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:
- 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.
- A different, tailored value chain – a way of delivering your value proposition that is unique and different than your competition.
- 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.
- Activities that fit together and reinforce each other – in a word, synergy.
- 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.