Options-based Strategy: An Approach for Uncertain Times

This is the second in a series of articles about the convergence of strategy and innovation. For more information about the series, and a list of published and upcoming articles, please visit A New Era of Strategy and Innovation.

Highlights

    • How do you create a company that can adapt, respond, and reinvent itself to become stronger in both good times and bad? The story of a company called Sweetgreen points the way.
    • What is needed is a new strategic framework that serves both the current, increasingly competitive, situation as well as providing a strategic path through an uncertain future.
    • The key is an options-based strategy that addresses a company’s key strategic questions at multiple levels and multiple time horizons.
    • The techniques that innovation practitioners have pioneered over the past 20 years are ideally suited to the creation of this new type of relevant and robust options-based strategy.

“Most strategies are built on specific beliefs about the future. Unfortunately, the future is deeply unpredictable. There is no specific future out there waiting to be discovered as time’s arrow carries us toward it. How many unimaginable events could ruin your hopes for the future? What strategic uncertainties lie in wait around the next corner that will undo your best-laid plans?

– Michael Raynor

In 2017, the entire eight-person, executive management team (except for the CFO) of Sweetgreen quit of their own accord after the company had record growth in 2015 and 2016. The founders (and owners) of Sweetgreen hoped that their executive team would stay to see the company through a major update to their strategy, but they quit instead. What did the founders of Sweetgreen propose that caused them to quit? The story of why they left and what happened afterward is eye-opening in its revelation about how corporate strategy should work as opposed to how it often does work today.

Sweetgreen[1] was started in 2007 by three seniors at Georgetown University who were fed up with college food and believed there was an opportunity to provide healthy and nutritious fast-food. They created a menu consisting of custom-made bowls with organic ingredients sourced from local farmers. Their target customer was the health-conscious individual who, like them, found it difficult to get a fast, healthy meal.

By 2011, they had several established stores in the Washington DC area and were ready to expand. With a $22 million dollar investment from Steve Case and his partners, they set out to grow the business by setting up stores in multiple cities with their first restaurant in New York being a signature move. By 2015, they were growing fast with a leadership team recruited for their extensive experience in the food industry. They could have continued to ‘copy-paste’ store after store, using a playbook that had been used many times by other fast-casual food companies. They were on a path to open hundreds of new stores, go public, cash out and become extremely wealthy. They chose another path. Why?

The founders saw something that the executive leadership did not see or chose to ignore. The founders foresaw that the brick-and-mortar restaurant model would be supplanted by a new model. They foresaw that customer preferences were changing. In 2011, customers were saying “Wow. I can walk just 2 blocks and wait only 15 minutes to get a healthy lunch”. By 2016, they were saying “You mean I need to walk 2 blocks and wait 15 minutes to get lunch?”. The customer’s perception of convenience had completely changed in the course of five years.

The founders realized that the company needed to enhance its strategy. They needed a strategy that would not only serve their current, increasingly competitive situation, they needed a strategy to lead them into a future that would be profoundly different than today. They concluded that they needed to slow down the current expansion of their brick-and-mortar infrastructure and build out the technology that would deliver maximum customer convenience. This meant investing heavily in data analytics, the Sweetgreen mobile app, and platforms for ordering and delivery. They wanted to slow down now to go fast later. The food industry executives on the Sweetgreen leadership team were so opposed to this alternative strategy that they left the company.

While it is still too soon to know if the founders were right, it is telling that Sweetgreen’s fastest growing business, before the Covid-19 pandemic, was the new Outpost initiative that resulted from their future-focused strategy. It is a service that delivers prepared meals right to an office building ‘locker’ so that workers in the building can order on-line and pick-up in the lobby with no delivery charge. Brick-and-mortar stores can now expand from their usual dine-in and carry-out service to also become food prep and delivery hubs. Overall customer convenience is dramatically improved.

