This trip to London is a good one both business and personal. On the business front, we’ve accomplished a lot including helping our client to work on the core elements of their strategy beyond just marketing a new product. It is important to put a corporate strategy view to a marketing strategy so we have a comprehensive plan. On the personal front, I went to see my niece’s daughter’s ballet lesson and took a lot of pictures. She's adorable. Hmm.... there may be strategy lessons we can learn from ballet.
There’s always a lot of myth around corporate strategy. I must admit I’d only started truly master the art of corporate strategy 10 years after B-schools. The word “strategy” gets thrown around a lot. A true corporate strategist needs to understand industry and product level competitive dynamics, financial market behavior and the understanding of how “value” is being created. It is not these practices are without flaws; there is often a lack of empathy and fail to identify unmet needs that could means leaving a lot of money on the table.
Many companies strategies pretty much look like the picture above, needing cash to power forward. Suddenly your corporate strategy plan makes less sense, but should it be the case? What’s a corporate strategy? Corporate strategy consists of a number of theories and techniques (and decision frameworks) on looking at how and where to compete, how to configure and co-ordinate, how and where to find cheap capital and how to organize and systemize. These are developed and practiced by CEOs, corporate planners and strategy consultants. Not everyone in organizations has access or invited to participate in these exercises as they are considered the most important decisions making process. Not everyone is ready. The more you can think like a CEO, the more you understand these issues.
I’ve often many executives wanted to participate and complaining that they were not invited. They usually didn’t understand 2 things:
1/they were confused around the difference between corporate strategy planning with operations planning and thought they needed to involve in the decision-making. And it is often true many so-called strategy sessions are in fact operations panning sessions where people throw power points around. Often there are nothing strategic about these meetings.
2/ strategy of any organization is the job of the CEO, often supported by strategy consultants and internal planners. The CEO should be thinking about this night and day while the COO and the other senior VPs manage the day-to-day operations. There are no benefits of inviting everyone into these sessions, as the line managers are part of the daily operations and therefore difficult for them to see beyond their functional or self-interest and the industry dogmas that they carry with them. Corporate strategy discussions should be kept within a small group that continuously assessing the risks and opportunities of the businesses. It requires very different skills and need to keep a distant from operations. I’ve seen situations when senior managers are bought in too early on these discussions around certain innovative ideas, they either behaved as if either these projects will take their power away or jump quickly and blindly into supporting it to make them look good even though they may not be sound projects.
Part of corporate strategy is assessing innovation risks. It is no easy job. The apparent aversion to discontinuous or exploratory growth strategies is a natural fallout of the belief that the potential rewards will be received too far in the future at too high a risk. Both beliefs have point and weight, but they impose costs that need to be understood and contained. For example, while the actual rewards may be realized far in the future, the equity markets account for them in their expectations of (suitably discounted) earnings. If the organization is viewed as mired in slow-growth markets, vulnerable to emerging technologies, and lacking a compelling story about its future growth thrust, the stock price will surely suffer.
Risk aversion may have more crippling consequences. Certainly the probability of failure goes up sharply when the business ventures beyond incremental initiatives in familiar markets. But this should not be an excuse for passivity. It’s healthier to properly assess the risks and then seek creative ways to reduce the risk exposure. Prototyping new business ideas should be a routine and part of the responsibilities of the strategy team.
The big challenge with corporate strategy today is many of these theories and guidelines do not work anymore. At least not for the next 5 years. A few years ago companies are not encouraged to accumulate cash and their jobs is to put it to use or return them to investors. The view if it is put into passive investment (bonds and T-bills), it will not provide the return to investors. The investors can do that themselves, they invest in the company to support acquisition and growth. For many years, Microsoft and Toyota were among those. Today, it is a very different story.
Corporate strategy also implies a company should focus on their core and become asset light. It was considered smart to outsource as much as possible so they don’t have to lock in their capital. Companies are encouraged to accumulate debt in order to “leverage” their business models and balance sheets. Suddenly the overnight money disappears and everyone scramble to find cash, even the very healthy companies.
One thing about corporate strategy that has not changed, the need to find innovative ideas to emerge out this downturn as winners. Innovation is needed for both strengthening existing served markets and exploring new adjacencies. The key is to innovate out of this environment is a systematic search of the two feasible domains 1/ Finding new ways to further penetrating the served market by escalating a level of engagement with customers 2/Finding new ways in expanding into adjacent markets or products spaces. This is often sparked by market shifts and untapped opportunities. This is NOT the time for large companies to explore beyond adjacencies, as it would put the company at too many risks and won't be viewed positively by the street. The beauty of this is this create opportunities for nimble start-ups to attack these white spaces and not having to worry that the big companies getting there anytime soon. Corporate strategy practice puts too much emphasis on refocusing the core and not innovating. That's why innovation is still primarily the jobs of start-ups.
The first priority for the first domain is to protect share; which traditionally means proliferating the product line to match rivals or satisfy customer demands. With the base more secure against a direct attack, the next avenue for growth is to capture market share from rivals. This can be costly and counterproductive if it invites retaliation, which will likely happen if the move is so clearly visible that it leads to price cutting or an escalation of marketing spending or “tit-for-tat” matching of features. It must be done carefully to avoid and/or strip out any “me-too” offerings.
The second domain is often where yields best results with the lowest risks. It is about innovating around the edge of the business outward from the served market but stay close (close enough) to familiar territory. These strategies are often motivated by two related questions: 1/ how can we leverage or extend our existing (borrowing or acquiring new) competencies into new adjacent markets that extend our customer engagement? And, 2/ adjacencies market almost always overlap with other industries and hard to predict the outcome. The departure point is expansive thinking about the structure and boundaries of the market. This is also where innovation yields highest return.
As in EVERY downturn, it is not a race to cut cost and the winners are not determined by not or what costs are cut. Speedy cost control is important as a reactionary step. It needs to be swift and with the expectations that they need to pay for it. Downturn is always the best time to launch new business or products as the big players abandoned all their innovation projects too quickly leaving these opportunities for start-up to capture. Tech giant Microsoft and legendary advertising agency Leo Burnett were both born in downturns. You need upturn thinking in a downturn beyond cost cutting.
Happy Thanksgiving!!!
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