Reminder – This document reviews through some well-known cases the current philosophy and some basic tools of business strategy to make the case for a continuous, holistic approach to strategic management, i.e. strategy dynamics.

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The terminology may be a bit confusing, because ‘portfolio’ in strategic management usually refers to the set of businesses in a multi-business corporation, and the word ‘corporate’ generally refers specifically to companies made up of multiple business units – so Ryanair is a ‘company’ or ‘business’ and Shell is a ‘corporation’. CPM seems to refer to the portfolio of projects, whether within a single business unit or across a multi-business firm.

There may be a few important links for strategic management.

1. The topic must clearly dominate the strategic management of firms who are largely engaged in delivering projects to clients … which projects to bid for, how much to invest, how to price, how to build and sustain staff, experience and capability, and so on. I don’t see much on this in the usual strategy books and frameworks.
2. It must also be a vital element of strategic management in firms for whom large projects are a major part of what they need to do to function – oil and mineral companies, for example.
3. It seems also to be significant specifically in the R&D and product development functions in e.g. pharmaceuticals or car making. And of course it is critical in IT.

And it is the issues that arise from IT portfolio management that raise the intriguing extension for strategic management generally. A common issue in IT is the interdependency between projects – we can’t automate activity X until we have good quality data, and we can’t get that until we have done project Y to restructure our databases, but when we have done that, we can redesign business processes A, B, C, which means we can reduce costs there and spend more on activity Z …. A short and simplified framework for this appears in a section of chapter 9 of my book, developed and tested with one of the IT-service firms.

Generally, the way I have written about strategy focuses on continuous policy issues – pricing, marketing, hiring etc. Strategy for many firms, though, especially in fast-changing sectors, features more strongly a sequence of projects, e.g. in new product development, new market entry, alliances and acquisitions. So it looks like this will need addressing in the 2nd edition.

The really interesting question is what happens when you take a portfolio view of both projects and continuous policy – when you have to choose, prioritise and sequence both discrete initiatives such as product launches and IT investments with with continuing choices on pricing, marketing etc. Much to work on here I think.

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As usually implemented  …
- there is no coverage of competitive conditions or competitor behaviour – nor can I find any suggestion in the BSC or Strategy Maps books that they should do so.
- there is no coverage of overall supply/demand conditions – and again, no suggestion they should do so.
- there is no attention to prospective performance – i.e. how we are likely to perform on key indicators in coming periods [as distinct from our performance targets].
More seriously, although the causal logic generally seems to make sense to executives [Learning/Growth >> Internal Processes >> Customer Consequences >> Financial Outcomes] there is no rigorous, formal, verifiable structure to that logic – i.e. no solid ‘theory’ – that might ensure the strategy map is robust. Consequently, BSCs seem to reflect what teams think, or would like, some of the causal relationships to be – which may be entirely different from what another team might come up with. [I address this issue and suggest the basics of a more rigorous approach in chapter 4 of my book .. see www.strategydynamics.com/c4 ]
As a result, I can’t as yet see how a company’s BSC could have led them to anticipate the current crisis, to plan for it, or to work out what to do to survive and escape from it. It would be extremely valuable for many of us to hear of cases where BSC has been helpful in coping with current difficulties, and how that has happened.
Kim

Full article at Rethink Your Strategy: An Urgent Memo to the CEO.

Much of the advice is generic, and requires much more work than the brief headlines suggest. It also implies undoing much of the foolish activity that firms engaged in during the boom – by cutting fringe activities, shedding marginal businesses, conserving cash. [Where was the advice on these basic principles over the last 4 years?]

Then, as I’ve argued before, look for M&A and other opportunities to rationalise competition to your own advantage – see more on pushing out rivals from chapter 7 of my book.

… which is exactly what my friends Drew Jones and Jack Homer have done with Joyce Essien of Emory University, and Dara Murphy and Bobby Milstein, both of the Centers for Disease Control and Prevention (CDC). More information on the model is available at the Sustainability Institute website.

A summary of the key structure capturing how people move between increasingly seriousness states in relation to diabetes is in chapter 6 of my book, and a detailed discussion is given in Jones, A.P., Homer, J.B., Murphy, D.L., Essien, J.D.K., Milstein, B. and Seville, D.A. (2006) Understanding diabetes population dynamics through simulation modeling and experimentation, American Journal of Public Health, 96(3), 488–494.

This has become particularly prevalent since the fashion for privatising utilities – water, gas, power, rail – but was already an issue in commercial asset-intensive industries, such as steel and oil. Management can always defer capital and current spend with long-term payback because the short-term damage will be insignificant – for a while. Then, the accumulated under-spend finally breaks out in frequent, big problems. Bear in mind that in many of the industries affected, very little can be done about market-facing strategy – folk don’t generally want a lot more sewage services or power supplies. For these companies, strategic management is dominated by choices on management and investment of capital intensive assets.

It’s not as simple, though, as spend v. not-spend – there are many choices and trade-offs. Should we up the maintenance rate on deteriorating assets or fix them well when they break down, should we replace the most unreliable assets or refurbish them, etc?

Here’s a section from chapter 6 of Strategic Management Dynamics explaining the issues, and here is a simulation exercise to try the challenge for yourself. It’s a zip file with a slide and model – run the slide show. You will need our mystrategy software for this – the free Reader will do fine.

I must thank my friend Bob Thurlby of Serco PLC who does a lot of practical work on strategy in asset intensive businesses for the opportunity to develop these insights.

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• The choice of strategic ‘position’ [what to provide, to whom and how, relative to rivals] is a very rare activity.
• Substantial strategic initiatives [acquisition, new market entry etc] occur occasionally.
• By far the majority of the task is steering [a.ka. implementing] the strategy from period to period.

So – how come the attention in all the textbooks and journals is in precisely the opposite priority?

This took me on a tour around some interesting examples – Blockbuster vs Netflix in video rental, Alibaba.com [China's eBay-beater], IKEA, etc. And also onto Michael Porter’s ‘What is Strategy?‘ article [HBR, Nov/Dec 1996], which got me really annoyed, because it totally dismisses everything except the first task – though that shouldn’t have surprised me I guess.

See a draft of this new section here [forgive the baby steps approach, but it has to work for new-comers to strategy as well as you experts!].