The Strategy Season blues: Crafting the strategy that is apt for your firm!!
Now is the time of the year when the corner offices of the top global firms are abuzz with the most important annual activity, which is to carve out the firm's strategy for the year ahead! The crucial days ahead will determine the fate of the firm in the next financial year as well as in the years to come. In this article I will attempt to summarize my views on the key elements that the top IT firms should keep in mind while crafting their respective strategies.
The pundits are expecting the global economy to rebound and this will mean more and more firms will unleash their expansion and growth plans which will result in an increase of IT spending both for the "Operational" aspects of IT as well as the "transformational" and "innovational" aspects of IT. The top IT firms need to be on their toes and leave no stone unturned to ensure that they grab the biggest portion of the IT pie.
The word "Strategy" in mind inevitably takes me to the seminal work done by Michael Porter in this area whose trilogy on "Competitive Strategy", "Competitive Advantage" and "Competitive Advantage of Nations" illustrates beautifully the various atomic elements of strategy and how their inter-linkages work cohesively in a successful firm. While Peter Drucker is no doubt the father of modern management, Porter was the one who built a comprehensive framework for crafting the strategy of a successful modern firm amidst face of competition and external socio-political and economic environments and his frameworks have withstood the test of time. This foundation was further reinforced by CK Prahalad by his work on "Core Competence" and in the later years made more structured thru' Kaplan's "Balanced Score Card" and "Strategy Maps"
In the lines below I will attempt to put together a series of thoughts and reflections which will serve as a guide to the executives who are engrossed with defining the corporate strategy for the successful firms of tomorrow:
1. Differentiating operational effectiveness from strategy: There are a series of activities which the IT firms do for conceptualizing, developing, marketing, selling and delivering their services or products to the end customers. Different firms have different levels of effectiveness in performing the activities and some firms are more operationally effective than their counterparts. This will allow them to deliver their offerings cheaper, better and faster. However Operational effectiveness is only a necessary and not a sufficient condition for long term sustainability. This gives only a transient 'comparative advantage' to the firm and not a sustainable 'competitive advantage'. Competitive advantage is about creating a unique and hard to replicate differentiation for the firm. This eventually becomes ingrained in the firm's systems, processes and culture as well and becomes the 'core competence' of the firm. The executives need to constantly keep asking themselves a question as to whether the firm's 'differentiators' are only transient comparative advantages that will die down with time or are competitive advantages that are hard to replicate, constantly evolving and are thus sustainable. Every element that comes up as a strategy needs to be looked at via the lens of longevity.
2. Using an optimal mix of qualitative and quantitative analysis: Most of the Strategy formulation exercises are "Excel" driven and have reams of "What If" scenarios and financial simulations for different data sets. A lot of emphasis is laid on the past historical data and mathematical analysis, the result of which is the crafting of a strategy that does not change the status quo much and does not capture things like 'intuition' and 'gut feel'. While I am not saying that strategy should be based on intuition, there certainly should be a good amount of weightage given to the qualitative aspects of strategy. There was an interesting article in HBR which talks about a '7 step approach' for making strategy a mix of art and science. Since it is not possible to take a risk based on gut feel alone, HBR suggests that each of the strategic options that are not backed by data must be taken thru' a rigorous validation and systematic expert evaluation process which eliminates the strategies that are not likely to succeed in the market and comes out with those that are likely to be having a higher success rate.
3. Creating synergies through successful acquisitions: The firm that wants to make an acquisition needs to be clear as to why they are making an acquisition. They need to understand what has made the firm that is being acquired successful in the first place. Is it the unique "competencies" that contributed to the success? Is it the "systems and processes" that have made the firm that is being acquired successful? Or it is the "all pervasive and distinct culture" that has made the firm successful? These three questions represent a maturity curve and based on the phase the firm being acquired is in, the firm that is acquiring needs to create a congenial structure and reporting relationships post the acquisition. The higher the maturity of the organization being acquired the better it is to allow that organization to operate independently as a subsidiary. On the other hand if the acquisition is being made purely for "competencies" then it makes sense to integrate the new firm with the existing firm and spread the mature "systems and processes" as well as "culture" to the firm being acquired.
4. Adopting the right strategic 'style' that suits the firm: There is no single way of defining a firm's strategy and the firm's strategy creation process should be aligned to various factors such as the nature of the firm's business and the nature of the firm's business environment. While a long term strategic planning works for some firms, it might be an utter failure for some other firms which are faced with a volatile and dynamic business environment and might require frequent interventions and tweaks to the firm's strategic direction. At this juncture it is good to differentiate a firm's vision and mission from strategy. While the firm's vision and mission are more long standing, the strategy can be at times very short lived. I chanced upon a great article on 'Your strategy needs a strategy' in HBR recently which defines the ground rules for classifying the firms into disparate buckets and formulating a framework on what kind of strategies are appropriate for different types of firms. It talks about two factors based on which a firm's strategy should be formulated: "Predictability" which is how far into the future can one forecast the firm's demand, corporate performance, competitors and market expectations. And "Malleability" which is the extent to which a firm or its competitors can influence the demand for their products. An IT services company has high predictability and low malleability and hence this is a situation where in the industry is predictable but the amount of influence an IT firm can exert on the industry is less. So the standard models of strategy formulation that one learns in a B School and such as the ones I mentioned above are fully applicable to an IT services firm. Hence IT service companies will do good to adopt a structured and long term approach to strategy formulation with enough safeguards embedded in the strategic framework that will allow the firm to adapt and change the course in the wake of environmental changes.
5. Making Strategy a part of the firm's DNA: A successful strategy is one that everyone in the corporation is able to articulate uniformly in one voice and not just confined to the board room. To 'realize' a strategy every employee of the firm should live, eat and breathe the strategic elements espoused by the firm's top management and every decision made by the firm's managers must be in complete alignment with the overall strategy of the firm. If the strategy is aligned with the firm's DNA then every employee will question themselves if the action being done by them is in alignment with the firm's strategy. A firm must develop a credo or a belief/value system which revolves around the strategic imperatives. This is one of the key elements that shape a firm's success. However the assumption is that the strategy itself is right in the first place!!!
6. Having NO strategy at all and just going by instincts: A good strategy for a firm can be not to have a strategy at all! Most of the Japanese companies that ruled the US market in the late 70's and early 80's had no clearly defined or articulated strategy and they did quite well based on attributes like agility and adapting quickly and tactically based on what they saw in the market. If the market is very uncertain and dynamic and when there is no visibility in the market then the best strategy is to take things as they come and adopt a more reactive and highly responsive approach to the market. However this must be supported by a highly effective and efficient 'execution' engine without which this approach will not succeed.
In summary, the strategy crafting exercise of the firm must revolve around the questions such as "Where do you want to go?", "How do you want to get there?", "What are the obstacles on the way and how do you overcome them?"
The CEO of the firm must provide the broad level direction and guidance to the firm's employees around the questions mentioned above and the board of directors must play a devil's advocate and keep prodding on the CEO with the questions "Are you sure you are not getting lost on your way?"
Happy 'strategizing' to all the readers!!