So, you think you have a strategy…

The first article in a series helping nonprofit leaders find and utilize today’s best business thinking to strengthen their nonprofit strategy.

nonprofit_strategy_is_about_choice

Let’s begin with a question: Does your nonprofit have a strategy?

Oh yes, we have a strategy, you’re thinking. Your strategic plan is the fruit of your very own sweat and tears and no shortage of midnight oil. You personally wrangled from your staff each strategic objective and activity, not to mention the metrics and targets against which to track progress. Yes, your organization definitely has a strategy.

Unless…your organization is like most others.

In this article, I share provocative perspectives from some of the most respected thought leaders in business, who would counter: “most likely…you don’t have a strategy.”

By which they mean most organizations practice something that doesn’t exhibit the fundamental characteristics of good strategy. According to these authors, strategy at its best:

  1. Expresses a choice of what to do and what not to do, (“choice”)

  2. Defines your organization’s purpose in the world, (“purpose”)

  3. Explains the unique value your organization creates, (“distinctiveness”)

  4. Ensures your organization can deliver on your value proposition, (“coherence”) and

  5. Uses unambiguous language that guides action and decision. (“direction”)

So, do you really have a strategy? Read on to find out.

1. Choice: Is your strategy built on non-choices?

“The problem with a lot of strategies is that they are full of non-choices.” In an interview with The Bridgespan Group, Roger Martin explains the most important fundamental truth about strategy — strategy is about choice. “Probably most of us have read more than a few so-called strategies that say something like, ‘Our strategy is to be customer centric.’ But is that really a choice?”

Martin, former Dean of the Rotman School of Business, offers a simple test of whether you’ve made a strategic choice:

You only know that you’ve made a real strategic choice if you can say the opposite of what that choice is, and it’s not stupid…Here’s an example: ‘We’re going to be operationally effective…’ You see these sentences all the time in strategies, but they’re not strategic choices. Always think of the opposite. ‘We’re not going to be operationally effective.’ If the opposite is stupid and is demonstrated by the fact that nobody who’s had any kind of success has ever done it, then it’s not strategy.

Freek Vermeulen, management author and professor of strategy and entrepreneurship at London Business School, offers a great example of clear strategic choice:

About 15 years ago, the iconic British toy company Hornby Railways — maker of model railways and Scalextric slot car racing tracks — was facing bankruptcy. Under the new CEO, Frank Martin, the company decided to change course and focus on collectors and hobbyists instead. As a new strategy, Martin aimed (1) to make perfect scale models (rather than toys); (2) for adult collectors (rather than for children); (3) that appealed to a sense of nostalgia (because it reminded adults of their childhoods). The switch became a runaway success, increasing Hornby’s share price from £35 to £250 over just five years.

Nonprofits, too, are vulnerable to strategic non-choice. Kim Jonker and William Meehan, authors of Engine of Impact, label the tendency the “leading virus of the social sector: mission creep.” They explain:

In the private sector, it would seem preposterous for a coffee-roasting company to jump into the biotech business or to start manufacturing baseball gloves. Yet nonprofits routinely extend their operations in equivalent ways — they expand their programs far beyond their organizational scope and far beyond their core competencies — and no one raises an eyebrow.

2. Purpose: Does your organization understand strategy as plan or strategy as purpose?

It’s not hard to see why so many organizations fail to articulate clear strategic choices. According to Roger Martin, the annual strategic planning cycle at most organizations puts the cart before the horse, focusing on departmental plans and budget allocation without first completing the real work of strategy.

Developing strategy ends up being an exercise in agglomerating initiatives, assigning responsibilities without a coherent set of choices that help bind them. I would argue that 90 percent of the strategic plans I’ve seen in my life are really more accurately described as budgets with prose. Lots of prose at the front end of a budget. In some sense, that’s a better budget than simply a budget that has only numbers. But it’s still a budget; it isn’t a strategy.

This characterization will feel all too close to home for many nonprofit leaders. At most organizations, the strategic plan is thought of as its strategy. But true strategy, Strategy with a capital ‘S,’ is not about establishing accountability for activities and objectives per se.

