Strategic Thinking

How to Confidently Define Your Strategy

"This is so important that you have to come over to my house on Saturday morning," said Jeff Bezos. It was over a decade ago, and a team at Amazon was working on a new program that would lead to faster ship times for customers.

I want to draw a moat around our best customers. We’re not going to take our best customers for granted." Bezos went on. The strategic direction was set: Amazon would do what it took to be the default shopping option for customers by doubling down on fast shipping.

Yet, at the time, there was still much dissent at Amazon. Not all leaders agreed—even though the strategy was coming straight from Bezos. "Back then there wasn’t a blind faith that every Jeff idea was going to be a home run. And so there was a lot of pushback," admits Vijay Ravindran, the former Amazon director of ordering.

It's natural to want to look at some of the most successful business leaders and assume that the strategic direction they set and embark upon is indisputably brilliant. The reality is far less cut and dry, which can lead to a sense of decision paralysis and lack of confidence. First, let’s start with why determining a strategic direction can be challenging. Then, we will dive into ways to overcome the decision paralysis that usually arises from the complexity.

There Is Rarely A "Correct" Answer

2+2 can equal 4. So does 1+3. Not only are there multiple paths to solving a single challenge, there may be different goals within that challenge. Nothing is black and white when it comes to managing complex business challenges. There are only different strategic directions that place greater emphasis and priority on different goals. There is no "correct" answer, just answers that best fit what you want to focus on and optimize for.

Believing there is only one path can be a byproduct of a lack of creativity and open-mindedness. The personal risk to assuming there is only one path, is you can easily alienate other important stakeholders whose opinions and ideas are valid. Furthermore, you could be harboring a blind spot. Additional perspectives may help you discover your own blind spot.

Similarly, the business risk of not exploring multiple paths to success is that there are missed opportunities to maximize efficiencies or increase impact. For example, Amazon created their own internal experimentation platform called a “Weblab”. This was a platform that they could use to test multiple different approaches in trying to reach one specific goal, measuring the impact of each experiment. In 2013, they ran 1,976 Weblabs worldwide, up from 1,092 in 2012, and 546 in 2011.

There Are Multiple Variables At Play At All Times

Every decision requires evaluating multiple inputs, including ones that change frequently, such as the preferences and ideas of other people. Other external forces, such as market conditions or partnership opportunities also may shift.

For example, at the time Amazon began introducing Prime, there was a gap in the e-commerce market. Competitors lacked consistently priced shipping with a guaranteed delivery time. Furthermore, the idea of memberships was less prevalent in the market. And lastly, no main company had already established a strong operational infrastructure to support the type of shipping that Amazon wanted to promise. Because all of these variables were true, Amazon was able to check off each of these boxes one by one to establish their competitive position.

By identifying what variables are the most important ones in the particular point in time of your business, you will be able to more confidently establish a strategic direction to move towards.

Our Brains Are Wired To Fall Prey To Faulty Logic

We're psychologically predisposed to common mental errors. For example, loss aversion is a mental error where we have a tendency to strongly prefer avoiding losses over acquiring gains. Or the availability heuristic, which is the common mistake of assuming whatever is top of mind is also the most prevalent. And perhaps the most dangerous of them all: confirmation bias. Our tendency to ignore facts and information that contradict our beliefs while looking for that which confirms our beliefs.

These logic errors can lead to serious missteps when it comes to determining the strategic direction for a business. For example, if everyone at Amazon had fallen prey to the availability heuristic, they may have only been focusing on how to improve their existing program at the time: Super Saver Shipping. The data, teams, and projects were all organized around this one major area in the business. Yet, by expanding out of what currently existed, Amazon laid the foundation for what would become their long-term competitive advantage. And in doing so, re-assigned investments internally according to this longer-term strategy.

Whether you're Bezos or a first-time manager, determining and pursuing a strategic direction is a challenging journey you'll embark upon, that most likely will include a fair share of dissenters.

In the face of these challenges, it is still possible to comprehensively and concisely evaluate a situation to decide on your strategy. A well-defined strategy outlines 3 core things:

  1. Clear objectives and evidence
  2. The best path to achieve the objective
  3. Why it makes sense to take this specific path

Here are a few approaches to overcome decision-paralysis and confidently move forward with a direction.

Approach #1: Define Objectives & Evidence

Too often, people conflate the objectives, goals, and metrics, with statements like: "My strategy is to increase revenue by 10%." That's not a strategy, that's a metric.

To get to a clear strategy, you must first decide on what the core objective is. What are you really trying to solve for? This is where the 5 Whys, developed by Sakichi Toyoda, the Japanese industrialist, inventor, and founder of Toyota, can be helpful to get at the root cause or underlying rationale for a business.

For example, Bezos proposed the idea of Prime to his team. But without understanding where he is coming from with the idea, many people dissented.

