Curated by Alibaba Business School
From Hupan University
Strategy is the combination of science, art and craft
When we talk about strategy or management, we are essentially talking about 3 aspects: science, art and craft.
First, the science side. Since the establishment of the concept of the first business school over 100 years ago, people have been trying their best to develop principles using scientific methods to describe business phenomenon. In essence, what business schools are trying to establish are universal laws.
For example, various management publications highlight that buyers often offer extra high price in a strategic merger acquisition. So as soon as the deal is announced, the buyer’s stock will fall while the seller’s will rise. There are some logical inferences behind it. Being aware of these theories and principles improves any decision-making process for business leaders.
There is a famous saying from Mr. Liu Chuanzhi, founder of Lenovo:
“The most important mission of an entrepreneur is to make the “impossible 5% of things, possible.”
More than 10 years ago, we took part in a business dialogue program and I joked with him that the mission of a management scientist is to tell you why this scenario has only 5% possibility. With these understandings we can then increase to more than 5% possibility of success!
For the art perspective on strategy, we are familiar with the nature of the creative industry. Entrepreneurs have many talents, genius inspirations, unstrained vision, maverick tendencies, and unique ideas, all which cannot be taught by professors from business schools.
Finally, there are other aspects of strategic thinking that simply rely on accumulated knowledge and wisdom, which means it can only be learned by practicing what is preached. From this angle, developing strategy can be learned but the cost could be very high, because it is not quantifiable nor something could be verbally explained clearly. Instead it becomes something more related to trial and error.
When teaching class, I was most often afraid of being asked “how to design a strategy?” There is no easy answer to this question.
How many meetings a year? Is it necessary for an enterprise to have a strategy department? How many people are needed in a strategy department? How to make the right judgement in making strategy?
These cannot be explained clearly in a few words, and are often quite different in different situations.
Today, I want to focus more on the experience of the craft, because you can figure out the science part by reading books, and I am not an expert on art.
P**art1: What is the purpose of strategy?**
Before we go into the strategy discussion, I want to talk about the role of strategy in a company.
What should a good company achieve in a long term? What does it take to become a sustainable company?
A company’s 3 cornerstones - No 1: Mission
My own takeaway is a good company should pursue something beyond money. A good company is created by its team’s talent. To retain talent, it is important to give everyone a vision that is beyond one’s self.
Why do we need a mission? It is to solve the fundamental question - Why us?
What is an organization? An organization is a group of people coming together to create something of meaning beyond any individual. What sort of people come together for what purpose? The ultimate purpose for a company revolves around this question. If its sole purpose is just to make money, strategically speaking, it is not a differentiator for a company. Therefore, it would be hard to attract better or highly sought-after talents.
So, having a mission is a very important cornerstone of any company.
Company’s three cornerstones - No. 2: Vision
Vision is the ability to see the future, to predict the future and to grasp the future.
Why is “vision” the most appropriate term? Because it implies the action ‘to see’.
Strategy’s two most important requirements: one is foresight, and the other is differentiation.
Where does foresight come from?
l First and foremost, standing high, allows you to see far. Foresight stems from your unique judgement of the future. You can see the future sooner and more clearly than others. If you can see the future, you may take a different path than others. If we were able to see the economic crisis coming, the world today might be a different place. Unfortunately, we did not have the vision to foresee the economic crisis.
l Second, foresight decides “what we do”. What does this group of people do together to realize the organizational mission? Having vision helps to solve the question of what to do.
Company’s three cornerstone -No 3: Organization
Mission solves the human resource issue and vision solves the task issue. But how to connect talent with tasks? What kind of talent are the right talent? Organization solves the issue of “how do we do it”.
I am not an expert in this area but I can share a few simple points with you. Take the example of team - I have seen many discussions but I do not think the discussions have “hit the nail on the head.” We talk about team spirit but actually the team is more of a result than cause. It is the end product when all the things are working together.
Therefore, the most important factors for an organization are the right people, doing the right things, using the right approach. How to merge all three organically? This forms the core of execution.
Only when ‘who’ and ‘what’ are aligned, it is possible to form a team. If the directions and approaches are different, it would be impossible to form a good team.
What if many companies did not have a mission and vision at the beginning?
There are very few companies like Alibaba that had a clear vision when it was founded in 1999. In fact, Jack Ma had four years of entrepreneurial experience before he founded Alibaba in 1999, so that mission was also derived from his past experience.
Some people are willing to temporarily give up some short-term benefits because they have a greater mission to focus on the long-term trend. Only in this way can the company truly survive for a long time and achieve its mission. Therefore, a sense of mission is a very common prerequisite for companies willing to think about vision.
But in turn, there are some people who are relatively vision-driven. They see the future and have a stronger sense of mission in the process of realizing this future ideal.
