Posts Tagged ‘Strategy’

Strategic Analysis: UK Political environment

Oct 14th, 09 / 1 Comment

Houses of Parliament, London

Houses of Parliament, London


This post is intended to be used as part of the strategic analysis that any well-run business should undertake. It is intended to contribute to the political element of any strategic environmental analysis using the variants of the PEST framework( PESTEL, PESTLE, STEEPLE, PESTLIED etc.)

The final term of the current UK government has begun following the summer recess and the party political conference season. The economic context is similar to many other legislatures; it is a year since stock markets fell and economies crashed into recession following the failure of Lehman Brothers and the near-collapse of many elements of the global banking system.

So, how do things look a year on? The macro-economic measure of GDP growth suggests that China, followed by a number of other countries, is recovering and economic growth has returned. A number of developed economies are static, and economies that had a high dependency on Financial Services (UK, Ireland, Iceland) are trailing behind.

The narrative in the UK is worrying though. Some politicians, supported by the media, appear to have either forgotten recent history, or revised it for party political advantage. In an economy that is suffering because of mistakes made by banks, not only has government failed to secure changes to business practice and culture, but the opposition has very cleverly changed the story from abject failure of deregulated markets to one of reckless public expenditure and the need to pay down national debt.

Party politics is a feature of the particular form of parliamentary democracy that we have in the UK, but when it diverts political debate from the real issues it is dangerous. When the area it moves to (reducing public expenditure during a recession) is potentially damaging to the medium-term economic health of the country it is reckless.

An election is due next year. It is vital for the UK economy that the election debate considers the real issues rather than dangerous and potentially damaging illusions.

Formulation, Strategy, economy

Show me the evidence!

Sep 8th, 09 / 0 Comments

Show me the evidence

Show me the evidence

Our practice has been increasingly focussing on evidence that something works as a ‘must have’ in any proposed intervention. In 2006 and 2007 this blog discussed some of the principles behind this approach, including the wisdom of ignoring management fads and approaching ideologies and theories based on the evidence, rather than assuming that the latest fashionable idea is best.

Essentially, evidence-based management is a sceptical approach that, according to Pfeffer and Sutton from their excellent book: Hard facts, dangerous half-truths, and total nonsense: profiting from evidence-based management (2006) follows a few simple guidelines including:

Treat old ideas like old ideas, and

Be suspicious of breakthrough ideas, and studies because they, almost, never happen.

There is much to still learn and discover about how organisations function, but there is also plenty of well-researched evidence around for what works in the business world. The so-called ‘gurus’ who claim that business is difficult to figure out because it is all about people and we are complex, unpredictable things that don’t follow predictable rational rules are giving up too easily. Trying to understand human and organisational behaviour is why we have psychology for instance.

So, claiming that business is too hard to fathom is weak. Worse than this though is using the complexity argument to justify unproven, flaky nonsense (see earlier posts on business psychics). A good example in the field of personal development would be “The Secret” with its claim of applying the “universal law of attraction” to achieve your desires- the idea being that if you simply visualise something it will be attracted to you – whether it is a physical object, maybe a car or yacht, or an abstract concept such as love or success.

Try as I might, I can find no evidence for this – the best I have come up with is gravity and magnetism.

People are often attracted to mysticism in it’s various forms because it offers easy answers to difficult problems. The business world, particularly in the current fragile economic climate, deserves better. So, rather than deciding that because we don’t have all the answers yet we should ignore management science and just make stuff up, let’s build on what we have found to date, do more research, reflect on experience and…show me the evidence!

Effectiveness, Organisation, 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

Verizon COO seems to confuse goals with strategy

Jul 28th, 09 / 1 Comment

untitled JPG image

In a conference call yesterday to discuss a reduction in its year-on-year second quarter profits, Verizon Chief Operating Officer, Denny Strigl, said that “These are challenging times,but we stay focused on our strategy of growing revenue and taking market share, and improving profits. The state of the economy may make it more difficult in the short term, but we are doing what we do best, which is managing our businesses and reducing costs.”

