importance of strategy formulation in business and international business strategy formulation
Theory, Process, and the
Anthony W. Ulwick
This book is written for individuals who are prepared to engage themselvesand
their organizations in an Intellectual Revolution: a revolution in which organi-
zations create their own futures, encourage change and focus on the creation of
and use that information as the basis for their actions; a revolution in which an
organization of any size can possess the structure, information and processing
power required to formulate strategies and solutions that will strengthen itsstra-
This revolution is the result of breakthrough ideas and theories that have
evolved the process of strategy formulation from an art to a science. With the
use of this advanced process, organizations have the power to consistently and
effectively anticipate futureopportunities;makevalue-generatinginvestmentde-
cisions; and determine which products and services concepts to pioneer, which
core competencies to build, which alliances to form, which activities to pursue
and which trade-offs to make. In short, this book introduces an advanced strat-
egy formulation process that is not only fueling an Intellectual Revolution, but
a process that provides organizations with the power to systematicallyaccelerate
the creation and delivery of customer value.
This advanced strategy formulation process has been developed and proven
over the past seven years. It is being used effectively in organizations such as
Pﬁzer, Hewlett-Packard, United Technologies, Medtronic, Motorola, Johnson &
Johnson and other companies in the United States, Paciﬁc Rim and Europe. Its
use often results in strategies andsolutionsthathavebeendocumentedtodeliver
up to 10 times more value than those derived through the use of traditional
strategy formulation methods. This degree of improvement has been made pos-xviii Introduction
sible through a unique integration of structure, information and processing
Organizations are using this process to harness theircollectiveknowledgeand
wisdom, to make fact-based decisions and to create the strategies and solutions
that are required to overcome their biggest challenges. This process is being
used to formulate overall company strategies, product and service strategiesand
strategies that evolve an organization’s operational, support and management
processes. It is enabling organizations to put into practice the theories espoused
by strategists and academics such as Michael Porter, Gary Hamel, C. K. Pra-
halad, Peter Senge, Kenichi Ohmae and a host of others.
This book is intended to help organizations unravel the mystery surrounding
the concept of strategy and the process of strategy formulation. It unveils a
structure that addresses the complexity of strategy formulation, planning and
decision making without generalizations, deletions or oversimpliﬁcation. It de-
ﬁnes the essential elements of strategy formulation and will change forever the
way organizations think about customer ‘‘requirements,’’ measurementsystems
and competitive analysis. It explains precisely why most organizations fail to
understand what their customers value and demonstrates why this phenomenon
is a root cause of failure in most strategy formulation processes. It revealstech-
nological advancements that are making it possible for any organization to pos-
sess the capability to effectivelyformulatebreakthroughstrategiesandsolutions.
In his article titled ‘‘Killer Strategies’’ (1997), strategist Gary Hamel asks,
‘‘Can we do anything to increase the fertility of the soil out of which strategy
grows? One good place to start isto developadeeptheoryofstrategycreation.’’
The aim of this book is to provide the business world with not only a deep
theory of strategy creation but also a process that enables the application of this
theory. A process that integrates facts with methods for non-linear thinking, the
type of thinking that is often required to produce breakthrough strategies.
The advanced strategy formulation process introduced in this book combines
many discoveries and innovations with unique applications of ideas andtheories
from different ﬁelds and disciplines. It is this unique combination of ideas and
theories that has given birth to the science of strategy formulation. This book
explains this new science and describes how it can be applied by organizations
around the world to formulate strategies that consistently produce breakthrough
Many of the concepts presented in this book are new, challenge existing
assumptions and are viewed as counterintuitive. As a result, many company
executives, managers, internal and external consultants and otherswillbeforced
to question what they once thought to be true.
Those of you, who are ready to challenge your thinking strategies and are
willing to leave the comfort of your existing paradigms, will learn to engage
your mind, yourself, and your organization in an Intellectual Revolution.
Let your journey begin—now.Chapter 1
The Intellectual Revolution
In the late eighteenth century, society witnessed the start of the ﬁrst modern-
day business revolution—the Industrial Revolution. Fueled with new technolo-
gies, such as power-driven machinery, the Industrial Revolution brought about
dramatic increases in productivity, output and economic growth.
In the early 1920s, new manufacturing technologies enabled the mass pro-
duction of a wide variety of products. The 1950s brought the computer and the
space age. In 1969, man ﬁrst landed on the moon. Again, new technologies
resulted in dramatic increases in worldwide productivity, output and economic
Since that time, we have entered into the Information Age—an age in which
‘‘information is power.’’ With the advent of computers, the Internet and on-line
services, individuals have access to a tremendous amount of information on
literally thousands of subjects. We must ask: Does this information alone make
us powerful? Or does the power really lie in our ability to use this information
to create value for ourselves and others?
