lean is in

February 23, 2017

Entrepreneurs are the lifeblood of economic growth—they provide a source of income and employment for themselves, create employment for others, produce new and innovative products or services, and drive greater upstream and downstream value-chain activities.*
But they face various challenges that hinder growth—lack of funds, talent shortage, and so on. Professor David Collis offers a feasible solution—the ‘lean strategy.’

948Entrepreneurship is about spotting an opportunity in a rapidly changing market environment, while strategy is seen as pursuit of a clearly defined path, through a chosen set of activities. While the two are viewed as polar opposites, they critically need each other. Many entrepreneurs fail to grasp that effective strategy inspires entrepreneurial behavior.

Moreover, executives who want their firms to be more entrepreneurial often fail to fully appreciate how corporate tools for managing strategic growth initiatives can undermine innovation. While integrating the bottom-up approach of lean startups with the top-down orientation of strategic management remains devilishly hard, there is a way to get the best of both worlds.

The solution is something I call a ‘lean strategy’ process, which has emerged from more than two decades of studying and working with large companies and entrepreneurial ventures. This process guards against the extremes of both rigid planning and unrestrained experimentation.
In this framework, the strategy provides overall direction and alignment, serving as both a screen that novel ideas must pass and a yardstick for evaluating the success of experiments. It inspires frontline employees to be creative and helps in being on the same page with the rest of the organization. And in the process encourages retention which works as a win-win for both the employee and the organization.

the entrepreneur’s challenge
Most entrepreneurs face certain fundamental challenges— funding, talent, intellectual property, access to distribution, and so on. Though acquiring additional external resources is partly the answer, it is wise to face the internal challenge which is to drive, conserve, and deploy the available resources.
That is exactly what strategy is all about. Also, entrepreneurs need to recognize that in a resource-constrained venture, choices are mutually exclusive. And every choice creates a unique path with a different outcome and unforeseen implications. Moreover, decisions are interdependent. Hence, any venture must ensure that people’s time is spent on the tasks that are critical to the organization as a whole and not just to one department.

Hence, organizations need to recognize these fundamental principles:

  • The opportunity cost of doing A is that you cannot also do B
  • Every choice creates a unique path with a different outcome and unforeseen implications
  • Decisions are interdependent
  • Simple market tests are not always useful

The lean startup camp celebrates agility and adaptation through rapid testing. That may be an effective way to innovate incrementally and fine-tune an offering’s fit with the market, but some ideas simply cannot be evaluated in a series of quick, cheap experiments.
Indeed, the single best piece of advice for any company builder is this: know what not to do. Strategy helps you figure that out.

how strategy can help
A well-articulated strategy is indispensable for a firm’s overall growth and success. It helps entrepreneurs do four things:

  1. choose a viable opportunity
  2. stay focused on the prize
  3. align the entire organization
  4. make the necessary commitments

These help in distinguishing markets that promise enduring success from those that offer only the illusion of substantial success, and enable the venture from trying to do too much; and therefore allows a leader to empower all employees while avoiding duplicative efforts and the pursuit of conflicting agendas.
Once the clarity is set and the opportunities to pursue are decided, firms must make the investments needed for success.

combining deliberate and emergent strategy
To address an entrepreneur’s challenge, the strategy must embrace entrepreneurial techniques. The lean strategy process begins with the organization’s vision—the reason for its existence. A vision should be compelling and motivational. It may also be aspirational and possibly even unachievable.

deliberate strategy
A deliberate strategy should be agreed upon by senior executives to deliver on the entrepreneurial vision. This includes the complete analysis of the firm’s internal resources and capabilities, and external threats and opportunities. This deliberate strategy helps in identifying the broad market position to use the firm’s unique capabilities. This then supports in satisfying customer needs in a way that no competitor can.
In my view, there are three underlying elements of a strategy—the objective, which articulates the near-term goal that defines success in the eye of the venture’s leader; the scope, which identifies ‘what business we are in’ and helps in drawing the boundaries around what the venture will and will not do; and the competitive advantage, a distinctive value proposition that aligns the firm’s activities and shapes future experiments.

emergent strategy
Myriad decisions are made every day by managers across levels in implementing the strategy. These independent choices gradually sum up and alter the company’s position and determine the exact form the strategy takes over time. This is the emergent dimension of strategy.

In response to environmental changes and the findings of experiments, the venture builds new internal capabilities and, if necessary, revises the original deliberate strategy. Then the process begins all over again.

For entrepreneurs, strategy matters more than it matters to established businesses. Yet, lean methods for innovation also have a lot of value. Their reconciliation in the lean strategy process enables entrepreneurs in organizations of all sizes to become agile and effective innovators and not be in conflict.

Even before testing feasibility, the lean strategy helps firms identify long-term attractiveness of possible business models and market spaces. By combining strategy with experimentation, firms and organizations can greatly increase the odds of achieving lasting success.

*http://www.ey.com/Publication/vwLUAssets/ey-megatrends-report-2015/$FILE/ey-megatrends-report-2015.pdf