I have just come back from the ‘International System Dynamics Conference’ [no, you've probably never heard of it], and seen reported a staggeringly brilliant piece of work done for the World Health Organisation [WHO] on its strategy for eradicating Polio. (more…)
I get to read a lot of reports done by MBAs at the end of their programs, mostly strategy assessments for some opportunity an organisation is facing. There is a pretty standard pattern (more…)
A method, approach, framework or whatever is likely a ‘professional’ tool if two skilled people, given the same problem, would pick the same tool, seek the same information, process that information in the same way, and come out with something like the same answer. (more…)
It is interesting to learn that Chinese companies are finding it increasingly difficult to find the technical, functional and managerial talent they need to sustain their break-neck growth. We have seen the ‘war for talent’ raging amongst organizations in already mature economies for many years, and I guess it was inevitable that China would hit this wall before long. Which raises an intriguing question … (more…)
The Economist reports that the Baltic Capesize index, which measures the cost of chartering huge ocean-going vessels used to transport iron ore and coal, has hit record highs, driven by surging demand for raw materials.
Let’s guess what happens next – construction of these vessels will surge, so new capacity becomes available just in time to overtake a fall in the very demand they hope to exploit, resulting in an equally dramatic collapse in prices. This is a well-known phenomenon in a surprising variety of industries with long capacity-expansion lead times – from office-space to insurance to petrochemicals. Hopefully, firms in these sectors are employing those ‘Chief Strategy Officers’ [see earlier post] and checking what the future might hold.
Management and investors really do need to understand ‘total returns to shareholders’ (TRS), so all such folk would do well know how TRS really works. A better way to understand TRS would be pretty good as class 1 in any MBA strategy class too, and strategy profs [and their economist colleagues] could try explaining how their theories - largely based on crude, static profitability ratios - fit with this over-riding imperative for corporate management.
A timely reminder to be disciplined about the businesses in your corporate portfolio - especially now there may be tempting bargains to be picked up at apparently bargain prices. Simply investing cash flow in ‘attractive’ businesses is not good enough. The value generally goes to the owners of the business being bought. The rule is that ‘2 + 2 = 5′ … i.e. the business must be worth more in our ownership than on its own or owned by others. And no, that does not mean higher profitability, but stronger growth in free cash flows.
The same discipline needs to be applied to activities already owned, of course, though now may not be the best time to try off-loading businesses that don’t fit.
I have just come back from an academic mini-conference looking at the resource-based view of strategy [RBV]. Though this has been around for about 20 years, and increasingly dominates business-school research and teaching on strategy, it does not seem to touch the real world too much. Central to the idea is that only resources that are ‘valuable, rare, hard to imitate and embedded in organizational routines’ can contribute to competitive advantage [the VRIO criteria – don’t blame me, I didn’t make this up!]. My question is – does anyone out there in the real world actually use this concept? If so, I’d love to hear how you do it. When, for example, did anyone in a large strategy consulting firm go to a client and tell them “You know what you really need? - a VRIO analysis on your strategic resources” .. or perhaps I’m wrong and this kind of work goes on all the time?
Don’t get me wrong – I have no problem with the idea that resources are important. This is central to my own strategy dynamics approach, but these VRIO things seem way too abstract to be usable. The good news is that our little conference did seem to find some ways to operationalize the RBV and make it useful.
I see in the Economist that Starbucks will close a further 500 stores in America (in addition to the 100 closures it announced earlier this year), and reduce its workforce of roughly 172,000 by around 7%. I am still waiting for anyone in McKinsey to confirm that they stand by their recommendation for firms to grow their way out of recession – as Starbucks did in 2001-02 [see earlier post].
