Can You Say What Your Strategy Is?
in the number of financial advisers but also ensured that every implication of that choice was fully explored. Setting an ambitious growth target at each point in its 85-year history, Edward Jones has continually increased its scale and market presence. Striving to achieve such growth has increased long-term profit per adviser and led the firm to its unique configuration: Its only profit center is the individual financial adviser. Other activities, even investment banking, serve as support functions and are not held accountable for generating profit. Defining the Scope A firm’s scope encompasses three dimensions: customer or offering, geographic location, and vertical integration. Clearly defined boundaries in those areas should make it obvious to managers which activities they should concentrate on and, more important, which they should not do. The three dimensions may vary in rele- vance. For Edward Jones, the most important is the customer. The firm is configured to meet the needs of one very specific type of client. Unlike just about every other brokerage in the business, Jones does not define its archetypal customer by net worth or income. Nor does it use demographics, profession, or spending habits. Rather, the definition is psychographic: The company’s customers are long-term investors who have a conservative investment philosophy and are uncomfort- able making serious financial decisions with- out the support of a trusted adviser. In the terminology of the business, Jones targets the “delegator,” not the “validator” or the “do-it-yourselfer.” The scope of an enterprise does not pre- scribe exactly what should be done within the specified bounds. In fact, it encourages experimentation and initiative. But to ensure that the borders are clear to all employees, the scope should specify where the firm or business will not go. That will prevent manag- ers from spending long hours on projects that get turned down by higher-ups because they do not fit the strategy. For example, clarity about who the cus- tomer is and who it is not has kept Edward Jones from pursuing day traders. Even at the height of the internet bubble, the company chose not to introduce online trading (it is
(Growth? Achieving a certain market share? Becoming the market leader?) The strategic objective should be specific, measurable, and time bound. It should also be a single goal. It is not sufficient to say, “We seek to grow profitably.” Which matters more—growth or profitability? A salesperson needs to know the answer when she’s deciding how aggressive to be on price. There could well be a host of subordinate goals that follow from the strategic objective, and these might serve as metrics on a balanced scorecard that monitors progress for which individuals will be held account- able. Yet the ultimate objective that will drive the operation of the business over the next several years should always be clear. The choice of objective has a profound impact on a firm. When Boeing shifted its primary goal from being the largest player in the aircraft industry to being the most prof- itable, it had to restructure the entire organi- zation, from sales to manufacturing. For example, the company dropped its policy of competing with Airbus to the last cent on every deal and abandoned its commitment to maintain a manufacturing capacity that could deliver more than half a peak year’s demand for planes. Another company, after years of seeking to maximize profits at the expense of growth, issued a corporate mandate to generate at least 10% organic growth per year. The change in strategy forced the firm to switch its focus from shrinking to serve only its profit- able core customers and competing on the basis of cost or efficiency to differentiating its products, which led to a host of new prod- uct features and services that appealed to a wider set of customers. At Edward Jones, discussion among the partners about the firm’s objective ignited a passionate exchange. One said, “Our ultimate objective has to be maximizing profit per partner.” Another responded, “Not all finan- cial advisers are partners—so if we maximize revenue per partner, we are ignoring the other 30,000-plus people who make the business work!” Another added, “Our ultimate customer is the client. We cannot just worry about partner profits. In fact, we should start by maximizing value for the customer and let the profits flow to us from there!” And so on. This intense debate not only drove align- ment with the objective of healthy growth
harvard business review • april 2008
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