Eddielogic

– Thoughts on Strategy and Management

The Language of Strategy and their Practical Problems

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In his last post, Oliver has discussed various aspects of the language of strategy with a focus on strategic conversations and strategic discussions. This reminds me of a more practical problem I experienced quite often. The language of strategy is full of specific terminology. Most people know these terms (you can hardly not know them in today’s business world) and many people like to use them more or less excessively. The problem is, however, that for many of these terms there is no common understanding about their meaning. Simply ask five people around you to explain the difference between mission and vision or to give examples for strategic vs. operative measures. The result of such varying perceptions or lacking knowledge of popular terms may lead to some level of confusion, misunderstanding and disappointment about messages not gotten across.

Let me give you some real life examples for this. One of my favourite tools is the well-known SWOT. I like to use it as a tool to summarise and to structure the findings from more detailed analyses. Unfortunately, many users do not really understand the theory behind the SWOT. At least this is true for the SWOT’s I have seen.

The greatest problem is the clear distinction between internal and external factors. The meaningfulness of the tool is based on the distinction between the organizations (internal) strengths and weaknesses – i.e. those factors that it can influence – on one hand and between the external opportunities and threats from its environment on the other. The latter ones are those factors that affect organization, if it does something about it or not.

In practice, people seem to have difficulties with this distinction. Sometimes the identified factors are categorized into “good for us” and “bad for us”, followed by some more or less intuitive allocation to strength or opportunity (if “good for us”).
Some Examples:

  • “The launch of product xy” is called an opportunity. This is wrong!
    If a company has a great product with the potential for a real competitive advantage in its development pipeline, than it as a portfolio of promising new products and thus a strength. Possibly, the R&D-departments ability to bring competitive products to market is also a strength. The market (i.e. the external environment) did not do anything so far.
    An opportunity would be a sudden change in customers’ preferences and the product idea from the R&D-department is the only solution in the whole industry that can meet these new customer requirements.
  • “The loss of market share to competitor yz” is often attributed to the risks-box.
    This might be true only if the expected loss of market share is the result of an aggressive movement of yz, e.g. a change in strategy. It might also be a risk that market conditions change and the products of yz are the better solution to these changed customers requirements.
    In both cases, however, the loss of market share is the result, not the risk itself. It shows what will happen if the organization fails to address the risks (aggressive competitors, changing customer requirements) properly and in time.
    In most cases, the own products will simply fall behind competition under unchanged or even unchanged market conditions. Be it that they are too expensive, of poor quality or become technically out of date. Than the organization has a cost problem, a wrong R&D-strategy, an outdated product portfolio or something similar – a self-made weakness. The decreasing market share is again only the result.

If the SWOT is understood in such a wrong way, it is nothing more than is list of issues that are worth thinking about.
Many management presentations try to impress by starting with a SWOT. After that lots of slides with different analyses will follow. In the best case, they repeat the content of the SWOT in more detail. Then the SWOT in the beginning should be called “Executive Summary”. In the worse cases, the slides full of analyses have nothing to do with the SWOT they follow. You don’t want to bore your audience with repetitions, do you?

This is the problem. In the end of the day, the SWOT is not more than a summary of a set of different analysis of the organization itself and its environment. To my understanding is the real value of the SWOT methodology. Five slides that address trends in the industry environment and five more slides full of competitor benchmarking might be to confusing to bring your core message across. Those ten slides are valuable backup for decision making. The SWOT allows to present the core findings and the bigger picture in a structured and concise way.

However, what benefit do I have from the fact that I have a clear understanding about the nature of this or some other tool if all others around me don’t share this understanding? Although there is literature that supports my understanding of the SWOT (Johnson and Scholes clearly state that strengths and weaknesses are derived from an analysis of the organisation and that the other two boxes are for the ‘key issues in the environment’), I don’t have the ambition to convince the whole business world of that view. What I can realistically do is to make sure the people I work with at least know how I use a particular term or tool. This can be achieved by as simple means as a brief sentence of explanation in a speech, a footnote in a paper or a chat over a cup of coffee.

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