Simplified Strategic Management for Business Decision MakersTuesday, Sep 24, 2019
Presales Lead, Digital Services
Imagine you are travelling from Dubai to San Francisco. You have succeeded to choose the right airline with a perfect price. Your reservation has been booked in a 1st class seat, with your favorite meal; and with eligibility for 5 pieces of luggage; each weighing 50 KG! Now after a very cheerful hospitality by the flight crew, you hear the captain saying, “Ladies and gentlemen, the flight has arrived safely at Beijing International Airport!!”.
What happened in the story is a successful planning for a wrong destination. This is number one enemy for top management. Average performance might slow your business down, but inaccurate strategic management can take your corporate far away from where you want to go.
A perfect plan for the wrong destination is number one enemy of decision makers!
A strategic plan duration can be anywhere from hours to hundreds of years. There are no constraints. It entirely depends on the industry and the situation. It is common in business soaps that planning for more than a year is called a strategy. Planning for less than a year is called a tactic. But actually, both are very different. A tactic is a mechanism of implementation; rather than planning which is what we do in strategy.
As per Ann Latham, an expert in strategic clarity, “A strategy is a framework for making decisions about how you will play the game of business”.
This article discusses strategic management for business decision makers. In the world of business, strategic management focuses on one goal; that is to build and maintain a competitive advantage. Sounds too easy, isn't it? Failing in this task kicked out KODAK, Polaroid, Yahoo and Blackberry out of their markets and made top brands lose billions of dollars.
In the world of business, strategic management focuses on one goal 'building and maintaining a competitive advantage'.
Without a competitive advantage, corporate fate will be the result of luck and maybe – not guaranteed - hard work! Think of your competitive advantage as if it is a weapon you create to help in your future fights. It is preferred that you create many weapons so in your next fight you can defeat your enemy with a knockout and win!
Decision makers are the ones responsible for corporate strategy. The primary job of top management is putting and achieving the strategy. Chasing targets, closing deals and delivering projects are operational activities and aren't the primary job of top management.
Plotting a strategy is a critical topic. Many clear decisions have to be taken and gray areas in this context will not work well. A good decision does not guarantee a good outcome; however, efforts and accurate decisions will pay off. Moreover, risk is an inescapable part of every decision. In our day-to-day decisions, risks might be small, yet the risk implications in making a strategic corporate decision (both upside and downside) can be enormous.
Many clear decisions have to be taken to plot a great strategy. You have to avoid all gray areas.
Generally, decision making is not an easy job. It it subjected to complicated circumstances, uncertainty and limited time for taking the decision. Life is the sum of all your choices, as Albert Camus once stated.
Historically, in order to mitigate risks in making decisions, kings sought guidance from diviners and stars. Nowadays, decision makers have the luxury to enjoy a wide range of decision support tools.
In corporates, it is unaccepted to make a random decision. Decisions should be based on data. Even giving a “Random Decision” a decent name like “Intuitive Decision”, will not make things be much better. Yes, some decisions could be based on intuition. But if this is not rare, your company might be at a very high risk! Decision making is like any science, it is evoluting,
Avoiding the usage of modern decision making tools in the 21st century is as unaccepted as medicating Virus C with natural herbs.
Strategic management is not only for setting the desired goal or “destination”. Rather, it comprises the setting of the whole business methodology starting from knowing the market, defining the current corporate position, setting the destination and planning the implementation up to following up the progress. All these steps are a part of strategic management.
To simplify the concept and make it memorable, in this article we are going to link strategic management to maps navigation systems. During the journey, we are going give real-world examples of corporate stories.
When we use navigation systems, we first load the map (1), then through the GPS we get the current location (2), then we set the target destination (3), then the application automatically helps us by showing the route (4), we might then add some micro-stops, for example, a gas station then a coffee shop - to pick up latte - and finally we drive (5) and follow up on our navigation progress.
Understanding the market is like loading the city map. Determining your business position is like enabling the GPS to know your coordinates. Setting the competitive advantage is like selecting the destination ...etc.
1. The Map (The Market/Competition)
Data, Data and Data, this is the first step. The aim of this step is to understand your market, the context, the culture in addition to previous success and failure stories. Just like what you do in a map; you need to know the streets, closed roads, one-way roads and highways, location of U-turns in addition to safe and dangerous areas.
