(Navigating a New Landscape... page 2 of 3)

Theory of the Business
Long-term economic prosperity created an environment in which it was easy for leaders to live with prevailing notions of the business, even in the face of a changing market landscape. However, if leaders – over time – fail to recognize and challenge their own fundamental assumptions about the business, the markets and how to compete in those markets, then market threats can take hold. We call the mental models based on these assumptions the Theory of the Business, and we encourage leaders to challenge the economic logic and test the market relevance of their theories. This requires business leadership to question even long-held, tried-and-true beliefs and test them against what is happening in the current market; their conclusions serve as the platform for reenergizing their business for growth.

Business Strategy: Discovering Strategic Possibilities
In the Business Strategy phase, leaders focus on the definition of the business and its value proposition in the current and future marketplace; they test those against their Theory of the Business. Bold challenging of assumptions and market testing of ideas are encouraged. For example, it can be enlightening to approach the existing business as if it were already in crisis or as if the business were starting from scratch. This facilitates a more open-minded dialog and enables business leaders to hypothesize about current conditions and future changes.

Revealing the strategic possibilities of the business begins with key questions that challenge the business definition, its economic model, and current and future competitive strategies. Examples of questions that can be answered through a disciplined process that encourages greater market insight:

• Is the longer-term vision still relevant? Is it clear and compelling to the organization?
• What is the unique value proposition you deliver to the market?
• Are the current and anticipated products and services sufficient to support long-term growth?

• How is the value you deliver being translated into profit?
• What are the forces that are putting pressure on profitability? What is the strategy to deal with them?
• Are investment resources available to support long-term growth and profits?

• Within your value proposition, what is the basis of your competitive differentiation?

• What is required to sustain your differentiation?
• Are the unique needs of your market segments clear? How well are you executing to meet them?

• How well does your go-to-market strategy align with your value proposition and competitive differentiation?
• What are the essential core capabilities required to run your business model?
• Are resources organized in a way that optimizes individual and organization-wide performance?

• How well do your structure and culture enable a portfolio of innovative ideas to be nurtured?
• How well do you evaluate ideas and trials and invest in those with some proven potential for rapid growth?
• Are you managing your growth product and service pipeline in a way that prevents growth opportunities from being crushed under the weight of the core business scale and near-term profit expectations?

• How well do the planning systems identify the needs and opportunities for financial and human capital to bridge from business strategy and design to effective execution?
• Are there clear guiding principles by which line leaders run the business day-to-day?

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