A 3-Step Guide to Evaluate Big Strategic Choices

A 3-Step Guide to Evaluate Big Strategic Choices
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Evaluate Big Strategic Choices
When you really want to win big, you can’t afford to miss a potential opportunity for success by going too cautiously or too slowly.  When it’s time to evaluate big strategic choices at your next executive strategy retreat, make sure your organization is fully armed with a clear corporate strategy that will support your big move and reduce your exposure to risk.

Examples of Big Strategic Bets
While each company and marketplace is different, we define a big strategic bet as a significant and bold strategic action to fundamentally transform and impact the company. Big bets are most often undertaken to drive significant growth in the face of uncertainty.  Some work and others do not.

Examples of strategic big bets that worked include:

  • Netflix shifting from DVDs to streaming (and then creating its own content)
  • Spotify changing the rules of the music industry
  • Amazon adding Amazon Web Services (AWS)

Examples of strategic big bets that failed include:

  • IBM and Sony focusing on hardware over software
  • Kodak not going digital fast enough
  • Blackberry underestimating the influence of B2C demand on B2B buyers

After having famous $10 membership dues for decades to attract first time exercise enthusiasts, Planet Fitness just announced that they are raising dues by 50% — a big bet that may or may not pay off.

A Guide to Choosing Your Bold Strategic Move Wisely
To effectively evaluate big strategic choices, you need to be diligent and do your homework.  This means objectively evaluating your strategy for growth through multiple viewpoints.  It is rarely enough to just look at the financial implications; you need to look at the big picture effects in terms of your marketplace, strategy, culture, and talent.  Like any good strategic decision making methodology, here are three key factors to consider.

  1. Financial Performance Perspective
    Like any business case for change, you must start by understanding the specific financial implications of your big strategic choices. How will your choices add value to the business both now and in the future compared to other available alternatives?

    For example, one client recently launched its first product as a big strategic move into the consumer packaged goods marketplace.  This was a big bet with big financial implications.  Their current service offering runs at 80% gross margin while their new product will average close to 40% gross margins.  Yet, the move made sense because they are expanding revenue channels and using their services to drive products and visa-versa.

    Another client invested heavily into entering an adjacent market to meet aggressive growth targets.  Unfortunately unexpected pricing pressures that did not match their value proposition forced them to scrap their big growth plans pretty late in the game.  They did not understand the structural attractiveness of the market or their target buyers.

    Another client forecast $150 million in revenue from a new product launch and invested heavily to bring it to market.  After two years, it only generated $3.5 million in revenue.  The company had to reverse course and conduct significant layoffs to right size.

    The financial perspective is a great place to start to evaluate big strategic choices and market potential.  Use it as a checkpoint to ensure that it is worth the time and effort to keep your big bets moving forward.

    Do the finances make sense?

  2. Capacity to Deliver Perspective
    Even if you assess financial performance and market potential wisely, if you don’t have the capacity in place, your strategy will fall flat. We know from assessing organizational culture that you need to have the right organizational structures, workplace culture, people, systems, and processes to execute your plans.  Without the foundation for an implementable and successful strategy, your bold move will falter.

    For example, one client recently made a big strategic choice to sell software and services instead of their legacy hardware products to combat a declining and shifting market.  Unfortunately, they failed to invest in the customer centric culture or consultative selling skills required to be successful.  Combined with misaligned metrics and reward systems, their foray into a more attractive market has missed the mark.

    On the other hand, even though the DVD business was driving all the profits, Netflix made a conscious decision to stop inviting the DVD employees to the company meeting. They wanted to send a clear message about and culturally stand behind their future vision for success.  They were all in on their strategic big bet that almost all entertainment was going to come into the home through the internet — a big risk in 1999.

    Are your ways of working aligned with your big bets?

  3. Unique Customer Competitive Advantage Perspective
    This factor is all about competitive advantage. How well do you set yourself apart from the competition in the eyes of your ideal target customers?

    Bold strategic moves require that you deeply know your company, your target customers, and your competitors.  The better you understand your capabilities vis-à-vis your competition and marketplace priorities, the better able you will be to choose your bold move with confidence.

    Do you have what it takes to win with your ideal target clients the majority of the time?

The Bottom Line
No one said that designing a winning strategy, let alone one that includes a bold move or two, was easy.  But it can be done and done well.  Analyze your current position carefully and objectively; build in what you know about market opportunities and your competition; and allocate and invest the resources you will need to accomplish your goals.

To learn more about how to evaluate big strategic choices, download How Strategic Clarity Distinguishes High Performing Leaders

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