Knowing previous invaders stories will save your money and effort. You don’t have to stumble in the same pitfalls others met. If there is a new area where no one – you know - has explored and you are the first one to step into it, you need to explore this area with one leg, then you can come back later for invasion.
Answer questions like: who is in the market, what are the characteristics of the competition, what is the market size, what is the customer behavior, what and how are the dynamics running between customers, partners, and competitors, what are the market segments and the limitations of each.
If you don’t have time and capabilities to understand the market, you can seek a Mentor. This is the same way almost any multinational does in order to to expand in a new market (Country). They depend on a local partner who knows almost everything you don't know about the market. Even if you want to make it yourself, you need the assistance a consultant which is an investment will save you tons of money and will help you to explore much further opportunities. So hire an experienced consultant; a one that is a subject-matter expert in experiences that match your needs in exactly the same market.
In some cases, finding the right consultant is very tricky. For example, in industries that frequently evolve and consume massive investments like Military, Telecoms, Software ...etc., it is not enough to hire an experienced consultant. While he/she will help you to understand the current market/competition, but guess what, before you complete your plan, the market/competition will be completely different. In these industries its better to hire a special type of consultants called Futurists. These consultants tend to connect the trend lines and forecast markets/competitions in the future. Most of Futurists today have a Gaming background.
An example of a wrong understanding of the market/competition is Hummer! Do you remember the massive 4X4 Hummer? At first Hummer vehicles were produced for Military, then after Arnold Schwarzenegger purchased the first civilian version of the car, Hummer became a symbol for power and wealth. During the 2000s the energy crises was at its peak. Customer awareness about the environment and their tendency to use environment-friendly products increased. Hummer H1 was reported as gas gluttonous with very high consumption rates. Hummer brand was shut down in 2009.
After understanding the market/competition, now you need to evaluate your current business situation and its position among competitors.
2. Current Location (Corporate Status)
The target of this step is to define an accurate position for your business. Everyone knows about status measuring tools such as SWOT, TWOS, VRIO, Mkenzy 7s, PESTEL, Porter 5 Forces, CADOT …etc., Yes, these tools will help. But using them is trickier than most decision makers think. Underestimating one factor can dramatically affect your whole strategy.
Being very eager and arrogant in this step is a killer.
One challenge is that top management tends to be biased towards their business and it’s not easy to put the corporate in its most accurate positioning. In addition, this positioning should be based on a full head to toe scan. Top-management's high-level, eagle-eye is not enough to disclose some hidden risks.
This step can be done through a consultant; and in this case, you need to choose a trusted consultant that can analyze the corporate from different angles such as financial, market, labor, technical …etc. The consultant can give you a full report that evaluates your corporate current situation.
In the case of acquisitions, the acquirer company should evaluate the location (status) of the acquired company as well (due diligence). Missing this step can have tremendous drawbacks.
One example of this is Microsoft Nokia acquisition. Two years after the acquisition Microsoft laid off 8,000 employees and finally wasted $7.6 Billion. Microsoft didn’t expose the specific reason behind such as shutdown, yet it is clear that Microsoft didn’t evaluate Nokia competitive status well before taking this step.
Another story is when Larry Page and Sergei Brin decided to focus on their study at Stanford. In 1998 they offered Yahoo and AltaVista (Dominating search engines at that time) to buy their start-up “Google” for $1 million. Both companies refused to buy the start-up. In 2002 Yahoo repeated its mistake when it refused to buy Google with $5 billion. In 2016 Yahoo was sold for $4.6 billion; while Google is still one of the most valuable companies with more than $500 billion.
Succeeding in determining your position will give you full trust to move forward in your strategic plan. You will be able to know when to compete and when to postpone the fight. Failing to understand your situation will threaten your ability to expect your performance in the fight.
3. Destination (Competitive Advantage)
This step should take most of your effort, concentration, and time. This is the trickiest element of strategic decision making. Choosing a good destination means that your efforts will pay off.
“A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices”, (Porter 1980). A right destination is where you give your corporate a competitive edge over its competitors. That is in the next war you will have an additional weapon to conquer your enemies easily. Competitive advantage can be, for example, through Market Position, Technical Know-How, Unique Assets, Copyrights, Strategic Alliance …etc.
