"If we weren't doing it now, would we start?"

If your board is typical, there’s time set aside in the board calendar to discuss strategy – at least I hope there is! Usually, there’s an offsite strategic planning session every few years, maybe an annual board retreat that includes a strategy update, and hopefully there is time allocated on most meeting agendas to check in on progress against the strategic plan.

Over the years I’ve participated in quite a few strategic planning sessions. The board and senior management get together to decide what the organization is going to try to accomplish over the next few years.

It can be an exhilarating process, working through all the possibilities. Before long, we’ll have assembled a long list of things the organization should start doing — new needs to meet, new products and services to offer, new competencies to develop, new projects to execute, and all sorts of ways to grow our business or expand our outreach.

But it’s far less fun to talk about what the organization will not be doing. We tend to gloss over that. – or ignore it entirely. Which means we’re missing out on a key part of strategy formulation – the part that requires thinking about what not to do.

The good news is there’s a way that, with the right question, you can encourage your board to deal with that essential piece of the strategy puzzle.



Strategic Trade-Offs

“The essence of strategy is choosing what not to do.” – Michael Porter

That’s a quote from Michael Porter, a Harvard professor known for his theories on economics and business strategy. When I was in biz school, we spent a great deal of time studying Porter’s theories and research.

Porter listed five tests of a good strategy:

  1. A distinctive value proposition. Are you offering distinctive value to a chosen set of customers at the right relative price?
  2. A tailored value chain. Is the best set of activities to deliver your value proposition different from the activities performed by rivals?
  3. Trade-offs different from rivals. Are you clear about what you won’t do so that you can deliver your kind of value most efficiently and effectively?
  4. Fit across value chain. Is the value of your activities enhanced by the other activities you perform?
  5. Continuity over time. Is there enough stability in the core of your strategy to allow your organization to get good at what it does, to foster tailoring, trade-offs, and fit?


Out of the five tests, the one that really stuck with me was number three - the concept of trade-offs.

According to Merriam-Webster, the definition of trade-off is ‘a balancing of factors all of which are not attainable at the same time.’ That’s the key – not attainable at the same time. It’s no different than the trade-offs we all make in our personal lives. We can’t be all things to all people. As it turns out, neither can the organizations we serve as board directors. (Okay, maybe Amazon’s an exception!)

Organizations must make strategic choices. What to do? What not to do?

“If a firm chooses to pursue growth or size, it must accept that profitability will take a back seat. If it chooses to serve institutional clients, it may ignore retail customers. If the value proposition is lower prices, the company will not be able to compete on, for example, fashion or fit. … Such trade-offs are what distinguish individual companies strategically.”- David Collis and Michael Rukstad. ‘Can You Say What Your Strategy Is?’ Harvard Business Review.

For Porter, even the most thoughtful strategic choices will not result in a sustainable competitive advantage if they lack meaningful trade-offs. Once the trade-offs are determined, the crux of a strong strategy is how the chosen activities reinforce each other to create an advantage.

Are strategic trade-offs limited to for-profit organizations? Not at all. If anything, the concept is even more important for non-profits, where resources are almost always severely limited.

I remember one non-profit board that I served on conducting stakeholder consultations to identify unmet needs that the organization should consider in formulating a new strategic plan. The sheer volume of identified needs was mind-boggling. There was absolutely no way the organization could meet them. The board and the senior management team had to think through the trade-offs – which needs would the organization have to leave for other non-profits to (hopefully) meet.


Strategy and Inertia

Except maybe for start-ups, most strategic planning does not take place with a blank slate. Most of the boards we serve are overseeing a strategy that’s already being executed. Sometimes, it’s only the most current version of a long line of five-year strategic plans.

Organizations have a history. Some of the things they are doing, they’ve been doing for a very long time. It’s become a part of who they are. Deciding to stop can be really difficult. That’s the reality of inertia.

Newton’s Cradle, an illustration of the Law of Inertia

More than three hundred years ago, Isaac Newton explained how inertia operates in the field of physics:

‘An object at rest tends to stay at rest and an object in motion tends to stay in motion unless acted upon by an external force.’ - Newton’s First Law of Motion

I know Sir Isaac wasn’t thinking about strategy, but it turns out that inertia applies just as much in organizations as it does in physics. Sometimes, an activity, or a product, or a service just stays in motion because … well, it just does. We keep doing it.

Until, that is, an external force comes along - like founder Steve Jobs returning to Apple in 1996. One of Jobs’ first executive actions was to announce that the company would scrap almost all of the more than 300 projects underway to focus on no more than four. Apple would immediately discontinue its foray into diversification and instead do just a few things really well. And we all know how that turned out.

A Steve Jobs doesn’t come along very often. But there are other forms of external force that act upon a company’s inertia. I’m thinking of an independent board director who asks the tough question, ‘If we weren’t doing it now, would we start?’

The point of this question is to start the board and management down the path of exploring activities that the organization currently participates in but should be discontinued – items that distract the organization from its focus and consume resources without creating value.

It’s a far more effective way of opening up that discussion than just bluntly asking, ‘What should the organization quit doing?’ That kind of direct question can seem like an accusation, causing a defensive reaction and shutting down creativity and critical thinking. Instead, framing it as an If question automatically makes it feel safer for participants to engage, opening up their minds to possibilities. Making it possible to at least think about overcoming inertia. And that’s a great start.

 

What can a Savvy Director do?

At your board’s next strategy discussion, consider being the director who shakes up organizational inertia by asking the courageous question, ‘If we weren’t doing it now, would we start?’

And if someone else gets the ball rolling, you can elevate the discussion with these follow-on questions about an activity being considered for discontinuation:

  • Is it still relevant?
  • Is it still right?
  • Does it still need to be done?
  • Are we the right ones to do it?
  • Can someone else do it better?
  • Who benefits from us doing it?
  • Who would be harmed if we stopped?
  • How can we do less and have a greater impact?

 

Your takeaways:

  • The essence of strategy is choosing what not to do.
  • A good strategy requires trade-offs. No organization can be all things to all people.
  • Inertia causes an organization to continue to do the same things it has always done.
  • A pointed question from an independent director can start the organization down the path of considering which activities should be discontinued.

 

Resources:

 

Leave a comment below to get in on the conversation.

Thank you.

Scott

Scott Baldwin is a certified corporate director (ICD.D) and co-founder of DirectorPrep.com – an online hub with hundreds of guideline questions and resources to help prepare for your next board meeting.

 

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