“Since January (2011), the Financial Times has reported that more than 30 organizations — from Albertis, the Spanish airports operator, to Zenergy Power, the superconductor developer — are carrying out, will carry out or have carried out some sort of “strategy review”
Andrew Hill, Financial Times , 14 June 2011
It’s official! Strategy is fashionable again! For the last ten-plus years, “strategy” was a four-letter word. Everyone was focused on execution (Bossidy and Charan), on business models (every VC), or, most recently, on “scalability” (as in “…we need a Sheryl Sandberg here”, Sheryl being the current high priestess of Silicon Valley). Strategy was an after-thought, a box to be checked off before going on to more important stuff.
In part, this was understandable: The dot-com bust of 2000/2001 gave strategy a bad name, and during the Great Recession of 2008/2009 the watchword was “SURVIVAL”. In between, the consumer booms in US and Europe and rapid growth in the BRICs meant “What me worry?” Sales and profits were growing, life was good, no need to obsess about strategy.
Why Now? So why worry about strategy now? A cynic would say, “Managers need new buzzwords, and consultants (not to mention business faculty) need to recycle their ideas!” Or, to quote Andrew Hill, “…put ‘strategic’ ahead of simple decisions …and the people carrying them out…feel more important, while those advising can charge a higher fee.”[1]
While there may be some truth to that, I believe several, fundamental changes in the economic environment are making strategy — and strategic thinking — essential:
- OECD economies are stuck Managers cannot just surf the market: US growth is anemic, Japan & UK are stuck, and Spain, Europe’s growth area, is dead.
- Competition in BRICs is up, WAY UP The easy pickings are gone. Local players and new entrants means the competition is tough and growing tougher.
- Nothing left to cut Cost-cutting, that old standby, won’t work; there’s nothing (and no one) left to cut.
Bottom line? Managers and companies need better strategies if they want revenues and profits growing again. They can’t rely on the old standbys; they have to think long and hard about their business’s overall direction.
The Problem Unfortunately, managers by and large don’t think about strategy. Worse, they often end up pursuing bad strategies, ones guaranteed to end in disaster: RIM & Nokia in smartphones, Dell in PCs, Detroit’s Big Three, Barnes & Noble/Borders, the music industry after Napster, Wal-Mart in Germany (and Tesco in California?), US airlines (excepting Southwest and JetBlue) ……. the list goes on and on.
Why do they do it? Why do managers keep throwing good money after bad? Why do they stick with the “same old, same old” long after the handwriting is on the wall?
Partly, it’s behavioral: Managers are afraid of being dubbed “wishy-washy” or inconsistent. Better to stick with a bad strategy, they reason, than change and risk my job. Shareholders and Wall Street combine to reinforce this behavior; in this environment a new direction equals a new CEO (and often not eve then; the new person usually chooses something equally bad if not actually worse).
Three questions More fundamentally, managers fail to ask themselves three key questions: First, “Why was this company (or business) successful in the first place?” Second, “Why is the business successful today, or why is it struggling?” Last and most important, “What is necessary to make business successful tomorrow?” All too often, managers, investors and analysts assume that what made the business successful in the past is what will keep it successful in the future. Reality, unfortunately, is different.
[1] Strategies founder on fluff and buzzwords, Andrew Hill, Financial Times, Tuesday, June 14, 2011 page 12
