One intriguing piece of Nalco’s response was a deep review of their product range, leading to them ‘blowing up’ hundreds of under-performing products. I’ve noted before that over-extension is a common route into trouble – adding too many products, chasing too many new markets and small customers, starting too many initiatives etc just to be seen to be delivering growth. So a question for Nalco might be ‘If you just killed hundreds of poor products, how come you didn’t do that years ago?’

Later in the same issue, Fortune reports on Pfizer’s re-worked drug development process which includes an interesting slogan – ‘Kill early and often’. Focus does seem to keep reappearing as a feature of strategically successful organizations.

I couldn’t find much in Leading through uncertainty on what to actually do, though it does offer some broad scenarios of how the future might play out, depending on the depth of the global recession and recovery of financial markets. 

Strategy in a ‘structural break’ argues that this downturn is qualitatively different than others – in some sectors, things look very unlikely ever to return to where they were. ‘Structural break’ is a phrase from econometrics denoting the point in time-series data when trends and the patterns of associations among variables change.  It’s the second part of this that is so dangerous, because it may disable policies and strategies that previously worked. But not sure it all hangs together:

• It asserts that “the most important element of a strategy is a coherent viewpoint about the forces at work, not a plan” – sounds smart, but a coherent view with no idea what to do in response seems inadequate. 
• Surely, on its definition above, the internet revolution imposed sructural breaks on many more industries and business models than the current banking crisis and recession. It’s not clear this downturn meets those conditions in more than a few sectors. This is important, because the structural break argument is being used by consultants and writers to push firms into looking  for changes to their business models that is mostly inadvisable. This article argues that “The wrong way forward in a structural break during hard times is to try more of the same. The break and the hard times are sure indications that an old pattern has already been pushed to its limits and is destroying value.” True, but that’s not what most firms are currently facing.
• Some good points it raises though … complexity may have grown, and needs to be sorted out – that was an important part of the case in my ‘Strategic Recovery‘ article ..  the first task is to understand how a business has survived, competed, and made money in the past, and if the business is too complex to comprehend, break it into comprehensible parts.

The downturn’s new rules for marketers has good pointers I don’t have time to go into.

A fresh look at strategy under uncertainty interviews Hugh Courtney on his excellent book 20/20 Foresight: Crafting Strategy in an Uncertain World, published in 2001. The book outlines four levels of uncertainty – a clear future, a few clear alternatives, a wider range of scenarios, up to complete lack of any idea how things might play out. Hugh points out that the present situation does not feature widespread level-4 uncertainty for most of us. If so, the radical revision of business models being advocated by others is just plain bad advice. Instead, Hugh advises some thoughtful scenario-planning, and faster, more active strategic management [more substantial decisions, more often] – which of course is where strategy dynamics is so helpful. The last point I’d make is that strong firms don’t wait to see how the future will play out – they make it happen the way they want. 

In summary, the principle is that – like Starbucks [see latest post] – management rushes into over-expansion in good times, chasing more of those high-spending customers, launching more products and services to sell them, and adding capacity and staff to make it possible. In the process, they add quantity to these four resources, but don’t notice the falling quality – especially lower-spending customers, and products that don’t add sufficient truly incremental sales and margin.

The end-result is a bloated business that just about stays in the air while market conditions are good. When things get tough though, the chickens come home – marginal customers and products collapse into loss-makers and you are left carrying the heavy staffing and capacity costs. How to dig out of the hole?

Well – not by across the board cost-cuts and sackings [a friend just told me of a star exec at HSBC fired at the cost of 18 months'  salary, when his expertise will be desperately needed within 9 months!]. You need to ‘re-architect’ the business back to a healthy core that is both profitable and capable of re-energising its growth. That’s what the article explains [only in simple terms of course - there's much more detail to doing it in practice].

So it’s not a question of cutting back, so much as cutting out – gardeners amongst you might think in terms of ‘pruning’ – cutting out weak and diseased branches so the plant can put all its energy into its strongest limbs.