Imagine how powerful we would be if we could possess and structure all the
information that is required to create value generating strategies and solutions.
Imagine how powerful we would be if we could then take all that information
and immediately process it to uncover the strategy or solution that would gen-
erate the most value for all those involved in a given situation. Imagine if we
could consistently create strategies and solutions that delivered up to ten times
more value than those that are normally created. If organizations possessed the
capability to generate breakthrough ideas, strategies and solutions, it is argued
that they would create another revolution—an Intellectual Revolution. Such a
revolution could again bring about dramatic increases in productivity, output
and economic growth.2 Business Strategy Formulation
The world is on the brink of an Intellectual Revolution.
Many aspects of strategy formulation, planning and decision making have
been transformed from an art to a science. This transformation is evolving the
ability of many open-minded organizations to createbreakthroughstrategiesand
solutions. It is providing them with a means to overcome their most important
The objective of this book is to introduce the process that is being used to
make this transformation possible. Through the application of this advanced
strategy formulation process, many organizations will, for the ﬁrst time, be able
to take the steps that are required to createbreakthroughstrategiesandsolutions.
They will be able to participate in the future of strategy formulation as they
engage themselves in the Intellectual Revolution.
making, a science which many have yet to acknowledge. Many individuals and
strategists believe that the complexities associated with strategy formulationare
too numerous to control and that a systematic approach to strategy formulation
could not exist. Most strategy formulation processes to date have failed to suc-
cessfully integrate logic, analysis, creativity and innovation. As a result, strate-
gists such as Henry Mintzberg have concluded that the process of strategy
formulation cannot be formalized. The truth is, the process of strategy formu-
lation can be formalized if the applied process does not limit creativity and
innovation or limit the strategic options that are considered. This book intro-
duces such a process and explains how it can be used by any organization to
formulate the strategies and solutions that will accelerate the creation and deliv-
ery of customer value.
In contrast to most books written on the subject of strategy, this one does not
address why it is important to formulate effective strategies. The importance of
effective planning and positioning is well recognized within mostorganizations.
Instead, it is focused on describing how an organization can put into practice
the theories that are espoused by some of the world’s leading strategic thinkers.
In Competitive Advantage (1985), for example, Michael Porter stresses the
importance of creating a unique and valued competitive position. In Competing
for the Future (1994), Gary Hamel and C. K. Prahalad advise organizations on
the importance of changing the rules of the game. In Commitment:TheDynamic
of Strategy (1991), Pankaj Ghemawat emphasizes the importance of sustaining
a competitive advantage. Simply stated, the goal of this book is to introduce a
Teledyne, Johnson & Johnson and others are already using to achieve these and
dozens of other strategic objectives.
To create this advanced approach to theprocessofstrategyformulation,many
barriers to effective planning were addressed. This book discusses thesebarriers
and how they were overcome. It introduces new ways to think abouttheconcept
of strategy and the process of strategy formulation. It addresses the issues thatThe Intellectual Revolution 3
have for years prevented organizations from understanding what theircustomers
To ensure that foundation is understood, it is prudent to start at the beginning.
Let’s start with a look at the deﬁnition of strategy.
WHAT IS STRATEGY?
As a wise person once told me, ‘‘deﬁnitions of strategy are like vitamins,you
get one-a-day and most of them are hard to swallow.’’ Over the years, how
many different deﬁnitions of the word strategy have you been exposed to? The
deﬁnition of strategy is the subject of many articles and the cause of many
debates. The word strategy is a vague statement that means different things to
Many deﬁnitions of strategy not only attempt to deﬁne what a strategy is,
but they also contain information regarding how a strategy is created, and
what a strategy is expected to achieve.
For example, Michael Porter, in his article titled ‘‘WhatIsStrategy?’’(1996),
states that ‘‘strategy is the creation of a unique and valued position, involving
a different set of activities.’’ Kenichi Ohmae, in his article titled ‘‘GettingBack
to Strategy’’ (1988), states that strategy means ‘‘working hard to understand a
customer’s inherent needs and then rethinking what a category of product is all
about.’’ In his article titled ‘‘The Origin of Strategy’’ (1989), Bruce D. Hen-
derson states that strategy is ‘‘a deliberate search for a plan of action that will
develop a business’ competitive advantage and compound it.’’ In his book titled
Strategy and Structure (1962), Alfred Chandler deﬁnes strategy as ‘‘the deter-
mination of the long-term goalsand objectivesofanenterprise,andtheadoption
of courses of action and the allocation of resources necessary for carrying out
those goals.’’ Notice that each of these deﬁnitions of strategy address how a
strategy is created or what a strategy is expected to achieve.
