Strategy: The missing dimension

For many of us, corporate strategy gets into the day’s routine work when the deadline for the annual corporate budget is approaching.

It’s often an annual ritual, where the senior management gets involved in identifying the short/medium term profit targets/goals along with the company’s strategies for the future. Common strategy frameworks such as SWOT, Porter’s Competitive Analysis and BCG matrix are often used.

At the year-end, the Board would monitor the actual financial performance vis-à-vis the corporate budget, but is there a review of the actual outcomes of the strategies taken? How often do companies carry out a post mortem study of their corporate strategies? What went wrong? Or what went right – to improve on future strategies?

One question

In ‘How to Evaluate Corporate Strategy,’ the Harvard Business School lecturer Seymour Tilles proposed that all CEOs should answer one question: What kind of company do you want yours to be?

According to Tilles, “For far too many companies, what little thinking goes on about the future is done primarily in money terms. There is nothing wrong with financial planning. Most companies should do more of it. But there is a basic fallacy in confusing a financial plan with thinking about the kind of company you want yours to become.”

It is like saying, ‘When I’m 40, I’m going to be rich.’ It leaves too many basic questions unanswered. Rich in what way? Rich in doing what? As strategy has striven to become a science, we have allowed this fundamental point to slip away.

Interestingly, in 1996 Adam Brandenburger and Barry Nalebuff in their book ‘Co-competition’ urged managers to ask questions, what would happen: If our business was closed down, to whom it would matter and why? Which of our customers would miss us, and why? How long would it take for another company to step-in – to fill the void?

Try to answer these questions, and you would be surprised how difficult it is to fathom answers. Is strategy restricted to an annual review? Is it a set solution? The answer is a clear ‘No’. Strategy should be viewed as a dynamic process, with the purpose to create value, spearheaded by its CEO.

Value creation

In today’s context, driving stakeholder value (I prefer to call it stakeholder value rather than shareholder value) is a primary concern. In order to generate value, the business must study its existing position in the value chain in its industry.

It is a pity that most Sri Lankan companies are still positioned low in the value chain. Although our country is endowed with both natural resources and a talent pool, most of our exports are still in the OEM category. We have concentrated more on manufacturing quality products, as opposed to developing world class brands, which captures most of the value. Let’s take a simple example.

Sri Lanka boasts of the purest Ceylon Tea (World’s No. 1). But who are the leading players in the tea industry? Except for few brands like Dilmah and Mlesna which have focused on value added tea in niche markets, a significant part of our produced tea is auctioned as bulk tea, i.e. tea straight out of the plantation factories.

The tea manufacturer earns a low return on capital employed after dedicating lot of effort to replant, improve manufacturing facilities, etc., whereas the middlemen probably with a lesser capital investment captures a significant portion of the total value created. Thus, it is time to focus on developing or acquiring brands, to move up in the value chain.

Visionary leadership

The success of the corporate strategy goes hand in hand with its CEO. Visionary leadership is a key ingredient for a successful strategy. The CEO needs to have a vision, of where he wants his organisation to be, giving a sense of direction and purpose to motivate its employees towards achieving his vision. That is the exact reason why a corporate strategy cannot be outsourced. The CEO needs to have a constant vigil of where the company is heading and steer the ship in its journey.

When confronted with challenges, the CEO would need to look at issues from the point of view of the entire organisation, vis-à-vis to a narrow dimension. He needs to take bold, timely decisions, which may be painful (e.g. divesting from a business which was loss making due to its emotional attachments) but beneficial in the long run. He would need to take decisions, which may not be popular, but the right thing to do at that moment.

In developed countries, the CEO’s performance is closely monitored by the share performance and any deviations in the financial performance is scrutinised by the financial analysts. This actually restricts the CEO’s ability to take a long-term view of the company.

How did Air Asia continue to be a successful budget airline, when in some markets the budget airline concept has failed? It’s innovation. According to its CEO Tony Fernandes, Air Asia is always innovating and never standstill, and that has helped them.

Further, he states: “If there is a good idea, it can be implemented very fast as there is little bureaucracy. If there is a bad idea, we can kill it really fast too. That is how we do things that others may not try. The informal culture also helps keep costs down, ever-important to a low-cost carrier.” (Source: Airline Business Interview May 2009)

Implementation

We spoke of value creation, visionary leadership, but who would implement these great plans? It is the employees, and without the support of the employees, most strategies fail in thin air. Strategies could be made behind closed doors by the top tier management, but these need to be articulated and expressed well to employees.

Most strategies fail at implementation stage. It is natural for any employee to resist change. But it is the job of the senior management to mentor them, and guide them to their role, and reward them for their performance. Rewards should be based on performance, but need not be a monetary reward always.

A pat on the back for a good job done or empathising with a colleague on personal matter goes a long way for a CEO and his management team to motivate their staff. However, these need to be done genuinely and not for the sake of being done. That’s where charismatic leadership come into play.

A continuous process

In today’s competitive business world, one cannot isolate strategy as only a long-term plan. The organisation’s sole purpose of existence should be questioned, and what sets apart the given organisation from the rest should be validated daily.

Strategies need to be pursued for continuous value addition, in spite of the changes in both the internal and the external environment. Thus, strategy is a continuous process of tapping opportunities to create a competitive edge and is in the hands of its CEO.

Try to answer the simple questions that were raised in this article. I hope these would bring in the impetus, for a different frame of mind, when you start to approach strategy. I feel fortunate to be a team member in developing my organisation’s strategy and the reader should also approach strategy as an exciting, rewarding way of planning, executing, and analysing, vis-à-vis of an annual long-term strategy session.

Just like an organisation, the country also needs to carve out its own innovative strategies for development. Sri Lanka is at a milestone, having won a 30-year prolonged brutal war. The ‘Pearl of the Indian Ocean’ has been named as the No. 1 tourist destination by New York Times. We are well poised to be South Asia’s engine of growth.

‘Do not repeat the tactics which have gained you one victory, but let your methods be regulated by the infinite variety of circumstances.’ Sun Tzu c. 490 BC, Chinese military strategist

References

Cynthia A., Montgomery – ‘Putting Leadership Back Into Strategy,’ Harvard Business Review 2008.

(The writer is Manager – Strategic Business Development at Hayley’s PLC. She is a fellow of CIMA (FCMA – UK), and a fellow of Institute of Chartered Accountants of Sri Lanka (FCA). She read for her MBA from the University of Colombo, topping the batch winning three gold medals. She also has a B.Sc. (Hons) from the University of Colombo. She was the CIMA Young Star Silver Medal winner in 2004 at the maiden CIMA Janashakthi Pinnacle Awards Programme.)