Edition 34, Strategy

The World Might Be Flat, But Without a Strategy It is Still a Dangerous Place

By: Giulio Chiesa

Thoughts on a difficult concept: thinking strategically.

Among the concepts that make up a company’s management and administration, the one that has caused more controversy in both the business and academic world is strategy. I remember that it started to infiltrate the industrial and commercial field at the end of the sixties. I came across it during a violent positioning struggle between the four giants of the American chemical sector and the pharmaceutical companies, which were the first to show a disturbing ability to take over competitors. Bruce Henderson from the Boston Consulting Group started this revolution with his “Growth-Share Matrix” and the “Experience Curve”, which shook corporations and universities to the core.

Throughout the years, several articles, books, and booklets on strategy have appeared in several languages, seeking to formulate an appropriate definition or “how” to develop a strategy. oday in 2010, after so many ups and downs in the business world, some more enlightening than others, it is clear that strategy is a decisive factor in the results obtained by any organization or institution. It has been argued that strategic thinking begins with a good business model that takes into account those necessary economic variables related to the goal.

In a competitive world, value creation is a function that company’s’ top management should take on with enthusiasm. In fact, it is now argued today that a company’s final goal is the creation of value. However, the presence of a competitor demands from us a better search of business alternatives, which implies distinguishing ourselves from the rest. But distinguishing in terms of what? This list of options can be very long. We will concentrate on what is “essential”: innovation (not only technological), choice of markets and clients, adoption of exemplary customer service philosophies, empowerment, and an ethical stance. Entrepreneurial history is written by those elements of distinction.

Linking Strategy to Results

In 1964, Peter Drucker wrote one of his most renowned management books, which he planned to entitle Business Strategy. His editor conducted some informal surveys because at that time the word “strategy” was inevitably tied to military situations.

Drucker cleverly realized a title’s commercial importance and agreed to change it. It became “Managing for Results”, a real poem in business literature.

Drucker cleverly realized a title’s commercial importance and agreed to change it. It became “Managing for Results”, a real poem in business literature.

Unlike war situations, where there is a winner and a loser (nowadays it might not be so) in the business world there is room for more than one winner. Wal-Mart, in the United States, is definitely a winner as well as Harvard Business School (HBS). But Target is also a winner by choosing as its core strategy to create value based on style and fashion for its customers, without exclusively focusing on the lowest price, as well as the visionary Business School of the University of Virginia that in a recent survey outranked the very liberal HBS. Those companies wanting to please everyone will lose because they are not able to compete with an edge. Success is limited by their reluctance to change; in other words, they do not want to venture into the land of strategic thinking.

Are there Rules and Referees?

There are three referees: stockholders, markets, and employees. Stockholders do not have a lot of patience. The market had some, but it is becoming more rebellious. Employees are more flag bearers than referees. There is only one rule: be aware.

  • Be aware of how difficult it is to maintain differentiation and how all the changes and technological advances of the past 20 years have contributed to minimize the duration of competitive advantages, especially in very dynamic markets dedicated to research. This awareness is conducive to innovation.
  • Be aware that building entry barriers by legal and ethical means, or alternatively, moving quickly to other markets, especially those where brands and patents are respected, however without excluding, with the appropriate products, those emerging markets that are already making headways.
  • Being aware of how strategic planning tends to focus more on the numbers rather than guaranteeing the involvement of those assigned to the project. Such an attitude shows ignorance to the fact that execution is not a system’s job but rather a person’s job.

The Danger Lies in the Global Competitor

When these ideas are taken to a global scale, strategic thinking loses linearity, the implementation of strategies becomes more complicated, and the amount of energy required in both human and financial resources increases to incredible levels.

Luckily, someone always appears on the scene with research and publications, deserving a round of applause such well-known cases are Michael Porter and Henry Mintzberg, and more recently (1989) of Gary Hamel (consultant), and C.K. Prahalad (professor at the University of Michigan, who left us on April 10, 2010).

Quoting the authors of “Strategic Intent” (article published in 1989 in Harvard Business Review):

…regaining competitiveness will mean rethinking many of the basic concepts of strategy. As “strategy” has blossomed, the competitiveness of Western companies has withered. This may be coincidence but we think not. We believe that the application of concepts such as “strategic fit” (between resources and opportunities) “generic strategies” (low cost vs. differentiation vs. focus) and “the strategy hierarchy” (goals, strategies and tactics) have often abetted the process of competitive decline.

These are harsh words for those who have not been able to anticipate the actions of global competitors.

Other Legacies that G.K. Prahalad Left Us.