Historically, hundreds of strategists and organizations have used many dif-
ferent approaches to strategy formulation to achieve a variety of strategic ob-
jectives. As a result, organizations, consultants and academicians have, over
time, given the concept of strategy literally hundreds of different situation spe-
ciﬁc deﬁnitions. The deﬁnitions may be appropriate given the speciﬁc situation,
but rarely does one deﬁnition ﬁt all situations.
To overcome the confusion created by this phenomenon, it is important to
draw a clear distinction between a strategy, the process by which a strategy is
created and its expected results. The distinctions can be drawn as follows.4 Business Strategy Formulation
A strategy is simply a plan. It is an executable plan of action that describes
how an individual or organization will achieve a stated mission. A strategy is
often perceived as being intangible, as there is nothing to touch and feel—there
are no physical attributes associated with a strategy. A strategy is simply a
plan—a plan that describes what an organization proposes to do to achieve a
stated mission. Organizations often formulate company strategies, product and
service strategies and strategies that drive operational, support and management
Creating a Strategy
The process by which a strategy is created is referred to as a strategy for-
mulation process. A strategy formulation process results in the strategy, plan or
solution that is to be implemented. Such a process deﬁnes the steps to take to
formulate what will hopefully be the optimal strategy or solution. The concept
introduced in this book is classiﬁed as a strategy formulation process. It deﬁnes
the steps that must be taken in order to produce breakthrough strategies and
solutions. An effective strategy formulation process should enable an organi-
zation to create strategies and solutions that will strengthenitsstrategicposition.
When individuals deﬁne strategy as ‘‘the art of devising planstowardagoal’’
or ‘‘the deliberate search for a plan of action,’’ for example, they are deﬁning
the process by which a strategy is created. They are not deﬁning what a strategy
is, they are deﬁning the process of strategy formulation. It is for this reason that
many individuals have difﬁculty distinguishing between a strategy as a plan and
‘‘strategy’’ as a series of actions that yield a plan.
The Expectations of a Strategy
The expected results of a strategy are dependent on the strategist, the organ-
ization and the situation for which the strategy is required. Strategies are inten-
tionally developed for many different purposes and under avarietyofconditions
or situations. The desired results are expected to be different in each unique
situation. For example, a strategist or organization may require a strategy that
will ensure the organization achieves its desired competitive position, lowers its
product cost, increases customer satisfaction, creates a sustainable competitive
advantage, increases revenue or market share or accelerates the pace at which
it delivers value. An organization may formulate a strategy for the purpose of
improving company policy, a product family, a speciﬁc product or service or
an internal process. In a non-traditional sense, a strategy may be required for
hiring new employees, improving the product development process, pricing
products and services, or selecting a target market or improving relations with
suppliers or distributors. The expected results of a speciﬁc strategy are not mu-The Intellectual Revolution 5
tually exclusive and depend on what is important to the strategist and the or-
ganization at the time the strategy is being contemplated. A company, in effect,
executes a variety of strategies at many levels of the organization to serve a
variety of purposes.
When individuals deﬁne strategy as ‘‘an attempt to develop a competitive
advantage’’ or ‘‘an effort to ensure an organization’s ongoing proﬁtable
growth,’’ for example, they are actually deﬁning the results that they expect to
receive from a strategy that is effectively created and implemented for their
organization at that time. They are not deﬁning what a strategy is; they are
deﬁning what they would like the strategy to help them achieve. This is the
reason why many individuals have difﬁculty distinguishing between a strategy
as a plan and ‘‘strategy’’ as the outcome of effectively executing the plan.
Making these distinctionswhen analyzingvariousdeﬁnitionsofstrategyhelps
to clarify how a speciﬁc organization, consultant or academician perceives the
role of strategy. The deﬁnition of strategy that is used by an individual provides
insight into how they think the strategy should be created and what they expect
the strategy to help them achieve in that situation.
Regardless of the deﬁnition of strategy that is used, an organization’s ability
to strengthen its strategic position is dependent on one important factor—its
ability to create the strategies that produce the desired results. An effective
strategy formulation process is a prerequisite for success. An organization’s
strategy formulation process, whether it is formal or not, is the mechanism by
which its actions, investments and decisions are determined. This ultimately
controls the amount of value an organization creates for its customers, stake-
holders, stockholders and others. An ineffective strategy formulation process
negatively impacts an organization’s rate of growth and overall competitivepo-
sition. An effective strategy formulation process may in itself become a com-
petitive advantage. This book is focused on the process of strategy
formulation—a process that, when executed effectively, produces a plan that
enables an organization to achieve its stated mission.
