| The previous briefing looked at how adding larger customers and removing smaller ones can raise the average size of a firm’s customer base. To these mechanisms must be added a third element. What is it?. | |
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| It is not easy to understand and manage changes in attributes and the impact of those changes. Strategy must recognize and cope with change over time, so needs a method for quantifying both scale and speed of progress. Now we must not only work out how key resources are changing, but also the quality of those resources. How is this done? |
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| The briefings up to this point have put together the basic elements of the simple core system of how an organization functions and delivers performance that changes over time. This picture with numerical information on its performance is often enough to see big improvement opportunities. However, there is much more opportunity to use strategy dynamics to improve performance… | |
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| The Balanced Scorecard has transformed the way in which organizations track and steer their performance, and is now a popular tool among large companies.
What challenges arise when assembling a Balanced Scorecard for a business? (See Kaplan, R. and Norton, D. 1996. The Balanced Scorecard, Harvard Business School Press, Boston, MA. See also www.balancedscorecard.org.) |
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Oct 122011
How to Prepare for a Black Swan in strategy+business offers good advice to assess exposure to disruptive events, but misses key elements a strategy can and should cover.
In summary, the advice is [1] map the firm’s operations, supply-chain and sales channels [2] list potential disruptions [3] ask ‘what if’ these happen [4] set up contingency plans. Work on risk in utilities shows several additional strategy responses are both possible and desirable.
- Reduce the risk that an event will actually cause disruption, e.g. by investing in resilience. In utilities, critical equipment can be ‘hardened’ to make it less likely to fail if hit by a damaging event. Similar hardening investments can make supply chains, internal operations and distribution channels more resilient in other cases.
- Reducing the damage from any disruptions that do occur, e.g. by building in ‘redundancy’. In utilities, stand-by equipment at critical points can radically cut the risk of actual power cuts for a small incremental cost. In strategy, options for alternative supply-sources or distribution channels cut risk in a similar way.
- Minimising the time to recover, by making sure the business is not operating ‘on the edge’. In utilities, a small percentage of spare equipment or excess staff can radically cut the time needed to get service back online after a disruption. In strategy, obsessive ‘ratio management’ not only leaves business vulnerable to damage if disruptions occur, but make it that much harder to recover if they do.
www.strategydynamics.com
| Recent briefings have shown how mapping out, rigorously, the interdependence amongst resources results in a model of the machine that makes the organization function and deliver performance, which we have called its strategic architecture . After a short break over the summer, read on to find out more about Generic Architectures. |
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Sep 192011
A great episode of BBC’s Horizon hints that business leaders may feature 4x more psychopaths than the average population – up to one in 25 – just might explain why some leaders have driven banks and other firms to keep doing things everyone knows are dumb, messing things up for the rest of us in the process. I guess we each have our own examples – I worked with one in academia too! Continue reading »
Sep 062011
With worries about world economies falling back again, we could reflect on how we got in this mess, and some questions for Strategy.
Recessions usually start, I hear, in the corporate sector – falls in consumer or public spending then follow those business reversals, rather than the opposite. It can also be shown that an industry can fall into big cycles with no variability at all in underlying demand growth. If this happens in one sector, then both the boom and the bust infect other sectors, making the problem still worse, and a recession ensues. This was a topic at a small conference, featuring iconoclastic economist Paul Ormerod, back in February – here is a rather basic [sorry] recording.
If we are so smart at developing strategy, how come so many companies failed to see that their over-heated markets were no basis for what turned out to be gross over-expansion? If a general recession is the sum of down-turns in many sectors, then this strategic error was nearly universal –in retail, banking, telecoms, transportation, raw materials, real-estate … Strategic incompetence in, say, US subprime lending or Northern Rock is rather clear, but similar if smaller errors must have been happening all over.
So, as a strategy profession, where did we fail? Did we not provide the tools for management to prevent these mistakes? Did we ourselves fail – or did we indeed warn of the emerging problem but get ignored? Or did some of us actually do pretty well [I think Canadian banks largely avoided the crisis, for example]?
Then, what are we doing now to help strategic recovery of the businesses we support, and hence of the economy? Have we helped design smaller but more powerful business strategies – or are companies stuck with crude cost-cutting instead? Recessions are often a great time for strong companies to pick up weaker rivals or cheap assets, or steal business – which if widely done should speed the recovery – so are we playing our part to make that happen?
Perhaps we need much more of the smart strategy modeling at Boeing?
Aug 182011
I see strong 2nd quarter profits at Boeing, just after hearing their strategy VP explain their heavy use of strategy models. Their industry model led them not to cut production after a 2009 collapse in orders, in spite of screams from analysts that they should do so to cut costs. Reminds me Airbus used a similar model way back in 96 (also in link above) to spot that a massive jump in orders was fluff, and to be cautious about adding capacity. (Back then, Airbus could only supply part of the market, so they couldn””t have captured Boeing””s 98-9 peak deliveries).
Message here – you can””t do strategy with 2×2 boxes, Vision statements and spreadsheets – you need rigorous and powerful models of your business and its environment. And this is not just for big boys and girls - my friend Warren Farr who runs RSC, a regional distributor of heating, ventilation and air-con equipment, built a strategy model of his market. This told him a market slow-down was not a normal cycle but a fundamental shift to an era of lower demand. Competitors kept expanding, believing growth would return – Warren held back and banked the cash. When competitors failed, he bought up cheap capacity and failed businesses, putting RSC into a strong position – much to the delight of employees who would otherwise have lost their jobs.
Aug 072011
A smart-arse student glibly stated ”Culture eats strategy for breakfast” – a remark attributed to Peter Drucker. A quick Web-search finds this quote often admiringly repeated. But it”s an example of something way too common in management – outrageous statements that sound great but are just nonsense.
We don”t need to list out all the endless cases of companies with hugely strong cultures that just messed up trying to do something strategically dumb. We probably have no idea how many more there have been, simply because they failed and died. What we do know is the huge number of successful businesses that do perfectly fine, thanks, with no particularly strong or unique culture – just a strong strategy and professional execution.
