[MUSIC] Welcome to Week six. This week we're going to talk about strategy. Now, strategy can be a somewhat squishy thing. Generally, when I think of strategy, I think of the very broad strokes of a, of a plan. Okay and, and as we go through this you may want to kind of think in the back of your mind contrasting that to tactics. Which tend to talk about the, the particular sort of step by step aspects of a plan of implementation. You know, so strategy might refer to, an oil company for instance, deciding to primarily focus in, oil, instead of natural gas. Or maybe have, broad gr, geographic focus, or maybe decide to diversify geographically or maybe be vertically integrated. But those are the kind of broad strokes of a plan we're talking about, or it might refer to the markets it's selling into or the markets it's buying out of. The general idea behind the strategy process is to set a direction for an organization. Organizations and the markets they serve are, are complex, so this process, these pro, strategy development processes have evolved over, say, the past half a century, so that there is somewhat of a, of consensus, at least on some of the basic tools and, and steps of implementing the strategy. If you spend any time in this field, you'll notice that there are lots and lots of approaches. What we're going to do in this class is just really focus on those common themes, common aspects of strategic planning tools. And I'm just going to introduce you to some very basic ones. So, strategy implements an organization's mission, vision and values, and it helps, specifically it helps a proce, helps an organization understand sort of where it is, where, where it wants to be and how it's going to get there. We tend to think about, again, not sort of tactical windows like months or a year, but maybe something over some intermediate time period like a few years, that's sort of a doable and planable without actually going so far out as, as to be, you know, unreasonable that you could really bind yourself too, too much. So, you will have some long term planning that goes way out beyond the one to three year, one to five year time frame. What we would generally refer to that as, as long term planning and then for very short things we might refer to that as operational planning. But in general, the pieces that you'll notice are, you know, the strategy process is going to have an analytical piece. Sort of an analysis and I'm using that term when I move from in my mind, when I move from thinking about, you know, financial analysis and economic analysis to strategic analysis or stored of getting a little more into squishy more more of assessment and less technical type of considerations. But in general, this, the analysis and strategy is going to consider external factors and internal factors. Then there's going to be a planning [SOUND] phase in the strategy development process. And then there's going to be sort of a planning for implementation, and an implementation phase. [SOUND] Strategy is really an important part of keeping an organization on track, because what it does is, it, it helps to really define the direction and specify a focus for organizational activities. And you're not really going to be able to effectively, either cost effectively or productively move in a particular direction unless you actually first define that. Second, what the strategic development process does, is it, it provides some clarity, not only clarity around those goals, but it gives participants in the organization, in particular the leadership, something to commit to. Something to to define that they will live up to. And the next benefit of that is, it allows a clear communication of the intent of the organization to stakeholders, internal stakeholders and external stakeholders. And then comes the actual, you know, getting down to developing a plan and an implementation. What it does is, it really guides your resource allocation decisions if you have a, a well-defined strategy, and getting even more narrow, it can be that plan that provides the touch point for the more day to day tactical planning that an organization is going to have to do. And lastly, allows you to specify milestones and goals that allow you to reflect back and think you know, confirm that you are actually are executing on your strategy. So, we can think about it in this time flow. You know, the first step, of course, is going to be clarifying an organization's, vision, values and mission. And so, what we are really talking about there is, the vision typically refers to, how does an organization see itself? You know, how, how does it view itself, not now, but in the future. That, that's it's vision. What role does it see itself playing, either in society or in the market place or in a particular community, you know, can kind of be anything that, that you would want it to be but that's sort of the, the distant future ideal point that the organization is always heading towards. And then the values of the organization are presumably, those somewhat, you know, immutable aspects of its identity that help sort of, help define the organization, maybe distinct from other organizations. Your organization could value environmental stewardship, right, could value, you know, high returns to shareholders or, it, it could value technological excellence. These are all the kinds of things that could value, you know, worker satisfaction. These are the kinds of things that are our values, and finally the mission refers to I think of this as the thing that sort of connects, articulates a connection between the values and the vision, the values and the mission. So, how is an organization going to use this base of its values to actually achieve its vision, and that's what I would think of as an organizational mission. So, this analysis or assessment phase that we talked about, really encompasses, it's one of the earlier slide that showed assessing both external and internal factors. And as I mentioned, these assessments, you know, may actually force you to reach back and do other kinds of assessments. You know, so you might have to do some market assessment or you might have to look