What is the value of a Strategy?

Volume 22 Letter 7

For many business executives “Strategic Planning”  is viewed as a yearly exercise ranked up there with going to the dentist, filing taxes, or booking an annual flu shot. This negativity comes with a lot of good reasons.  For instance, one company nicknamed their strategic planning review the “Inquisition” complete with witch hunts and few executive stake burnings.   This, of course, misses entirely the point of strategic planning.   If that isn’t bad enough, a survey done by HBR identified that 95% of employees didn’t understand their own enterprise’s strategy and 85% of executives spent less than one hour a month on business strategy. [1]   Talk about a missed opportunity!    Here’s an example of why you want to spend some quality time getting your strategy right…

In 2021 online store builder, Shopify, overtook eBay to become the second-largest e-commerce platform after Amazon and for a brief period of time out paced the Royal Bank of Canada to become Canada’s highest valued enterprise.   During the Covid pandemic businesses made heavy use of the Shopify platform to sell their products.  Shopify enjoyed a +60% increase in the number of stores created on its online platform for year ending April 2021.  [2]

However, defying gravity is an exhaustive pursuit and since 2022 Shopify has lost over 80% of it’s sky high stock value.  In a statement to shareholders and employees Shopify acknowledged it had misjudged how long the pandemic-driven e-commerce boom would last.  CEO Tobi Lutke said, “Ultimately, placing this bet was my call to make and I got this wrong”.     Last month Shopify terminated over 10% of their workforce after announcing a 1.4 billion dollar loss.

How does such a high flying company miss the mark so drastically? And could a robust strategic plan have helped Shopify long term?

The answer to the last question is ‘Who knows?’.  Not all things were in Shopify’s control (especially the course of a pandemic) but a solid strategy likely would have helped them better prepare for an uncertain future.

In gambling good money goes down in hopes of good cards or winning numbers coming up.   A business strategy may lay down a “bet” to use Tobi’s lingo but there are two important differences.   First, a well-constructed strategy uses market analogues to draw a line from the present into the future so our “bets” are more accurate and less risky.  I trust Shopify attempted this.  Secondly, strategy is flexible.   As projected information turns into real information businesses can adjust their “bets”.    This is why it’s important a business strategy is understood by all.  With more eyes and ears on the market, “bets” can be adjusted sooner and risk further minimized.

Imagine for a minute a ball rolling around a roulette wheel.  However before the ball drops market information reveals that the ball will only drop on a ‘Red’ number and later that it will only drop on an even red number under 18.  Of course you would adjust your “bet”!    And of course you would also have an alternative strategy in place if, after all available information was gathered, the ball still didn’t drop to your favour.  It’s unclear if Shopify had a long term strategy in place.  Kinda looks like they placed their bets and waited for the Covid ball to drop.   What can we learn from Shopify…

  1. Strategy is not gambling:  You might place your bet but there are always alternatives.
  2. Strategy is flexible:  One is always adjusting the strategy as yesterday’s market projections become today’s market facts.
  3. Strategy accounts for risk:  A well-designed strategy accounts for many contingencies.

This past month Shopify appears to be in a reactionary firefighting mode trying to prevent further damage.  While this could also be considered a strategy – it’s rarely a good one!    What state is your strategy in?

  1.  HBR article: online.hbs.edu/blog/post/why-is-strategic-planning-important
    2.    Globe and Mail July 26 2022 Shopify cuts 10 per cent of staff as CEO Tobias Lutke apologizes for big bets on e-commerce, admits he ‘got this wrong’

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