So generally speaking, the mission becomes clearer and more gradually strengthened as the company develops from small to large, and it will in return play a greater role in strengthening the DNA of a good company.
Here are the three cornerstones of a long-lasting company that I have summarized.
Being able to do one thing well is a good company;
Being able to do two things well is likely an excellent company;
Being able to do three things well is definitely a great company.
To become a long-lasting company and a great company, three cornerstones are indispensable. The three cornerstones are intertwined and continually integrated to achieve a higher level, and only then can a great company appear in a dozen or twenty years.
Values are the cornerstone of culture
Culture and mission must closely match
One’s mission will inevitably influence one’s culture
This is the “soft” line of a company
Part**2: Strategic Thinking**
What is strategic thinking?
I think strategic thinking is an ability that can be cultivated. For those who have been in the management level in the companies, they must slowly cultivate the ability to think strategically. If people at the director level don’t have the ability to think strategically, the executive power of this company will be greatly reduced, because the middle management is the connecting link between the management layers above and below. Without the ability to think strategically, there is no way to understand the ideas from the top and pass them down, and to summarize the situation on the front line and pass them up effectively.
At the same time, the middle management should be looped in the strategy making process. “Sharpening your axe blade should not slow down the work of cutting the firewood.” Engaging them more in strategy-making actually improves the efficiency of execution, because middle management can understand the logic and background of a certain strategy planning so they can execute more actively.
1 - Foresight and knowing where to stop
The core of strategic thinking is vision. Vision is the premise and assumption of strategic judgment and the foundation of strategic foresight. The company that sees the present from the future has a strategy. While the company that moves forward from the present to the future, has no strategy. Before doing anything, first think about how the market landscape will evolve in three years. “Start with the end and work in reverse” is strategic thinking.
If I am doing this merely because other people are doing this, then this would be the most typical example of no strategy. A swarm of swarms, doing what is popular, always following the trend, always catching the next trend, this is a typical example of opportunity-oriented.
To judge whether a company has strategic thinking, the easiest way is to look at its staff. When they discuss internally, will they often talk about what will happen in the future, and how the whole process can be assessed in reverse, backward step by step. The basic thinking method of successful people is also inverse method, otherwise all of the efforts are meaningless without direction. There can never be a force acting unless energy and direction are aligned. Strategy is more to tell us the direction and give you a sense of direction.
In Chinese, there is a word called “知止” meaning “know where to stop”, which is also the banner that Mr. Li Ka-shing hangs in his office. “止” means stop, because you know where to stop, so you know how to get to it. “知止” comes from a sentence in one of the Four Books “ the Great Learning”:
“When you know where to stop, you have stability. When you have stability, you canbe at ease. When you are at ease, you can deliberate. When you can deliberate, you can attain your aims. “
Most of the time, “deliberate” can be understood as thinking and planning, which is the so-called strategic planning, and before “When you can deliberate, you can attain your aims.”,
there are very important three steps.
We often ask entrepreneurs, what is the hardest aspect of what they do? “Withstanding loneliness and resisting temptation.” The premises are stability and at ease. Without these two things, there will be no deliberateness because you can only conduct matters reasonably when you feel at ease. This is the first step of the strategy I’m talking about. In fact, the clearer you see it, the less you are confused by the outside world, and the more you can form your own judgment. We say that the key responsibility of the president is to make judgement of situations, judgement means making assessments and ultimately decisions no matter how imperfect the information, he/she must always press the button. This is the first core principle of strategic thinking. Know where to stop, identify the end game, and utilize foresight, these concepts embody the first step of strategy.
2 - Long-term vs short-term balance
When you know the general direction of the strategy of where to start and where to end, the next step to be decided is the path of your strategic plan. What route will you choose? It is impossible to take shortcuts; no company can do that. Let me share several ways of thinking with you:
The first discussion that everyone is most familiar with, is whether you shall focus on the short term gains or think about the longer term trend. Have you taken the time to sit down and draw the big picture? The interesting thing about making strategy is that you are always looking for the point of dynamic balance. The point can decide the degree of emphasis on the short and long-term, and determine the pace of the enterprise development.
Alibaba has also summarized several points of development based on its experience in the past decades: “March in odd years, and cultivation in even years”, which means Alibaba would be very active in expanding its businesses in odd years focused on cultivating internal skills in even years. For some companies, it may be “march every three years and cultivate in between”. The frequency can be different based on the pace of your ventures’ development. These are the thoughts we have collected in the past several years.
When the company grows sharply, it should have some time to codify and digest its experiences. Many companies rapidly expand their business all around the world, however when hardship hits the company, a series of failure create a domino effect. Hence the pace and the balance point are quite key, to achieve dynamic balance between short and long-term results. There will be different decisions to be made according from different situations.