into political factors. Just thinking about, in the context of this class, I mean, this is why we organize the class in this way, is I wanted to sort of give you some tools in week one and two basically thinking about markets, and, then give you basically a little bit of breathing time and relaxing time in weeks three and four. And get into some of the details of particular industries and the, and the facts. But then we, we touched on a different set of analytical tools in week five, thinking about political markets. And, that's so that you would be prepared in this class to understand some of those more technical aspects of understanding energy business. From the perspective of being an insider to a business or an inside to an organization interested in energy, like maybe an NGO or a governmental organization. So, think about this as analysis, this strategic analysis or assessment phase here. Really being more about identifying those external factors that are going to effect your ability to execute on your mission or also your internal factors. And even assessing those internal factors may obligate you to kind of go backwards and assess, you know, maybe your work force or something. You know how, how prepared are they? Do they have the right skills for the, for the present environment? But so this analysis can kind of reach back to things that we might not always think are inside of the strategy development process but actually everything in an organization should ultimately feed back and, and run through a strategy development process and maybe be motivated by a strategy development process. Then we have what you could call, you know, as I mentioned before the planning phase, you could also think about his as the deciding phase, you know, this is were you take the inputs from your analysis and you kind of decide what exactly are you going to do. You're going to have to make some choices on which opportunities to capitalize on and, you know, which things that you're not going to focus on. And then, of course, this other end here is the implementation phase. Okay, and this is where you define those goals, those targets, that are going to get you through that intermediate time horizon of one to five years or so, and you develop a specific tactical plans for executing on that strategy. [BLANK_AUDIO] [SOUND] Now, an important part, of course, of any analysis is going to be identifying and testing your assumptions. You know the old rule, garbage in, garbage out. So, the quality of your assumptions is, as long as you're sort of going through the, the basic steps here, the really, the quality of the strategic analysis are going to largely depend on the quality of your assumptions. So, a lot of, a lot of the analysis part, as I mentioned, is about motivating a thorough analysis and making sure that you have strong assumptions for your, in your analysis. In addition, as an important aspect of that analytical phase and also the planning phase of strategy, is to really think about risk and how that might affect your organization's ability to execute and implement a strategy. So I, of course, you know, one way to keep these things organized in my mind as I like to think about these three basic markets that I think about. Decisions and exchanges between businesses and between, you know, bankers and businesses, and between society and businesses, where those decisions are being made. And that's one way to start thinking about where are risks that could actually affect your ability to execute on your strategy. The risks can basically be characterized, of course, according to how probable is a event how likely is an event going to occur, how probable is an event. And then, in the event that the, in the event that something does occur, that one of these risk factors is realized, what is the actual impact to the organization. So, what you're going to do is, is, in this phase of the analysis, is try to think about, you know, which things could really derail, your, your plan, your strategy and, try to thing about how likely those events are to happen and then how, how seriously it would impact the organization if it did happen. And so at, at this phase, you know, a company the kind of deciding and planning part is that an organization or a corporation may actually be able to identify some of the risks that it really has to worry about. And it has to make sure it's strategy is robust to those risks. Its, its, the broad strokes of its plan can, will protect the organization from those risks. Others, it's going to, other risks it's going to identify through this process are either just sufficiently unlikely, or just not serious enough to really matter. And don't have a serious enough impact on the organization, and so the organization might make a conscious decision to actually ignore. And, of course, ultimately what strategies should do is result in actual actions by the organizations and, and guide those actions. So, in the implementation phase, the, the basic. [BLANK_AUDIO] Here are the basic portions you can think about are keeping the organization aligned. Focusing leadership, who then helps to focus the organization, and the organization is actually, remains in alignment towards the strategic direction they've chosen through specific tactical plans and budgets and various processes that keep everyone on track. This is what is going to serve to help the organization on a continuing basis. Assess the metrics that it's identified in, allocate resources and then maybe update and re-allocate resources according to those of, metrics. These formal plans should have triggers that will provide some kind of feedback with regards to how exactly the risks are evolving that you identified throughout the planning process and presumably built into your plan. And of course as, you know, maybe I like this quote from Winston Churchill. You know, essentially, what the implementation portion of strategic planning will do is really force everyone to pay attention to where you're hoping to go, because because a strategic plan really isn't all that useful unless it's actually achieving the goals that you set your, set for yourself. [MUSIC]
