Troubleshooting Internal Matters
The field of strategy has come under immense scrutiny over the past 20 years and in particular since 1997 when emerging markets crashed and changed the way companies conducted business. There is no doubt that continually shifting trends have repeatedly hit the global economy, to the point, in fact, that many theorists and market and industry experts have even come to question the viability of strategic thinking. Why, they ask, should one have a strategic division when strategy is continually changing?
Experience has shown that companies that follow trends ultimately never become winners. Those that have strategies in place lead the pack as trends do not change overnight. Therefore, entrepreneurs who have the foresight to have strategic plans in motion know that it is easier to change the direction of a strategy than to start one from scratch. The introduction of complex systems thinking in the late 1980s and early 1990s was a step in the right direction. However, there is still some way to go before companies’ use of strategy become the norm rather than the exception.
Many smaller businesses believe that strategy simply means focusing on the company’s core skills and products. Then, once they have achieved a level of comfort in the process of identifying their firm’s core competencies, they develop a mission statement to make sure that the workers keep focused.
In reality, strategy is never that simple.
Contrary to popular belief, strategy may have nothing to do with a firm’s core competencies. In fact, those who base a strategic plan on a firm’s historical competencies do find themselves in trouble when global markets change, or they become the target of a hostile takeover. In the former, the company may find that they have started losing market share to the point where they can no longer compete. In a sudden corporate change (as in the latter), the company cannot focus on anything other than the corporate issue at hand. This type of trouble may be one of the reasons why some ignore strategy. With the apparent failure of strategic planning in the corporate sector, many questions have been raised. While researching and writing Jungle Tactics in 1997, I had to stop when emerging markets suddenly took a tumble. The lack of strategy was apparent in the failure of many firms to take action during that turbulent time. The book took another 3 years to complete, as research and new findings added new scope to the book.
A conclusion drawn from the Jungle Tactics’ research is that companies that continually develop and execute sound strategy are significantly more profitable than those that do not. Analysis of companies that fail clearly reveal that their failure was caused by poor ability to determine changing needs of their target markets. As such, despite current thinking in many different areas of the field of management, corporate strategy is clearly the key to sustainable profitability in the new global economy.
Managers need to understand what does not work for firms as well as what does work. The field of strategy has encountered problems, not because corporate strategy itself has failed but because the wrong approach to strategy has been employed. Ultimately, strategy is simply and profoundly the foundation of the future profitability of firms. Managers who understand the practice will be much better prepared to lead the global organization in the early twenty-first century—in a time of change and uncertainty.
The counterargument to using strategic tools is that strategy itself seems to be in a state of confusion. With the multiple and, indeed, often contradictory strategic models available to managers, how would you effectively choose one model over another? In fact, some entrepreneurs have pointed out that several models can give you extremely different results. Today’s strategists state that it is critical to understand the nuances of tools available and what the results actually imply. It is also worth noting that the greatest use of strategic tools is at the micro-company stage, whereas at small and medium-sized enterprise (SME) stage this reduces and further falls during the established stage of a company’s cycle.
The reason for this may be that companies in the first stages of their development tend to be very dynamic and therefore need to use more strategic tools to make sense of the environment in which they are competing. Additionally, companies in their start-up stages may have to spend more time designing their strategies or developing business plans in order to convince investors.
Amazingly, it is not just large established firms that use strategic tools. In fact, it is more pertinent to look at the types of industries rather than the size of companies. For instance, power utilities, technology, media and information, and manufacturing companies use more strategic tools than companies in financial services.
Research indicates that, in fact, strategic tools tend to be used in sectors that are complex and competitive, and face both global economic challenges and local regulatory legalities. For instance, media and power utilities are industries that are highly regulated and thus require to continually present strategic analyses to regulators and other stakeholders as part of their required transparency. Interestingly, public, consulting, and professional companies use fewer strategic tools, which reflects the different competitive environments and the value that the public place on these organizations.
Final Comment on Strategy Tools
SWOT, Porter’s Five Forces, and PESTEL have significantly greater use in strategy analysis than in any other stage. As such, these are preferred by consultants and managers alike for analysis and evaluation purposes.
Scenario planning, resource analysis, portfolio matrices, and industry life cycle tools are used for strategy choice. These are preferred methods by managers when they are making strategic choices.
Rainmaker Observation: The use of strategy tools is at a lower level in strategy implementation. This does suggest a lack of tools oriented to implementation purposes or that professionals and managers do not give as much value to this stage of the strategy process.