For example,
In 2005, when I delivered a course for the company Midea, I asked the business leaders to discuss whether Midea should build cars. At that time, many companies went to build cars and Midea also acquired two auto companies. During discussion, the group has been divided into two sides, and they almost went into a fight, one side said it was a good chance to take, while the other side said Midea has no core competitiveness in building cars.
When discussing the core competencies, a vice president turned emotional and said the competitiveness of Midea resulted in a loyal customer base while it spent 20 years to earn the title of “king of home appliances” in China. What he said was right, it turned out that Midea didn’t do a good job in building cars.
The balance between following short and long-term trends decides whether Midea could naturally expand from making fans, to producing the other home appliances. However from making home appliances to autos, especially under such a fast moving situation at that time, it was very hard to make that leap.
The second thing is to avoid the business analysis drawn in “9 quadrants”. Some consulting companies will show you a chart, that in the next 10 years, if you want to reach the destination, horizontally, you can expand from this point to that point, vertically, you can expand from here to there. All nine points need to be covered during expansion, so as to reach the highest point overlooking the whole industry. However if following this chart, all companies will likely take a turn wrong as no company will be capable of covering all the parts.
When everyone is hazy about the future, but has good understanding of which direction to go, finding the first breakthrough point is the most important.
During Jack’s discussion with me, one thing he said the most is that when you have a strategic map, imagine it to be like “skin”. You have to find a point where one stab with a knife can bring blood out. When people smell blood, they will all rush to tear up the skin. However, if your team is using their nails to try to break 4 or 5 points, after three years, and the skin is still intact, and people will collapse with exhaustion.
The most important thing, is to go deeper and deeper in one point, and then to penetrate and expand.
There is a traditional Chinese saying “high eyes, but low hands” used to describe someone who has grandiose aims but puny abilities, I would rather use it as positive words, which means that you have to set up high goals while start things from grassroot level. This is a good strategy. Without high goals, there would be no big picture, you should follow the “trend” to be great. Without a grassroots movement, you will not achieve breakthroughs and experience. The combination of “high eyes and low hands” will help launch and realize your plan effectively.
Part3: Strategy is about what you SHOULD do, it’s an intersection of what you WANT to do, what you MAY do and what you CAN do.
I have talked about strategic thinking in the last section, and now I will discuss what is strategy and how to design its content.
Strategy is about what a company should do and should NOT do. Knowing what should not do will help you be clear about what you should do. You have to give up something in order to gain others.
The Chinese word of “giving up” originates from Buddhism, you should give up to gain what you want.
First, what do you want to do? What are your goals and dreams? What excites you?
Second, what external opportunities that may be pursued?
There are different opportunities at different moments. This is what vision is about as I mentioned earlier. The key is to judge what is the big opportunity and what is the small one. The discussion of vision can determine what may be done, what may not be done, what is your focus, This is a judgment of external opportunities.
Third, what can you do? What kind of resources, people or organization building capacity do you have?
What do you want to do? what external opportunities that may be done? What can you do? The intersection of these three questions is what you really should do. This is your strategy.
If you think about it, many things, if you don’t want to do them, if you are a little hesitant, nine out of ten things can’t be done well in the end. Because it’s already difficult enough, If you are still hesitant, and you are unwilling to do it, and then there is very little chance that one can make it happens successfully.
What are external opportunities that may be done?** Most enterprises create a feasibility report when they make investment decisions. The feasibility report calculates the net value of the project itself, which is referred to as financial analysis. Strategic analysis is about that what alternative opportunity one has to give up in order to pursue this opportunity. Strategic decision is hard to be assessed even retrospectively. You may think you have made the wrong decision by giving up certain things. The concept of opportunity cost must be considered in making strategy.
What can you do is based on the ability of an organization. It has two perspective. The cultivation of ability needs an investment of resources and time. Organizational ability is not innate. Organizational ability is gradually developed. In this sense, you can train talents according to the strategic objectives, but in turn, the cultivation of ability needs resources and time, especially time. There is no shortcut.
Second, ability is always a relative concept. It doesn’t matter whether you can do well or not, Only if you can do better than your top competitors, then it is called a competitive advantage, which is the ability of making things different.
Most companies just think about whether they can do it or not, they find couple of people, and form a small team. But you may not do it well enough, when the competition in this industry is more and more fierce, the situation is more and more cruel, and the profit is lower and lower. Limited ability cannot fight against the pressure of market integration. So “Can do” must be a relative concept.
Therefore, the most important thing for a person is to give full play to his own strengths, rather than trying to make up for the shortcomings.
What do you want to do?
What external opportunities may be pursued?
What can be done?
The intersection of these three questions is what you really should do as a company. And the “Should do” is ultimately your company strategy.**
Alibaba Business School‘s vision is to empower entrepreneurs, women and youth globally through the education and training programs on the digital economy and the benefits it brings to larger society.
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