Over the years, organizations have learned to recognize the importance of
creating competitive advantages and core competencies, competing on time,mi-
grating value, crossing chasms and creating strategic intent.Organizationsknow
what they need to accomplish. But what happens when an organization actually
attempts to formulate a strategy, deﬁne a plan or make a complex decision?
Organizations may know what results they are attempting to achieve, but do
they know how to create breakthrough strategies and solutions that will enable
them to achieve those results?
Ask yourself, within your organization, what processes are used to formulate
strategy? How was the strategy formulation process developed or selected? Is a
formal process used? What steps are taken to create a strategy? Do different
parts of the organization deﬁne the concept ofstrategydifferently?Dotheyhave
different strategy formulation processes? Are they effective? Do they consis-
tently produce breakthrough strategies?6 Business Strategy Formulation
Since breakthrough strategies and solutions are not all that common, it is
logical to conclude that something is preventing organizations fromconsistently
creating them. What are the inhibiting factors? What obstacles are encountered
when formulating an effective strategy or plan? What would happen if the ob-
stacles were identiﬁed and overcome?Wewillsoon ﬁndout.First,let’sexamine
the barriers that are preventing the consistent creation of breakthroughstrategies
NATURAL BARRIERS TO CREATING BREAKTHROUGH
STRATEGIES AND SOLUTIONS
Recall the last time that you wereinvolvedinformulatingacompany,product
or service strategy. Did you conclude with what you would consider a break-
through strategy or solution? Did it create tremendous value for your customers
and your organization? Was everyone committed to the resulting plan or strat-
Recall the process from a technical perspective. When going through the
strategy formulation process, was the mission clear? Were all the appropriate
customers considered? Were all their requirements properly captured and un-
derstood? Did everyone agree on the criteria that were to be used to evaluate
each proposed strategy or solution? Were the decisions based on fact? How did
the organization prevent personalities, politics, personal agendas and gut-feel
from negatively impacting the chosen strategy? How did the organization pre-
vent the chosen solution from being negotiated and compromised to the point
where its value was diminished? Was everyone committed to the strategy? Was
the chosen solution supported throughout its implementation? Was a large per-
cent of the company’s collective knowledge and wisdom infused in the strategy
Many obstacles tend to stand in the way of creating breakthrough strategies
and solutions, but what if those obstacles could be overcome? What if an or-
ganization could master its ability to consistently make the optimal choices and
create the optimal strategies? How much more value would it be able to create
for its customers and stockholders? If an organization could consistently create
the optimal strategies, it would then be ableto optimizeitsinvestmentdecisions,
deliver the optimal products and services and achieve the optimal competitive
position. This, in turn, would accelerate the organization’s rate of growth and
What prevents an organization from consistently formulating the strategies
and solutions that create the most value? The ability to formulate breakthrough
strategies and solutions has been inhibited by what can be described as three
natural barriers. They are natural barriers in that they result from limitationsthat
are inherent to most individuals and organizations. Since they are natural bar-
riers, they often go unchallenged and are typically accepted as insurmountableThe Intellectual Revolution 7
titative research that I conducted in companies around the world between 1985
and 1991. The barriers are deﬁned as follows.
First, organizations often lack a structure that will enable them to ﬁlter, or-
ganize, prioritize and manage all the information that enters into the strategy
formulation process. This is a complex process. It involves the interaction of
people and information. When formulating strategies and solutions, organiza-
tions must consider thousands of pieces of information from multiple sources.
Customer requirements, regulatory issues, competitive data, manufacturing in-
puts, stockholder demands, resource constraints, stakeholder requirements, in-
dustry trends and other information must be considered. Information from
customers, executives, managers, engineers, sales representatives, consultants
and others must be evaluated. Organizations must be able to determine which
In addition, they must be able to determine the order in which to process the
What happens when information cannot be structured in a meaningful way?
How does that impact the dynamics of a strategy formulation session? Have
you ever tried to obtain consensus on a strategy or solution when everybody is
using different information as a basis for decision making? Without a structure
to organize information, individuals involved in the strategyformulationprocess
lack a solid basis for agreement or disagreement. As a result, they often fail to
reach consensus or a conclusion and limit the possibility of creating a break-
through strategy or solution. Without a solid structure for gathering and pro-
cessing information, strategy formulation and planning sessions often become a
forum for argument, debate, negotiation and compromise. Solutions are often
negotiated and compromised to the point where they lack both value and com-
Who in your company ﬁlters, organizes, prioritizes and manages the infor-
mation that is included in the strategy formulation process? How is the infor-
mation ﬁltered and organized? What methods are used to prioritize the
importance of the information? Does a structure exist? A lack of structure is
often accepted as a barrier that cannot be overcome. Top strategists rarely ad-
dress this as a barrier to success, it is simply accepted asoneof thecomplexities
of strategy formulation.