While the Sweetgreen executive leadership team quit, the rest of the Sweetgreen team did not. People stepped up and new talent that ‘got’ the culture and vision were recruited. The founders desire to create a company that always evolves, that disrupts itself and that is not afraid of experimenting, of trying new things, is stronger than ever. In the face of the current pandemic, the Sweetgreen approach is enabling it to adapt and respond. It is likely that Sweetgreen will again reinvent itself and the company that comes out of the current pandemic will look different that the company that went into it.

A Strategy Approach for Today and Tomorrow

In his book, The Strategy Paradox, Michael Raynor has written about the issues of dealing with strategic uncertainty and the need to address it with a multiple time horizons, real options approach. Derek Abell has also written about the importance of having a strategy that addresses a company’s current state and uncertain, plausible, future states. He has called this a dual-path strategy and has labeled these paths ‘Today-for-Today’ and ‘Today-for-Tomorrow’.

Both Raynor and Abell (as well as others) identify two key characteristics of a robust strategy and, by implication, also hint at the processes needed to create such a strategy:

  • Having near-term, near-adjacent and a long-term, far-adjacent components.
  • Having multiple strategic ‘tiers’ with multiple options at each tier.

The concepts that Raynor, Abell, and others have discussed, along with years of research into, and experience with, large corporations, allows us to construct an options-based strategy framework that shows how the various components relate to each other.

Figure 1 – The Options-based Strategy Framework

The three tiers of the options-based strategy framework go from vision to action

  • Ecosystem Tier: Multiple options of how the relevant ecosystem(s) are evolving and the forces and trends that are driving that evolution. Stories about what near-term and long-term futures could look like. This includes imagining what ecosystem jobs are being and will need to be done and the roles that are required to do those jobs.
  • Role Tier: Multiple options for the proper position/role of the company within the ecosystem(s) imagined above. The role or combination of roles the company should/could play and the ways to fulfill that role. Options for possible strategic ‘moves’ the company could make within and between evolving ecosystems.
  • Plan Tier: Multiple options for actions to fulfil the role(s) imagined above. How to exercise the necessary action options that will position the company in its preferred role(s) (i.e. translation into tactics).

The other dimension of the framework identifies two time-horizons – Today-for-Today and Today-for-Tomorrow – and strategic paths for each. The ‘Today-for’ prefix indicates that a strategy must inform what a company does today, even if it is preparing for a future many years out. The ‘Today-for’ prefix also emphasizes that the two paths are not different strategies but are part of the same strategy. The result of strategy development is one strategy with two, mutually supporting, components, one focusing on the dynamics of today and one focusing on the dynamics of tomorrow. Even in the tomorrow path, the emphasis is on what you need to do today to influence and get ready for tomorrow. The two paths are tightly connected. Today always leads into tomorrow even if tomorrow includes the disruption of today’s business.

In this framework, a company’s strategy is constructed as a set of options for the company’s role in a changing ecosystem full of uncertain, non-linear disruptions and shifts, both big and small. Strategy identifies the existing and newly created jobs these roles require and how the company needs to perform these jobs for the ecosystem. Companies perform these jobs through current and future offerings and business models (e.g. a set of rules they abide by – both tacit and explicit). The result is the growth of value over time (both near-term and long-term) by either abandoning or exercising the options that are created as the uncertain future unfolds.

How it Worked for Sweetgreen

In 2017, Sweetgreen had only one strategic option – to cut-and-paste stores as fast as they could to expand their geographic footprint, leverage up to finance this growth, go public and cash out.

In 2020, they have many more strategic options available to them including:

  • The ‘grow fast’ option they had in 2017
  • A convenience-delivery option that gets them new relationships with corporations and the building infrastructure ecosystem (landlords and tenants)
  • An expansion of their modular build architecture to include delivery-only options and add-ons (i.e. ghost kitchens)
  • An information and analytics infrastructure that enhances both customer and supply-chain relationships and efficiency.

Even though the Sweetgreen founders did not consciously realize it, their approach to strategy exhibited the two key strategic imperatives – dual-path (Today and Tomorrow), and multi-level, multi-option. Because of the strategic approach they took, and the culture they cultivated, many more options that they have not imagined will emerge and become clear over time.

