Planning Future Strategies with the aid of History
"Whoever wishes to foresee the future must consult the past" wrote Niccolò Machiavelli, the renaissance era Italian strategist. What does that mean for corporate strategists? Does this mean that one should conduct a historical study of the industry, of the company or of a particular strategic area where one wants to take a decision? There would be many who rubbish this. They would say what good is studying strategies that won yesterday's clients, markets and businesses worth in today's supersonic world of businesses. However, I would argue that for leaders and strategists to seize the zeitgeist, they need to take the effort to study the past. It is important to understand why certain strategies were adopted, actions taken and the business environment that prevailed when such decisions were taken. The glass for a crystal ball must come from the mirror that has seen the past.
As Albert Einstein famously declared "If I had only one hour to save the world, I would spend fifty-five minutes defining the problem, and only five minutes finding the solution." Taking a deep look at the past helps you see your problems in new perspectives and enable you to see the future more clearly. Consider the disaster of the global recession and collapse of some legendary institutions. Would mulling over the past have given them better vision as to what could be expected in the future? Lehman Brothers showed an accounting leverage of 30.7x in its last annual report - that of 2007. How could the best minds in finance be so stupid? Look back at history - Post the world war, American businesses were careful while taking risks. But in the 70s and 80s, the secret sauce to success was to leverage your business to the max. Just after the war, U.S financial sector owed $3bn in debt or ~1.35% of GDP. In 2009 this had risen to $15.6 trillion or 110% of GDP. Had the rear view mirror been consulted, corporate honchos would have realized that some sense had to prevail as they performed orgies of gluttony, swallowing all the debt they could raise. Growth had slowed, organizations were leveraged too high - the secret sauce was crying out loud for some fresh ingredients.
Cross industry learning by studying history is another important area that could be sized upon. Cola companies have in the recent past been blamed for the obesity related health disaster that America has been witnessing. Recent statistics reveal that 36% of the American adult population and 17% of American children are obese. Sugary drinks have been a contributor to this epidemic for which the country spends ~$190bn a year to treat. While strategizing to save their companies from such damaging public data, Pepsi and Coke could look at the history of how tobacco companies reacted to a similar, perhaps far more serious health effect that their products had in the earlier decades. Starting in the 50s reports emerged linking cigarettes to cancer. Cigarette companies vehemently fought these findings. But it was in the 80s and 90s that there was a barrage of class action as well as individual lawsuits and the companies were really made to pay. On the business front these companies started diversifying, acquiring companies in the food business including the acquisition of Nabisco by RJR Reynolds. It seems that cola companies have already taken some lessons from this and are strategizing to preemptively act so as to avoid the troubles tobacco companies faced. Pepsi for instance is investing in health foods and drinks. Both Coke and Pepsi have been researching ways of bringing down the fructose content in their beverage drinks and have massive ad budgets dedicated to show the 'angel' in them.
Future Strategies or what I would like to call 'futurgy' to future proof businesses have to be designed in such a way that they are able to withstand shifts in economy, technology and social or consumer trends. Studying companies that failed to do this or learning from companies that were successful in creating such strategies help do just those. Andrew Grove wrote one of the most respected management books, 'Only the Paranoid Survive' where he says that it is inevitable for old structures to be replaced by new ones and businesses should shove aside their complacency and use fear and paranoia to keep pace with these changes. By the way, another iconic brand has fallen - Readers Digest filed for chapter 11 in February. It filed because it failed to adapt to the digital consumer.