By applying the 5 Whys, we can get to the core objective, which will set the tone for the overarching strategy. Often, we may have an intuitive sense of the objective, but may be struggling for ways to articulate it. The 5 Whys helps to clearly articulate the objective for your strategic direction.

Why did he propose the idea of Prime?
Because he thought that shipping needed to be faster.

Why did he think shipping needed to be faster?
Because he knew that some of Amazon's best customers cared about receiving products quickly.

Why did these customers care about getting products quickly?
Because they wanted to shop online but couldn't find reliable shipping options.

Why did customers need reliable shipping options?
Because inconsistent shipping prices, delivery timelines, and refund policies made customers hesitant to buy (or: added friction to online shopping).

Why did inconsistent shipping policies matter for Amazon?
Because Bezos wanted to make Amazon the default shopping option for customers.

So instead of goals and metrics, which often can lead to optimizing blindly toward a local maxima, focus on strategic objectives and evidence.

In the case of Bezos, his strategic objective was to become the default shopping option for customers. This is not just an intellectual exercise of logic, there must also evidence that shows the strategic objective is directly aligned with the long-term goals of the business.

For the strategic objective of becoming the default shipping option, the evidence of this being an objective that aligns with the long-term goals was that data showed Prime members ultimately ordered more frequently from Amazon.

Furthermore, evidence should be gathered across multiple areas of business: other stakeholders, competitive market dynamics, internal data, etc. The goal is to have thoroughly gathered and assessed existing evidence. What you've uncovered as evidence should support and point to the strategic objective as being in alignment with long-term goals for the business.

Approach #2: Define The Strategic Blueprint

Now that you have a clear strategic objective and know what evidence you're looking for to help you know if you're heading in the right direction or not, you can determine a strategic blueprint for achieving it.

Strategy is the creation of a unique and valuable position, based on a specific set of activities that helps achieve the strategic objective. The strategic blueprint connects the dots between this set of activities so that deliberate tradeoffs that are being made still result in a net benefit. These activities should have a high "fit" compatibility, meaning they interact and reinforce one another in a positive manner.

In the example of Amazon, the strategy had a strong set of activities: the Prime membership fee, fulfillment centers, and shipping operations. Each of these activities were mutually reinforcing one another:

If customers liked Prime, demand would rise.

If demand rose, then Amazon had more freedom to build new fulfillment centers.

If Amazon could build more fulfillment centers, then they could continue to ship more products, faster.

Identify what the set of activities might be to achieve the strategic objective. This then becomes your blueprint for building a unique and valuable position.

Approach #3: Think Forwards

By playing devil's advocate and looking at the strategy from multiple perspectives, you can feel more confident in your strategy. One mental model to apply is Second Order Thinking. This framework helps you look past the initial, first-order effects of a decision to think through the second, third, and N-th order effects. By spending the time to think forward into the future, you can avoid pitfalls and strengthen your own conviction.

To improve your ability to think forwards, practice asking yourself “And then what?”. For example, in the case of Amazon - what happens from the introduction of Prime is an expansion of Amazon as the default shopping experience across multiple categories, including video.

For Bezos to feel confident in Prime, he practiced 2nd and 3rd order thinking. What do the consequences look like in 10 minutes? 10 months? 10 Years? Because the benefits of Prime would continue to compound operationally, it justified the upfront investment and cost.

Approach #4: Think Backwards

Another mental model to apply is Inversion. This framework helps you invert your rationale to see if it is truly the best combination of activities. By spending the time to think backwards, you can catch areas you may have missed and be confident in your recommendation.

To improve your ability to think backwards, practice always asking yourself “And what if the opposite were true?". For example, in the case of Amazon - what would have happened if they didn't introduce Prime and continued down the path they were going?

The Strength In Strategy

Getting caught up in many paths, projects, or opportunities is a pitfall we all face. Being able to deliberately choose tradeoffs and intentionally select the strategic blueprint of activities that will help you achieve your strategic objective is a fulfilling skill to master.

As Michael Porter says, “The essence of strategy is choosing what not to do." In the case of Amazon, Bezos started with the idea of Prime, tested into how it could work for the business, and doubled down on ways that would help Prime become a way to create a competitive moat for the business.

Once Bezos had the initial insight of the importance of shipping in eCommerce, he evaluated the many variables at play in the business landscape, even when many of his most trusted senior leaders disagreed with this new project. Furthermore, his team identified the strategic blueprint that would create a flywheel of growth for the Amazon Prime business, with the increase in orders helping them maintain low shipping costs. The rewards of this strategic direction are still being reaped by Amazon today, as they double down on music, video, and other benefits of the Prime membership.

With these examples and specific steps in mind, you are equipped with the framework to develop and validate your own strategic direction.

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