Better, Simpler Strategy: A Value-Based Guide to Exceptional Performance
Felix Oberholzer-Gee
Harvard Business Review Press (April 2021)

How to think more strategically about your business and the role of strategic management

I agree with Albert Einstein: “Make everything as simple as possible but no simpler.” He also suggests, “if you can’t explain what you think is a great idea to a six year-old, you really don’t understand it.”

For example, as I concluded many years ago, marketing creates or increases demand for the given offering so formulate and execute a strategy that will be a “hammer” that drives “nails” (i.e. tactics) to achieve the given objective. In essence, this continues to be the secret sauce of all successful businesses, whatever their size and nature may be.

Felix Oberholzer-Gee also agrees with Einstein. In his new book, the strategy he recommends could not be simpler: “create substantial value for customers, employees, or suppliers” and do so consistently, year after year after year. The idea is best illustrated in a simple graph that he calls a “value stick.”

Here it is:

“Willingness-to-pay (WTP) sits at the top of the value stick. It represents the customer’s point of view. More specifically, it is the most a customer would pay for a product or service. If companies find ways to improve their product, WTP will increase.

“Willingness-to-sell (WTS), at the bottom of the value stick, refers to employees and suppliers. For employees, WTS is the minimum compensation they require to accept a job offer. If companies may work more attractive, WTS declines. If a job is particularly dangerous, WTS increases and workers require more compensation. In the case of suppliers, WTS is the lowest price at which they are willing to sell products and services. If companies make it easier for suppliers to produce and ship products, supplier WTS will fall.

“The difference between WTP and WTS, the length of the stick, is the value that a firm creates. Research shows that extraordinary financial performance (returns in excess of a firm’s cost of capital) is rooted in greater value creation. And there are only two ways to create additional value: increase WTP, or lower WTS. Strategy is conceptually simple, and simpler strategic thinking, I am convinced, will lead to better outcomes.”

It is important to understand that this value-based guide to exceptional performance is relevant to almost any organization, whatever its size and nature may be. Also, that when introducing value-based strategy, it is helpful — in some instances imperative — to ask/discuss/answer these three questions:

“What do we now do to move WTP?”
“How do we change WTS?
“What are the connections between/among our value drivers, prices, and costs?”

Check out what Felix Oberholzer-Gee has to say about these issues in Chapter 19, Pages 231-237.

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

Formulating and then executing a value-based strategy include many substantial benefits such as recognizing value, identifying value drivers, seeing various connections, coordinating investments and aligning activities. Another is having a strategy that is (as Einstein’s suggests) “as simple as possible but no simpler.”

Here is a final point– and a key point — iprovided by Peter Drucker: “There is surely nothing quite so useless as doing with great efficiency what should not be done at all.”