Worth reading I think. From the FT..
Living strategy and the death of five-year plans
Published: 2009/10/28 06:42:31 AM
IS STRATEGY dead? Chief strategy officers will deny it. Some strategy consultants may reject the idea, too. But, right now, markets are unpredictable. The economic outlook is uncertain.
The world has changed. If old-style strategy formulation is not exactly dead, then it is hardly in the best of health.
For months, many leadership teams have had only one strategic goal in mind: survival. Grander visions have been filed away or forgotten. This hedgehog-style approach — roll up into a ball and wait until things are less scary — may keep a company alive temporarily, but does little to prepare it for the future.
Analysis by Boston Consulting Group suggests that corporate hibernation only works if recessions are short, if the outside world goes back to the way it was before, and if all your competitors are equally inactive, tucked up for the economic winter. This year, not one of these conditions applies.
In a recent paper, “Thriving under adversity”, senior BCG partners Martin Reeves and Michael Deimler argue that, in past recessions, simply cutting costs has not been enough to ensure a healthy recovery. “If survival buys time, it does not guarantee sustainable competitive advantage,” they write. The winners in previous downturns have pursued, and achieved, increased sales.
So companies need a strategy for growth. But I began this column by arguing that the traditional approach to developing strategy — long, internal debate leading to the announcement of three- or five- year plans — seems to belong to another era. So what does smart, 21st-century strategy development look like?
Unsurprisingly, some sharp minds in the strategy consultancies have been giving this question some thought. In New York last week, I had several interesting conversations on the subject.
At BCG, the same double act of Reeves and Deimler has produced another paper, “New bases of competitive advantage”, that looks at something they call “adaptive advantage”. This is strategy, too, but not as we know it.
“Organisations with adaptive advantage recognise the unpredictability of today’s environment and the limits of deductive analysis,” they write. New problems are constantly emerging. Well-run businesses respond effectively to them.
How? First, they process relevant data — “signals” — quickly, and react to them. Google is an obvious master of this, getting closer than anyone else to understanding how online advertising works.
Second, they see clearly how their business fits into a wider context. Amazon has made sure its Kindle e-book reader is supported by a network of valuable partners.
Third, they are alive to social change and shifting customer preferences. Toyota managed this with its hybrid Prius car.
Fourth, they experiment effectively, as Procter & Gamble does when putting products on trial. Last, they draw on the talents of the best people they can find . Software companies such as Red Hat and TopCoder oversee large networks of programmers, using the best people with great flexibility. Their permanent staff is relatively small. But they have access to many more.
This vision of a far more free-flowing, less hidebound corporation, ready to change strategic direction fast, is shared by Lowell Bryan, a director at McKinsey. He may be a 30-year veteran of the firm, but he discusses these ideas with the enthusiasm of a new hire.
“You have to give up the pretence that you can predict the future,” he says. “This is about managing much more dynamically. It is a complex adaptive world, and leaders have to navigate their way through it rather than assuming away uncertainty, as people do in an annual budgeting process. How can you say today what the economy will be like even six months from now?”
Leaders need to show a bit more humility, while living with all this uncertainty. “Strategy is really an evolving idea which develops over a long period, on a long and winding road,” he says. “And this new world calls for just-in-time decision-making.”
n Adapt to survive. The danger for successful companies, Bryan says, is that over time they lose the very abilities or qualities that earned them their market- leading position in the first place. They no longer have the same flexibility, awareness and resilience they once did. Building in some slack — unscheduled meeting time, for instance — might create the space where some resilience can be re-established, Bryan adds.
n Strategy has changed. While the eternal truths — about market position, scale and capabilities — endure, a more dynamic and adaptive approach is now needed. Leaders need to be more flexible and less heavy-handed, ready to make necessary adjustments and bigger changes.
Don Sull of London Business School has likened old-style leadership to a car driver who is either too heavy on the accelerator (growth strategy) or too heavy on the brakes (cutbacks). “It makes for a jerky ride,” he says.
Something like recovery is on its way. You will need a strategy to make the most of it. ©Financial Times