The founders of Sweetgreen had a robust Today-for-Today strategy designed for the intense competition in fast-casual dining. This included keeping the menu fresh with constant updates, increasing transparency in ingredients, sourcing/modularizing stores to make new store builds more efficient, building the brand with music events, and strengthening and expanding farmer relationships.

At the same time they were executing their Today-for-Today strategy, they were developing their Today-for-Tomorrow strategy where the focus would be on platforms, technology, delivery, convenience, etc. This part of their strategy did not replace their Today-for-Today strategy, it complemented and enhanced it. It was dual-path, emergent and options-based.

Mapping out Sweetgreen’s strategy using the options-based strategy framework shows the following.

  Today-for-Today Today-for-Tomorrow
Ecosystem Current landscape of fast-casual restaurants New, data driven ecosystem of delivered food convenience
Role Provider of nutritious meals
Local farm connections
Transparency
Menu & music
Data aggregator
Platform for meal provisioning
Integrated supply information network
Landlord/Tenant service provider
Plan New menus
Modular construction
Cut-and-paste growth
Data analytics
Consumer mobile app
New modules

Sweetgreen had a vision of the future that was different than their today. They saw how the customer and the ecosystem were changing. A more formal strategy process would likely have let them see the future sooner, create more options and be even more proactive. But even their informal and ad-hoc process was hugely successful.

What about a large company?

The parable of the Sweetgreen story is not in the specifics of Sweetgreen itself, but the way that enlightened leaders think about the future and about strategy. Ask yourself the following questions.

  • How many CEOs would let a new business take 5 years to incubate (experiment to get things right) like Sweetgreen did between 2007 and 2011?
  • How many CEO’s would spurn (large) funding from numerous sources so they could make sure their culture and values were not compromised?
  • How many CEOs would stand up to the entire executive leadership of a business unit threatening to quit?
  • How many CEO’s would disrupt their own core business right in the middle of the fastest growth period they had ever experienced?

The reaction to the Sweetgreen story by many corporate executives might be: “Interesting, but it’s a startup controlled by the founders. This could never happen inside a large company. Our management and decision-making processes could never work this way.”

But in the future, strategy will need to work this way. Imagine a future in which a new Sweetgreen-like business startup was part of a large, multi-billion-dollar international corporation. Imagine that this small operation inside a huge business unit was being run by a small team of visionaries (and these people exist within every large company just waiting for the opportunity). How could they be both supported and left free to create their strategy?

The problem in most large companies is that the people chosen to run these small, internal startups are not people like the founders of Sweetgreen, they are people like the executive team that quit! They are the people who have successfully run other businesses within the company. These people have demonstrated operational excellence. They have shown that they can ‘copy-paste’ par excellence. But when the world changes, they hit the wall. Moreover, these managers don’t have the option of leveraging growth, going public and cashing out – then seeing things crash. They are trapped within the constraints of their current organizational operating system.

An Innovation-based Approach to Strategy for Uncertain Times

Companies may not realize it, but they desperately need a new strategic framework that is relevant to the increasingly uncertain future. The systems, processes, methods, and tools that, over the past 20 years, have turned the practice of innovation from mostly art into mostly science are ideally suited to this task. The techniques that innovation practitioners have pioneered – future vision, iterative learning, decision making under uncertainty, systems and design thinking, etc. – and the key skills they have developed, can be applied to the creation of more relevant and robust strategy. The result will be a company that can excel now and in the future.

Adopting an options-based strategy requires two commitments. The first is to the strategy creation process itself. Using a dual-path, multilevel, emergent, creative, and future-based process is the best way to create the options-based strategy you need. The second commitment is to following the strategy that results from the process. Companies that make these commitments will reap the benefits of achieving insight into what the future will look like and what the company’s role in that future will be.

[1] A detailed history of Sweetgreen can be  listened to in an excellent interview with the founders of Sweetgreen by Guy Raz of How I Built This.

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