Posts Tagged ‘Emergent strategy’

What clear strategy looks like

Aug 5th, 09 / 0 Comments

Last week this blog criticised Verizon for mixed messages about their response to the downturn. They mixed vague platitudes about revenue and market share growth with reports of cost-cutting. RR Donnelley, the Chicago based provider of print and related services, painted a much clearer picture today in their announcement of second quarter results.

On the face of it the results don’t look good, with net sales in the quarter down 19.4% from the second quarter of 2008 and GAAP net earnings of $25.2 million vs. $145.1 million in the second quarter of 2008.
However, the message from President and CEO Thomas J. Quinlan III was clear:

“We continued to be impacted by the global economic recession during the second quarter, as most of the end-markets that we serve experienced reduced demand.”

It would be easier to run businesses if we could control the external market, but we can’t. No amount of advertising spend or sales incentive will encourage customers to spend if they have decided not to. The reality of strategic management is that while an organisation’s purpose and values should remain constant, every business has to respond to market conditions by adapting strategy and goals to suit.

In the case of Verizon last week it was difficult to understand what their response was, but with RR Donnelley it is clear that part of their strategy is to build resilience during the recession so they can emerge stronger in the recovery:

“During the first six months of 2009, our focused management of costs and working capital has resulted in cash flow from operations of over $850 million, an increase of nearly $480 million from the prior year … Despite the challenging operating environment, over the past 12 months we have reduced our debt level by nearly $800 million and ended the second quarter of 2009 with available liquidity of $2.4 billion.”

This appears to be a measured and sensible response to adverse market conditions and one that many businesses could learn from.


Strategy

Change strategy by all means, but maintain direction at all costs

Jul 11th, 09 / 0 Comments

The economic downturn is testing many business plans and strategies.  There is evidence that the reduction in capital investment from the private sector declines faster than the economy, which can be a severe test of many businesses.  (The good news is, for the businesses that survive at least, that there is a balancing acceleration in spending once the recovery starts.)

How do you respond to the economic roller coaster?

How do you respond to the economic roller coaster?

So, is it possible to adapt to changing economic conditions without compromising the essence of your business?

The answer appears to be yes providing you make a clear distinction between adapting your strategy to deal with short term threats and keeping  a clear sense of purpose underpinned by strong values with a clear sense of direction. Using a journey as a metaphor, you can change your route to avoid problems and hazards without changing your ultimate destination.

How does this work in a business context?

To begin with you must have a deeply held sense of purpose with values that are meaningful.  Any tendency to dilute these in favour of a short-term focus on cash or profit will create problems.  Once you have compromised the core business to seek purely financial goals, it is hard to regain the same sense of mission in future.  Also, when the business environment is tough is exactly when and why you need a clear direction, maybe expressed as a vision.  This provides the guidance for all operational decisions.

How can this be achieved?

The key seems to be to make any change to your strategy or business plan both conscious and considered.  That doesn’t mean it has to be slow, it simply means that any short-term change should be consistent with the long-term purpose, vision and values.  So, if an opportunity arises to make cash from an unrelated activity, it might be the wrong decision, despite being superficially attractive.  If, however, there is an opportunity for related diversification, this could be the right answer.  For example, taking a product from the private sector to government, or from a domestic market overseas.

So, in these tough economic times, it is important to look at business plans and strategies to see how they can change.  It is also important to look at purpose, values and vision to see how the short term changes can strengthen these aspects rather than weaken them.

Strategy, economy

Strategy formulation: economic signs mixed but, on balance, no green shoots

Jun 29th, 09 / 0 Comments

Strategic analysis should include an evaluation of the external business environment.  This post could be used as input for the Economy section of a PESTEL analysis.

Continuing the theme of conflicting evidence about the state of economic recovery, today again sees apparently contradictory signs:

The Guardian reports that UK mortgage lending has reached a 13 month high, which reflects growing consumer optimism – which is a key component of the economy independent of data, but net lending figures were at their lowest level in at least 16 years.  The increased house purchase activity supports other, albeit weak, signs of recovery in the housing market since the start of this year.