Cynthia Montgomery, professor and former head of the Strategy Unit at Harvard Business School, laments, “Strategy is not what it used to be — or what it could be.” “What we have lost sight of,” she explains, “is that strategy is not just a plan, not just an idea; it is a way of life for a company. Strategy doesn’t just position a firm in its external landscape; it defines what a firm will be.”

In other words, the real work of strategy asks and answers the fundamental existential questions of the organization. Montgomery harkens back to a 1963 article by Harvard Business School professor Seymore Tilles to liken this imperative to the existential challenge we face as individuals:

If you ask young men what they want to accomplish by the time they are 40, the answers you get fall into two distinct categories. There are those — the great majority — who will respond in terms of what they want to have…There are some men, however, who will answer in terms of the kind of men they hope to be. These are the only ones who have a clear idea of where they are going. The same is true of companies.

Strategy, then, is about an organization’s purpose, its raison d’être. “Forging a compelling organizational purpose is a close corporate equivalent to soul-searching,” Montgomery says.

She sees animation firm Pixar as a company that has successfully defined its purpose: “Pixar…says that it exists ‘to combine proprietary technology and world-class creative talent to develop computer-animated feature films with memorable characters and heartwarming stories that appeal to audiences of all ages.’ No films for mature audiences only. Lots of pushing the envelope.”

3. Distinctiveness: Does your nonprofit deserve to exist?

“The most viable statements of purpose,” according to Cynthia Montgomery, “…are true to a company’s distinctiveness.”

Purpose, Montgomery holds, arises from the value an organization can bring to the world that no other organization can. The key, she says, is to imagine the world if your organization did not exist. “The difference (if there is one) is the firm’s unique added value — what would be lost to the world if the firm disappeared.” If there is no difference in total value — if the overall “size of the pie” would not shrink — what argument can be made that an organization has a reason to exist?

It may be tempting for nonprofit leaders to assume that “if we don’t do this work, no one will.” In this exercise, however, nonprofits should imagine that funding is redirected to another organization to pursue the same goals. Even for nonprofits, the ability to create distinctive value is at the heart of strategy.

To help her executive education students identify their organization’s added value, Montgomery returns to basic existential questions: “If your company were shuttered, to whom would it matter and why? Which of your customers would miss you the most and why? How long would it take for another firm to step into that void?”

If you find these questions difficult to answer, you’re not alone. Montgomery reflects:

When the questions are presented, classrooms that minutes earlier were bursting with conversation fall silent…Managers long accustomed to describing their companies by the industries they are in and the products they make often find themselves unable to say what is truly distinctive about their firms.

4. Coherence: Does your organization set goals that it lacks the capabilities to achieve?

“In all too many businesses,” say strategy consultants Paul Leinwand and Cesare Mainardi, “there is a significant and unnecessary gap between strategy and execution: a lack of connection between where the enterprise aims to go and what it can accomplish.”

Closing the strategy to execution gap, they say, requires coherence among three elements: i) how an organization creates value, ii) the critical capabilities enabling it to deliver that value better than anyone else, and iii) the products or services it chooses to provide. Together these elements form what Leinwand and Mainardi call an organizational identity.

They offer furniture retailer IKEA as a standout illustration of a company with a clear strategic identity:

Value Proposition: IKEA delivers value as a low-price player and experience provider. It creates ‘a better everyday life’ at home for many people around the world — providing functional and stylish home furnishings at very low prices with a high level of quality, sustainability, and customer engagement.

Capabilities System: IKEA delivers its value proposition by excelling at four differentiating capabilities: i) deep understanding of how customers live at home, ii) price-conscious and stylish product design, iii) efficient, scalable, and sustainable operations, and iv) customer-focused retail design.

Portfolio of Products and Services: Known for its flat-packed furniture and self-pick, self-carry, and self-assemble model, IKEA sells affordable furniture and other home-oriented products.

In organizations that fail to link these three elements, leaders struggle to say “no,” organizational processes impede rather than power progress, and resources are spread too thin to invest sufficiently in what matters most.

