Re-Thinking Business Strategy

Transcription

1 Re-Thinking Business Strategy Research findings on how the recession has impacted on business leaders thinking By Sam Bodley-Scott Strategy, Global Director

2 Re-Thinking Business Strategy As a strategy specialist from the global management consultancy Kepner-Tregoe (KT), I am frequently asked about the impact of the recession on organizations strategic thinking. Will lessons learned from recent events compel organizations to explore new strategic paths or is there a sense that organizations will simply return to business as usual? As the majority of companies start their fragile progress towards restored commercial health, business leaders are keen to understand whether their experience of recession is shared by others and whether these experiences combined with a changing economic landscape of lower demand, more personal saving and reduced government expenditure, will trigger a shift in the way organizations choose to compete. We urgently need breakthroughs that will increase our customers perception of value Certainly, our experience suggests an increasing demand for rigorous strategic appraisal and decision-making as leaders ask what now and what next?. As the owner of one billion dollar food company put it to me this week, We urgently need breakthroughs that will increase our customers perception of value. To find the answers to some of these questions, KT conducted a survey of Senior European Managers in which we asked about the impact of recession on their businesses, the extent to which they were now seeing recovery and in the light of recent events, how suitable their existing strategy is in a post recessionary world. Growth returns but slowly The 375 respondents to our survey represented a broad range of industries from manufacturing, service and public sector. Only 22.3% of respondents saw any growth during the recession, 18% reported business was stable and 59% experienced decline. With the exception of Food & Beverage, all sectors on average reported some decline. Those most severely impacted by the downturn were the Building Products and Automotive sectors. The data provides evidence that recovery is underway with grounds for cautious optimism. Only 10.5% of respondents report their business is still in decline, 63.6% report a return to some level of growth although it is only those companies who maintained growth during the recession (22.3%) that report steady growth today. On average all other organizations report growth which is only slow and fragile at best. 39% recognized that certain important strategic choices needed revision, 15 % favored a more fundamental and holistic review How has the recession influenced strategic thinking? So how has the depth of this recession and the fragile recovery shaped business leaders thinking on strategy? Let s firstly be clear about what we mean by strategy. We argue that strategy, is the set of choices that determine the nature and direction of an organization. It is the set of choices that define the activities that will differentiate you from you competitors 2

3 - in a way your customers will see as valuable. In general, all respondents (99.4%) reported that, as a result of the downturn, their strategy needed work. 39% recognized that certain important strategic choices needed revision, 15 % favored a more fundamental and holistic review. Whilst the notion that the majority of organizations will review their strategy to some degree is not an unexpected result, it is interesting that respondents from Government and Public Sector and Automotive were the sectors reporting the greatest need for significant strategy revision. It seems that public sector organizations recognise they will have to make clear and careful strategic choices as the spectre of draconian spending cuts looms large. Getting tuned into your environment is key There were very high levels of agreement from those surveyed that In order to remain competitive we need to improve how we monitor the wider economic environment and improve our ability to react to changing economic conditions. Only 7.2% of those surveyed disagreed, supporting the contention that it is remarkable how many organizations were caught on the hop by the speed and severity of the recession. We believe a good strategy is based on a set of assumptions about what is likely to happen in the external environment. Good strategic management includes effectively monitoring these assumptions and responding appropriately when unexpected change to one or more of them occurs. A re-think of business ethics, beliefs and values is considered less important Conversely, the idea that in response to the recession We need to revise the ethical standards and values that shape who we are and how we should behave as an organization received the least support from our respondents. Unsurprisingly given the precipitate collapse in public trust and confidence, respondents from Financial Services were most in support for this view. Product/market strategy is back on the agenda particularly for those most affected by the downturn At the heart of any strategy lie the key strategic choices that determine the products you will offer and the markets you will serve. From the 3

4 survey findings we looked at the relationship between the impact of the recession on different industry sectors and their reported need to change their product and market positions. We allocated these responses to one of four categories, predictive, reactive, secure and questionable. Certain market sectors appear to be secure. Organizations within these sectors have been least affected by the recession and consider their current product/market strategies as relatively robust. There are those sectors that appear to be taking a predictive stance and whilst being less affected by the recession, these organizations perceive their existing strategies do not position them well for the future. Then there are those industries that may be in reactive mode, they have been hit harder by the recession and recognise that re-thinking their product/market strategies may help strengthen their performance as the economy recovers. Finally, there are those industry sectors we have classified as questionable. These sectors have been hit by recession yet feel a low need to re-think strategy. For some industries in this category, lengthy investment and product lifecycles may be a factor, for others the situation is less clear. 4

5 Differentiate or die! Of all the statements we asked people to consider as part of our survey, the suggestion that organizations will have to better differentiate their products and services if they are to compete effectively in the future, generated the strongest support. Almost whichever industry sector you look at, there is common agreement on the need for differentiation. This begs the question, why? It is our view that during the first ten years of this millennium, many executives believed that formulating a unique, differentiated strategic position was too confining an idea for such dynamic times. They perceived that market needs and expectations, technology, deregulation, global competition were moving so fast that this kind of strategic thinking would 5

