Rotman School of Management’s Anne Bowers discusses how to develop a strategy for competitive advantage
“One part of strategy is thinking about where you should go. The other part is thinking about where you are, and being truly honest about that,” says Anne Bowers, Associate Professor of Strategic Management at the University of Toronto’s Rotman School of Management.
Before you call in the consultants, even before consulting your data analytics or financial spreadsheets, there is a straightforward task required of any leadership team responsible for developing corporate strategy—that is to take a clear, honest, and holistic look at where the organization is now, where it’s currently going, and what dynamics are at play in the business environment it inhabits.
The central message from Bowers, who leads Rotman’s Strategy & Competitive Advantage program, is that armed with this clarity of vision, leaders are likely to already have—in their organization—most everything they need to build and sustain competitive advantage.
“A good strategist will start by saying let's be really clear about where we are, be really honest, and as detailed as we can. And then say where is the industry? Where are our competitors? —by that I don't mean benchmarking, per se. Benchmarking just says ‘hey, they're doing this thing. Maybe we should do that thing?’” It describes what is, rather than what could be.
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“There's so much that can be gained just by small amounts of well thought out, detailed analysis,” advises Bowers. Her philosophy, which she applies to her teaching, is to be—and to make her students—very clear and detailed in thinking about what strategy is. “In every market, strategy is a theory about how to do well. Which means you have to be specific about a lot of things: What is my Market? Who are my customers? What value am I providing to them that's unique? And how am I going to fulfill that in a way that allows me to make that gap between revenue and return.” And what she has found through years of teaching is that, “people talk around it, but they aren't willing to be specific.”
Money on the table vs. value proposition
This is certainly the case when it comes to defining potential customers—individuals or groups. “Very rarely is it everybody,” submits Bowers, “yet, organizations, particularly recently, during the pandemic, have had a fear of leaving money on the table. Thinking I could do this, without thinking about what am I giving up by chasing after it?” Rather than chasing after every last possible customer, they should be looking in-depth at their value proposition—at what they are offering to existing and closer to hand customers, and how they are doing it.
“It's thinking about exactly how you fulfill all the aspects of your company, and being really specific about the choices you make.” The example Bowers uses is of a company adhering to a low-cost strategy. “Everything has to be the cheapest thing possible. But the reality is, you might want to invest very heavily in logistics, because it allows you through economies of scale, through better fulfillment, to drop your costs elsewhere massively, which lets you lower your price. In being precise about those kinds of decisions, people can get a better handle on the opportunities and also the constraints.”
Who’s in the room?
This brings us to the question: who should be involved in strategy formation? Bowers’ answer is, “It has to start at the top, the head of the organization has to say, this is what we're going to do.” But the CEO’s decisions have to be informed by every part of the organization. One of the big challenges, once strategy is agreed, is ensuring everybody truly understands what it means for them, so people, when making decisions, “can figure out how—for example—to handle invoicing or manage vendor relationships.” Although these areas may seem minor in terms of overall strategy, once you have a clear and well-communicated strategy you create opportunities for everybody to contribute and add value.
A strategy informed from all parts of the organization allows people to have latitude based on their better understanding of their own area. Accounting knows their area best, marketing and sales people know the customers, etc. “So much information is contained in the sales process that is often not captured by the organization. Sales people know about customers and about people who didn't buy, so they can give you the full picture.”
Pivoting to new markets
“Organizations are very good at doing exactly what they've done before,” observes Bowers. “If the strategy is now to enter an entirely new market, you need strategies made both at the top and the bottom to ensure managers and individuals across the organization commit energy, focus and resources. There's a tension there you have to be aware of.” Involving the whole organization allows you to understand what is possible. If you are an airline company you are not going to be able to pivot to being another internet sensation, but by identifying the areas in the organization that are easy or harder to pivot and focusing on the more pivotable you can create realistic opportunities. She quotes the example of the small restaurants in Toronto in the first lockdown, that could pivot to being grocery stores because they had supply chain access to things most people couldn't get. Pivoting may appear easier for small businesses but the same principles apply for all. “It's in thinking about all of the implementation aspects. Thinking about customer opportunities, about logistics, about how you manage all your different activities.”
