Your Strategy Needs a Strategy

Today, we face a business environment that is faster changing and more uncertain than ever due to globalization, rapid technological change, and economic interconnectedness.

Perhaps less well known is that the diversity and range of business environments that we face have also increased. Large corporations, in particular, are stretched across an increasing number of environments that change more rapidly over time. This requires businesses not only to choose the right approach to strategy or even the right combination of approaches, but also to adjust the mix as environments shift. Prompted by this increased uncertainty and dynamism of business environments, some academics and business leaders have lost faith in strategy. I believe strategy has never been more important.

We lay out the evidence in a forthcoming BCG book "Your Strategy Needs a Strategy" (Harvard Business Review Press, June 2015), co-authored by BCG Senior Partners Knut Haanaes, Janmejaya Sinha, and myself. Our finding: It’s not that we lack powerful ways to approach strategy; it’s that we lack a robust way to select the right ones for the right circumstances and to effectively combine very different ways of thinking about strategy.

We propose the strategy palette as a unifying choice framework. It is designed to help leaders match their approach to strategy to the circumstances at hand and execute it effectively, to combine different approaches to cope with multiple or changing environments, and, as leaders, to animate the resulting collage of approaches. The strategy palette consists of five archetypal approaches to strategy, which can be applied to different parts of your business:

• Classical: I can predict it, but I can’t change it.
• Adaptive: I can’t predict it, and I can’t change it.
• Visionary: I can predict it, and I can change it.
• Shaping: I can’t predict it, but I can change it.
• Renewal: My resources are severely constrained.

In a series of posts I will further explain the colors of the strategy palette, explore each distinct approach to strategy and implementation, and give some practical tips how business leaders can best leverage the strategy palette.

In today's increasingly diverse and dynamic business environments, leaders and businesses need to select the right approaches to strategy and implementation for the circumstances at hand and to effectively combine these different ways of thinking about strategy. In my first post, I proposed the strategy palette as a unifying choice framework. I would like to delve a little deeper and provide an overview of the five approaches to strategy that match five distinct business environments. These environments vary according to their unpredictability, malleability, and harshness.

Each environment corresponds to a distinct archetypal approach to strategy, or color in the strategy palette, as follows: predictable classical environments lend themselves to strategies of position, which are based on advantage achieved through scale or differentiation or capabilities and are realized through analysis and planning. Adaptive environments require continuous experimentation because planning does not work under conditions of rapid change and unpredictability. In avisionary setting, firms win by being the first to create a new market or to disrupt an existing one. In a shaping environment, firms can collaboratively (re)shape an industry to their advantage by orchestrating the activities of other stakeholders. Finally, under the harsh conditions of a renewal environment, a firm needs to first free up resources to ensure its viability and then go on to choose one of the other four approaches to return to growth and competitiveness. The resulting overriding imperatives, at the simplest level, vary starkly for each approach:

• Classical: Be big.
• Adaptive: Be fast.
• Visionary: Be first.
• Shaping: Be the orchestrator.
• Renewal: Be viable.

Using the right approach pays off. In our research, firms that successfully match their strategy to their environment realized significantly better returns—4 to 8 percent of total shareholder return—over firms that didn’t.