… talking about strategy

Good to see Peter Senge et al arguing that it’s both important and possible to tackle climate change [though I’m not sure how happy people may be taking lessons in reducing their carbon footprints from people who go helicopter skiing!] ‘The Next Industrial Imperative - Facing up to Climate Change’ calls for a revolution in business thinking. The authors show how Sweden depends on oil for only 30 percent of its energy, vs. 77 percent in 1970. (The United States, by contrast, is still at 85 percent.) George Bush has misled the US public for years that oil consumption can only be cut by hitting their wealth, but the average Swede hardly seems poor, and the article points out that loads of business opportunities arise when big changes like this work through.

I have pointed out before that management’s key purpose is to drive improved absolute performance [growing free cash flows in business cases], not hitting target ratios or benchmarks. McK-Q offers to demystify corporate growth, arguing that the ability to execute isn’t the key differentiator between companies that are growing quickly and slowly. They claim the critical thing is to compete not just in a fast-growing sector but also–at a more granular level–in a fast-growing part of that sector.

That seems to make sense, but think about it a moment - 50% growth of a $10m market is way less in absolute terms than 20% growth of a $100m market, and will continue to be so for many years, so what if the fast-growth sector’s potential is, say, only $80m? Sustained growth in this case would come from focusing on the larger, slower growth segment. I’ve also seen cases where apparently ‘low-growth’ sectors turn out to hide plenty of growth potential, which reminds me to point out that ‘market growth rate’ is almost never a truly independent variable – something ‘out there’ we need to deal with.

How a market develops is very often a function of what firms offer, as well as what customers want. And if you think about the impressive firms you know, most seem to have made their own opportunities, not sat back and tried to capture some share of what happens.

Great collection of articles on the causes of poor decision-making in McK-Q. Even executives, who of all people we might expect to be economically rational, seem to fall victim to overconfidence, the herd mentality, and false consensus? See Learning to let go: Making better exit decisions,Distortions and deceptions in strategic decisions, and The human factor in strategic decisions.

There was quite a fashion in the ‘90s for ‘strategic information management’, and it seems the idea is back again. Strategy+Business reports that, “for the chief information officer (CIO), thinking strategically has never been more important. New technologies are changing how companies relate to their employees, customers, suppliers, partners, sales channels, and markets.” The article argues that the CIO can earn a seat at the senior table by helping to set and realize long-term goals and by augmenting the capabilities of the entire enterprise. That has been true for decades, of course, but maybe hit a peak in the ‘90s when the internet really transformed what organizations could do and how they might do it. Question is, is it still that important when many companies have out-sourced the function? Surely they should not have out-sourced the strategic use of information.

I see Ken Thompson has been asked to quit as CEO of Wachovia over the hit to its earnings, after its $25 billion takeover, at the peak of the housing boom, of California mortgage lender Golden West Financial. Perhaps they could have done with one of those ‘Chief Strategy Officers’ I mentioned before – or at least someone with basic strategic competence. One of the most basic questions any management team should ask [class 1, topic 1 in the program for prospective CStOs] is ‘What is the worst that could happen here?’