Strategy (re)simplified: value creation should stand above all else
New research argues that business strategy is often too complex and needs to refocus on simplified value creation principles
So much is written about business strategy that it’s hard to create truly original ideas that are not some variations on previously articulated concepts. Sometimes, however, a good re-articulation can be a valuable reminder of fundamental business concepts that can get lost in the complex literature about strategy. A new article by Felix Oberholzer-Gee is an excellent example of this approach.
The author begins by making a sound point: the development of corporate strategies has become a sophisticated and multi-disciplinary problem. Most big companies have a marketing strategy, a talent strategy, a digital strategy, and so on. The problem, notes the author, is that despite, or perhaps because of, these multiple strategies, many big companies fail to reach their goals, despite the extensive talents and efforts of their leaders. As the article notes:
A quarter of the firms in the S&P 500 earn long-term returns below their cost of capital. How can it be that so many companies, their ranks filled with talented and highly engaged employees, have so little to show for so much effort? Why do hard work and sophisticated strategy lead to enduring financial success for some companies but not for others?
Oberholzer-Gee argues that strategy has become over-complicated in many cases, and companies need to simplify their strategic thinking dramatically. In his view, “by selecting fewer initiatives with greater impact—we can make it more powerful.” In his simplified strategy model, companies should consider two issues as paramount:
Willingness to Pay (“WTP” ): What a customer is willing to pay for a product or service
Willingness to Sell (“WTS” ): What an employee is willing to accept as salary or a supplier is willing to accept as a cost
For the author, these two terms create “an easy-to-use framework called value-based strategy, which gives executives a common language for evaluating strategic initiatives and developing a holistic view of the many activities taking place within their organizations.”
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