The Mobile MBA: 112 Skills to Take You Further, Faster (Richard Stout's Library) (2 page)

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The nature of strategy
2

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Dealing with strategy
4

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Applying strategy to your area
5

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Four pillars of strategy
7

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Strategy and the art of unfair competition
8

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Portfolio strategy
9

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Creating a vision for your firm and your team
11

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Mergers and acquisitions
12

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How to be innovative
13

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The language of strategy
14

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Business start-ups
16

The best predictor of next year’s strategy is this year’s strategy, plus or minus a bit. Most managers simply do not spend their lives re-inventing the firm’s strategy every day. Even the CEO does not do this. Most strategy is incremental: it builds from one year to the next. Look at most of the top firms in the world and they have not radically changed their strategies for years.

Firms that try to re-invent themselves as something different often fail: dinosaurs can’t dance. Instead, most firms try to get better and better at what they already do, and then hope that no one else comes along with an idea which wipes out their business model.

dinosaurs can’t dance

Incremental strategy is risk averse: most businesses do not like risk, unless it is a guaranteed success. So the result is that most firms rise or fall with the market. In 1984 the FTSE 100 was created. It represented the very best of British business: the top 100 public companies. They appeared mighty and impregnable. By 2011, just 28 of them are still in the top 100. The problem is not that management has suddenly become incompetent. The problem is that the world has changed faster than they are able to change: strategic success formulas have become formulas for failure.

The reality of corporate strategy is far removed from the world of the gurus who teach strategy at business schools. But it pays to have an understanding of the two main schools of strategic thinking. Even to talk of “the two main schools of strategy” puts you far ahead of most of your peers. Here are the two schools:

The standard bearer for the rational school remains Michael Porter. His five forces analysis of industry claims that you can understand the attractiveness of an industry by assessing the strength of competitors, suppliers, customers, substitute products and services, and potential new market entrants. He leads a field which believes that analysis will provide the answer to most strategic challenges. Most top consulting firms believe that hard data and deep analysis are the way forward. Such a firm, BCG, invented the “BCG grid” which is a very analytical and prescriptive way of deciding how different businesses should be managed for cash, depending on their relative competitive position and the relative growth of their markets.

The rationalists face two practical challenges. The first is that messy, real-world reality often does not conform to crisp, clean models: how you choose to define a market can radically change the answers you get. The second practical problem is that if everyone does the same analysis and comes up with the
same solution, you have a recipe for collective disaster. Success does not come from doing the same as all your competitors, but by being different in a relevant way. The good news for managers is that management has not yet been reduced to a few simple formulas: you still need smart management to deal with messy reality.

There was a rebellion against the analytical types and their diagrams. The rebellion was led by C.K. Prahalad who showed that strategy is more a process of discovery than of analysis. You cannot predict the future, but you can discover it. Let us call this group the romantics, those who rebelled against the rationalists. Prahalad, supported by Gary Hamel, created two new ideas which have now found their way into mainstream management thinking: strategic intent and core competence. Prahalad was followed by other academics who he had trained including Chan Kim (blue ocean strategy) and Venkat Ramaswamy (co-creation).

Here is how their ideas stand apart from the rationalist tradition:

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Strategic intent.
Instead of being constrained by analysis, strategic intent dares management to dream and plan for the seemingly impossible. The idea is to stretch the firm into business
not
as usual, to break the rules so that even smaller firms can challenge market leaders.

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Core competence.
Instead of building points of differentiation around price, packaging, and performance which can be easily copied, build deep capabilities which cannot be copied quickly. Then exploit those capabilities across markets: for instance, Honda engine technology spreads from cars to outboard motors to motorbikes and mowers.

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Blue ocean strategy.
Instead of competing in the red ocean of existing markets, where there is warfare for market share, discover uncharted new territories where you can succeed without competing: all the traditional analysis of markets and competitors disappears because you are competing in a completely new way.

•
Co-creation.
Instead of analyzing market needs and consumers, work with your users to identify what they most need. Let them help you develop and design new products and markets: treat them as partners, not just as customers.

In practice, both schools of strategy have their place in the sun. The rationalists tend to be better at incremental strategy for established and legacy organizations. The romantics tend to be better when you are looking for that radical breakthrough or you want to mobilize the organization for change. The rationalists separate developing and implementing strategy. For the romantics, developing and implementing strategy go hand in hand, and involve a much wider group of people, inside and beyond the firm, than the rationalists would normally involve.

If you want to succeed as a top manager, you have to show you can handle a strategic discussion.

An MBA course may let you believe that you can fix a company’s strategy by reading case notes and analyzing sheets of data. But in reality it is not that simple. There is always ambiguity and uncertainty. But you need to know how to handle a strategic discussion in your organization. Instead of having smart answers, you need to have smart questions.

instead of having smart answers, you need to have smart questions

The process of strategy formulation is mainly about seeing things from a series of different perspectives, and asking the right questions about each perspective. Each perspective not only gives you a different view but may be in conflict with the others. There are no simple answers, so the discussion is important and you need to be able to contribute to it intelligently.

