Issue 3.9 | July 2012

In this Article: how to avoid the trap of building a sophisticated strategy on a shaky foundation.

by Jonathan Wilson

Everyone loves a rags-to-riches story.  The North American reader may not have heard of Tesco, but it is the third largest retailer in the world.  It’s also unlikely you’ve heard of Tesco’s recently retired CEO.  Sir Terry Leahy, who spent his childhood in government housing, earned his knighthood for leading Tesco out of its 1990s mediocrity.  It quickly unseated British behemoths Sainsbury and Marks & Spencer and, in less than two decades, achieved its current top-three global standing.

For readers in the UK, you’ll likely know exactly how Tesco became number three: its Clubcard, a loyalty card.  This seemingly tiny innovation not only won over loyal customers, it came at a time when computer processing power could turn the card into a tool for listening to customers – without necessarily talking to them.

This is not a story about the glories of clever innovation, however, or the powers of data mining, important as these both are.  Rather, it is a story about strategy.

Every company does strategic planning.  Some do it unconsciously, on the run.  Others take strategy very seriously, and apply considerable scientific rigour to it: working through research and data by way of focus groups, executive off-sites, and meetings.

Broadly speaking, strategy development is comprised of two pieces: internal and external.  The first is built on company analysis, the second on customer (and also industry) analysis.  Tesco’s use of its famous Clubcard to mine for customer information reflects the second, more familiar, piece of strategy development.

The capabilities of data mining to accurately profile the interests and behaviours of customers are astonishing.  Tesco quickly found that the Clubcard delivered a far more accurate picture of the customer than traditional research (customer surveys): for although their interpretation is required, the customer behaviours tracked by the Clubcard are invariably a solid indicator of preferences, assumptions and values.

Tesco utilized its treasure trove of data to develop a fresh retail strategy.  The result: a massive increase in both growth and retention, far beyond the loyalty they would have gained solely by the benefits to the customer of the Clubcard.

Strategy Breakdown: The Dirty Habits Begin

If the second piece of strategy development is rooted in the close study of the customer and their world, the first, piece, which is equally significant, is the close study of your company, and its inner world.  For many companies, core identity is articulated via mission, vision and values statements, or some equivalent.  This is precisely the point that the breakdown in strategy occurs.  The rigour with which companies gather and analyze external data regarding their market and industry is rarely applied to the equally significant internal analysis of the business: the corporation and its DNA.

Many see organizational identity as something “soft”, to be determined by “soft” methods.  Vision, Mission and Values are often developed via what one might call a “thumb suck” approach.  Corporate executives gather around flip charts and list what they believe to be their corporate values or competencies, and turn it into a vision for the future.  It is too often an entirely subjective approach, with little dependence on hard data or the analysis of it, and without any mechanisms in the process for bypassing or rooting out personal or group bias.

Frequently, the result is a series of possibly inspiring but ultimately nebulous statements that will have only the most general bearing on what many regard as the “real” work of strategy, which is the external piece.  Their long-term legacy is ultimately to beautify a boardroom wall.

This is a very unhealthy position from which to develop a strategy.  You are not in a position to create optimal value for your customer until you have looked at the whole value equation: Customer Situation ÷ Your Corporate DNA x Innovation = Value Created.  A weak self-understanding will breed a weak strategy.  What hasn’t been identified clearly or accurately (core skills, traits, insights, etc) can’t be leveraged powerfully.  Thus, in turn, what value you create is not as good as it could be.

Getting to The Strategic Centre

Your corporate DNA consists of empirically verifiable facts regarding the key sources of value possessed by your company (in Soul Systems we talk about the “soul” of a company and in our analysis we define “The Strategic Centre™” of the business).  These facts can be found through a rigorous, third-party facilitated analysis of the history of a company.  Such an analysis typically surfaces “hard” and “soft” elements that are genuine strengths of the company and, furthermore, will uncover the key ways they work together to create optimal value for the customer.  These also prove to be the greatest sources of differentiation from competitors, and the most difficult to replicate.

Such a process may also reveal inaccurate self-perceptions, with the result that someone, somewhere, will have the happy task of quietly removing an irrelevant poster from a boardroom wall.

The general preoccupation with the external side of strategy is revealed in the journalistic coverage of Tesco.  What is often missed, or glossed over quickly, is the first part of Tesco’s strategy development process: as Leahy says, “ironically, when we stopped trying to copy Marks [& Spencer] and Sainsbury, and went back to our heritage … we finally overtook them.”

In the 1980s and ‘90s, Tesco learned to mimic its competitors’ service to a middle-to-upper-middle class market.  It saw modest growth for its efforts.  When, however, it returned to its “heritage” and recognized its own core identity for what it was (a value retailer), and leveraged it, it was able to deliver much more significant value to its customers.  The Clubcard was the first step in this direction.  Customer signals – via behavioural feedback from card data – reinforced the self-identity Tesco had just begun to recognize.

Companies who “thumb suck” about their identity tend to do so because they are unaware of a better way (a leading book on strategy dedicates just a few pages, out of several hundred, to the internal side of strategy).  But the better, more scientific way to corporate self-understanding is also the more profitable.


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