What would happen to the quality of your strategies, plans and decisions if
your organization could effectively structure all the information that enters the
strategy formulation process? Would this be the ﬁrst step toward an Intellectual
Revolution?8 Business Strategy Formulation
Second, individuals often do not have the information they need, or know
what information they need, to create breakthrough strategies and solutions.
Sure, individuals have access to large amounts of information, much more than
ever before. But they may not know which pieces of information are important,
which pieces should be eliminated, which pieces are missing or how to obtain
theinformation they need.Forexample,organizationsoftentalkaboutproviding
strategies and solutions that satisfy their customers’ desired outcomes, but how
often do they know all their customers’ desired outcomes? How often do they
know which desired outcomes are most important? As a result of missing or
inaccurate information, individuals often base their strategies, plans and deci-
sions on an incomplete or inadequate set of facts. Ask yourself, when contem-
plating a business or investment strategy, deﬁning a product or service plan or
making a trade-off decision, how often do you haveaccessto100%ofthefacts?
How many of your decisions are based on 100% of the facts? How often do
you have access to 100% of your customers’ prioritized desired outcomes, in-
ternal constraints and competitive positioning data?
The inability to capture all the information required to effectively formulate
strategies and solutions is often accepted as a barrier that simply cannot be
overcome. In The Rise and Fall of Strategic Planning (1994), Henry Mintzberg
points out that ‘‘much of what is considered as ‘hard’ data is often anything
but.’’ He goes on to say, ‘‘there is a soft underbelly of hard data’’ typiﬁed by
the fallacy of ‘‘measuring what is measurable.’’ Many organizations simplyuse
the information they have at hand to assist in strategy creation without ques-
tioning its value or relevance. Thisclearly contributestotheinefﬁciencyofmost
strategy formulation processes and the ineffectiveness of the strategiestheypro-
What would happen to the quality of your strategies, plans and decisions if
they were based on 100% of the facts? What if you had access to all the pri-
oritized desired outcomes of your internal and external customers, all the con-
strainst imposed on thesolutionandknewwhatcompetitivepositionyouwanted
to achieve? Would an Intellectual Revolution be closer at hand?
Third, individuals must be able to simultaneously process literally hundreds
of pieces of information when attempting to formulate strategies, deﬁne plans
and make complex decisions. Unfortunately, the human mind is limited in its
ability to know, remember, process and apply all the pertinent facts that are
required when conducting these activities.
Psychological research suggeststhatindividualsconsideronlyasmallnumber
of variables when contemplating strategies, plans and decisions. Psychologists
generally agree that individuals rarely consider more than ﬁve to nine pieces ofThe Intellectual Revolution 9
information at a time. Howard Gardner, in Frames of Mind: The Theory of
Multiple Intelligences (1983), for example, says that individuals often rely on
‘‘a small set of human intellectual potentials, perhaps as few as seven in num-
It follows that when formulating a strategy it would be nearly impossible for
an individual to accurately deﬁne the optimal solution for any complexsituation
given that there are often hundreds of possible solutions from which to choose
and over 100 different evaluation criteria that must be considered. As a result,
individuals often fail to effectively process all the information that must be
considered when attempting to formulate a breakthrough strategy. An analogy
of this situation is as follows:
When solving a simultaneous algebraic equation, you may be asked, for
example, to determine the values of x and y given that:
2x y 3, and y x 1
In this situation you are asked to solve this equation given two variables
(x and y) and the numerical constants. Most people cannot solve this rel-
atively simple equation in their head. Now consider that in most strategic
situations there may be over 100 solutions (variables) and between 50 and
300 evaluation criteria (constants) that must be considered to effectively
formulate a strategy. Without the assistance of additional processing
power, the probability of an organization choosing the strategy that will
deliver the optimal results is near zero.
Despite this fact, businesses and individuals often rely on their internal
decision-making capabilities to determine which strategy or solution will work
best in a given situation. Some strategists encourage this behavior. As a result,
strategies, plans and decisions are rarely optimized. This is an obvious barrier
to the formulation of breakthrough strategies and solutions.
In his book titled The Mind of the Strategist (1982), Kenichi Ohmae states,
‘‘Phenomena and events in the real world do not always ﬁt a linear model.
Hence, the most reliable means of dissecting a situation into its constituentparts
and reassembling them in the desired pattern is not a step-by-step methodology
such as systems analysis. Rather, it is that ultimate non-linear thinking tool, the
human brain.’’ This sounds great, but in the complex world of strategy for-
mulation there are few people that can meet this mental challenge. It is true that
strategy formulation requires non-linear thinking, but it is also true that the
human mind requires assistance in processing all theinformationthatisrequired
to think in a non-linear fashion.