They also cover a reoprt from the Basle-based Bank of International Settlements which claims that “Overall, governments may not have acted quickly enough to remove problem assets from the balance sheets of key banks”, which further underlines the need for government action to curb the enthusiasm in the banking sector to return to unjustified remuneration for the very managers who allowed these toxic assets to cause so many banks to fail.

The FT reports that the International Energy Agency has reduced oil demand forecasts with global oil demand now forecsat to grow at 0.6% over the next 6 years.  In an extract from the report, the IEA say: ”The recent resurgence in economic activity could…simply reflect the rebuilding of depleted inventories across several industries, making it arguably premature to predict an imminent and strong economic rebound, not least because the elimination of spare capacity, the deleveraging of the private sector in several highly indebted countries and the rebalancing of global demand are still at an early stage.”

The balance of data and analysis suggests that the economic recovery still has a long way to go.  Business strategy, as we have said in previous posts, should assume further setbacks before the economy recovers and the focus should be on agile approaches to strategy that have contingencies rather than trying to formulate definite medium and long-term plans.

Formulation, Strategy, economy

Green shoots sprouting or dead cats bouncing?

Jun 24th, 09 / 0 Comments

Current headlines are giving mixed signals about the prospects for economic recovery. There are many stories this week that point to the emergence of green shoots following the 2008 global economic shock:

  • “OECD sees strongest outlook since 2007″
  • “Oracle executives signal that demand for the company’s software picked up noticeably in recent weeks”
  • “Monsanto earnings beat expectations”

Equally, there are many contradictory views also being aired at the same time:

  • “OECD chief warns about medium term risks”
  • “European Central Bank and other economists have been wary about forecasting any early return to growth”
  • “Japanese exports continue to tumble”

So, what to make of this when trying to develop short and medium term business plans or revise corporate strategies?  Unfortunately, as always, forecasting is inexact at best – the future, is of course, unknown. However, there may be some value in digging into the various stories to understand the timescales being referred to, and taking a view on the position of the pundit or analysts presenting the forecast.
For example, the apparently contradictory OECD headlines are both based on the same OECD report. inevitably, a document with a large scope will have some complexity which allows the contents to be spun in a particular direction, or provides different conclusions if you only consider particular aspects of it.
Much of the analysis and speculation concerns stock markets and share prices which are of limited interest for strategic thinking because they reflect sentiment rather than fact. Economic analysis attempts to consider facts but is limited by the quality of data and conflicting schools of thought.

However, an interesting study that compares the current recession to the Great Depression shows that this shock has been faster and more severe than the predecessor from the last century, and it is possible that there is more shrinkage to come before growth returns.

Our view is that when the future is uncertain it is best to use contingency and scenario planning combined with an emergent approach to strategy formulation and business planning. Scenario and contingency planning help you to be prepared and changing from a planned to an emergent approach to strategic management enables you to be prepared to adapt – fast.

Formulation, Strategy, economy

Canute Strategy

May 12th, 09 / 0 Comments

A survey we are running is starting to show that organisations of all sizes are turning their attention to strategy in response to the global recession.  So far, so good.  What is surprising however, is the approach.  The initial indications are that there is an attempt to control events through top-down, prescriptive planning.  This approach works when the world is stable and extendable, i.e. trends can be extrapolated with a reasonable degree of certainty.

The situation we are in now is far from stable, and I defy anyone to predict where employment, inflation, interest rates, currencies etc. are heading in the short term.  Long term we can rely on regression to the mean, but it is difficult to know how long that will take.

The situation we are in now calls for adaptable, emergent approaches to business strategy – by all means use a plan to set a framework or general direction, but please don’t try to manage to a detailed strategic plan.

It may be mythology (at least to an extent), but the story of King Canute is relevant here – he was wise enough to understand that he did not have dominion over the environment and sought to prove this to a credulous people by commanding the sea to recede while the tide was coming in.

Adaptable approaches to strategy are not easy to implement.  They require clarity of purpose, values, vision, objectives and, yes, strategy.  They also require well-defined management processes and a discipline in execution that is far more demanding than just following a plan.  This is what we are doing with our clients and it is the only sensible answer to these turbulent conditions.

Formulation, Implementation, Strategy