Now, this is a transcript of a conference call and the words may not have been chosen as carefully as they should have been, but there are a number of worrying issues in this brief extract:

1) The stated “strategy” is, in fact, three goals. They describe what Verizon would like to achieve. A strategy should explain how these goals will be achieved. A test of a good strategy is doing something different to your competitors that makes potential customers more likely to choose you. As this is a post about Verizon, let’s use a telecoms example: the Apple iPhone. It redefined the market in a great example of blue ocean strategy (as described by Kim & Mauborgne in their book (Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant
).

They aren’t even very good goals; how many businesses are not seeking to improve profits and while they are not universal, many businesses are focused on growing revenue and market share.

2) Let’s assume they are goals and Strigl simply misspoke. We can also learn from this brief statement that they are not doing very well at implementing this stated policy. Just to be clear, the statement says they are focused on top-line profit improvement i.e. by growing revenue and taking market share. So, why, in the very next sentence does he claim they are actually focused on reducing cost.

3) Even allowing for the fact that this was a call and not a PR-screened release, How can a senior executive with one of the world’s leading corporations get away with doing nothing more than stating the obvious when trying to explain how they will stem the decline in profit, beat their competitors and emerge even stronger on the other side of the downturn?

The rest of the call went on to talk about specifics, and maybe it is unfair to expect a COO to cover strategy, after all this is more the domain of the CEO, but this quote is a great example of someone appearing to say the right things while actually giving nothing away. Ultimately all strategy is attempting to increase long-term economic profit, and every business wants to increase revenue and control costs – those are the other two variables in the profit equation.

Ultimately, the investors will decide what to make of this and the results will tell, but if I had a financial interest in Verizon I would hope that this was a deliberately opaque performance to hide competitive information from the competition rather than a sign of an executive team that doesn’t know the difference between goals and strategy.

What do you think? Is this reasonable criticism or am I being unfair? Please feel free to comment.

Strategy

Harvard Business Review business review

Jul 13th, 09 / 1 Comment

AE39D759-550C-4DC4-9216-74FFB84FD1C2.jpgThe Boston Globe reports that Harvard Business Review has laid off 10 staff. Adi Ignatius, the magazine’s editor in chief, calls the change a complete overhaul that includes reorganising and increasing the importance of the online business.18589366-6CD7-4F08-89C7-887C1BBC1B41.jpg
At the heart of the rebuilding strategy is the reorganisation of the three most prominent consumer franchises associated with the Harvard Business School brand: the monthly Review; the book division, Harvard Business Press; and the websites. In April, the three divisions were realigned under the new Harvard Business Review Group, which has 100 employees.

The really interesting point, for this blog at least, is that throughout the recent changes, the magazine has tried to follow the precepts it advances in its own editorial pages. For example, they realigned the editorial staff to follow specific business sectors to increase the Review’s coverage of emerging business trends. “We spent a lot of time team-building to make that happen.’’ Ignatius said.

When Ignatius arrived at Harvard, he said he was impressed with the methodical way the organisation built scenarios so they would be prepared to deal with a variety of economic conditions, from Scenario A, a relatively mild downturn in the economic climate , to Scenario C, a severe recession. “It was a level of involvement that I never saw at Time magazine or The Wall Street Journal, where I worked before that, right now we’re somewhere between Scenarios A and B’’ he said.

This is interesting, because we have just applied our own disciplines to the Meridian 1 business in the form of a strategy and business plan evaluation. Our conclusion, as this blog as reported, is that it is difficult to discern the severity of the downturn and when the recovery will take hold, so scenario planning is an excellent method to follow. In our case we found that the sectors of the economy that we serve are prone to a larger than average amount by the recession.

Currently this means that business investment has decelerated faster than the underlying slowdown in economic activity, however, it is also likely to be offset by a larger than average growth as the recovery begins. Therefore, we need to contain our costs and diversify our products and markets now to weather the storm, and we also need to prepare to ramp up our capabilities when the upswing begins.