Ask yourself, how often do you rely on your internal decision-making ca-
pabilities to determine which strategy or solution will work best in a given
situation? How many pieces of information can you process at one time? Do10 Business Strategy Formulation
the processes you use alleviate any confusion that may be caused by attempting
to simultaneously process hundreds of pieces of information? How many po-
tential solutions are considered? How many potential solutions exist? At what
point do you stop searching for a ‘‘better’’ solution? Does new information,
when it becomes available, make you less conﬁdent in your chosen action?
The fact is that individuals seldom choose the optimal solution when contem-
plating strategies, plans and complex decisions. The structure, information and
processing power that is required to choose the optimal solution is rarely avail-
able. Think back to the results of yourlast strategyformulationexperience.How
conﬁdent were you that the chosen solution was the optimal solution? Was the
optimal solution ever even considered? Was the chosen solution reconsidered
or changed prior to implementation?
The need to simultaneously process more than ﬁve to nine pieces of infor-
mation at a time makes it difﬁcult for any one person, or group of people, to
create the optimal solution without additional processing capability. Obtaining
the information that is required to uncover the optimal solution is often imprac-
tical as the required skills and resources are rarely available. Structuring all the
information that is presented is difﬁcult and time consuming. As a result, these
inherent limitations are often simply accepted as insurmountable obstacles or
natural barriers to greater success and inhibit the formulation of breakthrough
strategies and solutions.
Strategies and plans are often formulated withoutaninformationstructure,
or a basis for agreement or disagreement. Their formulation is often at-
tempted without all the facts and without the processing power that is
needed to simultaneously process all the required information.
Assume for a moment that the process of strategy formulation is comprised
of only the three steps that have been mentioned: organizing the information in
a structure, capturing the required information, and processing the information
in an effective manner. If an organization is 80% efﬁcient at structuring the
information that is entered into the strategy formulation process, 80% efﬁcient
at obtaining the required information and 80% efﬁcient at processing the infor-
mation, then its strategy formulation process is about (.8 .8 .8) or 51%
to just 22%. If each aspect is 50% efﬁcient, the overall process efﬁciencydrops
to 13%. How efﬁcient is your organization at executing each of these aspects
of the strategy formulation process? Can it afford to be less than 90% efﬁcient?
These barriers must be eliminated before organizations can dramatically in-
crease the amount of value they create for themselves and others. This book
describes how these barriers have been overcome. It describes what organiza-
tions must do to obtain the structure, information and processing power they
require to consistently formulate breakthrough strategies and solutions.The Intellectual Revolution 11
OVERCOMING THE NATURAL BARRIERS TO SUCCESS
Does your organization successfully anticipate future opportunities? Does it
know which technologies to pursue, which core competencies to build, what
product or service concepts to back, which alliances to form and what kind of
people to hire? Does it know which investments, activities and actions will
create and deliver the most value now and in the future? How does it choose
what investments, activities and actions to pursue?
Organizations must constantly address a variety of complex strategic issues.
Given the disparity between our inherent limitations and the desire to create
strategies and solutions that deliver the greatest value, organizations have made
many attempts to ﬁnd simple ways to deal with complex realities. Despite the
number of strategy formulation methods that exist, most have failedtoeliminate
the natural barriers to success.
In 1991, several emerging technologies from unrelated disciplines were in-
tegrated into a strategy formulation process by the principals of my consulting
ﬁrm, The Total Quality Group. This process was the result of years of effort,
research and study and was designed to speciﬁcally attack the three barriersthat
prevent the consistent creation of breakthrough strategies and solutions. Ideas,
concepts and theories from disciplines such as statistics, communications, psy-
chology, quality, business, mathematics and computer science were used to cre-
formulation was not simply a business ritualbuta combinationofmanyintricate
activities that required intimate knowledge of many disciplines. Our knowledge
was speciﬁcally focused on creating a strategy formulation process that would
provide the world with:
1. A structure that enables organizations to successfully organize, ﬁlter, prioritize and
manage the information that enters the strategy formulation process.
2. A process that enables organizations to capture, ﬁlter and sort requirements and other
information that is required to create breakthrough strategies and solutions.
3. The tools that deliver the processing power that is required to simultaneously process
all the information needed to uncover the optimal strategy or solution.
In short, the process resulting from our efforts provided the structure, infor-
mation and processing power that is required to formulate breakthrough strate-
gies and solutions. We have quantiﬁed that the strategies and solutionsresulting
from this process are ‘‘breakthrough’’ in the sense that they often deliver up to
10 times more value than strategies and solutions that are created through the
use of traditional methods. This magnitude of improvement is accelerating the
rate at which organizations create and deliver value to their internalandexternal
customers. This explains why many organizations are using this process to re-
place or enhance their existing strategy formulation processes.