  1. 1.Companies that today are global strategic leaders began their ascent in the market with greater ambitions than their existing resources and capabilities.
  2. 1.Competition analysis does not end with the tools proposed by Michael Porter. The most feared competitor is not the one whose technical, financial, and human resources are easy to analyze and understand. The real danger comes from the talented competitor that is highly “resourceful” and makes constant and dynamic use of his competitive advantages making it practically impossible or at least expensive to overcome.
  3. It is a mortal sin to dilute efforts. Prahalad expresses so in a few words: “Take care of your core competencies.” It means that business is serious and not a toy in the hands of greedy executives..
  4. Another lesson is the responsibilities entrusted to executives: a) in order to create value – and he adds – clients should be given the responsibility of becoming co-creators of consumer products b) to create, in a globalized world, more profitable and fairer markets by including the lower income classes in the social pyramid.

Strategy, Leadership, and Strategic Planning

Planning will never become a substitute for leadership. Strategic leadership, based on the intellectual harmonious rapport among individuals (CEO, general directors, presidents), groups ( management teams) and corporate government, goes beyond the interpersonal aspects and issues normally associated with leadership, aimed to obtain a higher level, ethically flawless performance (Finkelstein).

The leader is the first to understand the difference between strategic thinking and strategic planning. Any confusion can cause extremely unpleasant situations. The leader teaches and is encouraged to teach that the objective of planning is to create winning strategies and not to dedicate excessive resources to show their convenience. . In contrast, strategic thinking directs the company to face the markets’ competitive realities ,and to detect and exploit those constantly emerging opportunities. Once strategic thinking is allowed to roam freely in the company’s hallways, it is capable of creating a formal discipline of planning which is the best path to develop successful strategies free from internal rivalries (Mintzberg, Andrews).

Strategy is fruitful. Making a strategic plan is like bearing children. An effective plan makes improvements both in strategy as well as in performance. There is no better task for directors than to shape their strategic initiatives into the action plan. Our experience as company directors is like a self-tailored suit that shines more by adding accessories created by others. The following are some examples:

  • Avoid the home-run mentality. Strategic planning is oriented to trigger gradual improvements rather than producing quick results everywhere.
  • Do not acquire companies or products with the sole objective of generating accelerated growth. The intelligent strategist offers his best contributions when he insists – because he is convinced – that the ultimate corporate goal is to create new internal opportunities. By doing so, he will adequately manage group and personal motivations, empowerment, and patience.

How Top Management Participates in the Strategic Process

In a serious, unadorned, pragmatic and non-academic way, we can mention some of Top Management’s efficient steps in its participation in the strategic process.

  • Developing the strategy’s formulation: what products to choose, which markets to highlight, how to neutralize the competition, how fast to grow, how to distinguish itself from the rest, etc.
  • Participating in the implementation: allocating resources, setting principles, policies, and programs, and developing an organization aligned with the company’s strategy as well as goals.
  • Developing a context (providing executive personnel, proposing a remuneration system in terms of qualitative and quantitative indexes, educating personnel in promoting respect, education, and style) that contributes to support the company’s sound growth and development.
  • Negotiating purchases and/or sales of assets and businesses, increasing or decreasing investments in R&D, avoiding situations in response to fleeting fashion trends, and using symbols to address messages.

Epilogue

The analysis of management concepts and its complex topics, such as the concept of strategy, must not end with the lightness of proverbs or with definite or unchangeable conclusions. Therefore, our conclusions aim to only highlight some issues not included in the previous pages and those that I think should be kept in mind:

  • Not all the companies appear on the market with the arrogance of Google or i-Phone. Most have to learn to walk before they can run. There are more Davids than Goliaths, but, at the end, Goliath wins more victories..
  • Benchmarking is as old as Methuselah. All Roman statues are copies of Greek models. Copying in an intelligent way does not imply a lack of intelligence.
  • Innovation is a state of mind of the Boss. If he does not believe in innovation, the desert of conformism will prevail in his company.

Strategically speaking, innovating is eliminating old ways of thinking (organizational pyramids), old ways of acting (working solo), taking away what is useless (wordiness, circumlocution, demagogy), matching content and form (presentations, assemblies), and developing one’s own style (tidiness, kindness, awareness).

A company’s life (actually, life in general) is a trade-off that is the strategic equivalent of a fork in a road. Whether ascending, descending, or walking there are always many forks. If the “world is flat”, an insidious idea, , we should expect to find fewer detours on such plains. However, this is not the case. Even on the plains we can make the wrong turn in the absence of a compass (our strategy). That would be a shame, right?

Bibliography

Prahalad, C.K., y Gary Hamel, (1994). “Competing for the future”, HBS Press.

Prahalad, C.K. (2004). “The Future of Competition”, HBS Press.

Prahalad, C.K. (2004). The Fortune at the Bottom of the Pyramid, Wharton Publishing.

“La inclusión como estrategia central” (junio-julio 2010), Gestión, pp. 116-120.

Finkelstein, Hambrick, Cannella. (2009). “Strategic Leadership”, Oxford University Press.

Mintzberg, H. (1994). The Rise and Fall of Strategic Planning, The Free Press.

Hamermesh, R. G. (2001). “Making Planning Strategic”, Harvard Business Review 1991.

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