Meanwhile, HBR offers more and more articles featuring glib slogans or ‘X ways to do Y’ and other styles of  thin journalism. Some are downright dangerous! There are still some great exceptions of course, but I wonder if their crown is slipping. 

Anyone got other favourite sources?

In any year, the vast majority of value is created by companies exploiting business models they have had for years or decades, rather than ones they just invented. On a longer view, though, all value ever created comes from business models that were new at some point in time. The article seems to be taking the first meaning – implying that most value is created by recently-new business models – and urges business schools to focus MBAs on innovation. This may be useful in some cases, but should not take precedence over strategy delivery. If this comment leads to MBAs learning less about how to deliver strategy as a result of focusing on innovation, it will be a great example of how an entirely false premise can lead to fundamentally wrong strategic choices [and this from a business school that is supposed to be teaching the rest of us how to do strategy well!]

So … when reading an article that seems persuasive, do put on your ‘skeptical’ hat and just check that it’s built on accurate foundations.

Good to see the Boston Consulting Group encourage us to focus on the core business (as we should have been doing in the first place), protect product development, look at competitors’ weaknesses etc. – and all with analysis too, rather than gut feel !

Unfortunate, though, that some of the proposals conflict, and some are positively dangerous. “.. begin with aggressive moves to cut costs and increase efficiency … some means of lowering break-even points are obvious: stripping out layers of the organization … consolidating central functions … “.

If you’re in danger of going under, maybe, but I keep coming across companies where everyone is ludicrously flat out and simply failing to get important things done. The strong impression is that many managements are grossly under-staffed, not top-heavy. And what goes out the door when you throw out those “time-wasters”? – the organization’s memory and knowledge of how to do simple, critical things. And those constant reorganizations do the same – in function after function, no-one knows how to do things because none of them have been there more than five minutes.

What you need in present conditions is settled people who really know what they are doing. [Reminds me of the three dimensions of organizational capability - the ability to do critical tasks well, fast, and cheap - see chapter 9 of Strategic Management Dynamics - analyst-driven obsession with doing things cheap does serious damage to doing things well, and fast.]

Then the article repeats that other current fad “Rethink your business model” – almost always wrong and in present conditions a bad distraction from making what you have work really effectively.

There’s some good stuff too though, so take a look – but with brain engaged!

Apple’s development of iTunes of course features strongly in demonstrations of the concept, as in Christensen et al in HBR. Music was going digital, so what a great idea to give consumers a neat device to play music that you had to buy through a central online store. Question is – what on earth were the music production companies doing – sleeping?!

I like Coldplay, who are signed up with EMI, so what do I actually want? – just the music by the band, produced by the company. So surely I just key ‘Coldplay’ into Google which takes me to an EMI web-page where I can sample a track and buy it? Being quite bright, I might even just key ‘www.emi.com/coldplay‘ into my browser and get the same. No chance! [try it for yourself, the URL is actually http://www.emi.com/page/emi/Discography_UK/0,,12641~931488,00.html].

So I find what I want – now can I buy it? no. Why not? Why does there have to be anyone else involved in this transaction? I quite understand that 10 years ago the record companies wanted to protect their CD sales, but surely the writing was on the wall for that business model years ago. It looks like the smart players in this situation were the bands themselves, who realised they could offer something that neither Apple nor the record companies could take from them – live shows, worth millions and just great for the fans. Recorded music for the bands now looks like a promo give-away to drive demand for tickets that will make them very, very rich.

Can the record companies still take back control of their own product? Maybe – and maybe they can exploit Apple to do so. There’s plenty of potential added-value content – extended length tracks, video and so on – so Apple could keep selling the basic content and the record companies develop the facility to sell direct to us all the really good stuff. My friend in the industry tells me that they have been able to do much of this for over 5 years, but instead of taking charge many have instead stumbled from crisis to crisis as Apple at one end and the bands at the other have stolen all the value.

More on strategy at www.strategydynamics.com.

The basic idea is fine – many innovations like iPod/iTunes will only work if they redefine how money is made, by whom, for what. Large corporations may need to develop new models in order to exploit radical innovations.  But that’s not the situation facing most firms, especially right now. 

After a few years of chasing intriguing but fanciful new opportunities, many businesses have over-extended themselves, and neglected the core business that makes reliable money. The article reports that 50% of executives believe the hype that they should be seeking ‘business model innovation’ – hardly surprising, since they have been heavily sold this message by HBR and others over several years.

What most actually need to do right now is re-focus on what works and do it effectively. If they spend their time instead looking still more avidly for some fantasy new world, they may find there’s no business left to take there.

I am not saying for a moment that business model innovation is a bad idea – just not relevant for the vast majority of firms. As the article notes, “Fully 11 of the 27 companies born in the last quarter century that grew into the Fortune 500 in the last decade did so through business model innovation.” So … 16 didn’t, and 473 stayed there without doing so – and that’s ignoring the many cases of attempted inovation that failed catastrophically. Anyone still backing eBay using Skype to transform its payment model, or Time-Warner using AOL to transform delivery of media content, or Hyundai to dominate the car industry through eliminating dealers from the business model?

The article is also pretty generous in defining what counts as business model innovation, e.g. Apparently, Tata didn’t launch low-cost cars to low income families in India, it offered a transforming proposition to families travelling on scooters.

