Hi, Tony Frost here again to further develop our toolkit and understanding of business

strategy.

In this video, We’re going to introduce you to a simple, but powerful way of defining
the core elements of an organization’s business strategy. My approach here is deeply
influenced by an article that was published in 2008 in the Harvard Business Review,
titled “Can you say what your strategy is?”

The authors – two Harvard Business School professors – made waves by claiming that,
in their experience, “most executives cannot articulate the strategy of their business
in a clear, concise way.” Not only was this something of a bold claim, but it came
with a heavy implication: if the leaders of an organization could not state their
strategy, then nor could anyone else…including managers in those organizations whose
actions and decisions were supposed to be aligned with and supporting effective
strategy execution. we mean, if you don’t even know what your strategy is, how are
you supposed to know what to do? Or not do?

And We’re here to tell you that based on my own experience, working intensively over
the last two decades with many different companies in a wide variety of sectors and
geographies, the authors’ claim largely rings true. Of course, some are better at it
than others.

And so one of the most important goals of this strategy module is to give you both the
toolkit AND the practice time to be able to articulate the strategy of the business you
are in – wherever and whatever that is within HOLCIM’s global network.

My approach, which draws on some of the recommendations of that Harvard Business

Review article, is to simplify the task of defining business strategy by boiling it down
to three essential questions. The good news is: the questions are pretty easy to
remember – we call them the “Triple A questions”. So, when you are trying to
explain the strategy of a business to someone, think: “Triple-A”. Answer these
questions and you’ll be well along the way – and further ahead than most.

The Triple-A questions are: Aims, Arenas and Advantage.

Let’s take a look.

Here are the Triple-A questions in boiled down form:

Aims. What are our aspirations? This is about the ends of a business strategy, what
we are trying to achieve as an organization.

Arenas. Where do we compete? Or more accurately, where (market segments?

Geographies? value activities?) – WHERE do we CHOOSE to compete and where do we
choose NOT to compete. As it turns out, a hugely important dimension of strategy is
defining the battlefield – or battlefields -- where you have the best chance of
winning…and avoiding those battlefields where you don’t.

And finally, advantage. The most important question of all. How do we win? This
goes right back to our previous learnings about the concept of competitive advantage
and the critical role of value creation. We’ll dig a bit more deeply into that concept
here, and then really dig deep into it in the second part of our strategy module.

My colleague Zoe will go through each of the Triple A questions in a bit more detail
now.

As mentioned earlier, Aims refers to the stated aspirations of the organization. This is
often summarized as “Mission, Vision, Values”. Values are obviously a critical part of
organizational culture, and therefore deeply important as part of the support
structure for strategy execution, but in many ways values define HOW an organization
does things – acceptable norms and behaviours, for example -- rather than WHAT that
organization is seeking to achieve in the competitive marketplace.

Regardless, strategy should start here -- with some statement about what the aims of
the organization are, both in a big picture sense of our mission or purpose – why do
we exist? And in the sense of who or what we ASPIRE to be? Creating a compelling
vision of where we are going is important for aligning your people to the cause.
Purpose and vision together define the organization’s direction, it’s polestar or North
Star as some like to say.

Note that when talking about “vision” – that is a definition and description of what a
successful FUTURE state looks like – it is OK to do this at multiple levels within the
organization, as long as those visions aren’t incompatible or working at cross
purposes. Within the HOLCIM network, for example, different country organizations
are naturally going to have different visions for what success looks like given the
conditions in the marketplace and the company’s position and history in that country.
Not every HOLCIM country organization is going to be able to credibly say that they
aspire to be the #1 player in, say, the cement industry or RMX industry. But some
kind of vision of a positive future state is important for lots of reasons, mainly as
already noted, for providing direction and motivation to employees.

Still under the rubric of Aims though is a much more tangible set of goals, objectives
or KPIs. Well managed companies are clear about these – and there are not 25 of
them, there are a handful or less – and leaders in such companies spend a lot of time
communicating and reinforcing these metrics – both what they are, why they are
important and, if needed, how they are measured.

OK, moving on. Arenas.

Again, Arena choices are definitions and descriptions of where we choose to compete.
These can be quite specific – all the way down to customer segments or even specific
types of projects – infrastructure versus residential in your business for example.

More generally, we can think about arena choices along three dimensions that
collectively define what is often called business scope. These dimensions are
horizontal – the range of different businesses and market segments the organization
operates in. These range from highly focused organizations that only play in one
market space. In financial services, think about a boutique investment bank, for
example. Others play more broadly: so-called universal banks compete just about
everywhere, from retail banking to commercial banking to investment banking and
beyond – maybe even into insurance, for example.

Another obvious scope dimension is geography. Is the company a single market player
(Wells Fargo bank in the US, for example), a regional player (several of our Canadian
banks have large footprints in the US and Latin America for example) or a global
player, maybe like HSBC or Citibank.