Since 1991, these ideas and theories have evolved into an advanced strategy12 Business Strategy Formulation
formulation process that we now call The Customer-Driven Mission Achieve-
ment Process, or CD-MAP. This process is being used by Fortune 100 com-
panies and other organizations around the world to create a broad array of
company, product and operational strategies. For example, organizations are
using this process to:
1. Devise company-wide and division-wide operating strategies.
2. Formulate short-term and long-term product and service strategies.
3. Create strategies that improve their value-added processes.
4. Formulate strategies that reduce time to market.
5. Optimize investment and trade-off decisions.
6. Identify and select target markets.
7. Optimize product and service concepts.
8. Improve many other operational, support and management processes.
This process has been used across many industries and for many purposes
and consistently produces breakthrough results. For example, when using this
process to improve the development and testing of composite materials, a For-
tune 100 company discovered how to reduce the cost of development by over
80% while reducing development time by nearly 75%. A cardiac pacing system
company used this process to create a product concept that offered the same
function as a highly valued competitive product, but at 40% of the cost. A
manufacturer of industrial packaging used this process to create a company
strategy that increased their market share by 10% in an environment in which
the top 10 players had less than 50% market share. A medical device manufac-
turer used this process to create a line of angioplasty balloons that took them
from less than 1% market share to a market leadership position in just two
Organizations are effectively using this process to choose which markets,
products, technologies, investments and activities to pursue to strengthen their
strategic position. They are identifying value-producing activities that comple-
ment, reinforce and optimize one another. They are making discoveries that
often form the basis for a distinctive and sustainable competitive advantage.
The following study gives you an idea of the degree to which this process
has overcome the natural barriers to success.Approximately60individualsfrom
organizations around the world, who have applied this process, were asked to
compare their traditional strategy formulation process to the CD-MAP process.
They were asked to respond, quantitatively, to a series of questions that offer
insight into the effectiveness of the strategy formulation processes that theyuse.
They were asked to compare the strategy formulation methods they typically
use to the CD-MAP process for each of the stated criteria. The results of the
survey are documented in Table 1.1. As you read through the questions, youThe Intellectual Revolution 13
An Evaluation of the CD-MAP Process
can evaluate the strategy formulation process used within your organization in
the space provided.
Dramatic improvements have been made to the process of strategy formula-
tion along each of these dimensions. Individuals using this process recognize
that it dramatically reduces the percent of decisions that are negatively affected
by politics, intuition and gut-feel. They also recognizethatitreducesthepercent
of strategies that are negotiated and compromised to the point that they are void
increases the percent of decisions that are based on 100% of the facts as it
enables organizations to capture and understand what their customers value and
deﬁne evaluation criteria that all can agree on. In addition, they recognize that
it increases the number of individuals whose knowledge and wisdom are used
to formulate the strategy. As a result, more people within the organization be-
lieve they have uncovered the optimal solution, and they are committed to the
the strategies and deﬁne the plans that create the most value for their customers
and investors. It empowers individuals—gives them the power—to effectively
contemplate strategies, plans and decisions. It enables organizations to win to-
day’s battle for intellectual leadership so they will be likely to win tomorrow’s14 Business Strategy Formulation
battle for market leadership. It is a driving force behind the Intellectual Revo-
It is important to have a clear understanding of the terminology that is used
to describe the concepts introduced in this book. Several concepts are described
using words that may have other meanings. To reduce the time it will take to
internalize the concepts that are put forth, several potentially ‘‘vague’’ words
are deﬁned below. The terms will only be used in the context in which they are
Breakthrough Solution: A solution or strategy that satisﬁes over 50% of the customers’
desired outcomes better than an existing strategy or solution. Breakthrough solutions
often deliver up to 10 times more value than commonly implemented solutions and
enable an organization to leapfrog their competition. Breakthrough solutions also of-
ten provide an organization with a unique and valued competitive position. A com-
petitive advantage will often arise as a result of a breakthrough solution.
Concept: An idea, strategy or potential solution in its conceptual or theoretical stage.
Customer: An individual or group of individuals involved in, or affected by, the strategy,
plan or decision that is being contemplated. As an example, if an organization wants
to improve the process of surgery, the customers may include surgeons, support staff,
hospital administrators, the manufacturer of the product and the individuals within
the organization who are providing the solution.
Desired Outcome: A desired outcome is a statement, made by an individual involved in
or affected by a strategy, plan or decision, that describes an important beneﬁt they
would like to receive from the strategy, plan or decision that is being contemplated.
Desired outcomes are unique in that they are free from solutions, speciﬁcations and
technologies, free from vague words such as ‘‘easy’’ or ‘‘reliable’’andarestatements
that are stable over time.