6 be invalid before the ink was dry. With markets expanding so rapidly, there must be room for competition and the advantage obtained from achieving a clear market position was at best temporary as rivals would quickly catch up. During this period the notion of strategic differentiation was de-emphasized with executives and managers turning their attention to operational effectiveness. Quality improvement, cost reduction and time compression objectives driven by such programmes as Six-Sigma and Lean created a prevailing mentality that could be described as where we are heading is less important than our need to travel smoothly, inexpensively and quickly. Operational effectiveness is of course about performing a similar set of business activities to your rivals only doing them better. Today s challenge is that whilst operational effectiveness is as important as ever, few are likely to find true market advantage through waste elimination, delivering benchmarked standards of best practice or even enhanced customer satisfaction. Real advantage, our respondents seem to recognise, will come from performing very different activities to their rivals or performing similar activities in very different ways strategic differentiation! With the buoyant, credit fuelled markets of the last 10 years, ever increasing demand has allowed organizations to sell similar products at similar price points and through ever increasing efficiency, provide growing returns for shareholders. In spite of cries to innovate or die, we would argue that there is less and less evidence of true strategic differentiation as markets and organizations have become more homogeneous. As the tide of consumer confidence has ebbed away, organizations that cannot demand a premium for products perceived as having distinct value can only compete on price. With low demand and so much spare capacity in our economies, this becomes a price war no one can win. As our survey shows, 75% agree their market is becoming much more price driven. The genius is in the implementation The final set of questions in our survey looked at strategy implementation, clearly another major area of concern for respondents. In spite of implementation being a principal mantra in board rooms in recent years, the effective implementation of strategy appears to be as much of a challenge as ever. 75.9% of respondents agree that the implementation of strategy projects needs to be improved. If, as our survey suggests, organizations are about to embark on a period of serious strategic reflection, the ability to implement the resulting conclusions will be vital. To make strategy implementation effective, we see there being three distinct areas that must be addressed. Firstly there is the identification of the right initiatives required to deliver a strategy, this requires thought to be given to each and every activity that will be needed to make it happen, whether in the area of leadership, process, measurement, people, systems, organization or culture. 76% of respondents to our survey either agreed or strongly agreed that initiative identification was an area in need of improvement. In almost every organization with whom we work, initiative overload is one of the primary causes of unsatisfactory strategy implementation. 6

7 It would certainly be our experience that where we have worked with organizations to improve these capabilities, their ability to respond to changes in their external environment has been considerably sharpened. Secondly there is the prioritization of those initiatives. In almost every organization with whom we work, initiative overload is one of the primary causes of unsatisfactory strategy implementation. Many organizations seem incapable of standing back and asking the two pivotal questions: How many initiatives can we take on given available resources? Which of these deserve to make the cut? 91.4% agreed that this was an area in which their organization must improve. Finally there is the ability to implement strategic initiatives once identified and prioritized. Essentially a project management capability, the right people, processes, measurement and performance management systems must be present if successful strategy implementation is to be achieved. Again 75.9% of respondents sighted this as an area of concern. Interestingly, respondents who reported their companies were recovering fastest from recession saw themselves as the most capable in all three of these areas. It would certainly be our experience that where we have worked with organizations to improve these capabilities, their ability to respond to changes in their external environment has been considerably sharpened. What next? It is no surprise to learn that almost all organizations have been impacted by the recession and that the recovery whilst reasonably universal, can best be described as slow and fragile. The results of the survey suggest that the downturn has put strategy back on the agenda and this correlates closely with our own experience. There is now greater need for strategy formulation from leadership teams who want to be guided through a set of rational, structured choices about the nature of their organization and their direction of travel in these uncertain times. For those most affected by the downturn, we see a critical appraisal of products offered and markets served, likely followed by some marked changes in the competitive positions adopted by these organizations. Our research has demonstrated almost universal acceptance that in this period of over supply and low demand, an organization s ability to build creative, breakthrough positions that will differentiate its products and services from those of its competitors will provide the fastest and most effective route to restored business success. The survey highlights that re-thinking business strategy is only part of the battle and that renewing the wiring that connects high-level strategy with day to day decision making is critical. The survey highlights that re-thinking business strategy is only part of the battle and that renewing the wiring that connects high-level strategy with day to day decision making is critical. Without the ability to translate vision into action by identifying, prioritizing and implementing the right set of strategic initiatives, the ability to recover from the effects of this remarkable economic unpleasantness will remain elusive. 7

8 Sam Bodley-Scott Strategy, Global Director As the Global Director of Strategy and a thought leader in change management with 20 years of experience, Sam has provided corporate strategy and implementation advice to many organizations involved in large-scale transitions. During Sam s time with Kepner-Tregoe (KT), his assignments have included: Strategy formulation and change programme design for leading European financial institutions, The design and implementation of strategic change programmes for a European appliance manufacturer, a global soft drinks company and an African industrial conglomerate. Before joining KT, Sam worked for a major United Kingdom leisure group where he was responsible for leading the development of corporate strategy and managing that company s strategy implementation programme. Sam holds a masters degree in service industry management. He has also co-authored a book on strategy implementation and change management. Implementation How to Transform Strategic Initiatives into Blockbuster Results was published internationally by McGraw-Hill in November For more information, visit us at or us at info@kepner-tregoe.com Kepner-Tregoe, Ltd Moorbridge Court Moorbridge Road Maidenhead, Berkshire SL6 8LT England Fax info@kepner-tregoe.com Kepner-Tregoe, Inc. P.O. Box 704 Princeton, NJ Fax info@kepner-tregoe.com 22 February 2010 Copyright 2010 Kepner-Tregoe, Inc. All Rights Reserved P406610