One thing to be wary of, cautions Bowers, is the notion that, in our fast-changing world, strategy has to be about doing something radically different or new. Talk of ‘disruptive innovation’ or searching ‘outside the box’ for solutions can distract from the strategic gains to be found close to home. “Not all but a lot of organizations have the tools that they need to adapt and make big changes. They just don't know how to access them.” Also, when an organization may appear to be doing something dumb and the common reaction is to think it stupid, the smart strategists will ask, ‘how did this get to be the best possible outcome?’ They will assume there was a really rational, thoughtful outcome that led to this. “If you can figure that out, then you have huge understandings of what your organization can and can't do,” says Bowers.
Armed with an honest view of the organization, you can say, we've got a set of ingredients, how can we put them together in unique ways that let us go into different areas? Are there things that won't work? Are there things we should stop doing? It’s important to ask these questions declares Bowers, “not just with the hope of innovation, but also with the reality of costs, in the sense that for profit and non-profit organizations alike, using what you already have is always going to be cheaper than doing something completely new.” Despite cost constraints, there are usually very good decisions that you can make, that take advantage of the skills your organization has. In her classes, part of the thing Bowers tries to do, “is to give people the confidence to look at what they already have.”
Strategy and organizational culture
Much has been written about the influence of organizational culture on the creation and implementation of strategy. Bowers has a realistic take on this important issue. While progressive cultures may offer better places to work and long-term sustainability, it is undeniable that many companies with unreformed cultures retain consistent competitive advantage.
“Culture is determined by how we structure the organization. How we divide ourselves into divisions, how we coordinate across different units, how we create and manage incentives, and how we are aided or impeded in sharing information. Those aspects have huge implications for strategy and implementation. A lot of organizations, don't think about how whether you're doing well, or doing poorly, is a function of these structural dynamics.”
According to Bowers this tends to manifests itself in two ways: first people constantly reorganizing without being clear about the purpose of the reorganization, or considering the chaos it might create, or indeed the costs. Secondly, in failing to bring the right people into the room when negotiating across divisions. “A lot of times, that's where things can fall apart,” she warns. “There's a role for the strategist to play in thinking about how those boundaries create these outcomes in ways that are unintended.”
With top-down organizations there is often a clear view of the strategy but there are trade-offs. In more democratic flat structures things can be more complicated. “There's definitely a tension, and the common response is to say ‘we'll be a matrix organization’.” Which to Bowers seems like an employee nightmare, not knowing who to talk to or coordinate with.
“The key is to know what’s being traded off. If you know that by letting everything go flat you're losing control, then you shouldn't be surprised later on when things happen due to lack of control. If you're super top-down, you’ve got great control, but your lacking insight into what's going on and feedback from all areas.” Frustration can come when employees believe they have freedom to act but it turns out top-down norms apply, or when they are looking for direction from the top and feel isolated.
Really understanding the culture chimes with Bowers’ basic message. “There's a lot of power in looking carefully at what you already have, and being really accurate about what you're doing and how you're doing it, what the constraints, and what capabilities and opportunities are available to you. You can get a lot farther than you think, without the consultants without bringing in the industry disrupter CEO, but by listening to those employees, who think, yes, our organization is doing the dumbest thing in the world, but this is exactly why it is. Those are the super smart people you really want. Find out who they are, because they know things about the organization and about the opportunities.”
For Rotman School of Management itself, during the pandemic, the overriding strategy has been to accelerate its moves into online learning. For Bowers, “Online teaching has actually been a super boon, for MBA students and for executive teaching as well, because it makes it so convenient for people.” She believes it’s a huge opportunity for the whole sector, and “It's also a huge opportunity for organizations that hadn't previously thought about exec ed at all.”
Rotman School of Management is Canada’s leading business school and has Canada’s largest group of management faculty. It is home to some of the most innovative research institutes in the world