What is your view? Do you agree with us that the business schools and management consultants take their own medicine? Has you business undertaken a deliberate evaluation of the strategic change required to weather the storm? How has your sector been affected? Some decline, as in our own B2B segment; others remain relatively unaffected (e.g. Government), and others actually grow (budget supermarkets, pre-owned cars etc.) What has your sector been like?

Organisation, 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

Down with strategy!

Jun 8th, 09 / 0 Comments

There was a comment on twitter this weekend explaining that the business world has moved on from a ’strategy, structure, systems’ approach to ‘purpose, people, process’ and how enlightened that shift has been. This binary approach to management where a new idea has to replace an old idea in some form of intellectual coup is dangerous. Sure, purpose, process and people are vital dimensions for any business that wants to map out the road ahead, but so are strategy, structure and systems. We might take a view that architecture and design are a better way of expressing structure, but that is very different to saying structure is unimportant.
The discontinuous mind, as Richard Dawkins calls it, is dangerous in business.

Formulation, Strategy

Speed of change

Apr 20th, 09 / 0 Comments

The music industry has struggled to come to terms with the Internet.  The first signs of change were evident to the wider world almost a decade ago when Napster was launched.  With the prospect of free music (albeit with no copyright control), the record companies sat up and took, not only notice, but also action which resulted in the site being closed, then relaunched in a denuded form.

The brilliant realisation by Apple that the key to the success of the new MP3 players was not contained in the machine itself but the supporting infrastructure led to the development of the iTunes store and a significant new route to market for legally downloaded music and video.  The industry dominance that Apple achieved is remarkable, but despite their success, the record industry still appears to be wary – as evidenced by the continuing wrangles over royalties, digital rights management and the continuing absence of some significant elephants, or maybe dinosaurs, from the room.

The impact of iTunes has been so significant it is hard to remember that it didn’t exist in Europe in 2003, and was only introduced to Australia in 2005.  After a century of distributing physical media with a licensed copy of some music or video, the industry agreed to allowing virtual copies of music, movies and TV shows to be sold.  More recently we have seen the arrival of some competitors, including significant players such as Amazon (which itself was only launched in 1995).

October 2008 saw the launch of Spotify.  If you have not encountered it yet, this is an internet music service that  enables your computer to access a vast library of music for free.  There are no downloads and, more significantly, no purchases of anything either physical or digital.  The price you pay is to listen to advertising, or a modest daily or monthly fee to remain advertisement free.  Many big name companies signed up to the service and, from the outside at least, it would appear that they did so with less protest than they did with iTunes.

So, the pace of change is quickening.  Will Spotify replace iTunes or merely add another choice?  The challenge for the music industry is the speed of this change.  I know it is a cliché, but hopefully the diagram below illustrates that in this case it is a real business issue.

Recorded music distribution media timeline

It isn’t enough for the record labels (how much longer will this be a valid term?) to decide how to respond to Spotify;  they have to think about what will come next and anticipate the trend.  At the current rate of development, the next significant advance could be here in less than 5 years, and with an increasing number of artists finding success through independence, the need to finally get ahead of the trend is imperative.

Formulation, Strategy

Business Process Mis-management?

Apr 15th, 09 / 0 Comments
Wood or trees?

Wood or trees?

It is a couple of years since this blog commented on the problem with management fads.  Despite the fall from grace for Business Process reengineering (BPR), the benefits have continued to be realised, and the thinking has developed in the form of Business Process Management (BPM), but now there are the tell-tale signs of this discipline being consigned to the scrap heap.

This is partly a collective failure of industry to see the bigger picture; especially when effective processes are increasingly vital to survive and thrive in recessionary times.  Seeing the wood rather than the trees would make it plain that there are significant benefits to be realised from a well managed BPM programme.  However, it will be the responsibility of process practitioners to address the concerns of the market by introducing standards and transparency.  Only this action can stop BPM becoming another failed management fad and a wasted asset.

Business Process, Implementation