Size not what matters in R&D spending
Interesting to see from Booz Allen’s journal strategy+business that there’s no guarantee of getting innovation success from spending more on R&D – the most successful companies seem to make sure innovation efforts align with corporate strategy and listen to their customers. [see Myth 1 post]
Myth 3: Find a better position
This one goes back for ever. Management is supposed to spend their time on strategy searching for a better ‘position’ than rivals – some combination of who they serve, with what products and services, and how, that ensures they can protect their sales and profit margins from competitors.
But we have known for many years that differences in ‘position’ explain little about why some firms do better than others. What seems to be more important is what management actually does – i.e. how they constantly build and extent the business. They can be losers in attractive markets, and triumph in difficult ones [ask Walmart or Southwest].
How many top management away-days, I wonder, are wasted searching for that elusive paradise of a market position where competitors can never venture, rather than getting on with sound and continuous strategic management? [see Myth 1]
On-line classes in progress – first run soon.
I hope everyone had a good Christmas. In between turkey and Christmas pud we have been getting on with the class materials for the on-line course in strategy dynamics. This will first see daylight with participants on the graduate studies program as Worcester Polytechnic Institute [WPI].
Managing Professional Service firms
Just had a notification of a forthcoming web-briefing on this from Harvard Business School to be led by Professor Thomas DeLong, co-author of When Professionals Have to Lead. [Amazon US link] [Amazon UK link]. Should be excellent for senior folk trying to manage one of these organizations.
Anyone who would like a light but instructive business game on just some of the strategy challenges in a professional firm could take a look at the Professional Services Microworld.
New book from Robert Kaplan
Just scanned Time-Driven Activity-Based Costing [TDABC] from Robert Kaplan – of balanced score-card fame – and Steven Anderson, thinking it might link to the strategy dynamics idea of managing performance-over-time. It doesn’t do that, but it does provide a useful update on the established ABC idea.
Short video intros for executives and teachers
If you would rather watch than read, Wiley kindly arranged to take some short videos about the book, one for executives and professionals, and another for strategy teachers.
Myth 2: It’s all about profitability
Here’s another that just jumps out of the strategy books and articles. Strong performance, it is said, shows up in higher profitability [return on sales or invested capital]. So good strategy which leads to that lovely ambiguous phrase, ’sustained competitive advantage’, shows up in persistently higher profitability than competitors.
Well, sometimes – but investors value growth in free cash flows. So would you rather get $15 a year back from a company you have invested in, or $12 that grows by 30%. Folks at McKinsey seem to nail this one, showing that only the lowest profitability firms give investors good returns by improving ROIC.
Shame then that most of the popular tools of strategy analysis are based on research that tries to distinguish what makes some firms more profitable than others !
Of course you need to be adequately profitable, or promise to be so, if you are going to get the cash and other resources to deliver growth.
Videos of the book launch at London Business School
We had a great time with the book launch yesterday evening. Here are some short videos with me, Steve Hardman from Wiley and James McDonnell at PWC who kindly sponsored the event.
Book cover – revenge of the prey!
Many people love the book cover .. thanks to Mark Styles at Wiley for that! But my friend Lars Finskud at Vanguard Strategy spotted a new take on the theme. Take a look at this clip, especially the later part.
Profitability or growth?
Much of what we know about strategy comes from research into why some firms are more profitable than others – but investors value growth in cash flows [see chapter 1 of Strategic Management Dynamics]. An article in McKinsey Quarterly ‘How to choose between growth and ROIC‘ [return on invested capital] confirms the importance of this issue and shows how investors benefit from growth, depending on companies’ profitability.