To help leaders consider whether their organization is strategically coherent, Leinwand and Mainardi provide a helpful list of eight tough questions to ask:

  1. Are we clear about how we choose to create value?

  2. Can we articulate the three to six capabilities that describe what we do uniquely better than anyone else?

  3. Have we defined how they work together in a system?

  4. Do our strategy documents reflect this?

  5. Have we specified our product and service “sweet spot”?

  6. Do we understand how to leverage the capabilities system in new and unexpected arenas?

  7. Can everyone in the organization articulate our differentiating capabilities?

  8. Is our company’s leadership reinforcing these capabilities?

5. Direction: Are clichés crippling your strategic language?

The ultimate objective of defining an organization’s purpose in the world is to ensure that everyday actions and decisions align with and enhance value creation. Too often, however, an organization’s guiding language is all but meaningless — and author Greg McKeown is fed up with it.

If I read one more platitude-filled mission statement, I’ll scream,” he writes. To illustrate the point, McKeown presents three real company descriptions and three real mission statements in jumbled order. One fact is immediately clear — it is not at all clear which mission statement belongs to which company. Each company operates in a different industry and serves different customers, yet each describes a mission so generic that it could easily apply to any of the three. McKeown’s point: “Ironically, many ‘directional documents’ are not fit for purpose: they do not provide direction.”

Again, IKEA offers an instructive example to follow. Consider Leinwand and Mainardi’s description of IKEA’s strategic identity. The language unambiguously describes how IKEA brings unique value to the world. In a 2012 interview with strategy+business, IKEA’s director of business navigation, Ian Worling, explains how IKEA’s strategic identity provides direction.

As a company, we have always been extremely clear about our ambition: to create a better life for people. That means we offer home furnishings at such low prices that as many people as possible can afford to buy them. That colors everything we do…For any expense, we always ask ourselves, ‘Would our customers want to pay for that particular item themselves?’ If the answer is no, then we try to find a way to do without it or to do it in a cheaper way.

IKEA’s response to the 2008 global recession illustrates how unambiguous strategic direction guides decisions. “When times are rough, it can be good for IKEA, if we can offer affordable-enough home furnishings,” Worling says, “So we asked ourselves what we could do during this period to lower our costs and, instead of reducing the bottom line, to turn every euro back to lower prices for our customers. This goal of price reduction was the real key for us.”

In tough times, most companies use cost cutting to shore up profits; IKEA instead used its savings to lower its prices even further, a clear decision to invest in its value proposition. As of the publication of Worling’s interview, the results “have been impressive: about 10 percent annual top-line growth and stable margins, despite the ongoing price reductions and economic pressure of the past few years.”

Few nonprofits achieve the level of strategic clarity that IKEA has, a fact readily apparent in a review of nonprofit mission statements. McKeown recalls evaluating more than 100 examples of mission statements in William Meehan’s “Strategic Leadership of Nonprofit Organizations and Social Ventures” class at the Stanford Graduate School of Business. “We noticed how many were grandiose but uninspiring. One had the mission to ‘eliminate hunger in the world,’” he reflects, “But with just five people in the organization, the mission felt like little more than empty words.”

Given the importance of “directional documents” in organizations that pursue social impact rather than the more straightforward goal of profit, nonprofit leaders can’t afford empty words in their strategic language.

What it means for nonprofit leaders

These authors, some of the most respected thought leaders in business, intend for these perspectives to be provocative. Their intent is not to diminish the hard-won progress many leaders have already made in strengthening their organization’s management practices — valuable progress which, let’s be honest, might have been to ensure their organization tracks progress against a plan at all.

Rather, in explaining that good strategy embodies choicepurposedistinctivenesscoherence, and direction, they describe the ideals that give strategy its power. Each nonprofit leader will work to reflect these ideals in a way that works for his or her organization.

The resources I share in this post are thought provokers and conversation starters. Use them to form a point of view on your own organization’s strategy and to engage your teams and your Board in reflection and action.

In the section below, I link to the articles that elaborate the concepts I introduced. These are a few of my favorites. In future posts, I’ll explore some of these topics in more depth and will point to additional frameworks, tools and examples to help you put the principles of good strategy to work in your nonprofit organization.

In the meantime, what are your favorite strategy resources? Use the comments to share them with fellow readers!

Links to nonprofit strategy resources

These articles are among my favorites when it comes to quickly building an intuition for the fundamentals of strategy:

version of this article was originally published on Medium.

Nicolas TakamineComment