And finally, we can think about arena choices in terms of the value chain or degree of
vertical integration. There are, as you know, pure play RMX players in your industry.
HOLCIM, on the other hand, is a vertically integrated player and this choice – or
rather this set of choices – is a key aspect of the company’s strategy.

There are two main reasons that being clear about your arena choices is critical to
strategy. First, arena choices are – and should be – well aligned to an organization’s
understanding of its sources of competitive advantage. Arenas and Advantage need to
be tightly linked. Chasing business that you are unlikely to win (or win profitably) is a
waste of time and effort for the organization – a failure to understand and execute
strategy. Arena choices are linked to advantage in another way: arena choices can
enhance competitive advantage, for example through scale economies for global
players, or knowledge-based advantages where learning in one market can be applied
in others.

But the second reason arena choices are an important element of strategy is that
arena choices often define growth opportunities. A company that diversifies through
acquisition into an adjacent industry is making an arena choice, usually in support of
a growth opportunity. This is very common. Indeed, Holcim’s wave of recent
acquisitions in Solutions and Products is a great example. And, of course, it works in
reverse too, as recent Holcim experience also shows. Divestments and dispositions –
selling business lines or divesting from a country – is an arena choice that is an
important part of strategy.

Which brings us to Advantage, and the third of our Triple-A question: How do we win?
How do we achieve success?
We’ve already defined the concept of competitive advantage – creating more value
for customers than your rivals and doing it ways that rivals cannot imitate or
substitute for. This is the idea of differentiation and the adjacent idea that strategy
is about cultivating uniqueness.

Answering the question of “how we win?” is both the most important and the most
involved of the Triple A questions and so we’ll just scratch the surface here and do
much more in the in-class session of the program.

For now, We’ll focus on the EXTERNAL dimension of the advantage question, which
focuses on the value we create for customers. Later, we’ll dig more into the
organizational underpinnings – and the deep roots of competitive advantage, which to
foreshadow are, at their most powerful, embedded in the assets, know-how, culture
and reputation of the company.

As a starting point for thinking about customer value creation, strategists have broken
down customer value into two buckets: price value and non-price value. Price value
is easy to understand. All else equal, lower prices are preferred by most customers –
at least for most goods. How companies drive sustainable low price strategies is, of
course, more complex, but from a customer value perspective, the idea is simple,
fundamental and understood by all.

Non-price value, on the other hand, is a veritable feast of possibility as we observe in

many familiar markets from hotels to clothing to stereo equipment. The key point
here is that successful strategies are often underpinned by the deliberate creation of
distinct market positions. Companies work very hard to define their value proposition
– basically their story about what they are offering and how it differs from other
offerings. A company’s value proposition answers the question: Why do customers
choose us? Obviously, customers who choose Porsche automobiles have a different
expectation from customers who choose Hyundai automobiles or even Hondas.
Porsche customers expect to pay more – Porsche does not win on price value any more
than Ferrari does. Hyundai customers, on the other hand, are probably drawn to
what THEY perceive as good value – a reasonably good product for a pretty low price.
And so you can probably see here how the company’s answer to the advantage
question – how do we win – is intrinsically linked to the arena question of where we
play.

Aligning arena choices with value propositions is a critical aspect of strategy. It

answers the question: what kind of value are you creating for whom?

You might say that much of what we’re talking about now is common knowledge –we
all play the role of customers after all. What we want to make sure you understand is
this: creating distinct market positions often involves making tradeoffs. It is
exceedingly rare for a company’s market offering to be superior on every dimension
including price. Usually, you have to be worse on some dimension of value in order to
be better on another dimension of value. That’s a tradeoff and those decisions tend
to be very difficult for managers to make. And yet, one of the hallmarks of a
strategic perspective is understanding and acknowledging the tradeoffs of your
strategy while, of course, working hard to break from the tradeoff, to bend the
performance curve. If you can find a way to be better and cheaper, you should do it!

The final point we want to make about advantage for now is that the idea of non-
price value contains multitudes – literally an infinite variety of possibility and
combination. This is important to realize for managers of companies that operate in
sectors that have inherent commodification aspects to them. In fact, if you take
away nothing else from this aspect of the Triple-A strategy questions, take away the
fact that commodification is never a cold hard fact. There are always possibilities to
differentiate. Any product – even those that seem the most similar from vendor to
vendor – can be made to be different with enough customer insight and ingenuity. In
fact, a great question for companies to ask their customers – especially in product
markets that have commodification tendencies – is: how could we get you to pay me
more? What could we do for you that would make you want to pay me more? The
answer to this question often is the key to unlocking differentiation and that, as you
know, is a critically important dimension of strategy.