A good strategy also means you need to understand the risks involved. When you allocate your resources to achieve a decisive outcome, you are accepting a risk that this might not work.
At the 1996 Atlanta Olympics, Great Britain finished in 36th place in the Olympic Medal table (just behind North Korea, Algeria, and Ethiopia) with 1 gold medal, 8 silver, and 6 bronze. Since then, performance has improved at every subsequent Olympic games. At the 2016 Olympics, Great Britain ranked second with 27 gold medal, 23 silver, and 17 bronze.
The UK Sport strategy to achieve this feat was crude and effective. Instead of spreading resources equally among various sports, Great Britain selected sports with multiple medal opportunities (cycling, gymnastics, rowing) and allocated more resources among the winners. Sports that didn’t achieve success lost their funding (wrestling, table tennis and football). Sports that produced winners received more funding.
Money that might have been spent on better wrestling gear or table tennis equipment was instead spent hiring the best nutritionists and state of the art training facilities for cyclists.
Notice the inherent risk here. If a handful of top stars do not perform, get injured, or fall sick on the wrong day, millions of dollars in funding are wasted. Worse still, those who lose their funding protest loudly and it robs many athletes of an opportunity of competing at the Olympics.
You cannot have a good strategy without risk. Do not try to alleviate risk; instead, try to understand it.
But how does this apply within most organizations?
The purpose of creating a strategy is essentially to force through the difficult decisions about where to spend your limited resources. This will make you feel uncomfortable.
An organization might pursue a focus strategy designed to maximize the share of wallet from a specific (segmented) group of customers.
This will mean the organization will allocate its resources and efforts to focus upon a select group of customers. The organization will hope to gain a dedicated and loyal group of customers as a result. However, to do this, it needs to ignore every other segment in order to achieve its goal. This will mean closing the door to countless opportunities.
This is going to feel risky. It will feel far less risky to spread resources evenly among all potential customers and see what works. However, this ignores a simple reality. You are far less likely to succeed by spreading resources evenly. Imagine you spread your resources evenly among three similar segment groups, yet each competitor concentrates their resources on single segments. You’re almost certainly going to lose.
Apple has consistently pursued a differentiation strategy based around great design. This great design lets Apple charge a 40% gross profit margin compared with 16.2% for Samsung. Yet, this strategy involved trade-offs. Apple loses out on huge markets who cannot afford Apple products. The closed, integrated, system has allowed Google Android to gain a 70% market share in a market Apple invented. Yet, those risks were considered acceptable and have been proven to be correct.
If a strategy doesn’t force through difficult decisions like these, if it doesn’t make you feel uncomfortable, if it doesn’t understand the risks involved and make choices with this understanding, it’s probably not a strategy but wishful thinking. The secret to a successful strategy is focusing your efforts to achieve decisive outcomes.