Idea 12 - Corporate Strategy
Strategy is as old as war which, if you look in a
dictionary, still crops up before business in any definition. 'The art of war'
neatly sums up its military application, but management writers' definitions
are seldom as short. Gerry Johnson and Kevan Scholes, in their Exploring
Corporate Strategy, offer: 'Strategy is the direction and scope of an
organization over the long-term: which achieves advantage for the organization
through its configuration of resources within a challenging environment, to
meet the needs of markets and to fulfill stakeholder expectations.' Michael
Porter is more succinct, and comes from a different angle: 'Strategy has to do
with what will make you unique', he told an audience at the Wharton School
recently.
However you define it, strategy wasn't a deliberate
preoccupation of managers for many years. They thought and planned, and some
tried to be different, but that was just part of running the business and
wasn't crystallized as 'strategy' much
before the 1950s. Then, in 1965, H. Igor
Ansoff published his Corporate Strategy, which brought the topic
together with 'strategic management' - its formulation and implementation - to
a much wider corporate audience.
A rule for
making decisions Acknowledged as the father of strategic
management, Ansoff said that strategy was 'a rule for making decisions', and
few would argue with that. He distinguished between objectives, which set the
goals, and strategy, which set the path to the
goals. And he believed firmly that 'structure follows
strategy'. Strategic decisions had to answer three fundamental questions:
ü
What are the firm's objectives and goals?
ü
Should the firm diversify and, if so, into what
and how vigorously?
ü
How should the firm develop and exploit its
present product-market position?
He flagged up an important issue that has bedevilled
strategy formulation ever since, which is that most decisions are made inside a
framework of limited resources. No matter how big or small the company,
strategic decisions mean making choices between alternative resource
commitments. Grow the existing business and forget diversification? Diversify
and risk neglecting the existing business? 'The object is to produce a
resource-allocation pattern which will offer the best potential for meeting the
firm's objectives', he says, and then shows how to do it.
Ansoff set off an explosion in strategic planning, and soon
everybody who was anybody had set up a corporate planning department that spun
out sheaves of Soviet-style five-year forecasts and targets. While their day
soon passed and Ansoff's own ideas became less prescriptive ('analysis is
paralysis' - he said it first), later thinkers still have a lot to thank him
for. For those who don't indulge in tomes on theory, he is best remembered for
Ansoff's product-market matrix, a still useful tool for deciding,
strategically, how to expand the business. Its four possible strategies use
different combinations of products and markets: market penetration, the safest
strategy, is growing share of an existing market with an existing product;
product development is selling new products to existing customers; market
development is finding new customers for existing products; and
diversification, the riskiest, is finding new markets for new products.
Planning
pipeline The corporate planning department may have folded its tent,
but strategic planning remains an indispensable function. The process typically
unfolds in this order:
Ø
Mission statement and objectives - describe the
company's vision and define measurable
financial and strategic objectives.
Ø
Environmental scanning - gather internal and
external information and analyse the firm, its industry and the wider
environment. Stamping ground of the 'five forces' and SWOT (strengths,
weaknesses, opportunities, threats) analysis.
Ø
Strategy formulation - the hard part.
Off-the-shelf 'competitive advantage', 'core competence', or do you really
think from the inside out?
Ø
Strategy implementation - the next hard part.
Communicating the strategy, organizing resources and motivating the people to
deliver it.
Ø
Evaluation and control- measure, compare with
the plan and adjust. Finding a 'right' or even a 'good' strategy is, of course,
another matter entirely, though there is plenty of willing advice on hand.
Michael Porter thinks head-on competition is a mistake. He says no one wins
that sort of struggle, which often comes from setting out to be the 'best' in
the industry. 'Best' is in the eye of the beholder. Better is to develop
strategy around your unique place in the market.
Porter is also dismissive of shareholder value as a
corporate goal and calls it the Bermuda Triangle of strategy: 'Shareholder
value is a result. Shareholder value comes from creating superior economic
performance.' Operational effectiveness is not strategy but an extension of
best practice. That can be good for performance, but hard to sustain - if its
best practice, others will do it too.
Richard Koch thinks that corporate strategy's account may be
operating in the red, and that over the last half century it has done more harm
than good. This is not because it is a bad thing, but because it is invariably
run from what he calls - and you can almost feel his lips tighten - 'the
Centre'. Most, though not all, Centers destroy more value than they create.
They can be good at sorting out financial crises, identifying turning points,
finding appropriate acquisitions and integrating them, and at carrying out some
Boston matrix-style portfolio management. Apart from those, Koch says, strategy
should be left to the business units.
Reference: 50 Management Ideas You Really Need to Know
Book by Edward Russell-Walling
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