Don’t copy what’s not relevant
A nice word of caution from strategy+business magazine about looking for magic strategy answers by peering into the ways of superstars. In The Google Enigma, they point out that ‘Unless your company makes money by selling advertising attached to digital goods, you may not be able to learn much from Google’s example’. You can say that again! … the staggeringly powerful technology behind Google is so idiosyncratic to its case as to dwarf the contribution of almost anything else they may be good at.
Shame, then, that management development and MBA training puts so much reliance on case studies with way too little attention given to the relevance of those stories to other contexts.
Coping with the downturn
Many companies may find some of the articles in the latest e-issue of the McKinsey Quarterly to be helpful, such as ‘Market fundamentals: 2000 versus 2007‘ and ‘Learning to love recessions‘.
Even more useful perhaps is the article on ‘Preparing for the next downturn‘ – it can be too late to think about escaping the quicksand when you’re already up to your neck. There’s an intriguing little twist to this one though – one of the examples quoted of successful survival after 2000 is Starbucks, who “… accelerated growth during the recession by increasing the number of licensed and owned locations.” Perhaps the authors could explain how come the company is now in trouble from following precisely that strategy? [see earlier post] When retail turnover falls away, rationalizing an over-extended branch network is often essential – better perhaps not to have over-extended in the first place?
Oh no – not ‘change’ again !
The latest from McKinsey Quarterly is yet another fire-hosing about ‘driving radical change’, ‘transformation without crisis’, etc. etc. Radical change is very rarely needed, most often destructive, and only appropriate in the most dire circumstances – which applies to very few organizations. And don’t come back with ‘Well you’ve got to transform yourself before some mega-upheaval happens to you’ – it probably won’t, and if it could do, then you’d be better looking to adapt than transform.
At least they haven’t done what the late lamented Cap Gemini did – define themselves as a ‘transformational’ consulting firm – before seeing sense and teaming up with ‘boring’ Ernst & Young.
“If it ain’t broke, don’t fix it – but for sure look to make it run faster, bigger and easier”
Why business ignores the business schools
This FT article regrettably makes public what can no longer be kept as private grief within the business schools – and Strategy is amongst the worst offenders !
There’s no gentle way to say this – virtually no-one uses the ‘tools’ we teach, because they don’t do anything useful. Take a look at the latest survey of management tools by consultants Bain & Co. The only strategy ‘tools’ mentioned ['strategic planning' and 'growth strategy tools'] aren’t tools at all, but things managers feel they ought to be doing.
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]
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.
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.
Myth 1: Continual reinvention
Many of the articles, comments and conferences about strategy-related issues seem to perpetuate some damaging myths – so I thought it might be useful to develop a list of these as I come across them.
This one comes up all over the place – the idea that successful strategy requires constant ‘re-invention’ of the business model. Even sober journals like the Economist ooze over this fallacy, as they did when reviewing the 10-year anniversary of e-commerce in 2005. Ebay, Amazon, Google, Expedia and the rest are successful, it is claimed, because they constantly reinvent themselves.
In fact, if you think about the successful firms we most admire – those above, plus Toyota, CNN, Dell, Southwest Airlines, Walmart etc. etc. etc. – the one thing that stands out is that they
- do not
keep changing their mind about what they offer, to whom and how. What they do is relentlessly improve, refine and extend what already works well.
Far more boring than constant reinvention of course – but it works!
What’s strategy dynamics – coming soon.
With my second major book (Strategic Management Dynamics from Wiley) fast approaching publication, and trying to balancing a number of different conversations about the book and the approach, it seems a good time to open out the discussion via a blog.
I will be offering some thoughts on the subject shortly, so watch this space.
Kim