finally, taking the internal and external assessments into account, make key decisions about how you intend to go about achieving your current mission. This is analogous to mapping out the route you are going to take up the side of the mountain.

Internal Assessment

There are three components of a good internal assessment:

• Strengths and weaknesses

• Resources

• Innovations and new ideas

The first thing you need is a clear assessment of what your company is really good at and its blind spots. Remember, strategy should leverage off your strengths.

To get an objective reading on your strengths and weaknesses, we suggest asking a selection of employees and managers to list the top three strengths and the top three weaknesses of the company. To ensure candor, it’s sometimes useful to have these submitted anonymously…

A particularly useful question is, “What are we better at than anyone else, and what are our unique capabilities that give us a competitive advantage?” The literature of strategic management ascribes a ponderous term to this notion (“Distinctive Competence”), but the idea is really pretty simple. It’s also important. Simply put, smart firms stick to doing things they can do better than other firms….

This doesn’t mean that you shouldn’t try to eradicate crippling weaknesses. Any great company is continually working on its weaknesses, always seeking improvement, and your basic strategy should play to your strengths. Do what you’re good at…

INNOVATIONS AND NEW IDEAS…

Make sure that your company is responsive to its own internal creative output. Examine what new innovations and new ideas are bubbling up in product development, research, design, and marketing. List all possible innovations that might come to fruition. Obtain estimates on how quickly the innovation could be made marketable, the level of resources required to complete its development, and the level of marketing required.

The last thing you want to do is kill new ideas and innovations just because they’re not planned. In fact, most great ideas are not planned, and if you introduce only products that are planned five years in advance, it’s unlikely that you’ll produce any breakthrough products.

External Assessment

There are seven components of a good external assessment:

• Industry/market trends

• Technology trends

• Competitor assessment

• Social and regulatory environment

• Macroeconomy and demographics

• International threats and opportunities

• Overall threats and opportunities

INDUSTRY/MARKET TRENDS

Take a quick snapshot of your industry…

• Most importantly, what are your customers telling you about their evolving needs? What are they telling you about how well your company is meeting their needs? How are customer demands changing? Direct input from your customers is an essential part of setting strategy. Get input directly from your customers regularly. They can tell you what’s going on in your market because they are the market. They can also tell you about your competitors. It’s wise to survey your customers at least once per year as an integral part of setting strategy.

• At what stage of evolution is your industry? What does this imply in terms of how the industry might change in the next five years? See nearby diagram, “Stages of Industry Evolution,” as a backdrop to this analysis. (Various versions of this chart are common in strategic management and marketing literature. A more detailed version can be found in Competitive Strategy by Michael Porter.)

All industries, even “low tech” industries, have a technology component to their evolution, either in products or in process. Every industry is somehow affected by changes in technology. For example, the banking industry, which has not historically been known as “high tech,” was nonetheless dramatically changed by computer technology. In back-room processing, effective use of computers became a key strategic advantage for those who mastered their use quickly. In services to customers, adoption of ATMs became an essential part of banking services.

Examine the technology trends in your own industry and ask how you can best use them to your advantage. The question is not whether technology trends will affect your industry, but how.

Never underestimate your competition. One of the biggest mistakes in mapping out a strategy is doing so in ignorance of the competition or, worse, with disdain for the competition.

• Who are your current competitors?

• Who are potential competitors?

• What are their strengths and weaknesses?

• What do you anticipate as being their future moves in the market? What are their visions and strategies?

• How do your strengths, weaknesses, and product line stack up against the competition? Where are they vulnerable? Where are you vulnerable?

• Do you have a clear, differentiated position with respect to your competitors? What is it?”

Examine the general macroeconomic climate and assess what impact the overall economy might have on your company.

Pay particular attention to demographic trends. Entire industries can be dramatically affected by demographic changes. For example, the United States’s “baby boom” (a gigantic bulge in the birth rate from 1945 to 1960) will continue to have a profound impact on a wide range of industries until at least the year 2020. This is only one of many demographic forces…

In preparing for a strategy session, ask a selected group of employees, managers, and objective outsiders to list the top three external opportunities and top three external threats facing the company. This is a quick and efficient way to tap the insights of a range of people as input to your external assessment.

Throughout the internal and external assessment process, it’s absolutely paramount that you do everything possible to see reality—to see things as they really are and not the way you wish they were.

2. Demands: Leaders have to balance two often competing demands on the business — People and Process. This requires simultaneously maintaining a great reputation with the employees, customers, and shareholders (the People side of the business); and improving the productivity of how the firm makes/buys, sells, and tracks these transactions (the Process side of the business).

3. Disciplines: To effectively execute, there are three fundamental disciplines (routines): Set Priorities; gather quantitative and qualitative Data; and establish an effective meeting Rhythm. It’s in these meetings, debating the data (the brutal facts!), where the priorities emerge.

4. Decisions: Ultimately, all of the above require some decisions. To scale the business requires getting four key decision sets — People, Strategy, Execution, and Cash — absolutely right, and there are right and wrong answers. Shortchange any one element and you’re not maximizing your opportunity.