One of the most common mistakes decision makers do is to rush in choosing the destination. They think rushing in selecting the destination will speed up the process of reaching the target.
Think wisely and act eagerly.
If you decide to get help from a strategy consultant, you need to think about futurists, as mentioned earlier, as you don't want to choose your next year's destination based on today's map.
Kodak has one of the saddest stories in strategy tales. In 1888, Kodak produced the first snapshot camera, and since then, it invested heavily in this area. When color cameras were introduced, it was one of the few companies that has the know-how. In 1976 it occupied more than 85% of the US camera market. In 1975 Kodak developed the first digital camera, but management decided to drop the product as it might threaten Kodak's analog business.
Between the 1980s and 1990s, Kodak committed mini mistakes related to setting its competitive edge. For example, it depended heavily on the professional camera market rather than the consumer market, which gave a free space to its competitors to expand. Kodak also underestimated the future of digital cameras. Impaired with the expensive costs of printing photos consumers were quick to move to digital cameras to have the photos electronically saved on computers rather than print them. All these factors lead to a crisis for Kodak, the Guru, to the extent that it filed bankruptcy protection in 2012.
4. The Route (The Plan)
After we do understand the market, competition, our current status in the market, and our desired destination, it is time to put a detailed plan to reach this destination.
In the previous three steps, we demonstrated how we can seek guidance from strategy consultants. Consultants take no decisions. They cut it short and help you in reading the situation from different angles. Without the previous three steps decisions would be a sort of gambling. The difference between gambling and successful decision making is that a successful decision is based on data.
The difference between gambling and successful decision is that a successful decision is based on data.
This step (the route), and the next one (drive) are more of an executive nature. The consultant can give you recommendations. Yet, the actual planning and execution is your game. This is the time to make decisions, many decisions.
Actually the route will be composed of many micro-stops. You can think of micro-stops as quick wins or facilitators. For example, you will never be able to travel a long distance without passing by a gas station. A smart decision maker will craft a detailed plot of all micro-stops, will make B and, sometimes, C plans; additionally a smart decision maker will balance between focusing on arriving at the next micro-stop and reaching the final destination.
Decision maker should balance between focusing on the next micro-stop and the final destination
A great case study is for the Korean nerd Hyundai. When they decided to penetrate the Filipino market in the nineties. Based on data and research, Hyundai found that Filipinos value family ties, and the best way to start is to create a sustainable demand for the most important market segment in the Philippines; which was the Family segment. Hyundai invaded the market with Starex that became the favorite van until today in the Philippines.
After the great success in the first step (micro-stop), Hyundai decided to represent itself as a brand of quality. It started with Hyundai Innovation Technology Campaign (HIT) and included more fuel-efficient models such as Getz and Matrix, in addition to status cars such as Tucson, and Sonata Fe.
After the HIT step (micro-stop) Hyundai had the perception capacity to change the diesel engines' image,. Hyundai presented its CRDi (Common Rail Direct Injection) diesel engines that is much more fuel-efficient, with much less noise and high reliability.
In Q1 2019 Hyundai was in the 4th position in the Philippines next to the Japanese Gurus Toyota, Mitsubishi and Nissan, with more than 10% of vehicles sold in the Philippines.
5. Drive (Monitor and Control)
Congratulations! You will start your journey based on solid grounds. It is time to mobilize your middle management and the labor army to achieve what is planned. This is the time for hard-work. Be eager and motivate your labor.
It is essential to monitor the progress day by day to eliminate the lag between progress and progress-reporting. Here comes the role of modern EPM, Balance Scorecards systems, Dashboards …etc. Business support solutions are constructive in this phase. You need to track any potential risk to start your backup plans in time. In some industries; a one-minute delay might affect the whole corporate.
Business support solutions are very helpful in this phase. You need to track any potential risk to start your backup plans in time.
It is ok to change the route (the plan). In rare cases, it is ok to change the destination itself. Coca-Cola's initial destination was to be a cure for headaches and hangovers. Viagra's initial destination was to lower blood pressure and treat angina.
After completing this step, take time to analyze lessons learnt. Finally, stand up full of trust, be thankful for your teams, celebrate the success and then go for a long vacation to come back ready to build a new challenging strategy.