Archive for the 'Strategy' Category

Are All Companies Tech Companies?

When we think technology and business, we naturally think products.  But it is not always so.

I recently met a friend and we were discussing venture capital and the state of commercialization in Canada for tech companies.  Part of the conversation stuck with me - every company is a tech company to some degree.

Technology is know-how and every company must have some special processes, knowledge and capabilities that make them unique in the market.  This technology usually ends up in the proceses and data stored in the IT.  Even if the provision of the IT services is outsourced, the data and processes still are part of the core competence of the company.

The technology, then, can be any part of the business - logistics, business planning, financial wizardry, marketing, partnerships, … as well as product related.

While this may be a semantic argument about the meaning of the word, it is an interesting point for all those of you who think you aren’t running a tech company.

Crisis Strategy?

A few days ago I received a marketing e-mail from Robyn Greenspan of Execunet that had an interesting nugget of information on business strategy.  The current economic crisis has lead some to think that they have to change their long-term strategies to accommodate the changes in the market.  Robyn, quoting Michael Porter, said that this was a mistaken approach.  Strategy is not about immediate actions such as mergers and acquisitions, aspirations to be the market leader or comprised in a mission/vision statement.  If strategy is a long-term concept, why should it change in the face of temporary economic problems?

From Fry & Killing, “Strategy is the definitive tool for building, communicating and maintaining the direction of the business.”  Communication is key.  According to Porter, if the management in the company can’t all articulate the strategy in the same way, then the company does not have one.  The strategy should guide the actions of the managers and directors in their daily decisions - specifically the ones that can’t easily be reversed - and that only happens with communication and details.

Porter outlines 5 tests of a good strategy:

  1. A unique value proposition - something that sets you apart from the competition.  Without this, you are in a race to execute better than your competitors and can never hope to win big.
  2. A different, tailored value chain - a way of delivering your value proposition that is unique and different than your competition.
  3. Clear trade-offs in choosing what not to do- in choosing what you will do, you also need to choose what you will not do, knowing the trade-offs.  You can’t do everything and not all markets, products and business systems are compatible.
  4. Activities that fit together and reinforce each other - in a word, synergy.
  5. Continuity with learning and improvement - it take about three years for a strategy to have a major effect.  Changing the strategy faster than that will prevent the company form achieving anything.  Make incremental improvements rather than large shifts. 

Sounds like good stuff but I disagree with point 5.  Continuous improvement only makes sense if the environment is changing slowly.  Strategy does not exist in a vacuum by itself.  The strategy affects and is affected by other aspects.  Fry and Killing, in their book “Strategic Analysis and Action”, break it down into internal aspects - resources, capabilities and management preferences - and the external effects of the environment.  For the strategy to be effective, all the internal aspects must fit, both with each other and with the strategy.  The strategy must fit with the external environment.

The current crisis highlights this last point.  The changes in the economy DO affect the strategy.  What should you do if your unique value proposition no longer has value in the current economic mess?  What should you do when the price of supplies and financing fluctuate to the point that your value chain can’t deliver?  What should you do when the assumptions you made in your trade-offs are clearly broken?  The answer - CHANGE! REACT! ADAPT!  Not continuously improve.  You may not last long enough.

This is not to say that your reaction should be without thought.  I am a proponent of planning and preparation.  When developing your strategy, you should be preparing for disruptions in the economy for  better or worse.  Rather than asking what you should do now, you should ask continuously what you should do if….  With that approach, the chances of being caught off guard are reduced, but not eliminated.

At the least, with a well thought out strategy, you have the ability to reassess the assumptions and “fit” of your strategy with the current economic situation and make the necessary changes.

The e-mail then summarizes with the advice “If you are not in a crisis, assume you are.”  This is just flippant nonsense.  I think what the speaker meant was “always manage well” which is as much a warning for good times as it is for bad ones.

Unaware of the Rut

Are your business processes stuck in a rut? How would you know?

I’ve been driving my daughters to the same daycare for the last several years. First my oldest, who now takes the bus to school, and now my youngest who will spend at least two more years with this daycare. We’ve moved once during these years but the final portion of the route I drove each morning remained the same. I choose this route based on the stop-lights, trying to spend the least amount of time at each light. There was one intersection in particular where I needed to cross four lanes of traffic. The light was lengthly and long ago I decided to turn right and then left at the next street. At the next street, I was only turning left so I had to wait for the light and traffic to clear. It was a short light and I never had to wait long. Then the traffic patterns changed and the number of cars turning left increased. It frequently took two lights to get the chance to turn. I got used to the wait.

Recently driving with my wife, she asked the obvious - why not go straight through the main intersection? So stuck in my habits, I started to explain but managed to stop myself. Things had changed and I had not adapted. My carefully planned route was no longer optimal. I was wasting time. I started to drive through the main intersection, enjoying a shorter over-all trip.

Its a small example I know, but applied to business, it begs review of your processes. Are your processes still optimal? Has technology changed? Are you doing things because that is the way you have always been doing them? Are you stuck in the rut of working business processes? Perhaps its time for a review.

No Strategy Survives Contact with the Market

The recent collapses of the financial markets highlights the existence of change as a force of nature in the business world. Change happens. All the time. If stability doesn’t exist, it doesn’t make sense to plan strategy around stable business markets.

To paraphrase Helmuth von Moltke the Elder, the Chief of Staff of the German Army in the 1800’s: no strategy survives contact with the market. Rather than indicating that strategy is pointless, the comment is meant to show that strategy must react to changes in the market. It must be fluid rather than fixed, open-minded rather than dogmatic. It is a game of options and optimization.

The key, then, to effective strategy development is to ensure you have options and contingency plans and that you are continuously working to develop and optimize these plans. To quote Moltke again, “Plans are nothing, Planning is everything”. The essence of this thought is that the plan will invariably change before it is completed so don’t concentrate on the plan, concentrate on the processes of planning. The plan will be obsolete as soon as you e-mail it.