Here are the six main perspectives you need to think about and the typical sorts of question you need to be able to ask:

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Customers.
What do they want? Are there under-served segments? Are there unfilled needs? How big and profitable is the potential of each market segment? Can we change our pricing or product for different customer segments (types)? How can we serve our existing customers better, retain them for longer, and make more money from each one? How can we acquire new customers more effectively and efficiently? What can we learn from our heavy users and from customers who defect? Can we grow into any new geographic markets?

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Competitors.
Have they left any unserved segments or markets? Can we build any barriers to entry? Do we have any advantage (costs, brand, location,
service) which the competitors cannot copy? What is their advantage over us? Do they have any profit sanctuaries we can disrupt? How will they react to any move we make? How fast and well can they copy us?

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Channels.
What is our best route to market both for acquiring new customers and for serving new customers? What is the cost and effectiveness of each channel? Are there any new channels or partnerships to test and to build?

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Product.
Can we use or adapt our product for another market or territory? Are there other offerings in other markets or from our competitors which we can learn from or improve? What is wrong with existing products? How easy or hard is it to copy our product and how can we defend it? Can we adapt or develop our existing products further and can we extend our brands any further? Are there any disruptive technologies out there which are either a threat or an opportunity for us?

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Economics.
What is the cost to serve (and potential profitability) of each segment? Can we be lowest cost sustainably? How can we play with our cost structure (fixed and variable) and pricing structure to cause maximum damage to competitors? How can we use our suppliers and supply chain to better effect? Can we reduce our cost base through efficiency, re-engineering, outsourcing, partnerships? Should we look at game changing acquisitions: to fill out our product portfolio, to gain market access, or to reduce costs?

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Corporate perspective.
This is where theory meets reality. You may be asked to dream the dream and be creative, but ultimately you will be rewarded not for taking a massive risk but for finding the incremental gain which drives the business forward: business is risk averse. Second, from a corporate perspective you will be rewarded for following the vision and agenda of the top team: your brilliant idea will remain a pipe dream if it does not fit with the corporate agenda.

Keep pushing at different perspectives and you will eventually find a new insight. Chase the insight, not consensus. Consensus will lead to a me-too strategy where you follow competition. Insight will drive you to a new place altogether.

If you want to make a difference and be visible to top management, align what you do with top management’s strategy. This is known as a BFO: a blinding flash of the obvious. It is so obvious that it is routinely missed by most managers. Many departments simply keep on pushing the agenda they inherited, instead
of thinking what is really needed. Just as the best predictor of next year’s strategy is this year’s strategy, so the best predictor of next year’s departmental budget is this year’s budget. The incremental approach is low risk at both corporate and departmental level. But at some point, incremental paths slowly diverge. You need to bring them back together again, and be seen to be doing so.

Even if the overall corporate strategy changes little, the language and emphasis will change from year to year and from CEO to CEO. The focus will shift from customers to products to costs to quality to globalization and back to customers again. Essentially, the CEO and top management are telling a story about what they think is important, and one they want you to follow. This is your chance to shine: show that you understand the new focus and that you are doing something about it. You will immediately set yourself apart from your peers who are doing business as usual.

The question is: how do you show you are being strategy driven? A simple and real case will make the point (see below).

If the facilities manager can act strategically, anyone can.

So what if you cannot effect a strategic revolution to align your area with the corporate strategy? The next best thing is to make sure you talk the language of the new priorities. So if the new priority is about customer focus, highlight all the work that you do that is customer focused and show how you are increasing that focus in your unit. Talking this way will be music to the ears of top managers who are normally very frustrated that their ideas are neither fully understood nor fully implemented throughout the organization: you will sound different and stand out from your peers for all the right reasons.

Most business strategies are very simple. They all pass the elevator test: “Can you explain your strategy to an investor on a short ride in an elevator?” Executing the strategy is harder than describing it. Most strategies are built on one of four basic pillars: customers, products, competition, or economics. Each pillar gives a different insight and different approach:

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Customer led.
Solve a customer problem or need; build a brand and franchise. FMCG (fast moving consumer goods) are the natural home of customer focused businesses. New entrants will often solve an existing or unknown customer need in a unique way. The successful
dot.com
businesses delivered a customer need, like Facebook and Amazon. The
dot.com
failures fell in love with the product and technology (
Boo.com
, Webvan) and failed.

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Product led.
Build a better mousetrap; build a new product development machine. Pharmaceutical companies are classic product innovation machines. But old markets can be upset by new entrants coming in with new products to disrupt the incumbents: think of Dyson in vacuum cleaners and Amazon in book retailing. It was very hard for the incumbents to follow.