Mission: A speciﬁc task or project with which an individual or organization is charged.
A mission may include improving a surgeon’s ability to conduct the process of sur-
gery, improving an organization’s ability to manufacture a product or improving an
organization’s ability to formulate a strategy. A mission may be large or small in
Optimal Solution: The one solution or strategy that will satisfy the largest number of
important desired outcomes given the internal and external constraints imposed on
the solution and the competitive position that is desired. The optimal solution will
also be the solution that delivers the most value for the least cost, risk and effort.
The optimal solution is typically a breakthrough solution.
Predictive Metric: A parameter that can be measured today to ensure its corresponding
desired outcome will be achieved in the future. A predictive metric is measured and
controlled in the design of the solution and predicts the solution will satisfy one or
more desired outcomes. A predictive metric may also be referred to as a predictive
success factor (PSF).The Intellectual Revolution 15
Process: A series of activities, actions or events that produce a desired result. Examples
of processes include conducting surgery, manufacturing a product, making an acqui-
sition, developing a product and formulating a strategy.
Solution: A speciﬁc set of features that form the elements of a plan or strategy, and
deﬁne how the desired outcomes will be achieved. A proposed solution is often re-
ferred to as a plan or a strategy.
Strategy: A strategy is a plan. It is an executable plan of action that describes how an
individual or organization will achieve a stated mission.
Strategy Formulation: The process of creating a strategy.
cost, risk and effort.
The language used throughout this book is precise. It may be helpful to ref-
erence the deﬁnitions stated above, as required. A comprehensive list of com-
monly used words and their meanings can be found in the Glossary.
In this chapter we have established the fact that a process for strategy for-
mulation does exist and that it is capable ofconsistentlydeliveringbreakthrough
results. This process was the result of years of effort and requiredtheintegration
of knowledge from disciplines such as statistics, communications, psychology,
quality, business, mathematics and computer science.
This strategy formulation process is focused on overcoming the barriers that
typically stand in the way of formulating breakthrough strategies and solutions.
The barriers are deﬁned as structure, information and processing power. Struc-
ture relates to the way information entering the strategy formulation process is
organized, ﬁltered and structured for use. Information relatestothetypesofdata
that are required for the successful execution of the process. Processing power
relates to the power that is required to simultaneously analyze, calculate and
process the information that has been gathered to deliver a breakthrough result.
Strategy formulation processes used by most organizations fail to provide the
structure, information and processing power that is required to formulate break-
through strategies and solutions. These barriers are often simply accepted as
insurmountable obstacles to success. Organizations that have used our advanced
strategy formulation process have been able to successfully overcome these ob-
stacles. They have used this process to successfully formulate overall company
strategies, product and service strategies and strategies that drive the improve-
ess, organizations have been able to consistently formulate strategies and
solutions that deliver up to 10 times more value than those formulated using
their existing strategy formulation methods.
This process embodies the science of strategy formulation. It has transformed16 Business Strategy Formulation
the process of strategy formulation from an art to a science. Throughout this
book, you are introduced to the concepts, theories and ideas that have made this
it. You will learn how it can be applied successfully in any organization, and
you will learn how you and your organization can use this process toparticipate
in the Intellectual Revolution.Chapter 2
the Thinking Process
In his book titled The Age of Unreason (1989) Charles Handy writes, ‘‘We are
all prisoners of our past. It is hard to think of things except in the way we have
always thought of them. But that solves no problems and seldom changes any-
Creating a strategy formulation process that integrates logic, analysis, crea-
tivity and innovation required new thoughts and new ways of thinking about
strategy formulation. It required thinking differently about the very concept of
strategy. As we studied the process of strategy formulation, we discovered that
organizations around the world had adopted an unspoken high-level thinking
strategy that guided their approach to strategy formulation. By high-level think-
ing strategy we mean the mental or subconscious logic that individuals apply
when formulating a strategy. We discovered that individuals inherently follow
this set logic, and it drives a natural sequence of activities that most organiza-
tions follow when attempting to formulate a strategy. This logic is based on our
natural tendencies and instincts, and it is often executed without question. We
found that this logic, although ineffective, is often simply accepted as a fun-
damental of strategy formulation. It has been accepted, without question, for
hundreds of years, and until now, this logic has remained unchallenged.
We will introduce this logic and explain how for years it has undermined the
process of strategy formulation and inhibited the creation of breakthrough strat-
egies. We will then introduce a different, high-level thinking strategy that em-
bodies the logic that organizations can use to formulate breakthrough strategies.
This alternative logic resulted from the application of modeling and pattern
detection techniques that were focused on improving the strategy formulation
process. This new logic lays the foundation upon which the future of strategy
formulation has been built.