Here is an excerpt from an article by W. Chan Kim and Renee Mauborgne, one of the most popular ever published by Harvard Business Review. To read the complete article, check out the wealth of free resources, obtain subscription information, and receive HBR email alerts, please click here.
Credit: Maude Frickert
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John Reed of Citicorp was known for insisting that his executives get the big picture. As chairman and CEO, he demanded that business unit heads present their proposed strategies in no more than a few slides. Executives who failed to meet Reed’s exacting standards for brevity met with his unconcealed displeasure. And if it happened too often, they ran the risk of being left out of the loop on future strategy sessions.
Many leaders share Reed’s obsession with the big picture, yet our research shows that few companies actually have a clear strategic vision. The problem, we believe, stems from the strategic-planning process itself. The process usually involves the preparation of a large document—culled from a mishmash of data provided by people from various parts of the organization who often have conflicting agendas and poor communication. The report typically begins with a lengthy description of the industry and the competitive situation. There follows a discussion of how to increase market share here and there, capture new segments, or cut costs, which leads to an outline of numerous goals and initiatives. A full budget is almost invariably attached, as are lavish graphs and a surfeit of spreadsheets.
No wonder so few strategic plans turn into action; executives are paralyzed by the muddle. But it doesn’t have to be that way. We suggest an alternative approach to strategic planning, based not on preparing a document but on drawing a picture we call a “strategy canvas.” This approach consistently produces strategies that are easy to understand and communicate, that engage more people within an organization, and that unlock the creativity of participants. In the following pages, we’ll describe how one leading European financial services company used our approach, to notable effect. First, though, let’s look at what makes a good strategy canvas.
Revealing Your Strategic Profile
Academics and consultants have developed an armory of tools to help companies understand their strategic positioning, and many of those tools have yielded successful strategies. Our approach—drawing a strategy canvas—is unique because it does three things in one picture. First, it shows the strategic profile of an industry by depicting very clearly the factors that affect competition among industry players, as well as those that might in the future. Second, it shows the strategic profile of current and potential competitors, identifying which factors they invest in strategically. Finally, our approach draws the company’s strategic profile—or value curve—showing how it invests in the factors of competition and how it might invest in them in the future. The basic component of our strategy canvas, the value curve, is a tool we developed in our research and consulting work. (For a full description, see our previous HBR articles “Value Innovation: The Strategic Logic of High Growth,” January–February 1997, and “Creating New Market Space,” January–February 1999. )
To illustrate how a strategy canvas works, we’ll take you through one we’ve created for the short-Haul airline industry. In the exhibit “The Strategy Canvas of the Short-Haul Airline Industry,” the factors of competition for the industry are listed on the horizontal axis. The vertical axis indicates the degree to which airlines and the providers of alternative services invest in the competitive factors. A relatively low position means a company invests less and, hence, offers less in that factor—or, in the case of price, asks for less. If you look at meals, for example, Southwest provides little in the way of free refreshment, though not as little as you would get if you drove yourself. By connecting the dots across all the factors for each player, you reveal the strategic profiles of Southwest, its direct competitors, and its main alternative, the car.
The Strategy Canvas of the Short-Haul Airline Industry
Southwest Airline’s profile is a perfect example of a good strategy, because it shows the three complementary qualities that characterize an effective strategy: focus, divergence, and a compelling tag line. If your company’s strategic profile does not clearly reveal those qualities, your strategy will likely be muddled, undifferentiated, and hard to communicate.
Every great strategy has focus, and a company’s strategic profile, or value curve, should clearly show it. Looking at Southwest’s profile, for example, you can see at once that the company emphasizes just three factors: friendly service, speed, and frequent point-to-point departures. By focusing in this way, Southwest has been able to price against car transportation; it doesn’t make extra investments in meals, lounges, and seating choices. By contrast, Southwest’s traditional competitors invest in all the airline industry’s competitive factors, which makes it much more difficult for them to match Southwest’s prices. Across-the-board investing is often a sign that competitors’ moves are setting a company’s agenda.
When a company’s strategy is formed reactively as it tries to keep up with the competition, it loses its uniqueness. Consider the similarities in most airlines’ meals and business-class lounges. On the strategy canvas, therefore, reactive strategists tend to share a profile. Indeed, in the case of Southwest, we found that the value curves of the company’s competitors were virtually identical, which is why they share the same value curve in the exhibit. By contrast, the value curves of innovators’ strategies always stand apart. They might eliminate or substantially reduce investments in certain factors, or they might dramatically increase investments in others. Sometimes they even create new factors, thereby changing the industry’s overall profile. Southwest, for instance, pioneered point-to-point travel between midsize cities; previously, the industry operated through hub-and-spoke systems.
Compelling tag line.
The final test of a good strategy picture is how well it lends itself to a tag line. “The speed of the plane at the price of the car—whenever you need it.” That’s the tag line of Southwest Airlines, or at least it could be What could Southwest’s competitors say? Even the most proficient ad agency would have difficulty reducing the conventional offering of lunches, seat choices, lounges, and hub links with standard service, slower speeds, and higher prices into a memorable tag line. A good tag line must not only deliver a clear message but also advertise an offering truthfully, or else customers will lose trust and interest. If you can’t come up with a strong and authentic tag line, chances are you don’t have a strong strategy, either.
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Here is a direct link to the complete article.
W. Chan Kim is a professor of strategy and management at INSEAD and codirector of the INSEAD Blue Ocean Strategy Institute, in Fontainebleau, France. He is the coauthor, along with Renée Mauborgne, of the book Blue Ocean Strategy, Expanded Edition (2015). See www.blueoceanstrategy.com.