 I don’t have time to do a wide-ranging review of their output during 2004-2007 for all possible warnings and advice – though I cannot recall a single such warning - but I did do a quick scan for anything on the subprime crisis. That after all was a crystal-clear case of an originally reasonable strategic opportunity that numerous competitors managed to mess up big time. It was also very evident in the media, due to the widespread concern about policies towards different customer groups. [There's a great little history of the events up to 2006 at BNET - if that doesn't work in your country, Google A short history of subprime by Brenda White in 'Mortgage Banking'.]  

So I had a look …

I find plenty of reports about problems as they arose in particular companies as long ago as mid-2005, but astonishingly I could not find a single article from the top-level management journals describing the strategic crisis that was brewing or what firms in the industry should be doing about it. And this in spite of the fact that regulators were already expressing concern from May 2005. Even when casualties were beginning to pile up during 2006, there were still no considered articles pointing out the nonsense that supposedly sophisticated firms were pursuing.

McKinsey Qtly Aug97 highlighted opportunities in reinventing real-estate transactions, in which subprime lenders stood to do well. In Jun04 they reported “A deterioration in the credit quality of consumer loans, will probably lead to an increased chance of failure among subprime lending institutions as a group“, but did not offer any warning or advice to the banks themselves. In Aug04, it praised “Spanish-language education programs for potential home owners with an array of prime and subprime mortgage products and innovative credit evaluations to increase [loans to] Hispanic borrowers.”  adding “… recent immigrants may not take for granted the relative stability of US financial institutions.“ In Jan06 they offered a pessimistic scenario “Overburdened US consumers giving way” in which “… return-on-equity levels in the subprime-mortgage industry could fall to 5 percent, from 20 percent“. But the killer came in Jun07, when an article entitled Surviving—and Prevailing—in the US Subprime-Mortgage Market actually encouraged further commitment to an already collapsing sector – “Despite recent dramatic downturns and the threat of increased regulation, subprime-mortgage opportunities still abound for players that are willing to wait for an upturn and can stomach the attendant risks.”

Perhaps we shouldn’t be too hard on McKinsey, though – at least they offered a view. strategy+business did not mention the sector at all before 2007. HBR seems not to have noticed the sector either, but at least by April 2008 had caught up, recommending that “If you don’t understand, ask questions“ - a touch late, perhaps? There were just 13 occurrences of the term in the Financial Times during 2004-05, none mentioning the strategic risks, and the Economist didn’t touch on it at all until Dec06, by which time the problems were piling up.

Now there are two reasons this makes me so angry. First, it is the primary responsibility of those directing an organization’s strategy [and of the consulting firms they employ] to ensure that its future is secure. Secondly, we have been here before, and not long ago …

During 1999-2000 I was being rubbished by colleagues for asking if the dot-com boom was in danger of busting. One eminent figure told me “You just don’t get it – the way the world works has just changed.” He even claimed that investors no longer put money into equities because they expected that they [or those they would sell stock on to] would ever get a return – they did it because they were in some kind of philanthropic way excited to be supporting a brave new world.

None of the top strategy journals highlighted the danger then either. Nor did the only significant professional body for strategists – the Strategic Management Society. I am told [though cannot confirm] that the Society’s 2001 conference was originally planned for Paris, but was switched late in the day to San Francisco because the West Coast was ‘where it’s all happening’. I didn’t attend that one, but hear that both the attendance and excitement was rather more muted than hoped for, as the dot-com bust destroyed most of those spectacular cases that were to have featured. If the Strategic Management Society can’t look more than a few months ahead, I guess there’s not so much hope for the rest of us.

Lastly, let’s not forget the real victims of this incompetence, both in 2001 and 2008 - not the bankers, consultants or senior executives themselves, but ordinary folk trying to make a living and save for their retirement.

But perhaps I’m wrong, and authoritative sources were indeed warning of the inflating bubble of 2006-07 and giving sound strategic advice on how to avoid it or prepare for it. If so, please do let me and my readers know.

‘Protect Strategic Expenditures’ say Robert Kaplan and David Norton

Yes of course it’s foolish to kill efforts and investments that are important to medium- to long-term performance, assuming you can survive in the meantime! But during good times, many organisations raced after all kinds of exciting opportunities like children grabbing more sweets than they can eat. Two widespread problems:

1. They could never take all those opportunities, because none ever got the full effort and investment needed. Better in the words of Steve Covey to ‘land one plane at a time’ and build a strong position before shifting effort to the next. Not doing so means many organisations now have a load of half-baked initiatives, most of which never should have started and never will be finished – our old friend ‘initiative overload’.
2. The optimism of good times means many ‘strategic’ investments never were as attractive as they seemed. Even if they might have made sense in strong market conditions, they are now dogs – and someone should have asked about that possibility in the first place.

  So … the reality is that many ‘strategic investments’ should be killed [and should never have started]. Often, a better term for these is ‘CEO’s pet projects’. In the project described in my strategic recovery post, much of the trouble had been caused by just such a pampered pet, and the CEO eventually came to see it had to be put down. Meanwhile, an important IT investment to radically improve processing accuracy and cut costs was about to be cut, but we got it reprieved.