... talking about strategy

Strategy error by Kraft?

Kim Warren — Wed, 03 Feb 2010 09:52:53 +0000

Kraft foods finally won control of Cadbury with a big £11.9 billion ($19.4b) offer. Warren Buffet, owner of 9% of Kraft, says it’s a bad deal – and he’s rarely wrong. Will Kraft do the usual and try to extract ’synergies’ by slashing costs, or deliver real value by leveraging the combined resources to drive medium- to long-term growth in cash flows? … and will analysts allow them to do it right?

What MBAs want

Kim Warren — Sat, 30 Jan 2010 15:05:42 +0000

Encouraging interview with Blair Sheppard, dean of Duke Business School, about increasingly mature expectations of future execuitves [their MBAs!] Seems they are looking for broader perspectives, linking business issues to societal and environmental issues, and not thinking the answer is to junk existing institutions but to make them work better. Blair says this needs better integration between schools of Business, Environment and Policy. We are not starting in a good place - though he claims business schools are already ‘interdisciplinary’ [i.e. they have all the required subjects], that’s not actually the case because they lack the tools to integrate them, even if they have the desire to do so.

The Execution Premium

Kim Warren — Wed, 27 Jan 2010 14:44:09 +0000

More solid stuff from Kaplan and Norton, which moves on somewhat from their balanced scorecard + strategy maps ideas. The Execution Premium points out “Strategy that does not link to operations is not strategic. It’s just pointless planning.” and goes on to outline how to plan operations to deliver the strategy – a notable omission from most business school strategy classes.

Why Most CEOs Are Bad at Strategy

Kim Warren — Tue, 26 Jan 2010 14:16:06 +0000

A blog post by Roger Martin* makes a good case that CEOs find it hard to simultaneously make a good choice of where to play and how to win. He concludes they need to go beyond these basics and ‘creatively integrate’ these two views. True enough if performance were all about formulating strategy, but it forgets that order-of-magnitude differences in performance more often arise from relentless expert management of strategy, than from unique choices of where+how to play.

He also claims that we do not have the tools to integrate these perspectives – which is not true, of course, because that’s what strategy dynamics does.

* Dean of the Rotman School of Management

Speed up clean-tech adoption

Kim Warren — Tue, 26 Jan 2010 09:48:55 +0000

A Chatham House report calls for policy makers to cut radically the time for clean technologies to be implemented. Even when technically and financially attractive, adoption takes decades. This can be changed – a big strategic opportunity for firms in relevant sectors, as well as massively important to society - see my note.

Green strategy potential

Kim Warren — Sun, 24 Jan 2010 13:53:56 +0000

In Green Is a Strategy, strategy+business makes a strong case that sustainability is becoming, not a nuisance issue to which business will have to react, so much as an opportunity for advantage that needs to be proactively grasped. A bit thin on details, but offers some good big principles. Given the severe environmental problems to which we are already condemned, the faster firms get going with this, the better! Further to my post on green recovery, it’s interesting to discover from a McKinsey Global Institute slide-set that:

1 – on a global basis, over 25% of carbon emissions can be cut at a profit, and as much as 60% at zero net cost!

2 – virtually all of this can be achieved with no new technology whatever.

It’s bad enough that governments are squabbling over who’s going to ‘pay’ to try slowing climate change, it seems they can’t even bother to tell the public what’s easy and cheap to do.

Which CEOs to admire?

Kim Warren — Fri, 22 Jan 2010 11:32:40 +0000

It seems the real hero-CEOs are not the well-known names, and perhaps not with well-known companies either. In Do We Celebrate the Wrong CEOs? Morten Hansen and Herminia Ibarra identify CEOs who have delivered sustained, long-term growth in investor returns over long periods, and it’s likely you never heard of most. More worrying – maybe the companies they run are not well documented either, nor what has been so great about the strategic management that delivered these great results.

Are you the best owner of your assets?

Kim Warren — Thu, 21 Jan 2010 08:33:20 +0000

With M&A activity recovering, a timely reminder from McKinsey to check out this question. Simple principles, but easily forgotten.

Business model innovation: BMI

Kim Warren — Wed, 20 Jan 2010 11:22:51 +0000

A clear and practical paper from BCG explains nicely what a business model is, what ‘innovating’ it means, and when and how to do it. The only caveat is the superior total shareholder returns it claims comes from BMI innovators vs. traditional innovators – it likely excludes BMI innovators who failed. So by all means check it out, assess whether BMI is appropriate for you, but if not, get back to driving performance in your existing business model.

Beware divesting core business

Kim Warren — Mon, 18 Jan 2010 11:09:04 +0000

A rare example of clear and useful academic research from Emilie Feldman at Harvard [but treat it with care - see below]. Emilie “investigates “legacy” divestitures, the sale or spinoff of a company’s historical core business. Firms appear to divest their legacy businesses within the context of larger efforts to reshape their identities. I find that operating performance deteriorates in the years following legacy divestitures, and this decline appears to be linked to a loss of intangible resources embedded in the legacy businesses, as well as to the disruption of synergies between legacy businesses and other units within the divesting firms. These results illustrate the challenges associated with divestitures that impact firms’ resources in unexpected ways and shed light on the difficulties firms may experience when they attempt to overhaul their identities.”

Warning – its an academic paper, but get it here. And .. it’s another finding based on answering the wrong question. It’s entirely possible that these divestitures decrease profitability, but increase growth in free cash flow, which is what investors actually value, because the firms immediately start spending to exploit growth opportunities that will deliver future cash flows whilst holding down short-term profitability. It is even probable that the divested core business was making OK returns [ROIC] because it was mature and [a] didn’t justify any spending on growth and [b] could be sold at a good price in a consolidating industry.

Nevertheless, it should give cause to think carefully before buying into a transformation. Remember, strategic transformations are very rare, and even more rarely successful.