The brain is trained to make decisions in a fast intuitive way. Our genes are those of hunter gatherers – and rapid decision making has proved very effective over the past few million years of evolution.
Added on 17 July 2014 by Jo Whitehead
Unfortunately we sometimes need to be a bit more reflective – and a little structure is required to ensure we don’t rely too much on our “Ready, Fire, Aim” instincts. I simplify things by thinking of strategy as answering six questions. If it helps, you can think of EIEIO to remember these more easily:
What is the External environment?
What is the Internal situation?
How might the situation Evolve?
What is the primary Issue?
What are the Options?
Which Option is best?
Let’s take the current situation at Apple as an example (using information from the press). The external environment offers high growth but increasing competition – particularly from Samsung in the phone market. There are more competitors in the tablet computer market, with new approaches in terms of design and marketing. The markets offering the highest growth prospects tend to be those offering the lowest margins owing to the lower disposable income available.
The internal situation is that Apple has a new CEO (Tim Cook) out to prove himself. The company itself has suffered a bit of a crisis of confidence, but Wall Street still has huge expectations of it. Its products are still great – but the competition is catching up in many areas. The pipeline, in terms of products known to be under development, doesn’t look too healthy either. How is the situation going to evolve? Markets will probably continue to be increasingly competitive. Only Apple knows how their own product lines are going to evolve – they are keeping things close to their chest.
Now we come to a critical moment. What is the primary issue? This is the most important part of the strategy process but also one of the steps that people skip over. There are many possible issues – but the one that Tim Cook picks will drive the organisation – so he has to get it right. Is it to lower costs to compete with new suppliers or come up with a great new product line? To re-invigorate existing product lines or avoid expensive mistakes that will cause further drops in the share price?
Of course, as Apple is a huge organisation he can probably deal with several of these – allocating the management of them out to different individuals and parts of the organisation. But, the more issues he tries to focus on, the more difficult it will be in terms of results (per issue). And, if he gets the wrong issue then the whole organisation might go off track.
For an example, consider what happened to John Browett, who was brought in, from a career including Tesco and Dixons, to run Apple Stores. With such a background he appears to have decided that the main issue was that the stores were too over-manned and expensive to run. According to press reports, he cut staff levels, but when the changes proved unpopular, was asked to leave. Perhaps Browett’s choice of the primary issue led him astray. It led to a number of different options – all focused on reducing headcount and costs. This was probably a good issue to focus on in supermarkets and high street companies such as Dixons – but didn’t go down too well at Apple.
Finally comes the most critical part – picking the option. The analysis has to be put together and the numbers run to come up with the right answer. But, don’t forget that the options you are considering are driven by the answers to the previous five questions! Each of these six questions can and should be analysed in greater detail than covered here. But hopefully these six questions will give you a high level overview of the steps required to come up with a strategy. You can check to see if any step has been rushed through. You can make sure that, as you come to make a decision, the proper “homework” has been done. And, you can simplify what can seem a confusing and complex process.
For more information, see the website for my strategy book, Whatyouneedtoknowaboutstrategy.com.