• a risk of more protectionism due to more widespread job losses and distrust of business
• massive public debt slowing recovery
• shortage of finance

The intriguing content concerned the still remarkably low penetration of between-country trade – e.g. US/Canada inter-state trade is a tiny fraction of trade between Canadian states, in spite of NAFTA. The extent of trade between country pairs seems strongly determined by the factors you would expect – historic colonial ties, membership of trade-groups, common language, geographic distance.

The warning, though – and a big one – is that loss-making overseas operations are very common, even for apparently powerful firms, e.g. most of Walmart’s non-US business units are either not profitable or only marginally so. So the warning is to be very careful about ‘going global’ – in spite of the enthusiastic encouragement from the advocates.

Worryingly, he reports that many large firms, when asked whether they plan to carry out careful evaluation of entry into rapidly-developing economies or just ‘go for it’ seem to have chosen the latter!

1. They are more sophisticated than the simple growth/share boxes whose mis-use did so much damage in the past. Business units’ relatedness gets looked at, as does risk assessment. Michael Mirow, former head of Strategy at Siemens and now with Decision Institute, gave a great explanation of how his former firm uses matrix assessment for investment/disinvestment decisions.
2. The matrices are not used for performance management purposes, as was common in the 70s, being limited to investment choices and also for external explanation of corporate strategy.

I guess what we see released publicly by matrix users may look pretty simplistic, but this early report suggests there’s some sophisticated thinking and analysis going on behind the scenes. Keep an eye out for a more comprehensive report from BCG.

• Is there demand for such a credential? From whom? How large?
• Is the knowledge base of the field sufficiently developed and established to offer a certificate?
• What is the expected value-added?
• Should different levels of certification be considered, e.g. for professionals, trainers/educators, institutions?
• What kind of institutional arrangements would support certification?
• Who should be involved in steering the development and implementation of certification?
• What should be the role of SMS, Universities, executives and consulting firms?

A long way to go – SMS as apparently the leading international Society in the field has just 2,500 members, mostly academics, compared with the hundreds of thousands of practising professionals in established fields. And it is quite shocking that the second question can even be raised – after over 50 years of vast and costly effort, how can it even be conceivable that we don’t know enough about what constitutes professional strategy analysis and management to check if someone knows what they are doing!

Interestingly, this matches almost exactly what we saw happening in a largely UK-based law firm last year.

One very common result is that firms may be less profitable, or even unprofitable, for many years, but still enjoy investors’ confidence and a strong share price. This support reflects the expectation that earnings will grow, even if they are not doing so yet. So I’ve asked now in 3 sessions here in Cologne why empirical research in academia hypothesises that ‘performance’ reflects some factor X, and then sets out to confirm that hypothesis correlation between factor X and profitability [ROS, ROA etc]. So far, I don’t get an answer that makes sense. The only attempt I heard was that “We are trying to explain ‘sustained competitive advantage’, and that is indicated by superior profitability.”

To illustrate the nonsense this gets us into – Amazon.com was loss-making for many years, and still generates rather modest profitability. Every time they could have become more profitable, they found further opportunities for growth. So if you took the academic logic, you would be trying to explain why Amazon.com has been an unsuccessful business !

‘Sustainable competitive advantage’ is important of course – if only we knew what it was. I’d go for ‘the ability to sustain stronger growth in earnings than other firms’, which is what managers seem to seek and investors value.

[ Strictly, investors value 'free cash flow' - the cash flow generated after the business has spent what it needs to grow - which is why they can be reasonably upset when firms with limited growth opportunities throw their cash away on ill-advised acquisitions. ]

To summarise the idea [if I get it right?] – if ‘capabilities’ are our abilities to run things and build things as we are in the business and competitive environment we face today, then dynamic capabilities are the ability to detect the need for change, interpret that need in terms of new technologies or market opportunities, then implement the new strategy. These 3 are shown as a perpetual cycle that firms, especially in fast-moving hi-tech sectors need to be good at.

I did try – really I did – to understand the ‘framework’ he offered, but all I saw was a checklist of things to think about. I’m sure David is just outstanding at what he does, and he’s certainly spawned a vast number of papers by others citing hiw work, but can anyone else replicate and really use these ideas in the real world. We’d love to hear from you if you have been able to make usable sense of the concepts.