Talking about strategy » corporate strategy

eBay/Skype split

Kim Warren — Fri, 04 Sep 2009 14:20:56 +0000

Sad to see the ill-fated marriage of eBay and Skype end in divorce. Though it’s more fun to celebrate strategy triumphs, disasters can offer important lessons too. An Economist article focuses on the sale itself and worries about eBay’s prospects, but doesn’t assess why the original strategy didn’t work. At its most basic, it was a common issue – over-optimism about how business A customers would form a strong and easily-captured potential customer-base for business B. [I made the same mistake myself in the past!] Take a look at eBay’s presentation of the rationale offered at the time of the orginal acquisition – it’s scarily thin on any analytical justification for the hoped-for benefits. Investors should expect better.

Sovereign Wealth Funds impact

Kim Warren — Tue, 23 Jun 2009 07:39:48 +0000

Have noted before the major role that Sovereign Wealth Funds may play as the global economy recovers, in particular those engaged in active management, not just passive investment, e.g. Mubadala Development Co from UAE. Reports from Monitor have much to say on this – Weathering the Storm and Testing Time. As I have urged before, strategy requires asking how the future might develop, so if you are in an industry where these funds are active note that this phenomenon is not without risk. If such groups pursue strategies informed by financial portfolio thinking, for example, they could end up replicating the ‘diversified corporation’ mistakes of the 1960s and 70s, with unfortunate consequences for themselves and the industries in which they invest – and for you, if you’re in the same industry!

Good old tools still help

Kim Warren — Thu, 18 Sep 2008 11:16:33 +0000

You would expect knowledge in a professional field to accumulate – what we use today being built on what was known and used in the past. Strategy often doesn’t feel like that – a new fad gets promoted, then falls away as the next one comes along. So it’s a good reminder that one such tool is still helpful – if used with very great care!

The GE-McKinsey nine-box matrix helps identify which business units in a corporate entity should receive more/less investment or divestment. It emerged at a time when corporate strategy was heavily oriented to a ‘portfolio’ view, so it has its limitations – it does not deal well [or at all really] with the synergies between related businesses, and its assessment of ‘industry attractiveness’ and ‘competitive advantage’ were pretty flakey – not much change there then! It’s worth remembering that virtually all the huge conglomerates built during the 60s and 70s on the portfolio view of corporate strategy have now been broken up .. so use it very carefully, and only as part of a more integrated assessment of related businesses.

At least this tool wasn’t as down-right dangerous as the BCG growth-share matrix though – I’m told that a senior partner at BCG has made a public apology for the massive destruction of corporate value that arose from that one .. anyone know when/where that apology was made? Just shows how careful you have to be about even solid theory-based approaches – there’s not much wrong with BCG’s underlying reasoning .. it’s just useless – no, very very dangerous – when badly applied.

… and of course, none of these types of tool say anything at all about how strategy and performance get built over time.